second quarter. money drains out of stocks. it returns to the european market after bonds deliver one of the worst weeks of 2017. the u.k. gears up for a hard exit. corbyn pushes for a single market. good morning. this is bloomberg daybreak. anna edwards is join us this friday. futures are big. we are firmer by a quarter of 1%. technology stocks are on better footing. still, we are headed for one of the best quarters since 2010 for the single currency. yields were at 217 highs.

some are coming in. 44 basis points, a big move this week. sterling is a little bit weaker after the weaker confidence numbers. the vix is up 50% yesterday. it's the weakest quarterly average since 2006. gold futures pretty much go nowhere. is important economic data coming up at 830 a.m. eastern. may, data is of being watched. time, they are calling for little change to the preliminary estimate. at 1:00, investors will be watching the weekly recap. this is the longest uptrend in two months. alix: look at that. ofy: good economic data out

europe today. a prudent call for approach to normalization. that's a good sign. they want to see proof it it can be sustained. , we haverom london michael mckee from bloomberg. do you see the reflation in the day that? mike: you do a little bit. it's hard to take anything out of one month. the energy prices are out of the european numbers. inflation rose from the prior month. you can see it in the energy numbers. and only 4.6% in may 1.9% in june. you have an energy influenced number.

it's not a huge change, but it does tell you there is some underlying thing going there. joanathan: does draghi likes what he sees this morning? >> i think we are at a reflection point in the eurozone. we doubted if it was debt a few weeks ago. it's coming back alive. it is in europe. it's not from commodities. it is from credit coming back to the economy. banks are starting to lend again. it's very slowly from wage increases. morning's to be done on that front in germany where wages are very low. i think the trend has become sustainable. you can see the leading indicator from bank lending, confidence at the business level. how quickly will we realize it

for a few days ago the board will split. we have seen a more clear push toward recognizing this inflation trend. alix: it's really interesting. when you have the ecb trying to walk act draghi's comments, today we get some firming and the data. the euro is actually lower. what do you make of the move we saw in the euro this week? alberto: i think central bankers cannot unsay what they have said. once you say there is a trend in inflation, the market was on prepared. you can't just walk back and say i was joking. clearly, something is moving in the ecb board. the core countries are pushing toward normalization with interest rates. nobody benefits.

banks lend less. you need to normalize a little bit the policy. otherwise, you are pushing on the accelerator with the handbrake on the other. i think everybody wants that data. smart and dong to it in a gradual weight. alix: ok. this is what janet yellen wanted to do. are we going to learn something? what have they learned over the last to 72 hours? michael: you can set off a tantrum. trade is going to change, you get this kind of reaction. that's why they walked act of it. it's not that they don't want rates to rise, they would like to see them rise gradually in a prudent manner rather than all at once. they wereso much

trying to send the wrong message, don't overreact. that's what janet yellen has been trying to say. anna: we have that data out this morning. we are looking at what the markets have done. the euro may be higher. when you look at five-year five-year expectations of inflation's, they are down 16 basis points. does that reflect skepticism? investors have been hurt on the reflation trend. having said that, it's the lowest part of the market to move. expectations, we have seen already the euro going above 114 and we think that will continue.

we are going back 50 basis points. financial equities are pushing higher. there are two reasons why the ecb may continue on the hawkish trend. the situation across banks has become cleaner across europe. political risk is much lower with mccrone and merkel working together. favoring payments to periphery countries. the greek situation has been clarified as well. get to the german elections, this opens the way for the ecb to normalize policy. joanathan: let's say we get to 120. that is significant timing.

what does that mean for the ecb? can they do much at all? not, this is not a target we have in the next few weeks. we will recognize the european economy is growing much faster. the u.s. economy is growing, and it acceleration has declined. the risk in europe is disappearing gradually as you see macron and merkel and some coalition. we think there is some detail. the move has already been very quick. is a first.today it will continue to move. everyone has position until a few months ago. ecb to raise the policy rates and change policy,

normalization would be on the table. i know we have loans at the highest level since 2014. that is the stage in europe. personal income and personal spending, that is still extraordinarily important. michael: we are looking at the components and what is driving it. -- said ton took expect low numbers. go back to the cell phone price wars. they have a major effect on cpi. basically, the fed is saying don't look at the year-over-year numbers so much as the components in which they are trending. you are seeing some pressures and other areas.

alix: nothing to see here. move along. you will be sticking with us. come up later, we will discuss the health care bill and what it could mean for hospitals, health insurers and providers, and more. former ceo of mina health care will be joining us. this is bloomberg.

; shares of nike are rising in premarket trading. the largest sporting good maker has a uptick.

sales will rebound in north america. securities and exchange commission could have a hedge funds handling hot ipo shares. thatators are concerned the select few are getting access to profitable trades. are up 16%d shares on the first day of trading. berkshire hathaway will buy 700 million shares of bank of america. the prices over seven dollars a share. will convert that into common stock. bloomberg this this flash. they are 1% higher on that news. since they raise the dividend yesterday, it is higher than buffets payout. berkshire will make money on common.

it's kind of a no-brainer. that gives bigger dividends. what we sawe yesterday, a big selloff in the tech industry. there was money in financials on that. take a look at the value versus growth index. it underperformed so far this year. the financial. in the back half of the year? is tech leading the way? alberto: it's going to be financials we think there is we are coming out of the zero rate balance. price goes to infinity. that's what happens with tech stocks. , youterest rates normalize

go back to a value in the market. you go back to insurance and other sectors which benefit interest rates. when you look at the sector heavytion, we are still on the tech sector and utilities. dividends are stable. what we need to go into is things that are linked to higher interest rates, where dividends can grow as interest rates go up. that's a we have seen this week with the fed test on the u.s. banks. emma: is the risk that trump under delivers on rate hikes? alberto: it's probably the fed it. to some extent, i think central bankers are worried to build another downturn. want to gon doesn't

away and leave the fed with record low interest rates. you have a slowdown in very little buffer to interest rates. surprise with the relatively weak inflation we see. you could see the market pricing. you can have a repricing and stocks. we don't know. some sectors are very vulnerable. all of the plays of the equity plays where you can get stocks for yield. bonds forbeen buying capital gains for years. joanathan: many people talk about that. others of said the tech knowledge he play was about international growth.

it's not a regional story. getting that exposure to the global growth of the last six or seven months. his that's what is going on with tech? alberto: some part of the tech sector, you have that growth story. we do have to keep in mind that if the fed surprises, you have a stronger dollar. your export channel suffers. happens, if the fed surprises with a stronger dollar, stocks that are exporters in emerging markets get hurt. there are very few areas where you are ok. just a follow this into the previous story, what we actually had was a structural post crisis in europe. that is changing. that is what has driven the last

couple of months, people are starting to reallocate into europe. is that a bigger theme for the second half? alberto: there is a theme of underinvestment in the eurozone. until a few months ago, investors were afraid of the complexity. elections, the french election, it's too complex, i'm not going to invest in europe. yields inery high some european markets. , thee was trading equivalent of 9% in dollars. , wen american countries have other european countries willing to restructure debt. the risk event is over and we have macron and merkel working together. is putting frexit in

context. the u.k. has become a much more uncertain place. of total reserves across central banks into the pound. that you think about it, is three times the weight of the u.k. gdp globally. there is a structure of reallocation in the eurozone which will push europe higher. alix: group stocks. 22%, the bestned game we saw in the european markets. all right. you are sticking with us. white andthe red blue. that leads us to july 4. hopefully you are tuning in to watch myself and matt miller. we are going to cohost the

boston pops fireworks spectacular. tune in, watch it. this is bloomberg. ♪

joanathan: this is the first test of an alliance with the northern island unionist party. oppositionof the push them to remain in the single market in your. simonre, we are joined i kennedy. if anyone voted for the labour party and hope they would get a softer exit, did they get some bad news? simon: they got a bit of a wake-up call. labor has had problems with us before. when you look at the constituency, a good number of those are from pre-brexit areas

where it -- areas. this has been a problem for the leadership. last night, jeremy corbyn signaled he still favors a pretty hard exit red that's a wake-up too many who would have opposed the election results. it would've allowed him to softened his stance or did -- stance. until the last couple of months, consumer credit was surging. the savings ratio was a record low. we are starting to see some cracks in signs that a squeeze has started to take place. simon: absolutely. speeding away. the bank of england had some comments this week. retail sales are down. there are signs that the economy is starting to slow. it's great to have

you with us. the data is staggering. it's up 10.3% year on year. growth the highest rate since 2005. emma: we've got the chart of that. let's discuss many topics, .ncluding brexit we've got this chart that's euros this. this is the smallest portion of income sense 1963. another indicator of how tough times lay had for u.k. consumer. the ship is slowly sinking. instead of trying to decelerate this decline, the economy is accelerated there was a. linked to some of

the news associated with the brexit vote area -- boat. in reality, we see a weaker pound and the rising cost of imports. linked to some of theinflation is rising. now we see consumers starting to realize it. if you put his words into context, the bank of england knows inflation is rising. they know that a weaker pound is going to make things worse. they are trying to talk the pound up. there is limited room for them to hike rates. consumer is so levered, you risk crashing the economy. the bank of england is really in a corner. sterling strength over the last few days is something we would take. we don't think the bank of england will ever raise rates in the near future. joanathan: are there other credit opportunities out there. u.k. mortgages are being offloaded.

they thought it was going to be a big downturn for the consumer. that's not what you would want to buy. are there other opportunities in u.k. credit? alberto: we are very concerned about spending. we think there is more squeeze on the consumer. we would be cautious and we would be hedging. on the other hand, we have sectors with companies that recover bad credit. the debt collectors, we think there is going to be a credit crunch. joanathan: it's great to have you with us. you are watching bloomberg tv. ♪

jonathan: from new york city for our viewers worldwide, in jonathan ferro. and 21 seconds from the cache open, futures are up a

corner of 1%. if you want some sign that the tech rent stabilization, look to your. the outperformance coming from tech stocks if you look from sector to sector. .reasuries on a firmer footing stabilization in the european bond market as well. 2.26 on the 10-year. euro-dollar. by a third of 1%. 410. for the euro on the quarter, what a quarter it's been, potentially the biggest since 2010 for the single currency. let's get you up-to-date on what is making headlines outside the business world. emma: president trump wants republican senators to pass at least something when it comes to their own obamacare replacement bill. in a tweet this morning, the president wrote --

republican leaders put off a vote on health care bill because of a lack of support for the measure. the u.k., consumer confidence has not been this bad since the brexit vote. those surveyed were less confident about the economy and personal finances. germany has joined other european union nations in legalizing gay marriage. lawmakers approved the measure after chancellor angela merkel unexpectedly dropped her parties stance on same-sex unions. global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. i'm emma chandra. this is bloomberg. alix: president trump tweeting, saying --

of course, he is talking about the health care bill. kevin cirilli is with us now. what is the rhetoric in washington about the health care bill? i cannot imagine the feel and nothing will sit well with his there is so much frustration right now amongst the republican party. republican senators in particular about the latest distraction coming from 1600 pennsylvania avenue. of course i'm talking about president trump's tweet about aping the reporter's face. we talk about the rhetoric and how it influences policy, but i want to pull up a tweet from lisa murkowski, republican from alaska, the key person that the president needs in order to get on board with health care. she tweeted -- collins, aan

republican as well, another moderate centrist voice saying to reporters yesterday that the president's rhetoric was beneath the dignity of the office. all of this comes as the president is trying to whip votes and unify republicans to get policy. from the sources on talking to, the field in washington, it is hard to fit into something they can get done when the president is bullying a female reporter. jonathan: an exclusive this morning about trade policy within the white house and administration, much of his cabinet does not want a protectionist regime but three of them do, and one of them is donald trump. what is the direction of trade policy now, when are we likely to see some hard policy detail on things like steel, tariffs? kevin: in terms of a division amongst the protectionist and versus thealism isolationists, that will continue.

in terms of where the policy is headed, we have seen it in the last month. with regards to the president's policies and how he is negotiating with europe, also how he is negotiating with cuba. what you're seeing with the south korea policy, in terms of forth,ls report, -- put trying to negotiate bilateral trade agreements. this is where it will really get interesting. the next day hearings are set to begin in mid-august on capitol hill. the white house is yet to release any firm details on how they plan to specifically renegotiate nafta other than to say that that is what they are doing. alix: what's interesting is the trade work and not only hit china, but mexico, china, germany, and the u.k. so-called energy week, the president announcing a pipeline to mexico, even joking that you would have to build underneath the wall.

how do we square these two messages? kevin: great question. i spoke with several sources last week about that. i think there is a push from the energy community to essentially say, look, manufacturing jobs that this white house wants maybe are not going to be able want,as large as he would given where automation is headed. as a result, manufacturing jobs potentially not being able to come back in states like michigan, wisconsin, pennsylvania, maybe they will have to pivot toward energy policy. that is the place where the energy sector is hoping this conversation goes to. alix: an unbelievable week we have seen in d.c. energy exports will be a big part of president trump's plan to change d.c. and the trade balance, but oil is getting whacked so far this quarter.

quarterly average for oil for the past few years. you can see down 10% in the second quarter. the worst quarter since the end of 2015. still joining us is alberto gallo of algebra's. how do you understand oil right now, then we hit the low, is there more downside to go? alberto: there is more downside. the issue of the growth model of the oil exporting countries is changing dramatically. if you look at middle eastern countries, they are in conflict with each other, going from an environment of 0% public debt to gdp to an environment where they will have to borrow or sell assets from sovereign wealth funds. they are trying to adapt to a old growth model but they have a workforce that has largely been unemployed there is no civil rights and some of these countries. arabia, one person is decapitated every day.

it is hard to create a stable and balanced growth model when you are coming from an economy that depends only on one export. the rebalancing plan of this country will take probably more than a decade. during this time, geopolitical conflict between one country and the other means they are all forced to pump more oil in the meantime to maintain respective political order. when the choice is between as the, losing your job king, as the head of a country, versus pumping more oil, you choose to pump more oil. despite the opec agreement , there willighter be looking flights in the future. we think oil can fall below 40. on top of that, you have the shale production which can come back in line. we will be back in an environment where we go lower

potentially. anna: a lot of people caught out by the moves in the first half of the year. goldman sachs asking themselves what they got wrong. do you think people underestimated the ability of u.s. producers to reduce cost of production using technology? or was it opec production coming back? think, in part, the technology. thisain point here is that is not anymore a game of demand and supply but a game of geopolitics. countries are in proxy conflict with each other, and this is hard to analyze. when you have several regimes in venezuela, saudi arabia trying to cling onto power, in conflict with each other, the priority becomes to get cash immediately to survive. even though it may not be the best solution for the respective

countries. russia, same thing. in the immediate term, we can see a lot of push toward more supply, and also structurally, demand is declining. green technologies. they could buy the european push toward green technologies, electric cars, and so on the jonathan: clearly, you are bearish on crude. how are you exposing that in your portfolio, what are you doing? alberto: there are assets in the world that are oil dependent. high-yield credit in the u.s., some emerging market countries. you want to reduce weight to credit which is energy dependent, particularly parts of the u.s. market. also, hedge yourself by shorting some of the cheap and very tight potentially can suffer if oil goes back below 40. same for emerging market countries. darling,s been the

russian credit has been the darling of the credit markets since trump was elected. it is super tight. it is not doing sustainable policies. the russian economy is not healthy. there are a lot of cheap shorts that are proxied close to oil that will suffer if oil goes back below $40. jonathan: great to have you with us. crude, oil, and the president's energy week. the american petroleum president and ceo joins us here from new york city. this is bloomberg. ♪

emma: this is bloomberg daybreak. coming up in the next hour, dr. mario molina, former ceo of molina healthcare. this is bloomberg. anna: president donald trump and russian president vladimir putin will hold their first meeting as heads of state during the g-20 summit next week in hamburg. matt miller joins us now. a lot of ground to cover with you as we look ahead to the g-20. this meeting between putin and trump will be the first meeting actually of these two as leaders. quite a surprise given they have been talked about so much in the same sentence. matt: surprise they have not been already? that is very much true. it has not been a constant love affair. during the campaign, donald trump constantly express his

admiration for vladimir putin, but since then, he's gotten into a lot of trouble because of russia and his administration has had a lot of headaches due to russia. the congress wants to extend more issues that they have dealing with russia right now. it has not really helped president trump having vladimir putin and do what he allegedly has done. they may have more to discuss on the negative side of the ledger than the positive side. nsa's mcmaster says he does not know about the issues that trump will talk about, the fed investigations with putin. elsewhere, interesting to watch the body language between merkel and trump and macron and trump. macron seeing it is pointless to try to isolate trump at the g-20. ist: what they want to show

it is pointless to isolate any country and that everyone should be open, they should all talk together, just as they should all trade together. been the star on the geopolitical scene lately, i think he will take some of the spotlight away from donald trump, something the president will not appreciate very much. at the eu summit in brussels last week, everyone seemed to want to name drop emmanuel macron. europe'sen a part of rising star. the rising star of the u.s. post trump election has not showed up the way the media expected it to. we have not gotten any legislation passed that trump about to pass on the campaign trail. it will be interesting to see those to talk together. also interesting to see donald trump talk to president xi. of the issues with north korea and the things that the administration have done to

analyze a chinese bank, shipper, citizens, i wonder how president xi will take that. jonathan: i think that is the more important one. getting into the real policy and how president xi goes into the how are we expecting that to shape up over the next couple of months? matt: it will be interesting to see how the two get along post donald trump's tweets. he says he understands china has done everything they can but ultimately failed. now the u.s. is kind of meddling into chinese business, chinese politics, it will be interesting to see how xi reacts. on the lighter side of things, the chinese have given the germans a couple of pandas. angela merkel will meet with president xi, a few other

leaders, and they will be summit to talk more about diplomacy. jonathan: panda diplomacy should be taken seriously. i also want to take a month talk about no tie friday. miller, ande matt apparently, the house of commons just decided that no tie is required any day. alix: emmanuel macron is still wearing one, so we are going by with him. looks like weatt, do not take our issues from -- cues from you. you look ahead, the geopolitical risks are high. do you senset

geopolitics could come back to worry the markets in a way that maybe it has not done in the first half of the year? alberto: we have the biggest divergence between geopolitics and volatility. i agree there can be a catch up. we are seeing it in small bounces in volatility. yesterday we saw the vix index going to 15 and then coming back down. the market will continue to be anesthetized by qb until monetary policy normalizes. what we have is a long until anesthetic. two he reduces volatility in bond, pushes investors to search for yield, pushes them into qery trades, and until normalizes, we will not see the same connection between geopolitical risk and volatility. having said that, we are worried about geopolitical risk in china, north korea.

we think there is the potential for u.s. actions and we are heading that risk into the second half of the year. anna: also likely to be talked about at the g-20, issues around climate change. do you and your portfolio still buy climate change as a concept, invest around moving toward clear technology? despite the stance of the white house? positioned toe reduce the weight in portfolio from all types of energy sensitive credits and stocks. if oil can go back below $40, we think the old energy sector will be vulnerable. there are smaller companies where you can invest for clean energy and renewables. we definitely look at them. we also think the potential for lower oil has an impact on geopolitics of the oil exporters. southample, middle east,

and latin american countries, we are worried about escalations of the regimes in these countries because of low oil. we are aware of the shift. jonathan: one of the surprises of the first half was how em ripped the blanket long trade on pretty much everything. is the second half going to get more difficult? alberto: we are worried about this because with policy normalization from the fed, if they really go according to the dots, emerging markets will suffer. you have a widening in the treasury. a lot of the performance in emerging markets has been also in currencies and the bonds. it is thanks to the lowering of the treasury yields. it is a pure carry trade, a search for yield trade. if you get a rebound in treasuries, as we are seeing in .unds, this can have a hiccup

structurally, we like emerging markets, but we have reduced a lot of our overweight in the first half of the year. it is time for a pause. if we see some repricing, maybe we get back in. alix: a lot of money coming into the trade. what is your strongest conviction trade or the back cap of the year? alberto: we think we still need to see european reflation. europeanro, stronger integration, stronger european financials, tighter yields in the periphery -- tighter spreads. this is a trait that needs to be priced in. we are also worried about geopolitical risks. iner oil, geopolitical risk north korea, russia, and middle east. get yourlly good to perspective, alberto gallo, of algebra's. check out tv . interact with us directly.

the best part is, you can scroll through and rewatch an interview that you may have with -- missed. this is bloomberg. ♪

emma: this is bloomberg daybreak. blue apron may need to raise more money soon after a smaller than expected ipo. the meal delivery kit company collected 300 million dollars in its public offering after slashing the price of its shares. it's another blow to a company that makes the cladding panels linked to the high-rise fire in london this month. boeing delayed flights of its new 737 last month because of a possible flaw in a engine part made by the company. engines were recalled to replace the part in question. the wall street journal is cutting back.

the print edition will no longer be available in europe. dow jones is debating whether to give mailing copies to subscribers who still want the physical paper. deals are also considered to be scrapped. the movers we are watching in the premarket as we wrap up the end of the second quarter. bayer is down 3.5%. it cut its forecast because of crop weakness in brazil. reducing earnings by about $342 million to $456 million. a severe drought in brazil that is affecting their chemicals. prices,ook at soybean sugar, they have been popping in recent days as well. premarket,in the fourth quarter earnings $.10 better, revenue topping estimates. north american sales were flat but china and emerging markets

up double digits. brand, rising by 13%, their best. it does want to nominate about seven people to the board. all food, 7.2% of sales. now some activism coming in. jonathan: coming up next, blackrock's richard turnill will be with us as we count you down to the cash open. signs of stability. tech stocks on the front foot in europe. futures are firmer by about a quarter of 1%. you are watching bloomberg tv. ♪

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the second quarter and a big rotation to end the month. money drains on a technology stocks and bids up financials. stabilization returns to the european market after bunds deliver one of the worst weeks in 2017. the u.k. potentially gears up for a hard brexit. may's legislative program wins approval. corbyn pushing to remain in a single market. from new york, june 30, good morning. i'm jonathan ferro. alongside alix steel. anna redwoods is also with us. let's get through the markets. this is how we are set up. a bond rout to run much of the week. some signs of stabilization today. 2.26 on the u.s. 10 year. potentially the biggest quarter for the euro since 2010. futures firmer, up a quarter of 1%. signs of stabilization in tech stocks. alix: the 10 year german bund

yield moving up one basis point asexcuse me, moving down -- buying comes into the market. yieldrman 10 year bond could not get over that 50 basis point hurdle. watching that as we head to the end of the second quarter. sterling weaker after consumer confidence is the weakest since brexit. the vix is a little lower after that enormous jump yesterday. gold not participating in that safe haven bid yesterday. anna: pound weakness interesting with what you have said about the consumer. onto the morning brief. due at 8:30a eastern, personal income and personal spending numbers for the month of may. and core pce data. 10:00, university of michigan sentiment for june. the consensus is calling for little change to the estimate of

94.5. 1:00 am oil investors will be watching as we get the baker hughes weekly rig count. what a difference two months makes. we have equity futures pointing to a slightly higher open but yesterday was a violent selloff, particularly when it comes to the nasdaq, pulling it down by 1.4%. as the nasdaq faltered, you also had volume climbing. you can see the bloomberg here, volume picking up here in yellow. volatility and rotation picks up at the end of the second quarter. joining us from london is richard turnill of black rock. great to get your perspective. did you buy the dip in tech, was it just a technical rotation richard: first of all, great to be here, thanks for inviting me.

we see many investors who missed the rally last year, global equities over 16% over that period of time. many are asking whether it is too late to buy. our message is it is not. when we look at stocks that have led the market higher, they include technology and financials, but it's been a broad-based rally, many stocks inning new highs in the last few months. when we look at this sustained economic expansion, the breath of flows coming into the equity markets, with we believe are reasonable values, we believe it is right to own the equity markets, right to take a long-term view. to your question, it is right to be bonded debts when you get opportunities. alix: how do you stack the value versus growth dilemma. adjusted int be financials and energy in that respect? if you look at value

today, yes, you see financials in there, many of which have done extremely well over the last few years. financials have been one of the best performing sectors in the past 12 months. we thank that can continue. you actually find many tech stocks in the value segment as well. a lot of people like to put it in the either or, but we see momentum doing well from here and we see value doing well, too. jonathan: let's talk about momentum, the conditions to keep that performing, how broad-based that can be. look at a lot of people momentum as a risk factor. when they see stocks doing well continuing to do well, they worry the market is about to come to an end. it is right to think about the risks, but actually cut when we look at many areas of the market, the fundamental support those areas are very strong. we have talked about technology and financials as being two of the areas which have let the market higher, both supported by

sustained expansion and financials particularly supported by the interest-rate outlook. if you look at a geographically, europe has been a great performer in the last 12 months, emerging markets have been a great performer in the last 12 months. we think both of those can continue. the fundamentals supporting both markets are strong. evaluations of those markets, although they have done well, in our view, are still reasonable and attractive compared to other parts of the market. perhaps most importantly, we have just started to see many investors stepping back into the market, many investors being cautiously positioned worried about short-term risk. it is only in the last 12 weeks that you are starting to see flows come back into these areas. we think that can persist. jonathan: for those who got nervous about the bond shakeup in the last week, if you asked people generally what was the anchor for risk assets, they may point out low rates, low bond yields a what is the anchor for

risk assets through the rest of the year going into 2018? i think the anchor continues to be a low level of interest rates compared to history, and sustained expansion data consistent growth remaining above trend. what's interesting to me, you have seen this music and in bond expectations in the last three days, but equity markets as a whole have been very resilient to that. there has not been a taper tantrum. bond yields move higher but equities have been resilient. to me, that point to investors nervous about rates rising. but if rates are rising because the global economy is getting better, because we're in a sustained expansion, and that is good news for equities over time. we think this is the time to be taking the long-term view rather than focus on short-term concerns. anna: richard, if you had to pick between financials and tech, i have a sharp that shows this, where they have been over

the last 12 months, and where they have just sold most recently, if you had to pick, because they are driven by such different things, which would you pick? richard: we like both tech and financials. both have done well over the last year. actually, when you say they are driven by different things, i would disagree. both are very exposed to the economic environment. they both and if it from the spoon two of the sustained expansion. we think technology has further to run. we think the valuations of many tech stocks look extremely attractive to us. this is a market environment where investors will be looking for companies which can deliver sustained growth as we get more and more disruption. they want to focus on the winners. in financials, that is a sector which has had a significant pullback in the last few weeks. many have started to question the outlook there.

we think the outlook is still strong. as interest rates start to rise, and we think they will in the u.s., that will be very supportive of the financial sector over the next few months. anna: in terms of the tech sector, you don't think the threats, overvaluation, regulatory hurdles, the threats that they may have to pay more taxes, those don't come home to roost for the technology sector? richard: first of all, i would disagree with the statement that technology stocks are overvalued. when you look historically, very low bond yields, people are looking at the last two or three a step a shock, but take back, look at the level of treasury yields today, extremely low by historic standards. when you take that into account, value in these stocks, they look reasonable. large parts of the technology sector look attractive. this is a sector which will continue to do well, investors

will be looking for areas which can deliver sustained growth. we are seeing more bifurcation in the market, winners versus losers over time as we get disruption, and more of the winners will be in the technology sector. in the emerging market debt world said returns from em debt will be lower this we could percent, and be entering a time of quantitative tightening. do you agree, and what does this mean for em equity allocation? r returns in return emerging market will major in much more by your yield over time. we have had a significant re-rating. we think a neutral allocation to emerging-market debt is the right allocation today. we still see very significant opportunities on the emerging market equity side. equities give you exposure to very different parts of emerging

on the debt side, particularly asia. environment,owth one of sustained expansion and gradual interest-rate rises is favorable for emerging market equities. also when we look within and emerging-market equities, we see very compelling domestic stories. strong reforms coming through india, indonesia, economic recovery in countries like brazil and argentina, very strong earnings growth coming throughout asia. we think are emerging on market equities have a lot of upside from here. talked abouthave the bond market, let's talk about the commentary coming from central banks around the world. the fed chair saying asset valuations were somewhat rich. you don't feel they are, that is the feel i get. what do you think she was talking about ? richard: i don't think asset valuations are rich right now. you can look around the world and see pockets of financial

market stress, you can look at areas like european credit, for example, and say there are some signs that valuations are high and vulnerable, and we would agree with that. if we look at the valuations in terms of broad asset classes, we think valuations are reasonable overtime. as we see interest rates gradually rise, that will be an environment where investors will look for whether they are being paid take risk and that will encourage investors to look at international stocks where you are still being paid to take risk, rather than many fixed income assets. jonathan: richard turnill, you are sticking with us. coming up, u.k. confidence fallen to the lowest level since after the brexit vote. sterling softer after seven straight days of gain. yesterday.t 1.30 we go to london to get the latest on brexit and the markets. this is bloomberg. ♪

brexitn: theresa may's dominating agenda one of backing of the house of commons, marking the first test of alliance with the irish party. for more we are joined by our brexit editor simon kennedy. let's talk about the road ahead for brexit but begin with the current state of the u.k. economy. various data points throughout the week. u.k. consumer confidence not looking great, but the backdrop of the health of consumer, looking at credit, savings, that is not good either. run me through the overall picture. simon: the consumer was much

stronger than those expected, really took some power out of where hisan union, before that they would sing through. the consumer did a good job with the british economy last year. now they are starting to slow. you see data coming up today about savings rates at a multi-decade low, consumer sentiment down, a whole series of indicators that the consumer is not that strong going forward. that would suggest the economy is going to take a bit of a hit. jonathan: let's talk about hard brexit soft brexit. some in the united kingdom voted for labour hoping for something different on the brexit situation rather than voting for the conservative party. did we find out that is maybe not what they are going to get in the last 24 hours? simon: a bit of a wake-up call with the jeremy corbyn firing some of his team after they voted for an amendment that down have left the country for the path of a softer brexit

than most see. commitment runto on the election campaign, leaving the single market. seats are in its places that are prone frexit, north of the country, and yet, a lot of seats are also in remain areas, so they have to navigate this support. somewhat brexit, some don't. we saw last night for the moment jeremy corbyn is not using his newfound political muscle to necessarily push a new form of brexit. sticking for the plan -- sticking to the plan for the moment. anna: meanwhile, trade talks between the u.k. and the u.s. -- of course, no deal can be done until the brexit happens -- trade talks will get underway in july although some remain skeptical as to whether big differences can be bridged around health, agriculture, other areas. simon: a trade deal with the u.s., a sense that the one is on

the way would be a big headline for her, ability to say the global promise of brexit that she talked about being delivered. liam fox needs these trade deals to justify his job. and yet, at the same time, with ,merica there are some issues will the americans take advantage of britain's need for a trade deal by demanding financial industry, more wall street rules, food standards, which are more lax in america than britain, will they try to impose lower food standards between trade? will american companies try to get access to the british health service? lots of issues. a lot of hard work to put in. interesting, though, that those talks will start this month, according to the british side. anna: simon kennedy, thank you. for more on brexit, also from

london is richard turnill, blackrock's chief investment strategist. i noticed jpmorgan said that the ftse 100 looks attractive on a cyclically adjusted fee basis. what do you do with u.k. assets at the moment? the u.k. economy does look challenged to us, evidence that brexit is having an impact. that is the one g7 economy where we see downside to economic consensus over the next year or so. when you look at the stock market, remember over 70% of the revenue coming into u.k. stocks come from outside the u.k.. u.k. stock market is highly exposed to the global cyclical recovery, global sustained expansion phase. particularly with exposure to the emerging markets. overall we remain positive, constructive on the u.k. stocks

but would prefer international stocks which of us that exposure to global stocks rather than domestic, where we see some vulnerability. jonathan: what do you make of the financial sector in the u.k. right now, given the state of the u.k. consumer and the data points we have seen this week? consumer credit is exploding. the savings rate is absolutely plunging. are we in for some tough times ahead for some of those banks? banks globally, but for the reasons you highlighted, i think there are better opportunities outside the u.k. in particular, we look at the u.s., in a very different phase of the economic cycle, banks taking significant measures to improve their balance sheets, interest rate is moving higher which will support that interest-rate margins. globally but let the u.s. looks more attractive than other markets. anna: what does the bank of england to? we have been talking about central banks turning more hawkish. certainly the markets have

reacted to comments from the bank of england governor this week. kristin forbes talking about the key thing for her is wages, and index showing how people might be confident enough to move jobs. where does the boe go? richard: we think they will be very gradual going forward. although growth is holding up in the u.k., it's the one area where our own signals, when we look at the macro signals, suggest that things are starting to slow. when we look at inflation in the u.k., yes, running higher than what the bank of england is comfortable with, but a large amount of that is due to the depreciation in the pound. we think that will wash out of the inflation figures. our view is the bank of england, being very cautious, very gradual in its approach to moving interest rates. global central banks will continue to be cautious going forward. anna: we see the headlines about when the u.k. will start trade talks with the united dates, want to do many trade deals

after the brexit. thehis material when conversation with the eu still up in the air? richard: you have a huge range of uncertainty now for the u.k. in terms of what our trade deals look like in a few years time. the result of the recent election just broadens the range of possible outcomes. it's very hard for investors today to try and trade stocks on the expectations of trade deals. much better to take a long-term view, focus on fundamentals of companies, identify those areas of the market where you are being paid to take risk. anna: richard turnill, thank you. great to get your thoughts this morning. coming up here on bloomberg daybreak, jack gerard, who is the american petroleum institute president and ceo. 45.19 on wti. this is bloomberg. ♪

emma: warren buffett's berkshire hathaway will swap $5 billion of bank of america hurt stocks to 700 million common shares. those shares are worth roughly $17 billion. the is they announced it would raise its dividend by 16%. stock sixquired the years ago. shares of like you rising in premarket trading. they delivered a rosy forecast. nike will now that amazon and instagram users by its sneakers directly. sales are expected to rebound in north america where a deed us as seen a resurgence. andr is cutting its sales profit forecast. the consumer health division is also is not performing as well as expected. shares drop by the most in eight months. alix: we want to start with what's moving in the premarket. steel stocks.

ak steel up 1%. u.s. steel up 2%. there is a report that says some aresors and president trump hell-bent on imposing steel range tariffs, in the 20% , and that could extend to things like paper, aluminum, household appliances, semis, etc. all the antidumping terrace we have from china still not enough to make the steelmakers profitable. yesterday was categorized by the big slowdown in tech stocks, the nasdaq down 2.5%. here is are stacked up into the open. apple making marginal gains. facebook and alphabet, nvidia relatively flat on the day. keep in mind apple is headed for its worst month since april of 2016. it was all about tech in the first five months of the year. then june became all about financials. bank of america getting a slight move in the premarket.

warren buffett, berkshire hathaway is now the number one holder of bank of america shares after he converting some of his shares -- preferred stake into common. he will be paid more in his dividend because of that. nonetheless, having berkshire as your number one shareholder, not too shabby. jonathan: a lot of people like that. thank you. coming up, jack gerard, american petroleum institute president and ceo will be joining us on this program. wrapping up a turbulent week. futures up, up .2% on a doubt. -- dow. a fairly decent town in europe, until the last couple of minutes. this is bloomberg. ♪

joanathan: you're watching bloomberg daybreak. economic data in the united states, if you are looking at

the tech stock route, that has stabilized in europe. if you switch of the board, a bond rout for much of this week as well. that has stabilized somewhat. the dollar is stronger against the euro and sterling. it comes in bank in line. 0.1% andooking for that is exactly what we got. the estimate was 1.4%. this is for the month of may. personal income comes in at 0.4. personal spending comes in at 0.1%. both -- most of these are in line. anna: let's talk to our guest about that. our political correspondent.

let's get your initial risk -- thoughts. there is a story in here somewhere. michael: we like to talk about core inflation because it takes out oil prices. in terms of the headline number, it falls to 1.4%, farther away from their 2% target. janet yellen told us they expect this because of oil, they expected the year-over-year numbers to be affected by the cell phone price wars earlier in the year. they are going to try to look past this did -- this. prices are down again on a monthly basis. rose .2%. that has been revised down. it looks like we are not seen and inflation a problem, even if you strip out some of those things they are looking at your it that may give some relief.

inflation story is not moving expectations. >> there is always a question about the late cycle story we find ourselves in. numbersticular set of doesn't change our view on the market. it doesn't change our attitude about taking risks right now. we want to be diversified. we want to be more diversified out of the u.s.. we hope the data is only one part of the story. now, we are starting to push higher yields again. anne: we thought our range was going to be to 290. they say it is back up and running with 15 basis points. we are at the bottom of our

range. this is reacting to speeches people made an traders responded. alix: there you go. onant to get your take personal spending. that was up .1%. the final demand we saw was solid did are we into a final a demand, weaker consumer spending dynamic? michael: we don't know. that is something the fed is watching closely. washingtonenda in stalled, the idea of corporate tax cuts and infrastructure going nowhere at the moment, it doesn't seem like is this will be interested in increasing spending. what will happen to consumer spending? do people continue to spend because they are confident? confidence has hung in there. do they start to pare back. we are starting to see that in these numbers. one of the questions is do you

have the money to spend? if you're going to pick out one number on this income report that is worrisome, wages in salaries only one up .1%. do we spend money or not? unemployment is low. that is something the fed will watch here it -- watch. jobless claims of this low, watch the story? anne: i don't know if you want to blame the new economy, that is something everyone is trying to figure out. you would think there would be wage pressure coming through. lots of open jobs are posted, yet there is this stubborn, how misleading averages can be. maybe we need to be taking down to the next player. are going up where there is demand an open jobs.

we to do more research on that. anna: should this be even more attention by the fed and central banks? wages against u.k. wages. the stories are not entirely dissimilar. the technology issue is relevant. should central banks be focusing more here? anne: what is the core job? u.s. is unique in its dual mandate. it does the same thing about wages. is health of the economy dependent on people earning money. i would also say is someone who does a lot of retirement stocks, retirement is up. it may take a little bit of a lag before you see that go back into the economy. that's not necessarily bad news. alix: it does dovetail into what we've heard from the administration area -- administration.

they don't want to lose the jobs. the trump administration officials said he was hell bent on it tariffs. are we back into a potential trade war situation? michael: if the president does go ahead with the section 232 determination in terms of steel, it could lead us in that direction. it could bring on trade retaliation from other countries. we have a lot of tariffs already on chinese steel. there is not a lot the president can do about chinese steel. our biggest steel importer is canada. we would be going after the canadians and the germans. we would be going without the south koreans. it could lead to some sort of retaliation. the biggest problem with steel is china is dumping comes of

steel on the world. it's global. there is overcapacity. it goes into germany and depresses prices around the world. we can't put of the barrier that will change that are in -- that. joanathan: they are going after the auto industry. michael: what will really happen is this pushes up prices downstream for all manufacturers, automakers, type in steelmakers. all of those prices are going to go up. in exportswill go up will be less competitive. that's why they have gotten so much pushback on this. downstream users are so much larger than the steel companies. the impact would probably be negative. anna: thank you both very much. daybreak,on bloomberg

the american petroleum institute president and ceo is coming next. this is bloomberg. ♪

emma: coming up, alix steel and matt miller cohost the boston pops fireworks spectacular starting at 8:00 eastern. note for your bloomberg business flash. blue apron may need to raise more money after a smaller than expected ipo. they have cash and credit for the year. they had $300 million in their public offering after slice --

slashing the price of shares. the world's largest university endowment is trying to turn around its lagging performance. the sec is scrutinizing how hedge funds and other money managers handle ipo shares. that aors are concerned select few are getting access to highly profitable trades. newly listed shares gain an average of 16% on the first day of trading. that is our bloomberg business flash. alix: the president try to change the conversation in d.c., focusing on energy week. he highlighted his goal of energy dominance. >> my administration will seek not only the american energy independence we are looking for, but american energy dominance. we are going to be an exporter.

exporter. we will be dominant. we will export american energy all over the world, all around the globe. include ainitiatives new pipeline that will send money -- oil to mexico. new deals to send u.s. lng to asia. how does this change the energy dynamic in the u.s. join us is jack gerard a. it's great to see you as always. you are firmly entrenched in the industry. what is and i'm one thing that needs to be done to help exports? i think what the president is doing is exactly what needs to be done. he has changed the at us tuned of the conversation. energy should be a dominant role in our economic recovery and our

ability to create jobs and put people back to work. we are pleased with this broader vision. instead of creating areas to producing domestic energy, he is opening it up for more pipelines and more facilities. is focused on the heart and soul of economics. that is energy and saying we can take it to a new level from what we've accomplished. alix: president obama lifted the exports for oil and the shale revolution happen under president obama. there were not a lot of restrictions. jack i might take small exception. it was the congress of the united states that lifted the export ban. we convinced the president signed that as part of a broader package. when the previous administration left town, we were dealing with

over 145 new regulations that created terriers to producing domestic energy. what the president has done so well, he has changed the mindset instead of erecting barriers, let's have smart regulation. let's protect the environment and our workforce. let's find ways to take our domestic energy where we create american jobs and build infrastructure and share it with the world. we don't think people think about the positive environmental impact it has had since we been producing all of this cleanburning natural gas. our carbon emissions are at a 30 year low as a result of what the marketplace did. includes his vision that broader vision to say how do we benefit the rest of the world while benefiting us here at home. we think he is right on track. we appreciate his leadership. alix: they are reporting that

donald trump and some of his aides are bent on a steel import tax of 20%. do you think oil would ever be included in that? to help our dominance? we believe it's a fundamental principle that helps us crude -- compete on a global scale. we are able to export crude oil finally. we can compete in the global marketplace. the government should not get in the business of picking winners and losers. taxation policy, trade policy that picks winners and losers and not helpful. compete and wend believe we can compete with anybody around the globe. it benefits the consumers because they get lower costs. alix: are they picking a winner? the more natural gas you want,

the more coal is going to go out of business. you can't change the economics. do you feel like the winner is your industry western mark jack: i don't think he is picking winners and losers. he is leveling the playing field . -- previous administration was penalizing the coal industry. we support the coal industry. an alleve we should have of the above policy were all forms of energy are allowed to compete. resetting ae is fair and balanced approach where energy sources can now compete for that are could place. is the american consumer is the winner. aaa believes every consumer saves over $500 a year with lower gasoline prices because we

produce an abundant supply which puts downward pressure on the price. the approaches balanced and fair. it is not picking winners and losers. let us all compete. let's benefit the american society. alix: thank you so much for joining us. anna: let's do that. listening to that, how are you investing at the moment? are you interested in what he had to say yesterday about a renewed commitment from energy projects? anne: when we think about it as investors, there are two things to separate, what happens to oil as an asset class. our view is that is helpful.

i don't want to call them inflation hedges. , youu have a portfolio want to own some commodity exposure. our view right now is it's not a problem. as we heard from some of the statistics coming out, buying energy sensitivity is cheap. to putt's not a bad time that in the portfolio. when you want to put had john is when you're not worried about it. you don't want to wait until people are worried about it and the prices going up. think other side and i there is a discussion about this. is there going to be a macro effect. is that going to benefit the consumer? downsideoing to be the on manufacturing. does that create a competitive advantage in the u.s.? oil prices have been stuck in this mid 40's range for a while. my fundamental issue with

this is the policy in d.c. benefits the companies on a micro level but not a macro level. you let them produce more, that adds to the supply. there is a bizarre catch 22. get that and, we it hurts us. that's what we saw two years ago. anne: you have to see how it plays out. pumping marginal units? can you stay in the game? , don't think the level we hit i don't know we can stay at that level sustainably. does that in a weird way help us? you could say the industry came out just fine from all that.

thank you very much for your thoughts. checkout tv . you can watch us online like you do on regular tv. you get all of the added functionality. you can click on the charts and the graphics we use. you can interact with us directly. you can ask the guest question. thiss what we are doing friday. tv is the function. this is bloomberg. ♪

alix: they push the health care back after the holiday. the president tweeted they should just repeal and forget about the replacement. with us is dr. mario molina. it's great to get your perspective today.

i was hoping you could help me quantify if we get the version done, how much would a hospital budget decrease? mario: they are going to feel deep cuts. its cuts medicare by 35% or 22 million people are going to lose their insurance. it's going to have widespread repercussions. repercussions the in medicaid? mariano: it's going to fall across the spectrum. millions of people will lose care. affect children and people with disabilities. it's going to affect those in nursing homes. it's going to have a huge impact on the economy. alix: if you had a budget of $1 billion next year, how much do you have to cut?

mariota: it's going to be difficult for the industry to respond to this. you are talking about a 25% cut in medicaid going up to 35%. that's going to cause a ripple effect across the industry. they will raise premiums. it's going to raise deductibles. this is a task got masquerading as a tax bill. anna: they are divided on the health bill. industry toing the not have its voice heard sufficiently? mariano: i think there are plenty of people speaking out about this. this bill is wildly unpopular. only 12% of the people support the bill. i think you are seeing them flee from the bill. in a sense, the president would like to see it fail. if it passes, democrats will pick up seats in congress. alix: it could be a target for

acquisition. if the senate bill gets going, will we see a lot of consolidation? mariano: i don't think it's going to trigger consolidation. it's going to disrupt the safety net. that is a problem, whether you hospitals,ged care, even pharmaceuticals will feel the pain on this one. alix: are there pushback from the states western mark mariel: state register going to have real problems. this is a big cost shift to the states. this is going to hurt things like education. this needs to be thought out or he carefully. there has been a rush to repeal. the bill is dead on arrival. anna: do you think this is because you been speaking out against this bill? mariano: i can't comment on

that. right now, i am watching to see what happens with bill. alix: it's great to get your perspective. it's a bait that will rain. it is a delay? is it that in the water? joanathan: i'm not sure what i just learned. there you go. up, we will be joined. from new york city county down to the open, futures are firmer. dow things6% on the are starting to move in the bond market. ♪ this is bloomberg. ♪

joanathan: and into the second quarter.

money drains out of technology stocks. stabilization in the bond market, slowly gives way to another day of selling. the treasury delivers one of the worst weeks so far. presidentte says the is intending to impose tariffs on imports. we are counting down to the opening bell. let'ss bloomberg daybreak get you set up for the opening bell. about .1%. firmer, the dollar is stronger and the euro is weaker. that is not been the story of the week. euro dollar is headed for one of the biggest spikes since 2010. some are starting to give. 228 on the u.s. 10 year. let's give you some premarket. this is where we are

stacking up some individual names. nike is up. first quarter earnings were $.10 better than estimated. china sales were rising at double digits. early stage of direct sale with amazon. they see 2018 sales growth in the single digits. earn jeans -- earnings are up by double digits. engaged capital in a 10% stake in the company. they may sell the company or in part. walmart is 10% of sales. wells fargo actually raised its target 20% based on the sum of the parts. we want to take a look at where the steel names are doing. u.s. deal is up one. if you do wind up having a 20%

import tariff, it expands to aluminum and paper. that could be good for the steelmakers. these guys have a hard time making money even with tariffs from china. joanathan: the biggest story is what happens to the downstream. they may have to buy it domestically. costs are going to go up. we are going to count down to more on those stories. treasuries are heading for the biggest week since march. with us now is the wells fargo strategist. scott, let's begin with you. we have a rout in the bond market for much of the week. there might be some signs of stabilization today. what does that mean for the equity market?

scott: the bond market has been largely telling us we are going to be in a modest growth environment for quite some time. it's been telling us that six hikes in two years is a headwind for the economy, not a reflection of an accelerating economy. stock valuations are stretched. we are looking for the market to finish this we're -- year 6% lower than where we are right now. we want our clients to stay invested. there are multiple headwinds that are going to be a problem for stocks and -- stocks. joanathan: bonds are down and yields are up. scott: i think the headwind for us is valuation. you are at 19 and change on the s&p. you're obviously in a rate hike cycle, which tends to be a

headwind for multiples. we are not going to see much progress out of washington. the thing we have been concerned that late this year into 2018, the market is going to have some concerns. the labor market finally titans and we will see a jump in wages. that is going to be bad for corporate margins. anna: let's bring else need into the conversation. you agree? bill: this is where i disagree with scott. the 100 most expensive stocks in the s&p out of the 500 have only been more expensive in 99. au could easily see

significant correction in those. that's were all the capitalization is. think canhat people produce above-average growth has been catching this lower for longer interest rate he is referring to. think on the cusp, we are beginning to reach critical mass in the way the lineal's will affect the economy. it's not going to be the fed or anybody else other than the aggregation of 30 to 35-year-olds. buying houses, taking up mortgages, stimulating the economy. scott is right. there is a possibility of the drop. this in thee seen

last two or three weeks. it sounds like you would prefer value over growth. what kind of 10 year yield would you see for that to work? scott: the ones so far this year have worked. right. if you break it into strict value versus growth, we own 28 stocks. we are doing well this year. the fact of the matter is home builders are doing well. they are on the value side of the ledger. if home-building is good for the next 10 years, the s&p is something they've only got 43 basis points in their home builder material feeders. they've got 25% in tech. are 10 blocks from

amazon. there is a boom in seattle surrounding them. when you've been around a long time, blooms get followed by busts. if you google it, there is nothing behind the das h. 500 is a capitalization weighted index. if it was equally weighted, the theories would work all the time. the problem is there is a circle going on. tech does well come the index in, well, the money piles momentum investors change. it's a virtual circle. in 1998 andcircle 1999.

when the y2k finally hit, it roque. just call the eu and asked them what they think about the google situation. joanathan: we found out about that. bill: how about ebay who had to spend money to redo the way their search interacts with ebay because of what the eu was talking about. you don't think their lawyers are saying let's do this. emma: let's come back to you. does anything exciting at the moment in the tech sector? scott: millennials are going to be driving over the next of the 10 years. i am focused on something shorter. what is going to be the next step in the cycle. we have been over industrials

and technology until earlier this year. we like consumer discretion. we do like financials. that makes up a huge part of these value indices. you will see the yield curve stiffen. you will see loan demands improved. getall for value, i can't super excited about that. you're going to see the economy accelerate a lot. underweighte are small-cap stocks. we like health care. that's what we have stuck with and that has worked for the well for the most part. i don't see any reason to change that in 2018. what sectors are most exposed if we get the kind of temper tantrum and yields back up? then you've got guys like they'll who want to get in and buy. there is more capital on the sidelines.

do we ever get that kind of correction? aret: are fixed income guys looking for the 10 year yield at the end of this year to be slightly higher. i don't think you will see a big act up and yields. if you think about staples, we are underweight those. they have underperformed if you look over a several year time. i don't think these are going to work out very well. i don't think the cycle is coming to an end. the international economies are picking up a little it. i think you want to be assertive. you want to be leaning toward the economy improving slightly. you're going to have to grind it out i think. this is a perfect time for active managers. passive management has worked great worried we are in a cycle or you need to be a picker. alix: stick around.

both of you are sticking with us. day off and you're drinking some beer it on bloomberg television, i will be there with matt miller. we will cohost the boston pops firework spectacular. tune in to check that out. this is bloomberg. ♪

about: this is leading to a big rotation out of global bond markets. globals a haven in the bond sellers.

rate surge inr germany,d the u.k. and let's come to you. are you playing this bond selloff? it has been a busy week in terms of central bank rhetoric and commentary. heard,play what you have is that getting you playing this scene? scott: not really. that the ecb and many of these other central banks around the world, you're not going to have armageddon interest rate levels forever. they are going to back off. they are going to taper these purchases. you have a good indication from a number of things. what the dollar has been doing lately, it has been weakening.

which central bank is going to be tighter? the dollar has been telling you it's not the fed. these other central banks are going to be pushing their rates up. this is a normalization process. it needs to happen. they are very happy this is going to taper little bit. you've got to think about what the global economy is going to do. it's going to get a little bit better. we are not going to have a lot of inflation. we are trying to reconcile the policy normalization story and how that can occur. have we learned how that's going to happen this week? scott: that's a tough thing for the fed. you could argue we are looking for 2.3% gdp growth.

this definitely shouldn't. the central banks have their backs against the wall. the market has been trading off these low rates. beeninancial markets have using these low rates. b,ting from point a to point that isn't much of a jump in terms of terminal rates. getting it there is a problem. right now, the u.s. 10 year me they aretells saying six rate hikes in two years and a modest growth economy. they willhistory is let the economy lead them higher. we've been doing these tight means just to get the money market rates.

it's not really a policy statement. they want to get some thing going there. trade, we is to think the biggest window maker trade was shorting japan. now it has become shorting treasury. the human to take behavior led by the united states and more likely our adult population is dominated by 86 million people. did draghi do you a big favor this week? bill: a lot of money is poured into u.s. hans because of the rates in europe. the moment it appears that iropean on rates might go up, think on your side 70 show this last week.

this is the highest it has been in five or six years. it was six months ago when that same chart you had on your site was people were betting on higher oil prices the most. joanathan: are we going to see a time of year with the financials can be unleashed? bill: eight years of misery don't get followed by one good year of market action. think of how hated that has been. they were the tobacco stocks of the 2000s. everyone hated them. political careers were built on it picking on them. dodd-frank was set up. more barn doors were closed after the animals were out and anna: now we see political careers in reverse.

bill: this capital release, this is a huge repatriation of money from inside the united states. we are talking about $2 trillion back by lowering the tax rates. what about releasing these billions and billions of dollars on the financial balance sheets? thank you very much. both of you are sticking with us. coming up later today, a conversation with alice rivlin. don't miss that. this is bloomberg. ♪

alix: they had been -- s&p in the dow up. thever, it's headed for

lowest quarterly average in 11 years. roads been a really rough for volatility. have bill and scott. does volatility pick up in any meaningful way of the market tends to shift more to a synchronized global recovery paring back essential stimulus? scott: if you buy options, they have to move for you to make money. the volatility portion is based on it. at that have a mic grinds higher and there is not a lot of volatility and there is not a lot of back-and-forth. that portion is going to melt. that's what we have seen. some back-and-forth, if we get more days like we've seen the last three days, it's going to go up.

they are focused on the vix. a indicator. it is not leading indicator. it is probably more of a lagging indicator. you cannot look at the vix as an indication of what's going to happen in the future. it's also in currencies and treasuries. does volatility pick up their? does that include equities? bill: it might be greatly affected by the way individual investors and financial advisors have shifted away from individual stocks. we are in the large-cap space. what that means is the

individual investor is not likely to own individual stocks. thenost successful have $800 and $1000 stocks. that puts the individual investor that much farther removed. if you look at the sentiment 26.5% bears.les, those numbers are a monstrously low total. the neutrals are dominating. if you don't have any idea what , what reason is there for volatility? you said the move can be explained by passive away from active. bill: that's what sets up the next 1987.

1987 was portfolio insurance. we were late in the five-year run the triple the dow from the low to the high. people thought it was work folio we were down 22% in one day. the pied, you've got piper running around. you can sit through the declines. when that happens, you've got the momentum guys, they are going to head for the exit. that is going to hurt the stock that is in the index. anna: what gives this a boost to volatility. we have central banks in the mix. we have regulators in the mix. what gives us the boost in the future? scott: i do think we get something from global central banks.

the fed is going to do three hikes in 18. there are central banks around the world as well. certainly, earnings growth for the rest of the year is great, 15% in the first quarter against an easy,. that's going to get tougher. we are going to see nothing close to 15% for the rest of the year. this lack of progress in washington, we were of the how far into 2018 is this going to happen? it's going to be a combination of things that make the market turn a little bit and. joanathan: from new york, you're watching lumbered tv. ♪

jonathan: from new york city, for our viewers worldwide, this is bloomberg daybreak. i am jonathan ferro. futures are positive.

on the s&p, we have potentially one of the biggest weekly losses since the middle of april -- april 14, but on the quarter, though, potentially seven straight quarters of gains. that is the story for us out there. here is the story in the bond market. treasuries down. yields up by a single basis point at 2.28 on a u.s. 10-year. in the fx market, the dollar showing some strength. that is a novelty this week so far. it has been all about euro strength. that is the story for you. that is your setup. the cash open with alix steel. alix: a sigh of relief in the markets, opening relatively higher for the worst day they saw in a month. up .48%, the s&p as

well. you have oil steeper, macron earnings. all of the helping the market, as well as banks. bank of america up by almost 8%. jpmorgan following suit, up 5%. citigroup up 6%. it is a trifecta for these stocks. they can think mario draghi for that. the yield curve steepening over the last few days. a big jump in yield helping banks. in addition, the by banks -- the buybacks banks on us -- a $59 billion by the combined. bank of america getting extra love after warren buffett converted preferred shares to dividend shares. he is now the top shareholder of the company. this is a new theme for the bank -- a june phenomenon. for the first half of the year it has been all about tech. the rotation happening in the

last few weeks. let's look at the winners and losers in asset classes. loser by far brent crude, off by over 50%, entering a bear market. -- 15%, entering a bear market. a really steep drop so far this week -- year. hard to find english catalyst for the dollar. global bonds returning slightly more. gold, look at that, up by over 5%. a little bit of safety there. europe a big supervisor to the upside. equity trademarket still ringing true in terms of the biggest bullish bets so far up by 15%. if you get the weaker dollar, you don't get a materially steeper yield curve. n, what is thejo back half going to bring? jonathan: what a surprise, the consensus trade was sell, sell,

sell, and then it quickly became buy. we are joined by mike reagan. the headline grabbing story at the back end of the quarter has been a rally in financials, but it has been a quiet rally in health care as well. what is driving test? mike regan: well, a lot of what is going on the market, we tend to think of people rotating between sectors -- tech into financials, cyclicals into defensive, but there is so much rotation in different factors right now. people getting into high beta stocks, out of high beta, out of growth stocks, into value. there is a lot of different style of rotations. i think health is a value rotation. these were stocks left behind immediately after the election, and it became, sort of, clear, that president trump -- he almost sounded a little bit like hillary clinton during the

campaign on drug prices -- there was a were he would come out strong on these escalating drug prices. that has gone away. healthot know what this bill will look like, but there doesn't seem to be this aggressive push back on drug prices. that is a big part of it. jonathan: just pricing is wanting. another sector we were expecting pushback was em. the best performing emerging-market currency, drumroll -- the peso. who saw that coming? it has been that kind of year, hasn't it? bill: three version of the mean happens. your points are well taken. scott made a comment that he was looking in three to six-month time fence. and your point is there is this money, smartest people in the room doing all this stuff, and the beauty of it is there is

thousands of people that would love to know what is going to happen in three to six months and gain the benefit of trades from three to six months. the truth of it is we have sat there with most the same amgenies, and your point, is the second-largest physician. they wake up from 152 to 173, and i have the color in my cheeks again. a year ago february, bank of america had a low as $12, a ridiculous price, a throwaway price, and jpmorgan was 53, so jamie dimon calls his broker and buys the stock. sayseauty of it is buffett the stock market was formed to move money from impatient people to patient people, and that never changes, but with all the indexing, that are fewer people that want to stick their neck out, buy things, sit for a year where it is not going their way

so for three years they will go their way. anna: and you are patient. bill: that is how we make our money -- we are not that smart. anna: if you can't be smart, be patient. i did hear from one investor that says similar to your point, we don't know what health care will look like, but we think we know how bad it could be. we have some confidence to buy the health-care stocks we know more about. mike: it is so interesting. john templeton, who was one of my heroes -- used to go on interviews or on tv, and would say the things invented in health care in the next 10 years i going to be more spectacular than anything that has been invented up till now. that is really true. think about this one thing for a minute. there are -- there are millions and millions of people between 55 and 70, and we just found out and jim has a -- amgen has a

think they are quibbling about the price, but if you take it, bad cholesterol turns you into a marathon runner. it goes to 70. jonathan: i imagine that is maybe a little bit of an exaggeration. bill: no, your bad cholesterol -- call -- at bloomberg. he will tell you. let's say -140. it will go to 70. jonathan: i will not transform into a marathon runner. drug that has a works, and the guy from the cleveland clinic said it could work. normally thehat -- stock market would be all over those two stocks like a blanket, but because of the fear of price increases -- mike: he gets back to the idea of demographics being the long-term issue with how stocks from the buy-and-hold perspective. no one is getting any younger. alix: to that point, how are

investor's positions to the backa? mike: a lot of the research and commentary i have read is there is this recurring theme that strategists and traders think the market is eventually going to throw in the towel on corporate tax relief happening this year. davis is rumbling we will see some kind of turbulence surrounding that -- there is this rumbling we will see some kind of turbulence around in that, maybe even a government shutdown. if you look up the first half in the last half of you -- all of last year, it has been since brexit where the market is at a noticeable dip of 5%, say. that is a long time. trades arewo crowded the -- complex anyone connected lower and the lower for -- longer.

alix: specifically, what kind of names? bill: lower -- longer. facebook wants to create content. ing?not buy t the third most popular thing on facebook is people posting local news stuff. ipps networks interactive owns hd tv, the food channel, and travel -- and americans -- millennials love that stuff, now they willget older, watch more. because theyt watch the commercials. it has to do with what they just watch. he does inis what the afternoon. -- theyre is walgreens got spooked by amazon, treating at 15 times earnings with all the other staples, colgate,

palmolive, and the warren buffett related staples. here is walgreens at 15 times earnings. a huge bargain. jonathan: teenager on show. -- you need your own show. bill: i have my own time. smead, mikell regan, thank you very much. let's get to the opening bell. 10 minutes in, futures are firmer. .4%.the s&p 500 as well by from new york city, for our viewers worldwide, you are watching bloomberg tv. ♪

emma: this is bloomberg daybreak. i am emma chandra in the

hewlett-packard greenroom. coming up to my conversation with alice rivlin of the brookings institution's -- institution. that is at 10:00 a.m. eastern. alix: the worst performing asset in the second quarter was brent crude. look at the impacted wound up having on wti. wti down 10% this quarter --the worst when we have seen since the end of december. goldman sachs had an interesting report out yesterday -- the reason why the market got oil so wrong. i have seen downgrades in price estimates from bank of america citigroup, socgen, wobbly right now. stewart wallace joins us to discuss -- walk me through the goldman note and talk about the biggest reason why analysts in the market got oil so wrong so far this year. stewart wallace: i don't think

there is a single reason. it is very nice they are saying we got it wrong. they are not the only ones to do that. this is a pretty sorted groups of -- group of banks that said we got it wrong. what were the main factors -- two big ones that bring -- spring to mind, libya and nigeria. these are cayenne it -- chaotic countries. it is hard to tell what will happen next. in the thing, shall -- the market has not adjusted to the speed with which shall could come back. under normal circumstances, you 10-yearr a three to leadtime. fivehale it is three to quarters. howmarket is not grasped

fast this stuff is coming back. we still get the calls that we will see backwardation -- it'll just be later than before. we will get higher prices in the short term, lower price than the long-term. is that fancy, or is that something still in the cards for the oil markets? stuart: i would be very cautious on backward nation. and alooking at it today, month ago. that is great if you want to do floating storage, but i don't see any evidence right now that is going to go into backwardat ion. i am not making a prediction because i have learned my lesson. it is a folly to make these predictions. you never know what is going to happen. in terms of the prices, there is a market act -- argument to be made that the market is still -- so short.

you do have the potential for a short squeeze. you could see a rally. we have seen over the last couple of days. you see a little bit of a rally, what will happen -- sh comes back ina,le opens new production or effectively buys insurance to keep going in the future. hale guys go gs #btv --, on, come on. -- what does by tj this wind up meeting for big oil? willoughby talking about dividend cuts -- will we be talking about dividend cuts? >> that is not what we are expecting. we are constructive on the price of crude. one of the things that is interesting for crude, a lot of the u.s. oil services names are actually discounting a decline in recount in the u.s., and that

has been a big issue. there has been so much u.s. production, less growth. if that were to happen, you expect to see a rebound in price, which would be good for a lot of stocks. stuart: -- anna: what about the rate at which these businesses could take costs out, certainly in europe, the way big oil majors trying to cope with oil prices, hammering costs and what they did to shareholders as well. with cost savings, where do you see -- in your universe that you look at, the opportunity to take costs out, tackle the periods when we see downturns in oil? t.j. thorton: i think that is right. beencers in the u.s. have getting more efficient, and that is one of the reasons you see continued declines in prices.

these guys are able to take their costs down. you are seeing their -- taking in certain parts of the market. there is a tight labor market in the u.s.. that has meant labor availability is not great. that,s another thing though it may not be as good for the producers because producers have seen costs come down for so long, it should help us find a crude,in the price of especially combined with the fact that, you know, as cost goes up and price goes down, that means, you look ahead, less u.s. production. alix: what is the best way to play the better micro-story, worse macro story? producers get more efficient, they can do more lower prices -- the good micro-part, but on the macro part we get lower prices that squeezes long-term production. what is your best strategy to play that? t.j.: one of the stocks we have

on our franchise take list is rpc inc. -- a u.s. oilfield services names. the reason we like them -- we think the stock is discounting a decline in rig count, which, as i said before, we think is the case for a lot of the oil field names in the u.s.. as u.s. gains share, we expect to continue to see growth. it just may be at a somewhat slower pace. it really works in the favor of a lot of the u.s.-centric names. that is another thing we find attractive about res. jonathan: t.j. thornton, thank you for joining us. we want to get you up to speed on the data. the chicago pmi -- the chicago purchasing managing and x coming in at 65.7. that is the print. big upside surprise. the previous number, 59.4%.

a little bit later, we'll get the university of michigan sentiment in the cases. they will, 10:00 a.m. u.s. time. the equity market, about 19, 20 minutes into the session, stocks at a session high, up .5%. anna: stocks at a session high. if you would like extra functionality as you watch, check out tv on your terminal, and the radio. if you click on tv, this is what you get -- the regular output, and all of the charts down the side as well -- you can click on the data, the charts, and even ask the guests a question. we will put them to those guests. this is bloomberg. ♪

anna: this is bloomberg daybreak.

president donald trump and russian president vladimir putin will hold their first meeting as heads of state at the g-20 meeting in hamburg. matt miller joins us from berlin. he will be covering the event. and in new york, michael mckee, international policy correspondent. matt miller, there is a lot to talk about. angela merkel has been talking of this event, stressing the two sides of the atlantic are not necessarily on the same page on a number of issues here. matt miller: absolutely. to some extent, she might give up a little bit on that relationship. she has really important meetings, aside from the kind of atmosphere that surrounds donald trump. i don't want to say circus, but there is a lot of media around donald trump but not a lot of meat when it comes to agreement. she is meeting with president xi

. she has hot button issues to deal with with president erdogan out of turkey. deliverrump does not results at the g7 meeting so far, and the g-20 may be coming up. alix: mike, on the back drop, we could get word on steel tariffs. we hear headlines that president trump still wants a 20% import text, which would very much affect germany and ruffle feathers over there. michael: we get more steel imports from germany and we do from china these days. they will probably not allow -- announced something today -- we are told. their self-imposed deadline -- they really have until next year to get this out, but they may hold it until after the g-20 meetings. the question is is donald trump holding it because he wants to talk to allies, or is it because

they are not ready because it is a complex issue? partner just to the north of us, canada, is our biggest steel importer. at this point it is not as -- as much about china as other members they are meeting. anna: they were just talking about south korea. jonathan: a huge week for markets, but we have to talk about panda diplomacy. someone else pays my paycheck. if i was working for free, i not come to this. and a diplomacy. matt: look at that adorable panda. these are a couple of pandas given to germany by china to smooth the relations. one thing that goes under the chinese are going to come here before the g-20 summit in hamburg.

while they are here, and they will meet with the leaders of singapore and south korea as well -- there will be a g-20 minisummit among the finance deputies and the serpas. there is going to be a finance summit and they will talk about a lot of things like the almost -- the seemingly coordinated message that central bankers have been sending out. very interesting, and it sent yields soaring. jonathan: he couldn't help himself. anna: meanwhile, angela merkel says -- matt: she is -- michael: she is speaking right now, saying she rejects trump's views of winners and losers. jonathan: that does it for bloomberg daybreak. have a fantastic way, and a long one, if you are celebrating july 4. ♪

a.m.e quinn: it is 10:00 in new york. from here, i am vonnie quinn. london, in: and from

am mark martin. welcome to bloomberg markets. vonnie: president trump is due to meet with the south korean president at this hour and we are following trading for the end of the second quarter -- can you believe that. we have a report on consumer confidence from julie hyman. julie: it is the review from the university of michigan. it was the initial meeting on the consumer confidence. we also look beneath the hood within the numbers, the overall sentiment index at 95.1%, a decrease from may, even though it was a revision higher from the original number. what is disappointing here is the expectations measure. it dropped to 83.9 in june, the lowest si