growth is an too cold and inflation is anything but hot. taking the pressure off the european central plank. -- bank. larry fink weighs in on a transatlantic split. continues to dominate foreign-exchange markets. prime minister may's election lead narrows. one projection points to a hung parliament. from new york city as we trade on the polls, good morning, good morning. this is "bloomberg daybreak." i am jonathan ferro alongside david westin. a warm welcome back to alix steel as well. futures are firmer on the margin of about .1%. treasury yields higher by a single basis point at 222 and the euro looking resilient even with a -- and inflation miss. x: at 8:30 exxon mobil will hold the new annual meeting.

at 10:00 a.m., us home sales for the month of april. 2:00 p.m. the fed releases the book ahead of jobs friday and 3:00 president trump welcomes the prime minister of vietnam to the white house with trade on the agenda. jonathan: it has been a choppy session for sterling. a projection in the times shows theresa may's conservative party may miss winning a can -- a conservative party and face a hung parliament. study based on a new model and showed her party falling short of the majority by 16 seats. joining us from london is an morass thomas. great to have you with us on the program. break down the new study and the methodology and whether we should take this with a huge dose of salt. in britain has been in crisis. they have the brexit referendum in the last general election

result. this study seeks to address some underlying problems in pulling. you can win a majority getting a majority of the popular vote so really elections are won and lost on 100 key constituencies. this poll tries to make a local approach. by hunting in on local areas, they have very small sample sizes in each constituency. there is room for error. they're are also saying this is not a prediction, it is a per direction. there is a range of seats and they also emphasize this is a snapshot today. this is what people are saying saying thatey are could change from now until polling day on june 28. is clear isat nothing is clear. a month ago we had a 20-point spread. what has changed in the last month fundamentally within the united kingdom that is really -- has really skewed the polls this

month? emma: i think the main thing has to be the proposal that may came out with on elderly care basically making old people pay for their care using save its -- savings until their assets are down to 100,000 pounds. that has been labeled a to mentor tax -- demented tax. badly.s gone down very of course we had the manchester bombing and during the -- while the campaigning was suspended after the bombing in manchester, polls were not published and that kind of made it hard to see exactly what has led to the change in the polling. jonathan: i thought we kind of had faith in the polls again after the french election. maybe not. emma ross-thomas, we really appreciate your time. thank you for joining us. in the fx market, sterling

initially rolled over in the asian part of the session and we snapped back a little bit almost 128anged on the day at point 34. joining us to discuss is megan greene. and jordan rochester. how are you thinking about this now? the polls come out and things get choppy and sterling is all over the place. jordan: last week we published a piece called "what if labor wins?" the first reaction i had from a colleague is that is great, jordan, it is like talking to me about what happens if aliens land on the moon. the market was not pricing in the possibility of polls tightening. we discussed faith in the polls after the french elections of the main thing is the polls can move. we look at the previous election and the last two weeks and just shy of two weeks now, you can blair lost 90% in the

polls and he was a favorite to win in 1997. there was enough of a percentage to worry theresa may and we are seeing switching from conservatives to labor. is if labor was to even get a chance of winning, it is a coalition. the interesting thing for markets is they are actually pro-single market access. stable leadership under theresa may is what the markets have become used to. the market might zone in on the fact this coalition is good for the pound. for me, i think the pound suffers in the selection because people are uncertain and we have seen in the past or an investor flows into the u.k. tend to slow in the last few weeks into the election. once we find out the result if it is tories or the labor coalition, it will be good for the pound. i would be vying for a dip around that time. yourhan: it dropped --

research dropped into my bloomberg email and i turned to a guest and they asked -- asked them about it and they laughed at me. it was the first piece of research in my inbox what does it mean for a jeremy corbyn win and they laughed at me and i go back to that because nobody was pricing in that scenario. you just said to some extent we are pricing in the tail risk. are we really pricing the tail risk at 120 830 -- 128.37? -- jordan: we are pricing in the very low probability of a tail risk. the weighted average of showsility -- probability an 80-seat majority. they are still pointing to 90-100 seat majority for theresa may. they are pricing maybe 10% probability about labor scenario. alix: the whole point of the snap election was to give theresa may a mandate going into brexit negotiations. is that totally now off the table? >> the whole point was for her

to increase her majority so that she would go in with a stronger hand. she might have a slightly weaker hand, but she is -- she has an incredibly we can't anyhow. what we should be looking at is what the e.u. want third that will not change whether it is corbyn or theresa may. i think it is interesting maybe the u.k. isn't looking for strong leadership, maybe they are looking for a character. if this is about character, you can see why jeremy corbyn has come ahead. some of theed reason we see a move in the polls is because of what the tories have put forward. labor put forward a manifesto that is economically bonkers. it does fundamentally offer something to -- something different. alix: what is the election actually about? megan: that's a great question and i think it depends on who you are asking. for a lot of people it is a vote

on brexit and for a lot of people i think politics are pretty local. for a lot of people it is about -- it is about their benefits and the dementia tax. alix: jonathan, what does your mom think the election is about? experiencingmom is some political fatigue. when they conducted these polls, there are people saying they will definitely vote when the vote comes around. how important will that actually be and those in the lower age bracket say they are going to vote and they also say they are going to vote labor. are they going to show up next week? jordan: i think the youth vote is interesting. they tend to disappoint anyone who has big hopes. if you take the polling support by age, anybody under the age of 50 is more likely to vote labor. conservatives control the upper end of the age bracket. in terms of what the election is being fought on, the u.k. cause is very interesting on the manifestoes. theresa may has a home run when it comes to brexit.

like megan talked about, it's not really about brexit. it's about the method polity -- policies. while it may be economically bonkers, it is all the anti-austerity and high spending on education really ranks highly so the free education for higher education and the university fees, that big promise from labor is one of the vote winners around the youth folks. david: one of the things we learn about polls is forget the actual numbers, direction really counts. donald trump was moving up in the polls while hillary clinton was moving down. the direction seems to be one direction over -- only and that is toward labor. it looks like they are really on the rise. what would it mean if they were even with the coalition to be able to try to implement their policies for labor? megan: i think it would mean increased spending. there would be renewed concerns about the u.k.'s fiscal house and it would mean a softer brexit, which some people might be in favor of and that is why

some are arguing that pound would rally at the back of this. david: explain that. why would it mean a softer brexit. if you are on the other side of the negotiation, why don't you toughen your stance because jeremy corbyn for the prime minister, you would really be a weak opponent. jordan: you have to remember the makeup of europe that tends to be the sentiment type cleaning type of government. it would be quite welcome if the e.u. had someone who was going to negotiate. he wasn't talking about walking away if they get a bad deal. it is that no deal is better than a bad deal and it really does frustrate a -- the europeans because they know it is a bluff. it is very unlikely that we have that cliff edge. deal possibly a better making opportunity for the e.u. when it comes to labor manifesto what is increasing as the word benefits. i am not talking about fiscal

benefits on the handouts, i am talking about the benefits of the single market. at the same time, they talk about controls in neighboring -- labor and migration. labor is not going to get majority. if they get the chance of being number 10, it will be the coalition of the s&p and amy out to rein back labor's assertion on -- work with then u.k. on that. alix: it can mean a stronger --jonathan: they could mean a stronger pound. if we wake up on june 9 with a hung parliament and the idea that may be prime minister may has to step down. talk to me about the initial reaction in sterling that day. jordan: it is going to be lower because you don't know with certainty who is going to form the next coalition. conservatives could even try the 1974 february election where you had a minority government in place until the next election in october. they could try to hold a ofority government -- sort

an agreement with the smaller parties to get through the months afterward so the markets won't like that uncertainty. the whole point of sterling rallying is the stronger hand for briggs it for theresa may. -- afterp, -- labour discussions in those rooms about what they're going to give up and what they're going to sacrifice to have a coalition, the market might get that good news. i think sterling will head lower on a hung parliament announcement and there will be opportunities to buy the dip. core: coming up, u.s. inflation slowed to the weakest annual pace since 2015. robert kaplan will join us on pathit means for the fed's to normalization and what he thinks about unwinding the balance sheet. that is lot -- at 8:00 a.m. with tom keene. this is bloomberg. ♪

♪ alix: got the growth but not the inflation. euro area inflation slowing then forecasted, slowing to 1.4%, the weakest level so far this year. particularly the look at the core, the white line. under 1%. joining us from london is david powell who also has a new report on his economic outlook for the region. it's a big report they put together looking through inflation and what it means for the ecb. what was your biggest take away on inflation question mark is the slow grind lower or is this a blip? david: the reading for may is really just a blip caused by transitory effects such as fuel prices and airfares. underlying inflation is probably unchanged in may and looking

ahead, which is what we try to do in the report over the next quarter and several quarters actually over the next two years, that underlying inflation is likely to accelerate slowly. you windthe same time, up having unemployment continuing to come down. 9.3%, the lowest since 2009. look at spain and germany, the rate entities to fall. what bind does that wind up placing the ecb in? david: the decline in unemployment is a reflection of the rapid speed of growth we are seeing right now, which is strong and ecb is happy with that and neville probably allow that ecb to talk about tapering. the real problem they are facing is the disconnect between the rapid pace of growth and the rate of inflation. that growth is not translating into faster inflation at this stage, even though the decline in unemployment as you pointed out would normally lead to higher wage growth and therefore

higher inflation. that is not happening. the importanty is word in that sentence. when you look at what mario draghi had to say, he really sent a message to the markets, we really aren't so sure about this growth. we need to continue to support these markets. our economist becoming concerned the models are out of date and something else is going on they don't fully understand? david: the link between growth and the recovery which is symbolized by the decline and inflation -- in unemployment is not leading to higher wage growth which we would normally expect. in particular if you look at a country like germany, germany has had full employment for a long time in the rate of unemployment is what we call the non-accelerating inflation rate of unemployment meaning that inflation should be getting -- seeing a bit of signs of life, but it is not. there is a disconnect even in the healthiest economy in the euro area at this stage. david: megan, how do you sort of this? why is there a disconnect?

megan: i think it's because you have countries in the larger globe. it is actually taking some upper pressure off wage growth and therefore off of inflation. it something we see in every developed market, not just the euro area. it is also plaguing us in the u.s. is also a lot of capacity left across europe, the likes of the spain -- growth is good and output has been fine, but look at the unemployment rate. isn't that the story in europe when you set it up against the united states? jordan: we got the unemployment gap closing in, so it what explain high inflation to come. we do believe you have enough inflation to encourage the ecb to tighten policy. we have to think -- to think of it more long-term that just the last few months. i remember the rise -- talking about the rise of robots and ai and how that diminishes the ability for labor cost to lead to inflation. i think whilst we talk about the euro gap closing, look at the

u.k. -- all the way from 5% in unemployment and it hasn't really picked up, nor has wages. europe may be thinking it is possible as well. wages is the main point to think about this -- if this inflation will be sustained. looking at the situation for the ecb, they just got bailed out and the data for next week sent -- shows the pressure is off. david: risk is too high. there's that -- not that much pressure that has been reduced because the next change that is likely to come next week would be the wording surrounding the risks to the growth outlook as being changed from a downside to balance and that probably still can be changed, it is a small step toward the exit and the improvement and growth does merit some change. that will probably be the discussion of the governing council faces next week. alix: investors look at this and

say we are not going to believe you and we will expect rate hikes. yesterday it was not only companies that would start investing in europe. investingel under where as europe we have a high degree of certainty in the core component in europe that will lead to more investing. fast as thegrow as u.s. if not faster this year. that that ceosy will start moving money in as investors are, too? megan: i don't really buy that. i think europe is experiencing the same thing the u.s. is, this big bifurcation because -- between hard and soft data. if you look at production in the euro area, it has actually contracted. schism,as there is that see investors making

long-term investment plans or consumers making plans on the basis of better confidence or survey data. alix: what were they have to do to see that? see investors making long-term investment plans or consumers makingyou mentioned st other data like unemployment is holding up and some area services are doing well. what would they have to see to echo the movement we have seen an investor money? megan: i think you would have to see hard data coming in. not just confidence about how things will be going in manufacturing and services, but you would have to see manufacturing expanding and services expanding. until we see that, i don't think investors will pile in in the way a lot of people would like. alix: coldwater doused on there, those investors in europe. thank you so much, megan greene and jordan rochester. both of you are sticking with us. coming up, stephen schork will oil andon the latest on opec. we will discuss what is next. this is bloomberg. ♪

emma: deutsche bank will pay 40

$1 million to settle a federal reserve money laundering investigation. the fed claims the bank's u.s. operations failed to maintain adequate protections against illicit trades. regulators say the case involved billions of dollars and potentially suspicious transactions. an executive at uber has lost both his job and the potential $250 million payday. the ride hailing company says they fired anthony because he failed to comply in an investigation from the alleged theft of the google self driving project where he used to work. according to an uber index it up -- executive, he forfeited his stock grant. the 15,000 financial advisors are -- and morgan stanley will get some help at cyborg. they will send reminders when a client's birthday is coming up. the thinking is humans with algorithmic assistants will be a

better solution for wealthy clients. that is your bloomberg business flash. alix: thank you so much. u.s. equity futures are relatively flat. in the u.k., miners are getting hit. part of the reason is iron or trading in china at $57 a ton. that is painful for some lower grade miners. the lobe of the great the higher prices you need. a few weeks ago and month ago we were talking about $80 a ton and now $57. on the upside in the premarket over 1%. up by reports indicate the company could be trying to forward a sale of the generic unit that could bring in $2 billion. , they say $2de billion would be about 7% to 10% diluted earnings. michael kors down in premarket.

the retail slam continues. disney earnings by three cents first quarter calm sales lost a $.57 on theollars high end. revenue down here on year 11%. it was just a horrible few months for retailers and now it is all about the trickle-down. what about banks that have loans? what about the retail space? jonathan: i need a cyborg assistant to go shopping. on friday, let's get the payroll. a great lineup of guest reacting to the payroll report including mohamed el-erian, rick rieder, and bill gross. from new york city counting you down to payrolls, you are watching bloomberg tv. ♪

♪ alix: from new york city --jonathan: from new york city, you are watching "bloomberg daybreak." i am jonathan ferro. i imagine -- marginal slide yesterday following 20 straight

record highs or something throughout 2017. if you switch of the board quickly, go to sterling. one projection showing a hung parliament in the u.k. election and another showing a 15 point lead for the tories. that means cable goes nowhere. --lds higher and treasuries 222 -- 2.22 on the 10 year. here is emma chandra. emma: it is the worst attack in kabul since last summer. a massive car bomb exploded today. as many as 80 people were killed and 350 more winded. no one has claimed responsibility. afghan forces are stuck in a stalemate with the taliban and the attacksstate -- there recently. the pentagon is claiming since -- success. an interceptor was fired in

california and destroyed a mock intercontinental ballistic missile. it's the first test in three years. it has taken on more urgency with north korea ramping up a missile testing. president trump's personal lawyer will refuse to cooperate with congressional investigations into russian meddling. cohenl: told -- michael told the new york times -- global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. david: thank you so much. just about everyone expects the fed to raise rates in the june meeting with the wirp function on the bloomberg showing the likelihood at more than 90%. the question is what happens after that with some people beginning to ask whether the current -- predicted three hikes will be justified by growth and inflation numbers. one of those peoples as -- one of the people asking the question sits on the fmsc.

>> i see tension between signs the economy is in the neighborhood of full employment and signs the tentative progress on inflation may be slowing. if that tension between the progress on unemployment and the lack of progress on inflation persists, it may lead me to reassess the expected path of policy in the future although it is premature to make that call today. david: still with us are megan greene and jordan rochester. a us now is brian jacobsen. he is chief portfolio strategist with wells fargo funds. welcome to the program. good to have you here. address this tension talked about between what she calls the neighborhood of four employment on one hand and perhaps slowing inflation. how do you reconcile the -- reconcile those? economists point to a phillips curve, but even

the new zealand economist who came up with a phillips curve admitted that perhaps the phillips curve was unique to a particular period in time in history. i think just a model of a phillips curve doesn't work. you can have a full employment and relatively low inflation. it all depends on what is happening as far as efficiency -- gains in manufacturing. we have seen durable goods inflation. that is not necessarily a bad thing. david: we haven't seen productivity gains. not particularly. it is reminiscent of the late 1980's when they said the computer revolution was showing up everywhere except the data. perhaps we are seeing something similar. david: if there were efficiency gains wouldn't that show up in productivity? brian: it should. when you are looking at productivity it is the overall business sector which is moving more toward services. when you look at durable goods, we actually have seen declines in prices. david: megan, how to use square these two apparent tensions? megan: i think you are right.

i think we basically have to rip up the old rules and i think the fed in particular is reticent to do that. most economic rules are written on the fundamental assumption that we have scarcity of things and i just don't think we have a scarcity of a lot of things these days, including labor. that is mainly the result of urbanization and industrialization of china. it is also india and sub-saharan africa. this trend is really going anywhere. david: so you think it is global competition? competing with chinese and indian workers? megan: that is right and companies do not have to worry withgher with -- hire international borders. david: that --alix: that makes it very hard to be a dollar bill right now. i agree with that. probably not because of the angle but because of other central banks. ecb, for example. and other such central banks

talking about removing unconventional. when it talk -- when we talk about megan was talking about, when it comes to low inflation, part of that is china and emerging markets coming in. low inflation of say 2004 or example, that was the inclusion of china building case and that was on the good side. when it comes to services they could be forever low inflation as you have a lot of this labor and emerging markets able to tap into markets such as developed markets just by the internet and by labor sharing and working abroad. this is the trend seems to be setting up pace and the phillips curve is quite flat. what that might do for the fed and central banks in general in developed markets is it does bring a question of credibility as to their control over inflation. global factors are involved all the time. jonathan: what strikes me as quite clear is we have a dove on the federal reserve navigating what she has called different signals between core inflation -- to maintain a tight monetary

policy and high interest rates. that is significant, isn't it? megan: i thought there was something congruent in her market that there are real concerns inflation is growing and not coming in like the fed would like to see and they would like to continue on the rate path set out. there is something that is not quite wash out in that argument and she mentioned several times that she might need to actually viewsad and revise her and maybe that is what she is hinting at is to try to reconcile this. jonathan: jordan, what does that mean for you? jordan: it tells me they are going to hike in a couple weeks at the june meeting. there will be a dovish hike and there is a risk it might be lowered if -- it doesn't mean and fed moves the market suddenly gets bullish on the dollar. i think the trend continues of euro-dollar going higher. ecb policy it -- will be more important. andd: if megan is right jordan understands as well, part of what is keeping done inflation is international

competition, is donald trump right if his goal is to get wages up in the united states, is international competition interfering with the goal? brian: in a way it is, but you have to think about it in real versus nominal terms and it is difficult for people to draw a distinction between the two. as far as real wage gains, you have seen stagnation after the last decade, but we are seeing real wage gains. wages are up your on your about 2.4%. those are still real wage gains. you can have declining prices as long as wages are not declining commensurately with it. you can have an improvement in real wages. i think that the global competition is not going to go away. you cannot put the genie back in the bottle. jonathan: who cares about real wage growth question mark serious question. does anyone? brian: i think economists definitely care because most of the model depend upon real versus nominal debt distinction and a lot of people suffer from money illusion. there is -- nominal numbers are

important and let's face it, that is what you see. if you get a 3% raise you think it is because you are a good person and done good work, not because the general price level has gone up. jonathan: that's the story. you want 5%, you just don't care if inflation is at 10% you just want a pay wage. alix: i got 1% when i was 23 and i was like "yeah." jonathan: that is why nominal matters more than real. brian: it matters with debt as well as far as the ability to service debt. if you have declining prices you think about william jennings bryan saying people should not be crucified on a cross of gold because you had declining commodity prices which is that for farmers who are heavily indebted. it matters especially for debt. prices are going up by 10% and you get a 1% -- thanks a lot, that is nothing. if inflation is at zero, a 1% boost -- you feel that in your pocket.

jonathan: that example is for the sake of an argument. 50 basis growth is points, 100 basis points will not make a difference to anybody. they want to see nominal wage growth to give than the confidence to go out and support spending. megan greene and jordan rochester, thank you very much. ryan jacobsen will be sticking with us. coming up, robert kaplan will be talking to bloomberg's tom keene. we will bring you some of that interview a little bit later. you are watching bloomberg. ♪

♪ emma: this is "bloomberg daybreak." the 9:00 a.m. hour, adam jonas head of auto research at morgan stanley. stay with us. ♪

this is bloomberg. i am david westin. one of the points of contention during the g-7 summit was climate change and whether the united states would adhere to the paris accords. -- is saying the president made a decision and he is going to withdraw from the paris climate accord according to ask deals. let's turn -- according to axios. that you to kevin and hear what is hearinge what he out of washington. tevin coleman president trump is going to -- kevin: president trump is going to withdraw from the paris accord. he had tweeted he is going to formally announce a decision this week. so far, nobody else has been able to match that. we will wait and see where that goes. when you take a broader step act -- back just about the at ministration has responded in the wake of the first international trip particularly with this new op-ed in the wall

street journal from general mcmaster and gary cohen expecting they go it alone. america first strategy does not mean go it alone. nearly they are trying to perhaps send a more realistic signal to ease people like german chancellor angela merkel, withdrawing from the paris climate agreement, not probably going to ease any concerns on the european counterparts. david: general mcmaster as well op-edy cohn wrote that saying it doesn't mean we are going alone, but when it comes to the paris climate accords even in the communique it said we all agree with the united states doesn't. if the president follows through reporting, itis will be the united states going alone, won't it? kevin: i'll -- i am also hearing from my sources on capitol hill and reports yesterday that the president is taking a look at the cuba executive orders from the obama administration. when you look at the broader trend of the communique of the g7 in which immigration like which was inserted in which the

administration viewed as a victory and you look at the paris climate accord and the president relook in cuba tourism and business executive orders of the previous administration, it does very much seem like a nationalistic foreign-policy agenda at the moment. david: gary cohn said the president was listening carefully on climate change. he may have been listening, maybe he wasn't show persuaded. kevin: not so much. david: it's not just the president of the united states spending time on climate change. exxon will hold the animal shareholders meeting and one of the items on the agenda is the shareholder initiative asked him the company to report the environmental cost. here to talk about that is john letterman. welcome to the program. good to have you here. let's get reaction to this breaking news, report from axios that the president made his decision. what are the ramifications of that if true? >> climate change is real and it

is a terrible risk management nightmare. we are not addressing it and this is extinct -- insane. the problem is the world has to move together. we don't have adequate global governance to do that and the u.n. is trying, but has taken very small steps so far. for the u.s. to say we're going to step back, it makes no sense. this is a real nightmare. this is an absolute problem. we don't know what is coming. uncertainty is unbelievable here. david: take us into the structure of the paris accords. if the u.s. withdrawals, might that affect other countries's commitment? bob: u.s. stepping back does not help. this movement to a low carbon economy is not going away. it is happening and hopefully happening fast enough. nobody knows that for sure. that leads us to what is happening for exxon. whether or not we pull out of the accords for the paris

agreement, it doesn't matter unless companies change what they are doing. shell and bp have been pregnant -- front and center dealing with that. 90 shareholders doesn't seem like that much. did i have a chance to move the needle here. bob: i think there is a good chance shareholders will have a majority voting against management and in favor of actually reporting on -- honestly about climate change and climate change means we have very limited -- limited capacity to safely absorb emissions. when i say safely, already there is tremendous damage is coming at us. we just don't know how much. to continue to waste whatever capacity there is left in the atmosphere to absorb emissions is just crazy. we are not want to do that. we are moving to a low carbon economy. we're going to price in missions and the question is when and how soon and will it be soon enough? the other question that

shareholders we are not want to. have is what is it mean for fuel companies? it means there will not be as much demand for oil in the future and that means there will be a glut of oil that will continue and there will be plenty of low-cost oil out of the middle east and fracking and so on so companies like exxon and trevor on -- chevron that specialized in long range sources of oil, deep-sea drilling, arctic exploration, this is bad news for them. they are in a tough environment. gas, clean and natural there are debates on clean that is long-term -- xto.did wind up buying what is it specifically a company would have to do aside from buying a cleaner source of fuel asset? bob: that is what they should do. they should pick it toward business that will make money in a low carbon economy. in an economy constrained by its o2 into thedump c

atmosphere. david: are you arguing that for exxon it would be in their best interest to shift their patterns without regard to what happens to the world? woulder words, for exxon, they make money over the medium and long-term term if they adapted a more climate friendly approach? bob: they certainly have to admit that we are moving to a low carbon economy and that may affect their ability to make profits from expensive sources of fuel. that is what they have to do. so, yes, they should pivot toward cheaper sources of fuel which i suppose they would like to do. shareholders would like to know what is their business plan? what do they see as the price of energy of oil and what do they expect to see in terms of pricing omissions? -- emissions? david: chief executive endboards 10 to be rational creatures. if you are right, white are they agree -- why aren't they agreeing? what do they see that you don't.

constraint ons their ability to explore and produce expensive sources of oil will be a constraint on their ability to make profit. decades, 4 -- for tried to postpone pricing of omissions -- emissions. they refer to a report, energy and carbon: managing the risk -- that they wrote before the paris accords saying it will be incredibly expensive to move to a low carbon economy and that is why governments are not going to do it. that report has been questioned by the m.i.t. economist who produced a the reporting was based on. exxon was not trying to be honest with its shareholders or the public. they were trying to pretend that we are not going to move to a low carbon economy or it is not going to happen soon enough to affect their business. it is happening. it is going to affect their business and they should be honest with shareholders about that. alix: shareholders overruling management, at some point they can gain traction. thank you so much, bob

litterman. if you have a bloomberg terminal, check out tv bank -- tv on your terminal. you can ask a question and we will do our best to do so in the segment. this is bloomberg. ♪

♪ alix: blackrock sete --jonathan: blackrock ceo spoke saying he felt markets were fairly priced and expected second-quarter to be disappointing's in terms of earnings and growth -- disappointing in terms of earnings and growth. take a listen. >> we are training at pretty high pe relative level parts of the world and depending on the agenda,of the trump will probably determine the equity market for the remainder of the year. jonathan: still with us is brian jacobsen. the story quite nuanced because we can have an investor think --

an investor sitting here and there and tell us it is not dependent on the trump agenda. but to larry fink, it is. where do you stand? brian: i think it is partially dependent on the trump addenda so i guess i will sit uncomfortably on the middle of the fence to read i think the market rally has been driven by three forces, the central banks are still broadly accommodative. european central bank is doing asset purchases and the fed will take a low and slow event -- approach to hiking rates. also, you have the outlook for regulatory and tax reforms supporting u.s. equities in general. at this point, if larry fink says the market is fully priced, i think this is a bit like fed speak as far as fairly priced, fully priced, what does it mean? fully priced i think it means the risk is to the downside and i view it as a little more to the downside may be in the u.s., especially small caps that seem

to be dependent on tax reform. outside the united states that is when i think maybe things are fairly priced, but maybe slightly less than fairly priced. jonathan: let's think about consensus trade at the start of the year. longer dollar, short treasury. what is more dependent on the trump agenda? brian: i think stocks are dependent on the trump agenda at least small-cap stocks -- stocks because they tend to be the higher tax ones and if you look at the pe expansion from election day until the present, i think you can tie a bit of that to the improvement in the earnings outlook. a good chunk of it, at least a third is probably due to the prospect for tax reform. if that gets punted or water down, i think you could have perhaps a slight drift lower. if you look at emerging markets, i think those are actually -- some have been positively affected because when trump was elected you saw the peso selling off and emerging-market -- assets selling off.

it looks like maybe he will not be able to push forward with his protectionist policy. record be a good thing. alix: it -- is that is what we see so many tech companies reaching record highs because they have nothing to do with trump? brian: it could be. wasl the point -- he inaugurated, they were lagging because they are the multinationals dependent upon a lot of immigrant labor selling into foreign countries. in a way, they are beneficiaries of this setback. that is why it pays to diversify. you got some small caps and large caps that are tech oriented and somewhat diversified against policy changes. david: take the other side of question, some saying it is time to buy the sector of equities on the chance that trump will come through, what would you buy? brian: if you think he is going to come through i would say small caps in the united states are probably the most highly leveraged. if you look for the companies that are the most highly taxed,

probably energy will be a beneficiary, probably small-cap isrgy because u.s. energy profitable at lower price points. smaller cap stocks were beaten down the most. i would say that is probably the way to do it and it is almost as with -- as if we went from high hopes to low expectations pretty the here in the makeup -- in the markets. brian jacobsen, thank you for joining us. coming up, robert kaplan is -- is the autopilot switch over the federal reserve about to get switched and if it is, maybe it will not be by this guy. we discussed with him the future of the federal reserve monetary policy through 2017 and beyond. you are watching bloomberg. ♪

♪ jonathan: growth is not too cold and inflation is anything but

too hot. a goldilocks recovery in the europe. arry fink weighs in on transatlantic split. d.c. uncertainty is hurting the u.s. outlook and politics dominates foreign-exchange markets. one projection points to a hung parliament. good morning, good morning. this is bloomberg daybreak. alongsidehan ferro david westin and alix steel. 5.2 after aup marginal retreat -- up .2 after a marginal retreat yesterday. 222 -- 2.22 u.s. 10 year yield. alix: 8:30, exxon mobil is holding its annual meeting and a new ceo will face off with shareholders on how the company can succeed under tired i'm a change rules.

later today, home sales for april -- under tired rules. later today, home sales in april. later, president trump welcomes the prime minister of vietnam. david: right now in new york city, our very own tom keene. we will be monitoring fat and bring you anything worthy of note. jonathan: that is coming up later. the u.k., the election outlook slightly muddied as a projection conducted and published in the times of london shows theresa may's party may miss winning the majority and face a hung parliaments. they're rushing through spring the nuances of the projection, advising city traders they are taking the report with a grain of salt and read reading it is a snapshot based on data from the past seven days. joining us now in london is our bureau chief over there. emma, when is a poll not a poll?

projection -- it is a new way of trying to look at what the outcome of the election will be. u.k. pulling is in crisis -- polling is in crisis to some extent, so this model is seat by seat, but it also has its own drawbacks, which is some of the samples in the individual constituencies are small, so they say that produces margin for error. a rejectiong it is and it reflects a people are saying today and it could change -- reflection and reflects what people are saying today and could change. jonathan: what strikes me about the u.k. polls is it is just the spread. we had a poll this morning with a 15 point lead to the

conservative party. i can pick out another with a five-point lead. they seem to be all over the place. emma: the panel-based poll you are siding was carried out may 19 to 23rd. that was a long time ago. it was only published today, so that is important to note very at all so -- to notes. also, you can win it parliamentary majority without getting the majority of the popular vote. that means national polling isn't the best indication of what will happen because elections is in 100 key constituencies or seats. jonathan: i am, we appreciate -- emma, we appreciate it. joining us now, head of fx strategies in north america and chief economist. how are you making sense of trading politics now, in general? >> i think the market will get nervous as you get close to the

election. we think the big short position the market have after brexit has been erased, so the market has been flat, has moved on to move on to focus on cyclical data. now, as politics come back to the forefront as a source of uncertainty, sterling could be vulnerable versus the u.s. dollar. jonathan: and it is now, it is coming back in a big way. how do you make sense of that with the election vote next week? do you add shorts, what is the trade? >> we have been thinking sterling is to high versus the u.s. dollar, reflecting mainly on the dollar not doing well. this could be the right time to start adding protection for sterling to lose ground versus sterling is already week, so there is a lot of room for upside. alix: what is the election next week actually about and what are people voting for? >> generally, they are voting for the status quo in the u.k..

alix: i am having some microphone issues, but is it security, brexit, the manifesto, what is it? is looming large and maybe it is a referendum on the way the brexit process has been handled. we will not take huge conclusions from this in fx market. we will move back and start focusing on cyclical news from the u.k. and that is the place to focus. there was a quote this morning -- the big losers in fx this month, the real in brazil and sterling, and the importance overstated. not be perhaps that should not surprise anyone when the economic backdrop is relatively dull. why is it dominated markets so much? is it unusual compared to the

past? >> risk appetite is healthy and there's an appetite for yield, so people are looking for good stories and there are bottom-up issues that keep popping up. emerging markets moves from one market to the next, or one local news story was up trade. in the u.k., the market has said we are past the worst of the brexit uncertainty and we will look at the pound as currency with an economy that has little excess capacity, where the monetary capacity to move in the pound's favor and then you have local news catching people off guard. i think that is what is happening. alix: volatility across asset classes has been so low. .t will be helpful >> we are looking for things to talk about right now. alix: we have three hours of time to vote every morning, the field you. >> this election is not going to overturn brexit or anything like

that. it isn't such a big deal. different results in different polls, but you have a widely. if the widely expected result is different, we will get market noise, fx moves, but people expected a major economic change and you had brexit and did not really get it. you just had an fx move. and then you expected and economic changes the u.s. election and you did not get it, so the result is pretty good global, u.s. growth and lots of central bank participation. we are left looking for a crisis to talk about. there isn't one now. we will see what happens next. david: if there isn't one crisis, we were not talk about it anymore. tell us what will make a difference? where is the signal and what would drive business investment success, making money in the markets? inif this environment purses the core -- persists in the

quarters ahead, this will be in environment people are comfortable investing. i think it is a myth, but in the u.s. case, you need a big stimulus for people to invest. the unemployment rate is falling, they will spend, businesses will invest. it will not be a gigantic boom, are talking crises, the investors are asking questions like, what about china? is china the next catastrophe? can brexit be unwound? grindality is there is a higher because the economics are delivering that. david: you were talking about gdp growth? and am talking about u.s. global growth. you have decent, low volatility growing world then u.s. economy -- world and u.s. economy, good economic data out of europe and low, stable inflation, so this isn't a bad time for investing. it canbreak it down, if be broken down, what about in the u k and europe?

>> in england, things are different because there is uncertainty and you do not really know how the negotiations on brexit logo. you may be losing some investments. boom,was a housing construction boom in recent years and that could reverse. in the euro area, we are seeing investment pick up across countries. bank credit is growing. fiscal tightening is sort of over and the unemployment rate is falling 80 basis points effectively in a straight line the year. europe basically has a lot of tailwinds right now. in a period for inflation does not look like it will hit that 2% target anytime soon, which means you may get some tweaks to monetary policy, but nobody is going to remove the punch. and quickly and/or leak annoyed that can upset -- the punch bowl quickly or in a way that could upset anyone. alix: both of you are sticking

with us. robert kaplan speaking on the council on foreign relations in new york today with tom, already saying inflation is slow but does not think the trend is deteriorating. he is answering a question about ford guidance. >> -- but forward guidance. >> that is referred to as the dot plots but that gives you a seal every quarter on what each of us is thinking about and the views, there is a scattered chart but they tend to congeal around -- tom: where is the vector now and what will we see in the future? i know you are filling your form not away from reagan -- form out away from again, but is it a valuable tool? what will it show us in months? >> as someone observing the fed for 30 years now, i think it is very useful because it gives me a pretty good idea about what

every participant around that table is thinking and when there are differences, it gives us different bases. my own view has been gdp growth this year. it would be between 2% and 2.25%. now i think it will decline further as you get to the end of the year. it is not the only employment measure i look at. i look at something which does not go on their dot plots. my own view is inflation will slowly but gradually over the next two years or three years get to 2%. tom: within your wonderful books on leadership, there is confidence, one of the greatness ,ysteries in your district where is the confidence to report? is it because the people that you used to talk to at hbs

cannot figure out where the risk-free rate is because the distortion is so great? >> business confidence now is high. there is a lot of business optimism and business investment a stronger this year. the issue is that is great and it can help gdp growth, but 70% approximately, 60% to 70% of the economy is the consumer. at the end of the day, businesses are more optimistic percent vote reasons. ultimately, everyone is watching the consumer. the consumers the primary driver of gdp growth. increased business investment helps and businesses now are optimistic. do -- the disconnect is wild the more optimistic, when you ask a business leader, do you see improvement in your business? often times the answer is, we are expecting it but not yet. throughthey have to go

a duration coming out of the financial crisis or is there a new format of globalization, where american business is waiting to pull the trigger on this belgian investment we remember -- on the nostalgic investment we remember? >> i think some business leaders are hopeful>> this: other policies will help improve gdp growth. -- hopeful fiscal and other policies will help improve gdp growth. i do not think edwins are going -- i do not think headwinds are going away. gdp ish growth from increasing disruption in new business models and they are displacing old ones, which are giving many business leaders pause, even though they want to invest in their business, they are not sure the model they are investing in will be sustainable. that is a countervailing headwind, which is putting down the optimism.

tom: so you have to give a lecture to business schools and some wiseguy stands up in the back and goes, excuse me, do you believe in gdp? that is the belief now, that these traditional models do not work. how do you respond to the young's direct texas a&m -- to the youngster at texas a&m? >> gdp growth still is not asfect but it is pretty good a measure of economic activity. there is an issue people race about transfer pricing. apple makes a phone here that manufactures it overseas. i do think gdp growth is a good measure. the debate has been about the an employment rate. the mis-play, many people have -- famously, many people have said 4% is a great number but it isn't real. i would like to go to u6. here is what it is, u3 is the headline unemployment rates.

plus unemployed, discouraged workers, plus people who are working part-time in a better economy who would rather work full-time. i think that is a better measure of slack. that is at 8.6% now. here is the problem, the pre-recession low in that number was 8.1%. we are gradually moving toward the prerecession low. in the 160 million person economy, the difference between them is it is less than one million workers. well there is slack, there's not as much as people might think. here's the second problem, where there is slack, it is highly correlated to lower levels of and notn, i.e. college college. the dissipation and unemployment rates if you finish college are pretty high. -- participation and

unemployment rates if you finish college are pretty high. if you went to high school, they are lower. if you have some high school education, they're much lower. where there is slack and discouraged workers, there is a high correlation between high school and less than high school . that is why there are a number of things we will need to do. jonathan: that was dallas president of the federal reserve 'robert kaplan speaking to bloombergs tom keene. -- federal reserve robert kaplan speaking to bloomberg's tom keene. coming up friday, a great lineup of guests to reaction of u.s. payroll reports. friday withng up on the countdown to payrolls. from new york, you are watching bloomberg tv. ♪

alix: you have dallas fed president robert kaplan taking the spotlight with tom keene in new york. recent headlines, n saying there is not that much left in the labor market but he sees global overcapacity creates a headwind for inflation, but inflation will rise slowly at 2% over the next years. with us is james sweeney and david katzen. where do you see slack right now and where is it most, james? james: there are two sources of slack. neither of them are really slack in the sense were slack means potential to restrain inflation, even when the economy is going well. one is the have an older population and it basically is baby boomers started turning 65 in 2010. if you adjust things like the

ratio of total employment to the population size and the aging of the population, we are back at the levels of the last cycle, 2005-2006 cap levels. that would suggest you would not expect inflation not to respond to wages. the other source is more what mr. kaplan was talking about, which is workers with less education, a lot of them have sort of moved aside and you see social problems and people who are disengaged with the labor market or the labor market is disengaged with them. if you think there are older workers who are unlikely to keep working as a higher fraction of the population and you think there is a set of workers, who for various social reasons, and maybe the have been underemployed for a long time, are not likely to come back, there may not be bench -- there

may not be much slack. alix: you wind up having low income earners getting into the orce and baby boomers replace them. that's not something the fed can fix. >> burress in effects, it is about comparisons -- i know. for us in fx, it is about comparisons. world where a growth is good, we are above trend with central bank, they will be in the position to take away pressures first. it will be the fed and other banks are far behind. and the ecb president say we have a lot of unused capacity many to absorb before we reduce accommodation. the us, that is the crux of the argument for the dollar to do ok the next six months to 12 months. david: if you stay with fx and do comparison, japan-u.s.-euro

and the gets lot, that does not explain what you see in the fx market. as younot recently, but move forward, if the market is mispriced in something, it is probably underpricing the fed because there's not much slack in the u.s. and then you have the ecb, where the market is probably overly fixated in the change of language. the ecb saying things like less concerned they might have to do more, but the faraway of reducing accommodation, where the fed was in 2013 when bernanke talked about tapering, so a long time before the dollar was able to do well. david: james, where do you see inflation picking up in the united states? if we really are about to run out of excess capacity in the labor market, when do as he inflation pick up? james: rages -- wages are rising. someone wrote a paper a few years ago, saying that the best

inflation forecast is looking at people -- looking at all the bottom up, good specific priced data and have an inflation forecast for now and guess a reasonable number for the future at 2% and drop a straight line. it is difficult to outperform that straight forecast, even the most sophisticated. the thing that concerns me, as you heard from kaplan, we expect inflation to about the overtime toward this 2% number. almost everyone in the world has this mean aversion to the same number in their models. if they are wrong, mark's will have a big problem. it is down the road, so we are not forecasting a major shoot above 2% anytime soon. if everyone is wrong, it is the single most important ring and markets, even if you are wrong by 50 basis points. if core inflation shoots higher

than 50 basis points, the market would have to reset very, very wimpy tightening path. all the statements about the neutral rate being so low would have to be reassessed. look at the inflation data bottom-up and forecasting the next five minutes, you do not see it in prices. violent: let's explore moves. what does that look like? james: it means we do not know who the fed leadership will be, but based on the past, you would expect them to be responsive to any upside surprises in inflation. of course, the opposite of what you have seen recently. a response says two-year yields rise is a lot, and a sharp response by the fed means the market we prices funding basically gets tighter and

perhaps you see tightening of the yield curve. if the next fed leadership, on the other hand, does not care much about a 50 basis point overshoot in inflation, then short-term rates are low, longer-term rates go hot, and maybe that is rapid fuel for equities and assets that do not have a fixed payment string. it is fixed volatility and that fear is not in the markets. everybody agreed, there will be no inflation and we will look cautiously 2% in the fed will move slowly higher and this famous neutral rate, which everyone is precise about, is low. i think history suggests precaution. alix: doesn't this speak to her --ryone has undershooting everyone has been undershooting? the phillips curve empirically has been flat for 20 years, which means that falling unemployment or high-growth has not been associated with higher

inflation later. things that were precursors to inflation before the 1990's have not been in the last 25 years, so the question is, could you actually get to that old regime? could that come back? economy look at an posted for employment, you have to at least say the probability of that old regime coming back has gone up, and i do not see that in where markets are now. jonathan: james sweeney and david katzive will be sticking with us. coming up later, a man who was probably not rushing to raise basis rates. that guy coming up later. ♪

jonathan: from new york city, you are watching bloomberg daybreak. i am jonathan ferro. have a look at futures, up 41 points on the dow.

up five points six points on the s&p 500, colic .25 -- call it .25. this morning, a little bit firmer on the margin. elsewhere, treasuries and yields up basis points. somewhere, foreign-exchange with they --ee -- what higher off of the back of a poll, indicating a lead for the conservative party, but it was two weeks ago. david, i feel sorry for these guys who have to trade on this. david: the margin for error is pretty big. jonathan: the countdown to elections. you want to follow what the fed is up to, follow this interview. it is dallas fed president taking the spotlight, speaking at the council of foreign relations in new york, with

bloomberg's tom keene. you can follow that on live go. let's get you up to speed on the headlines. emma: there is a report president trump has decided to withdraw the u.s. from the paris climate accord. it comes from a political website, which was started by two of the cofounders of politico. they say it was worked out by a team that includes head of the epa. bombingnistan, a car has killed as many as 80 people and wounded 350 others. it is the worst attack in the afghan capital since july last year. it happened in an area with foreign embassies and the presidential palace. no one has claimed responsibility. they have been stepping up attacks recently and the taliban has taken over more territory. policy european bank makers have more ammunition. information in the euro area slowed down more than

forecasted. the annual rate of 1.4% was the weakest reading this year. the council meets next week. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. david: thanks. the follow-up from the presidents overseas trip continues with general mcmaster writing together about the trip in today's wall street journal. here is part of what they wrote -- ensuring american prosperity is critical to a national interest rate on meeting with leaders in brussels, the president reiterated his concern about our trade deficits with many european nations and emphasize the importance of reciprocity in trade and commerce. joining us now is kevin cirilli. you are on the trip with him. you got to the latter part of the trip, trade figured pretty big in what he said. was this part of their strategy

to do with trade when it came to the g7? i was speaking to some folks who told me that while the administration wants to say this was a successful trip, there's no question that what happened with angela merkel is weighing on the communique's strategy have seen on the days following. with this type of op-ed, they're trying to walk that -- find that political balance between globalism and nationalism. when you take a step back with reports that the cbs saying that the president has decided to attack from the paris accord, in addition to reports and sources suggesting the president is taking another look at the cuban executive order from the previous administration, this is a national policy we see coming from the white house. without question, you have folks like gary cohn and general mcmaster trying to soften some of the political blowback. david: gary: so that -- gary

cohn said at first he was listening and learning, but we have seen he is not backing down one-inch, whether it is trade or climate change. kevin: he is doubling down. i agree with you. week,ou get back to next when they return from a recess, this white house right now is trying to mitigate some of the devastating political capital they have lost as a result of the russian probe. when they come back from congress next week, you will have a situation where this white house is hungry for legislative victory. i am hearing they will vote on repealing parts of dodd-frank either next thursday or friday. been moving so slowly on health care and tax reform, and then dodd-frank repeal, that it is questionable whether or not there will be any major legislative victory into the august recess. following that recess, it is

debt ceiling time, so busy times ahead. david: no rest for the weary, for people like you have to cover this. thanks so much. the president may be focused on the trade park, but financial markets may be focused on tax reform and infrastructure investment. larry fink spoke with us york.day in new he cautioned investors not to get too bullish on earnings potential for the second quarter as equity markets depend on the success of the trump agenda. larry: we are trading at pretty high pe relative to other parts of the world. depending on the success of the trump agenda, we will probably determine the equity markets for the remainder of the year. david: still with us are daniel katzive and james sweeney. james, do you agree with larry fink that had the equity markets perform for the rest of the year will be determined in

significant part by what happens washington?appen in james: i think it will be in important factor but not the most important. i think most do not expect significant tax or infrastructure policies to occur this year. we saw lots of trump trade's immediately after the election read a lot have gone away. a risk appetite has rained pretty good, which i think is about economic fundamentals. if we have good economic fundamentals, you do not necessarily need it, but it would help from a stock market perspective. david: so not much happening and it is a sickly priced in to equity markets in your view -- it is priced into equity markets in your view. james: yes. at the beginning of the year, the market had unrealistic expectations on how fast anything could happen in washington. you had this disconnect and people in the markets said,

january 20, that is when it will be announced. there was a disconnect. the gap was closed in q1 and now i feel in q2, the pendulum swung the other way. most people are counting on that date and that is probably unrealistic. pressure toot of get something done next year. if the timing slips into 2018, maybe that isn't so bad and the fact that activity in the u.s. is solid without stimulus, and you get a little bit of fiscal stimulus or tax reform next year, keeps the ball rolling longer. and the economy above trend no excess capacity, it doesn't take a lot of stimulus to keep things chugging along well. jonathan: the market has been fading the story throughout the year. treasuries are in a speculative position. -- dollar is down on what\ the dollar is down on pretty much everything in the market, stocks, as well. it is upside risk now, is that

the way to think about it? james: i think you should not give the speculation on policy all the credit for recent months. global growth was very strong at the turn of the year and very high trade growth, pmi's around the world, so what is happening is we are coming off of that peak, and it is typical of fields to fall while that happens. opposite inory was terms of expecting stimulus. going forward, you do not expect the stimulus but the engine and the economy is cash in the checking accounts of americans from the labor market, and the labor market continues to improve. it is the job data we see that stays strong. if the economy continues to tighten, you expect wages faster. somebody has to pay those wages, so for the equity market, it may not be all good news, where it is better for labor income and

worse for corporate profits, but it gdp holds up, it isn't the end of the world if you do not get tax policy. jonathan: you bring the labor income and the consumer credit cycle, looking at it, there are some cracks there. usually, for the consumer credit cycle, their leading indicators. james: i think the important thing is right after the financial crisis, there wasn't a lot of credit going forward to lower credit scoring households. to 2014, it12 started to open up. you are seeing the average arson with household that has lower credit score on average than he did a few years ago, so the composition of the total consumer debt -- basically, there is more subprime auto in the auto loan stock. that is why, so it is an equilibrium level of delinquencies is rising.

it is in a bad situation. it may be for some individuals, but it isn't a macro leading aggregate at this point. net worth of households is rising area basically -- rising. basically, for those at the bottom end of the income distribution, it is rising. it is to get jobs to places where it has been tough. alix: james sweeney and david katzive, do i. coming up -- thank you. coming up, crude is off over 2%. thirdlooking at its consecutive month of declines. this is bloomberg. ♪

is bloomberg

daybreak. coming up on bloomberg markets, chairman and ceo of an infrastructure company. alix: oil gets hit today, down by over 2% and it has been a rough month for oil prices. it is the third monthly decline on a monthly basis. the first time we have seen that since january 2016. you can see how they have spared over the last three months. joining us from philadelphia, stephen short. goldman stack -- goldman sachs saying they need to restrain sale. is this what it is about? stephen: it is a broader picture. in this country, you cannot swing a dead cat without hitting a barrel of oil, and that is to say we look at november, where we had the opec decision.

not many people, myself included expecting the cartel to curve on production but that is what they did. we saw wall street speculators go all in on a bullish spec for higher oil prices. that did not pan out and we spent the better part of this year liquidating that bullish spent, hence, we have seen prices have languished great so why are they languishing at this point -- languished. so why are they languishing? when you look at markets, for instance, the length between middle east crude and the dubai market and north american crudes, and the nymex crude's and a lot of west african crudes, we have seen this location in east brent is the clearest telltale that opec has failed miserably to balance the market. investor, a bullish

that has to be a concern for you because of the united states, demand for crude oil has never been stronger than it is now. that demand is going to remain strong into the summer, so you have to ask yourself, if opec has pulled back production, and by indications, a have, when demand is record strong and united states and you have failed the balanced market, what happens toward the end of the summer when that demand begins to fall off?five away , u.s. crude oil production is on its way to a modern-day record, so it is an overhang for this record market to overcome right now. alix: that is the short-term outlook, but there are longer things that play and that is highlighted in the meeting today, racing questions about the clarity of climate change. there is a report, and i went to redo a segment -- it says technology change, clean energy push, which is what the iea says

would be required to lower global warming, would mean oil demand speaking about 20 20, declining by 20 million barrels --oil a day by 2040 and day 2040. are we in that peak demand world again, and when do you see that coming in? stephen: i am not going to proffer a forecast on went the mental peak area what we have -- on when oil will peak. the only reason why you make long-term forecasting is to make astrology look respectable. you have taken more common, sensible views of the market, and we have to recognize the environment has changed. there are two things that move the price of a commodity. we have always had the one variable in the equation, the price shock to the consumer. going back to the 1970's and the

oil embargo, we have had a decade in and out since then, the we have missed that second variable to impact consumer behavior, and that is the substitutes. i am not sure tesla is the answer, but that genie is out of the bottle and you are not putting it back in, so that demand, that peak demand forecast, that is derivative of two point straight one, the advent of renewable fuel, and the commercial success, depending on if we get there, is going to impact future demand. also, this is what exxon is formidable to its, and that is the whim of politicians to create or dictate supply and demand economics by the stroke of a pen, rather than letting the consumer take hold. that is something back son will navigate. i do not know and no one can tell you realistically when the mental p, but we do know this is peak, when demand will

but this is not your grandfather's oil market. we will see a lot of supply and that demand equation, i used to connecticut,wich, right after the first gulf war, what was the status car? mer.hum what is it now? the tesla. you will see that in the forecast, so peaked demand is certainly in the for siebel future, but whether it is five years or 25 years, your gas is as good as anyone -- your gas is as good as anyone else's. jonathan: we had a professor talking about the coil -- about oil, the and on peak traditional what you talk about it, peak supply, 9.5 million barrels a day, which is where we got to in the united states in

the middle of 2015, and we had the opec strategy trying to watch this out, how high can that go in the united states? stephen: if you want to believe the iea forecast and where the average is going to be, we are going to be over 9.5 million. we will be at a modern-day record by the end of this year, first quarter of next year, and with the iea making its forecast , we will be at over 10 million barrels. we will surpass the all-time high set in 1970 of peak by supply in the united states. why i say that is if you look at the industry, it is well hedged and they are selling forward. when you look at the action on the long dated end of the curve, oil prices of 2018 to 2020, it has been very heavy selling into that high $50 range. when you propose that anecdote with the guide of what producers

are doing in their short positions, it is clear when we get oil in the high $50 range, shale producers inclusive, the theyt likes, they can and will make money in that high $50 range. from a long-term investment standpoint, if producers are willing to sell oil between $50 and $60, i would you want to own it here? , alwaysephen schork good to get your points. you can watch this online onto the go and interact with us directly. we will do our best chance you question. this is bloomberg. ♪

♪ jonathan: the s&p 500 has finished higher in the past eight trading days, hovering to record highs. four companies making up nearly 25% of their advance so far this year.

doubling down on tech like never before, joining us is dani burger. that happened in a significant way the couple of decades ago, but it has been remarkable to their contribution to the index. what is behind that? dani: we see fund managers making a records, so it is relative to saying doubling down. ofis a record, 71% owning the same stocks, this is bank of america data, and they put a there,extra a's in including adobe, and that makes it another a. orhave again another four five stocks leading the benchmark. it is into unusual that we have this. for example, there is a really good study and it essentially looks at, having a couple of stocks leading the benchmarks isn't unusual.

i think what might so the get into the realm of unusual is when you have been reading it themaluations -- you have leading it and valuations get stressed, crowd managers -- fund managers getting crowded in. not unusual, but coming into a year where we were told the data would get better and we might get action from washington, d.c., that would boost equities, it is unusual the breath of the gains is not there the way people anticipated. absolutely. even before trump was elected, we had this reflationary trade were cheaper stocks were doing well. it was almost three basis, before trump was elected, after he was elected, you had this resurgence of the value trade and now we are in the third phase, where value is lagging and growth is taking off. picture, where

all of a sudden, it isn't the economic recovery that is leading the stocks now. david: are the earnings keeping up to justify these valuations or is it getting dangerous question mark -- getting dangerous? dani: it depends on where you look. we would have to see growth we have not seen in a while, over a decade, essentially. it is possible but it is starting to get stretched. alix: talking about tech, we sawtek outflow from -- we saw tech outflow and that does not make sense when you had record highs from google, amazon and apple. is that profit taken? week.700,000,016 last ok, it is a big one, so sometimes these flows have a tricky way of reversing but i think it is significantly have most record outflows, the

in over here, at a time when valuations are reaching peak. when you have google and amazon trading your $1000. there does seem to be profit taking. on the flipside, we have other investors covering shorts, boosting exposure. jonathan: dani burger, great to have you with us, raking that down. coming up on friday, it is not about the stocks but the data. it is payrolls friday including bill gross, rick rieder and mohamed el-erian. futures this morning of it on the margin. up .2 on the s&p 500, up 31 on the dow. you are watching bloomberg. ♪

♪ >> the consensus, the federal reserve looking fractured.

i when it see i to comes to inflation. at a record high after a record high in 2017. blackrock's larry fitz pointing to a lackluster second quarter. and fund managers going all in on the banks, for more than one quarter of the s&p 500 this year. from new york city, good morning, good morning. ." s "bloomberg daybreak we are counting you down to the opening bell. futures are firmer on the market , of 1/10 of 1%. possibly 2/10 on the s&p 500. kaplan,e and robert with a bottle of scotch. the marathon conversation between these two, wrapping up, the highlights of which we will bring you quickly as they had the market daybreak.

alix: here is where we stand in terms of movers. michael kors getting slammed by over 7%. the revenue was a bit at her, but really the outlook was not great. fourth-quarter sales missed estimates, slashing the first quarter, earning estimates down overall 11%. closing 125 stores over the next two years. the brand stores and mall traffic of suffered. remember, flagship stores are important, that's where they get their pricing power. on the flipside, analog devices are up over 6%, reporting second-quarter earnings that were better. it's the third-quarter earnings estimate coming in better. all because of industrial chip demand. this company owns tanker fleet.

the lost -- "the wall street journal" reporting that maritime could be an interested party and buying frontline, and if that happens they would be making up for dht holdings, the rival in norway. watch this stock as we head into the open. jonathan: the open, 28 minutes away. in the last for a four hours, the blackrock ceo larry fink cautioning investors, saying that it all depends on what comes out of washington, d.c. larry: depending on the success , that willp agenda probably determine the equity markets for the remainder of the year. is bill: joining us now cappelleri.ank

there's a group of individuals that thinks the equity market needs the d.c. story to play out to support valuations through the rest of 2017. then there is a group of investors that think we had that story already and it's not needed, it's upside risk. where you stand on that, bill question mark il: i will go with the second one. i thought a lot of the move up had been based on the fundamentals. we have seen the global economy get better. we saw it really -- i know we talked about first-quarter earnings at nausea him, but in terms of the details that we saw, a lot of global earnings looking better, finally, within the s&p 500. i think it's going to be some sort of tax cut? i may not even come this year. if we get that, it is gravy at this point. we have unwound a lot of the big expectations for the fiscal stimulus. matters: bill, size

here. is it still going to be a big cap story through the rest of 2017? or does the small-cap story start to play out as we get that d.c. action? i think it gets help on the small-cap if you get to d.c., so maybe that's the upside? the revenge of the large cap lately has been a lot around that trade where the large caps have, generally on the whole, much more exposure to international and global markets, which is kind of a reverse of what we saw earlier and a lot of it has to do with that i cap outside the u.s.. -- pickup outside the u.s. alix: s&p rests on record highs. what do you see? frank: the s&p 500, the same kind of recipe has been playing out. the missing ingredient over the last few weeks or so is that it hasn't had to much power behind

it. seems like every day we are hit with a new stat. alix: what term are we looking at here? the orange line is 2017. the white line is 2013. what does this echo to you, then? frank: this goes to a study from last week. day 100 was last thursday. the s&p was up 7.5%. that combination has happened only a few other times since 1950. going forward, he noticed that of those 20 times, the market was higher to the end of the year, 20 times, 9% or so. the kicker, the average gain was 9%. time it happened was 2013 and the market doubled from that point. not saying it could happen again, but the fact that the market is in a structural uptrend, you can see that happening. do we know what happened

to those other three times? special, some intervening event? frank: those times, the markets still finished the year higher. pulled back a bit, but higher on the year. david: so that's 100%, actually. frank: yes. this, as you look at going forward, what will be supporting the market going forward? if it is earnings, where do those earnings come from? bill: i do think it is the fundamentals. one, obviously, is the underpinning of the global economy acting better. you can talk about europe. china, last night, the pmi's looked like they were holding in their well. -- in there well. part of it is getting a boost from the global side of things. don't discount the u.s. economy, which we think is bouncing back for the rest of the year. may not be as quick as we were hoping in the second order, but certain -- second quarter, but

it will be well above what we saw in terms of u.s. growth. the hard part is you are going to likely see the peak earnings in terms of the speed of the earnings growth in the first quarter, but it should still be good earnings for the rest of the year. alix: how quick do you have to be to buy the dip? frank: we have seen how that has worked out, but for now we are short-term overbought. the most important thing i'm looking at his we had a series of higher lows throughout the year. the pullback, respective of the trendline, if that's the case i will be confident doing that going forward. citi in particular saying to buy the trump trade, overweight on cash. where do you think that cash winds up coming in and how quickly does it get put to work? that's a tough one. we like financials at the

moment. it's been a laggard this year. i'm hoping that they coming you know, get out of there bond trades and come over to financials. those are kind of the opposite trades. we see yields coming down. financials typically trade poorly. that's where we been lately. i don't know if that's really are going to go, but i'm going to hope so. david: talking about the s&p, frank, in the u.s., most of the people are talking a lot europe. what do the charts tell us? frank: europe has been one of the most surprising themes to play out this year. smart money people believe that this can be the start of something much bigger. there's a chart that we have here going back a number of years showing that the stoxx 50 euro has been underperforming the s&p for a long time. far this the s&p so year, it hasn't made much of a blip on the screen.

the other thing to consider is that when the market is underperforming the s&p, the euro has been fine. i think that is going to continue to happen for this slight change to be more material, long-term. alix: european equities, some say sell banks on the rallies. others saying there is more to come. bill: we are actually overweight in equities. since mid-april it was a good time for us. the good news is the underpinning of the economy doing way better than expected. what does that show up for us? they hope to come to the place where they have got the earnings leverage. it just does not perform very well. part of that is the we have not seen the profit cycle in the u.s. and the catch-up would be phenomenal. if you don't have the worries about the economy, the banking system should hold an ok. -- in ok. you have to be strong enough to pursue it. the last part is we have got

data that wasn't as high as expected coming off of last month. there is good and bad news. you want a decent amount of inflation. the good news is that you don't have the worries of the ecb pulling out quickly. alix: all right, bill stone, thanks very much. , thank you.leri both are sticking with us. inflation expectations resulting in a fractured fed. we dissect a busy week of fed speak, next. and we have a guest here to discuss the 2:00 p.m. facebook relief. he's going to be dovish. saving you sometime. this is bloomberg. ♪

♪ this is bloomberg. i'm david westin. well, where did the inflation go? a question being asked these days on both sides of the atlantic. here's a some of what some are saying. >> i think that while inflation don't thinkven, i we have a deteriorating trend. thatthink it's consistent there is a belief in the marketplace that we are going to in the second quarter. from what i hear from businesses, it's not happening. >> it has been weak. has beenep back, it gradually increasing from 14, 15 , 16 to 17. the thing giving people pause is over the last two months, particularly march, for a number of idiosyncratic reasons, inflation dips.

-- dipped. >> i see some tension between full employment and the tentative progress on inflation maybe slowing. if that tension between the progress unemployment and the lack of progress on inflation persists, it may lead me to reassess the expected path of policy in the future, though it's premature to make that call today. david: still with us our bill stone and frank cappelleri. we heard different explanations here. mr. kaplan said it was idiosyncratic. mr. brainard said it was slowing inflation. where are you on this? i think you would say, hey, based on where we are, inflation is lower than we would have expected. we would say hey, at 4.4% unemployment you would expect wages to be growing in the 3.5%

range and it is 2.5%. so, something is different. you can expect inflation to be lower than it otherwise would be at this point, but i'm otherwise in the camp that i am not worried that inflation in the u.s. is collapsing. some of the noise that i would point to is oil. the core is holding in fairly well. i don't pick it will stand in the way of the fed moving. jonathan: part of the speech was navigating the different signals between unemployment and inflation. is there a signal for federal reserve policy that they are not taking notice of that they may be should do? -- maybe should do? necessarily think so. i think they are going to move in june. it's almost certain that it happens. i think they should kind of ignore the fact that, you have seen the headlines come off and

a lot of it is driven by the oil side, which again is not something you want to follow. the question winds of being market reaction. you can see it in the treasury market here you take a look at the terminal, this is the fed funds rate versus the treasury. it's pretty stark. kind ofmmon is that divergence, frank question mark technically, how does it resolve itself? -- frank? technically, how does it resolve itself? frank: the 10 year yield didn't respond in 2015. fast-forward six months, re-inflation is full on. the fed finally takes the queue to raise rates. now, obviously, the yield has come back in. we are faced with this at divergence, where fed funds are suggesting one thing and the 10

year yield is displaying something else. if they had to decide by something, it would be the market going forward. pointingar yield is lower. now, if that continues, that could be a problem, right? it's dependent on the economic data. suggesting that inflation is not there. jonathan: on the left-hand side, looks pretty dramatic. david: to put it simply, are we looking a gift horse in the mouse -- the mouth? not tightened financial conditions. we have decent growth. are we looking for a problem? i think to some extent it does worry me, obviously. i watch what the bond market is saying and i agree in terms of the flattening of the yield curve. it is something that i watch for economics, it's really been the best kind of way to predict future recessions.

we are not year -- near the yield curve inverting. we are down off the spread that we have seen since 1976. we are not back down to what we saw in the summer of last year. , myit is a little bit thought, the economy doing quite well you would have expected some steepening. i am still on the point that i think we are right about the economy doing better. in terms of looking a gift horse in the mouth, if you want to take money out of the fixed income side, i think maybe that's your gift horse. or sensitive parts of the marketplace, like utilities or real estate investment trusts. alix: won't let go of the pain trade? that really hurt. frank, bill, both of you are sticking with us. fund managers doubling down on the tech titans. same trait might be getting long in the tooth.

friday, it's the big lineup for you. blackrock, rick rieder, and mohammed ali arian, all for jobs -- mohamed el-erian. all for jobs friday. this is bloomberg. ♪

is "bloomberg daybreak." dodge semi conductor facing pressure regarding the takeover deal with qualcomm. elliott management is among those pushing and xp to get a better offer. -- nxp to get a better offer. the 16,000 financial advisors at morgan stanley are about to get some cyborg help. machine learning algorithms suggesting trade from team tax -- tasks. the thinking is that humans with out a rhythmic assistance will be a better solution than mere software that allocates for the

masses. jetblue is about to launch a first of its kind boarding program with facial recognition. they will get their picture taken at the gate. the image will be matched to those on file with u.s. customs and border protection. jetblue will start testing it on flights between boston and aruba. alix: the s&p, finishing the last seven of -- seven of the last eight days higher. for companies making up 25% of this year's rally -- four companies making up 25% of this year's rally. facebook, amazon, netflix, and alphabet. joining us now, frank cappelleri . how overbought are we in the big tech names? bill: no doubt that they have had a huge influence on -- frank: no doubt that they have had a huge influence on everything. they have done it very well.

in terms of understanding technology as a whole, we need to look at how broad the has been. one thing that we look at, the slk etf is up more than this year. not a lot, but it shows the less ists, where 2% or in the etf there, going forward looking at the s&p 500 top 50 for the year, 20 of those are tech names. only two of them are market caps over $100 billion. facebook and apple. those tech names are very influential. because they have risen so much, they have caused the major indices to get to those high levels. from the underlying technology names, too. alix: this is kind of what you're talking about, by the way. equal weight tech etf, showing how extended we are above that

range. ill, what do you do with tech right now? -- bill, what do you do with tech right now? bill: i think it's one of those places where earnings were really good for attack. 70% up in the first quarter. you are not going to see it that strong for the rest of the year. for the year you are going to see tech earnings around 10%, which is in line for the consensus around s&p. the interesting part is the around, the sales side, 8%. obviously it is the place where revenue looks to be very good. i think it is one of the things helping drive it. we all know that technology is a leader in that respect. i think the other part is, looking so much at these specific stocks driving things, the average in the s&p hasn't done as well.

if you want to slice and dice and take out energy, you could say that the average stock has outperformed the market. you have to be careful that you take out and focus on. yeah, these technology stocks are probably overbought. certainly, they still look ok. the last i will lead with is valuation. valuation on tech as a whole is slightly above the market, despite the fact that you had such a big run in. jonathan: looking at the corrections we have seen, have we seen a correction of the trump trade in a significant way? the tech is significantly masked? part is it is probably about three quarters of the stocks in the s&p are on an uptrend. probably, the primary culprit in energy, just getting hammered, financials have kind of gone sideways. i don't know if you would call that a correction.

sideways is you can build a base there. primary culprit is that energy side, as i look at it. jonathan: bill stone, frank cappelleri, both of them staying with us. the opening bell, next on "bloomberg daybark." futures ahead of the open look points, that's facebook on alphabet. there's futures. well done. up and about next. you are watching bloomberg. ♪ these days families want to be connected 24/7.

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it all adds up to our most reliable network ever. one that keeps you connected to what matters most. jonathan: you are watching "bloomberg daybreak." points on the dow, 24 on the s&p 500.

slightecord high, then a low back on the s&p in yesterday's session. [opening bell] jonathan: i believe we have had 20 records throughout 2017 so far. hitting the action elsewhere, trailed -- trades off the yield high, 22 on the 10 year. the dollar, a little bit softer. crude, a whole lot softer, $48.29. let's get to the opening bell, alix steel. alix: here's how we stack up. the dow is off by 2/10 of 1%. s&p is up as well with the nasdaq. the nasdaq and the s&p are a stone throw away from their record highs. the s&p, sitting right on a record high as well. the nasdaq, making another record high. that it's been this feeling of a slow melt up in equities.

the nasdaq really helped by amazon, a spot, apple, alphabet. -- facebook, apple, alphabet. boxee, often over three. offron, they oil, they are -- big oil, they are off. down for its third straight month, the longest losing streak since january of 2006. but our energy stocks really going to be the leader in the market? this bright line here is for the july contract. the yellow line is the energy etf. we wind up seeing the diversions between the two of them. these circles represent the last time we have seen this diversions, where the oil price

has been stronger, outperforming energy stocks. what happened? the oil price went and met energy stocks. do we want to see another rating into the $46, $45 territory? or does it wind up holding up? that's a big question for energy companies. let's bring in the team. bill stone, frank cappelleri, you saw the chart. what are your thoughts? frank: it's very tough to beat energy right now. simply because of costs. if you are a generalist investor, there are other areas that have been up trending and i would stay away from that. the problem is that over the last year and a half or so, looks like it wants to perform this long-term bonding process. fortunately, that process is still going through. up a could have gone back

good amount. hasn't happened yet. people who have tried that have not done too well. jonathan: with crude prices jumping around the $50 mark, they have proved they can make money at 45, 55, but a lot more at 85 and 60? -- 55 and 60? bill: it's hard, so much of the pricing is based on where crude goes. it does matter. the year-over-year gains matters from where it is. it's not necessarily about profit. it's all about relative profitability now, since we are talking about coming out of the losses of the first quarter last year. into all think that we are range bound in this 45 to 55. may be getting back down towards some sortere may be

of opportunity there. we added a little bit in terms of commodity price exposure, but we have now round tripped back down into this basic end. if it was downo 2%, we would say it was done. it could be set up for a brutal day. now that correlation is kind of around zero. what explains the lack of correlation? bill: two things. last year, it was the word that the demand side was falling apart. sending a signal that the economy is just crumbling. and this time we kind of know, i think, that it is really a supply driven side. it's the non-opec and u.s. supply coming in with that that is the kind of change. the other part was last year, when it got down so low that you got the worries about ripples in the high-yield market, that

people wouldn't be able to pay their bills. people were not necessarily worried about the floor falling out, anyway. if it is a difficult sector, where could you make money? there is always a winner. inathan: i guess, -- bill: guess, for us, we typically have this bias. we have been in the master limited harder ships, in the midstream. we kind of tilt around. there are different ones with more commodity exposure or less. when we got act downs earlier in the year -- act down -- back downs earlier in the year, that way we feel like, well, at least we don't have to make a very strong call. nobody knows where oil prices are going. over the long run, they will move higher but it is hard to feel like today it's going to

happen or in the short run. david: i'm old enough to we were a time when greater up high oil prices. alix: you are dating yourself, david. what are you doing? [laughter] david: we apparently have range bound prices. there was a day than -- that we would have given our eye teeth to have this. bill: i agree. i'm old enough to remember it, too. it still remains a positive for the economy. what usually ends economic cycles? overheating or some external shock. what most people think about is some spike in oil prices that just crushes the economy. we have plenty of things to worry about, but that's one thing we don't seem to have to worry about. you are right, the cost of moving things around, the cost that energy is part of, you have got lower costs there. there are positives to it, but

it weighs on the energy sector, though. jonathan: bill stone, frank cappelleri, thank you very much for joining us. we are six or seven minutes into this session. let's get you up to speed quickly. the s&p 500 pushing higher by a single point. the dow, going nowhere. record high on the ftse, though. adding another 42 on. positive territory. from new york, you are watching bloomberg tv. ♪

alix: coming up at 4:10 in eastern, we have a special guest joining us. this is bloomberg.

david: this is bloomberg. i'm david westin. tomorrow we get auto sales numbers for may area the big news these days -- made. the big news these days is about ridesharing, more than home and the cars are rolling off assembly lines. we recently talked to steve radnor about how big of a transformation is coming to the automobile industry. steve: you have three different factors coming together. cars,aring, driverless and electrification. ridesharing, ironically, maybe the biggest threat. used forge car only is percent of the time. it's a highly inefficient use of the capital asset. as these other services become more usable, people presumably are going to have fewer cars. they why not have the third card, the second car, or even the first car.

jonas.we go now to adam picking up on what you said, i read your notes and you say that this is almost going to be the death of the internal combustion engine. within the foreseeable future, what do you project? adam: we agree with what mr. rattner was saying. sharing enables a lecture fixation, because you can amortize the cost faster and they work that are in a fleet model. and if you are running a fleet of a human driver, the payback for replacing the driver with an algorithm can be as little as six weeks. any advancement helps to accelerate the other and it's coming. if the fleet application works best, does that mean it tends to be urban rather than rural? adam: it will start out that way. areas with density, like geo-fence. not unlike the early horseless

carriages from a century ago, when only wealthy people in manhattan could afford them. it took 10 or 20 years before you saw them in ohio and for the infrastructure to keep up. between cities. new york, boston, l.a., vegas, shore craft distances where you can get -- short craft distances. david: you are projecting 50% of all vehicles being electric by 2040. right now it's a very small percent. less than 1%. with a fair amount of government subsidies, how do you get from where we are to what you are talking about? adam: the cost of batteries has come down a lot. our sources suggest that as number -- as much as as little as $100 per kilowatt hour, versus $500 a couple of years ago. there is deflation to the cost

of battery manufacturing. then there is the cost of internal combustion, particularly diesel, rising. and you get that crossing over point, that parity starts to make sense. you throw in sharing? paybacku can take the from 30 years, if you own a car personally, to as little as three or five years because you are using 100,000 miles per year instead of 10 miles. that's the magic combination. oild: what does that to two consumption, if the internal combustion engine becomes a smaller orton of the fleet? peak oil people have the knee-jerk reaction that if you increase automation and electrification, it must mean the death of oil is imminent. we put out a piece yesterday with several of my colleagues at morgan stanley and across the energy stack that discussed this. we ran simulations. we are believers in electronic vehicles, but also in the sharing and automation of driving, creating a deflation in

the cost per mile. we are quite bullish on miles. the big blind spot is, what do miles do? ignore.most people we think that miles traveled doubles by 2030 and triples by 2040. grow intolow ev's to the largest share of the pie, but it will sustain today's level for a couple of decades to come. alix: it's also about industrial demand. it's not going to be about mom and dad driving their car. you used to be one of the biggest balls on tesla. tesla.s on but now you have a hold. adam: it's a cause for breath. -- pause for breath. we think they are much more than a car company. infrastructure for sustainable transport energy, they are spending $4 billion, $5 billion

year. that is going to something much bigger. the downgrade was mainly the recognition that if you are going to apply artificial intelligence in a real-world hdlication like driving, mapping, machine learning, computer vision and all the data in that ecosystem, you're going to attract competitive pressure from the amazons, apples, and alphabets of the world. you are going to have some competition from folks with unlimited access to capital and talent. understand howme tesla can be valued at $55 billion and g.m. is at $50 billion when the radical -- revenue streams are so radically different, the autos sold are radically different? adam: if you limit the analysis to the market today and the hundred-year-old is this model that henry ford corrected, you would be hard pressed to justify tesla's price.

but if i asked differently and told an investor, if i could give $20 billion to elon musk to invest or this ceo at ford motor company $20 billion, who is going to create more value? think about that question, you might have a different answer. it's about where things are going. the type of talent, the software component in the car. from that perspective, the market is dying to have something consistent. david: let me take your question and put it from the. do i give that money to someone in silicon valley or in detroit? detroit or beijing? or shanghai? we asked 14 sector analysts across the stack at morgan stanley in the u.s., with market cap limitations and minimum thresholds, what are the best position names in your coverage universe for shared, electric, and autonomous transport? we came up with names that might not surprise you.

apple, amazon, how for that. some that might surprise you -- health of tha -- health net -- alphabet. the value is what you get out of that mile. the data and the content opportunity. that is what can be monetized. ford, gm, chrysler, come up in that list at all? we didn't have any traditional carmakers on the list. tesla was one of the only ones -- was the only carmaker on the list area traditional -- list. traditional carmakers are selling disconnected internal combustion vehicles. the difference that silicon valley is approaching, they are

approaching it as miles traveled at dollars per mile. it's like seven times the size of the market. jonathan: do you see anyone out of the traditional players making that shift in the appropriate way forward? do you see anyone doing it well? david: it's too soon -- adam: bes too soon to say, to honest. but don't count them out yet. every single board of every single auto company is, i don't want to say panic, but has a , butlevel of -- panicked has a high level of awareness. their dependency on the innovator's dilemma of the old system, it could be difficult to attract the right human brain for those organizations. they might need to radically change their structure. could be spent off. could be partnerships. -- spin off.

could be partnerships. if they went public, would it be on your list? 0 can't touch that -- adam: can't touch that. [laughter] ridesharingnk that is more disruptive, fundamentally, to the business model either than electrification or autonomous. we think that autonomy is just a tool. ridesharing 10ke to $.20 per mile instead of $1.50. company thaton the you said specifically, but if you are appear ridesharing firm pure ridesharing firm, what are we? the car it self is the driver. the ceos of those ridesharing firms are saying that we need to get this autonomous stuff right. david: if you talk today and

hammond, president of gm, as i know you have, -- talk to dan hammond, president of gm, as i know you have, he's talking a lot subscriptions. where do those miles come out of? more time in a vehicle? , a plane?on a train they have to come from somewhere. adam: they have to come from somewhere. look at the deflation and cost per megabyte of wireless data. this is from the wireless cell phone industry. if you took the cost of sending a megabyte of data wirelessly down 40 times, guess what? we increased the amount transferred wirelessly 40 times. we think it is expansion of the pie. happens inat emerging markets. 2% of the population of india has access to a private car. a disproportionate amount of this growth for miles traveled happens in places like india and

china. our world in the new york area as --hange, but nowhere near as radically as in a place like india. alix: adam jonas, good to see you. check us out online, click on the charts and graphics. interact with us directly. you can rewatch that interview on tv on your terminal. this is bloomberg. ♪

alix: robert kaplan, speaking with tom keene on the council of foreign relations. robert: i still believe that the fed funds rate should be the primary letting this balance sheet runoff should be happening basically in the background. that, i'm sensitive in the early stages of this there will be a lot of market sensitivity and we will have to take that into account and

manage the choreography of how we manage the fed funds rate. alix: tom keene joins us now, running back from the council on foreign relations. tom: everything we said. high-powered discussions, fast, fast, fast. totally typical kaplan. a lot of smart people don't know what they are doing. it's a mystery, all original, and i love that phrase, managing the choreography of what to do with the balance sheet. alix: what's the -- what are they doing right now? tom: they wouldn't answer. it's not that they are proprietary, but they are concerned about letting it out. but they are worried about tantrums and market instabilities with multiple sets of things they have to do. jonathan: something i struggle with, how'd you unwind of $4.5 trillion balance sheet? tom: slowly. slowly. jonathan: well, then it's not significant. tom: i asked him how long the

glide path would be. you couldn't see it on the radio. he kept doing this. i said -- how long is this? he wouldn't answer. alix: as we heard yesterday, they don't want to make a prediction. how do they start without knowing? tom: the way they start, and he answered this directly, rates are more important in the balance sheet and they bring rates up as they normalize and he gets easier to deal with the balance sheet. ofmade very clear, the rates a horse, before the balance sheet. there was a suggestion, when martha had that interview, that they would laws on the rates -- pause on the rates when it started. has that changed? tom: i didn't hear that from mr. kaplan. i think that he would defer not only to chair yellen and vice chairman fisher, but also president deadly. david: you are taking away from this that the sequencing in his

mind is clear. tom: we are going to deal with it together, but raising the dominant exercise early on. what was great, david, about the robert kaplan that you and i know from hbs, he made it clear that business confidence is there. they are just waiting to here from washington. david: tom keene. jonathan: how many martinis this morning? we were going to do bloody mary's, but we had to use tequila from tyson -- texas. getting dicey. [laughter] jonathan: 20 minutes to the cash by 38 on the dow. from new york, you are watching bloomberg tv. ♪

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

♪ vonnie: is a big day for economics. pending home sales. >> it is not a good indicator in terms of the direction in april month over month. that was versus an estimated gain of .5%, previous numbers drop 0.9%.o the prices then took a toll. data.en how is -- housing