the republican health care bill is dead. mitch mcconnell abandons efforts to replace obamacare. gridlock in bc. -- gridlock in bc -- in washington dc. wall street earnings resume. less than expected, goldman sachs is up next. from new york city, viewers worldwide, good morning. this is bloomberg daybreak. i'm jonathan ferro alongside david westin and alix steel. here's the market action. futures are flat. in the fxaction is market the dollar index the lowest since august of last year. the euro-dollar showing some strength. up 7/10 of 1%. treasuries with a marginal build. alix: the equity market will all be about banks and netflix. surging up over 11%, and are -- netflix, a little light after those results.

goldman sachs on deck. still up 7/10 of 1%. front and center, will they disappoint? the banksides earnings, mitch mcconnell yesterday pulling the bill he had been working on to replace obamacare. instead he says he will try to repealing the health care law that keeping it in place while congress tries to figure out what comes next. joining us now is kevin cirilli. , he develop in washington wants to repeal obamacare, will it happen? kevin: unlikely. with several sources that say that it is unlikely that despite mitch mcconnell and president trump's assertion that they would like to see the senate and the house vote on the 2015 repeal bill -- the votes might not be there. route, do go this starting the clock on a two-year timetable for lawmakers to come together to try to come up with

a new alternative to obamacare before it would be fully repealed in two years. that said, i spoke with a senior aide to a republican member, one of the four lawmakers who opposes this bill and i can tell you, there is a concern among ultraconservatives that this would force democrat ross hands to come to the table -- to thets hands to come table. joe donnelly, joe manchin, claire mccaskill, they could be forced to negotiate with the majority leader should they pass the full repeal. it is looking unlikely. this basically an attempt to mitch mcconnell to get past this and go to tax reform? more likely or less likely this morning for tax reform? kevin: i think this is an effort to try to move beyond this, especially to move on to issues like tax reform. the senate finance committee will have a hearing later this morning to continue discussions with that. i've spoken to several treasury

thattment people who say it is ongoing. candidly, health care divided the republican party, you start talking about the border adjustment tax and revenue neutrality, -- they are not on the same page at all. these issues are very much dividing republicans as well. david: what we always want from you kevin. i do so much. jonathan: let's get to the market reaction. to the death of president trump's bid to replace obamacare. moves,market has the big down by one full percentage point over the last year. we fall back to a level we have not seen since august of 2016. ,ields lower around the globe treasuries all down for a second day. we are down by two basis points on the u.s. tenure. declines, in europe, futures in the u.s. a bounce

back as well. we are flat on the dow. up about five points and down a few points on the stoxx 600 in europe. that is the situation for global markets. now, chief investment officer, eddie, why the pressure on the dollar? equity market has never care that much about health care. the country cares about it and politicians care but the equity market does not. health careon to whether the passage of a bill or moving on -- i think is good. it is good for the prospect of tax reform which is what the market cares about. any sign that tax reform is not going to happen, there will be air under the market. if tax reform comes through we are back to the stocks, to work immediately after the election. it is time to start thinking about rotating back into trump stocks because that brings tax cuts and reform forward. jonathan: magnitude?

in terms of how big it will be frome optimistic views washington dc versus the actual size of tax cuts, you must be pessimistic versus six months ago? >> i think it is likely to be a tax-cut more than major tax reform. i never thought that the 15% headline rate that was part of the plan was in the cards. i didn't think the congressional plan of 20% was in the cards. something in the mid to high federal tax the rate of 39% to 40% are going to be the more domestic facing companies. smaller cap companies. those stocks will benefit meaningfully even with the tax rate that comes out not quite as low as we originally hoped for. alix: i want to take a look at the performance of small caps. if you take a look at the bloomberg, those white line -- the yellow line -- the blue line is the s&p.

they are around record highs. lot has not been materially based around stocks. can you help us understand the rotation when it doesn't seem like it's been priced out? >> you have to differentiate. there was a big move for financial starting one year ago. bank of america which reported this morning is about 80% up plus in the past 12 months. those stocks were more oriented toward reflation and infrastructure spending. that happened immediately after the election. there are stocks, despite the highs in the market, there are stocks that are hitting 52-week lows. , a stockhat in telecom like verizon, you stated transportation sector, like ch robinson, you see it in the retail sector. used -- they are near 52-week lows. they would be beneficiaries. alix: that seems a good value

stock play at the end of the day. -- out ofe washington, they cannot agree on anything and then they will have to deal with something on tax reform or tax cut. the markets still holding optimistic. that seems dangerous. >> i think there is more room for bipartisan agreement with tax reform. there are democrats, particularly those who come from alternative minimum tax states, there is room for compromise. plenty of favors that can be traded if you like to get the tax rate lower. had hillary clinton become president she would have favored lowering the corporate tax rate. we are disadvantaged versus the rest of the world. this is the point jamie dimon made at the earnings call for jpmorgan both on regulation and taxes. there is general agreement with that. there is room for consensus. this general agreement on tax reform -- what they mean is

the two?erent for how it affects the middle class versus the upper class. doesn't this raise the questions about their ability to get the job done? >> health care will always be more difficult because for democrats the main achievement of obama eight years was a obamacare so they were never going to support modification to obamacare. tax reform is different. david: what about the question of how you pay for it? we were told by president trump that we needed to get health care done in part because we get evenings that we could then apply to tax reform. it looks like we will not get those savings? >> there is a debate about whether it needs to be revenue neutral. you have some republican saying it doesn't need to be, needing to drive economic growth it will pay for itself. that is a point of contention and debate. alix: good stuff. when i saw that, i thought we would be down in dow futures.

that didn't happen. coming up the second round of negotiations for brexit are underway in brussels. the former u.k. ambassador to the u.s. away in on the talks next. live from new york and london and washington dc, this is bloomberg.

alix: bank of america results out. you had net interest income and margins were on the light side and shares. ,e are joined by jerod cassidy outperform rating on the stock with a price ratio of $26. why is the stock down?

margin, revenue is solid. >> you put your finger on it about the margin. there is a great deal of focus with the fed raising short-term interest rates at the banks this quarter would see net interest margins rising and it is interesting -- jpmorgan reported on friday along with citigroup and bank of america all had lower net interest margins but total revenue was good as was total net income. alix: what can we glean for the rest of the year? the margin was down five basis points. >> two things. we have to remember in the case of bank of america, they sold the u.k. credit card business this quarter and that impacted their net interest margin but generally speaking, if you look back in history, the net interest margin starts to slow down as the fed continues to raise rates. more importantly as we want to see net interest revenue growth and loan growth.

we have to watch both of those. in the second half of the year. david: this particularly hits bank of america. moynahan a quarter after quarter if only interest rates would benefit hugely. we are not that far up the curve on the rates are we? >> no. what we saw on the second quarter was a flattening of the curve as well. with a long and coming down. ideally banks benefit from -- bank of america and comerica had a very good margin. the business lenders have loans tied benefit the most. is whatally that happens is the fed raises the rate and the yield curve growths and the margin

starts to slow down and decline. david: you mentioned loan growth -- what we know about the second quarter of bank of america for that? >> growth starts to slow down and decline. loan demand was solid and we would like to see stronger growth across the banking industry but in their consumer business which as you know, this is a strong consumer bank. we saw solid loan demand and we will see that as the economy accelerates in growth, should accelerate, bank of america and its peers will benefit from stronger loan growth. alix: net charge off in the credit card business was up by 5%. why is that? what we know about the health of the consumer? suggest is that the total credit picture for bank of america and the industry is very strong. as you pointed out credit card charge-offs are starting to rise but we have to remember that they were at low levels -- if you go back the last 18 months, credit card charge-offs were extremely low. now they are coming back to a normalized level. the consumer, the fiscal situation and the balance sheets

are strong and as the economy continues to grow we expect that to remain. david: we tend to talk about bank of america and think of it as a retail bank. but as an investment bank they beat estimates. what about advisory feeds -- they had a record of $45 million -- what is that is this? >> they own merrill lynch which is a global leader in capital markets and advisory feeds. that is for m&a activity. the headlines there have not been very positive. both these companies, bank of strong and citi put up fees. it was quite good. get goldman sachs in 15 minutes. what will we be looking for? >> good question. we want to focus in on what we were just talking about. investment banking fees because goldman sachs is a leader in the

m&a advisory business. we said she a strong number there. also training -- we want to see a strong number there, also in the training -- in the trading area. numbers were down but the equity trading numbers were up. we expect to see goldman report similar numbers. alix: earning estimates have been down for goldman in the lastr by $.69 over three months. hit more than its peers. his the stock going to pop or does it have to be a lot to get momentum? moree sentiment has turned negative for goldman going into the quarter because of the downward revisions in earning estimates primarily driven by -- goldman does not have the consumer banking business or the commercial banking business as its years. it is more dependent on capital market businesses. that number will be extremely important.

it does not come in as week, you could see the stock do better. david: you're always so helpful on bank earnings. thank you for joining us. -- barry diller. live from new york, this is bloomberg. ♪

>> this is bloomberg daybreak. i'm emma chandra with the business flash. shares of netflix are surging in premarket trading today. they had a record second quarter. netflix the forecasts in subscriber growth and boosted international audiences. health has put its problems with obamacare in the rearview mirror. they posted better-than-expected second-quarter results as it moved away from the affordable care act.

united health and customers may need medicare and medicaid, it had largely quit obamacare after running up prices. rosetion rates last month, , the first drop in the inflation rate since october. policymakers had been concerned. that is your business flash. brexit negotiations continuing brexit without the chief negotiator. a team of 90 a british officials was left for the talks. of 98 british officials was left for the talks. here to take us through what we peter, a former ambassador from the u.k. to the united states. thank you for being on the program.

you could draw a parallel between united states and health care and what is going on in europe and brexit? >> similar. there are a lot of people who decided they would vote to get rid of obamacare without working to figure out what they would replace it with. in the united kingdom there were a lot of people who decided to on whatleave the eu many would say was a dishonest perspective without working out what the alternative was. that is one reason why there is once again talk of thinking again and holding a second referendum. we weren't getting up but it seems to be back on a number of agendas. jonathan: what would that referendum beyond? what kind of specifics? >> not for the near future. think it it because i is in the editorial and some of the comments from the experts. if there is an other referendum it could only happen of

parliament decided there should be one. you cannot get rid of one referendum result without having another one. i think it would have to be, do you or do you not accept the deal with the government has negotiated? they are not negotiated one yet so we don't know. the problem is that any conservative government, in power at the moment in britain, which says that it wished to hold a referendum, it would -- if it lost that it would not survive. they are reluctant. nevertheless, it is still on people's minds. jonathan: in the meantime we have a negotiation over a couple of issues. the size of the brexit bill and the other, the right of eu citizens -- are we making any progress there and where to the difficulties live -- lie? >> there has been a lot of name-calling going on.

getting too much money from the u.k. -- or giving too much money. the fun -- the financial separation costs and the numbers. you -- on theof rights of u.k. members, many pro-brexit members of parliament were saying immediately after the referendum, we have to this now because we need those 3 million eu citizens to make our services work in the u.k. it hasn't happened. people are critical to our services. government the u.k. will be able to come to terms on that. if the eu commission were disappointed, let's see whether our negotiators can come up with something which is closer to the mark of what the commission are looking for. it is important to get this sorted out soon. david: trying to sort out soon,

michel barnier gave a pretty stern talk of the european commission saying the british people as well as the government was not coming to terms with what brexit went -- what brexit meant. you have to give up some things. the clock is ticking. do you think the people and the government are prepared to make the compromises required to have an effective agreement? >> good question. the british people increasingly are becoming aware that brexit is going to be costly. the negotiation is not about now can we have a cost free wonderful new relationship where the british people are no worse off. that is not an option. it is about limiting damage. you will see numbers of members of parliament saying that we ought to think about this again. the british people are's -- are that it is, possible. we can have our cake and eat it.

we don't have to sign a large check. we don't have to have freedom of movement but we can have friction free trade with the european commission. the rest of the eu and we can have single markets and all of those things. the problem is that no one has leveled with the british people in terms of explaining what does this really mean. that is what will have to come -- that is where political leadership will be important. saying to the british people, here is what you can and can't have. until that happens it will be hard to see the public at large really having an informed view about what this means. david: you spent a good deal of time in washington dc so you know the expression, you can't beat somebody with nobody. is there anyone in the political elite in the u.k. right now who is coming up with a sensible plan of how to negotiate this? >> yes but the problem is that the government does not have the majority. that is what makes theresa may's position week and that is why

there is no cabinet discipline and you have several cabinet members out there on the media saying what they like on subjects which are not their area of responsibility and that creates the impression of deceit. it puts your viewers -- i will be honest with you, you want the most cost free and painless way of the united kingdom leaving the eu with minimal damage to our relationship and our interests with the eu, to our security interests, and less additional bureaucracy and customs. we leave it there. i'm sorry. thank you very much for joining us. from new york, this is bloomberg. ♪

so we need tablets installed... with the menu app ready to roll. in 12 weeks. yeah. ♪ ♪ the world of fast food is being changed by faster networks. ♪ ♪ data, applications, customer experience. ♪ ♪ which is why comcast business delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. jonathan: from new york city, i'm jonathan ferro. let's with to the market action. this tuesday morning. a muted response to the abandonment of the health care

barrel -- the health care bill. the dow in the s&p 500 -- the real price action is in the fx market. it is a story of dollar weakness with the exception of one trade in the g10 and it is the cable rate. 13012. on the back of a bigger decline than expected in the u.k. inflation rate. the euro, that is where the strength is against the dollar. treasuries with a decent bid. yields down by two basis points. 2.30 on the u.s. tenure. headlines outside the business world. mitch mcconnell has raised to the white flag on replacing obamacare. seek a simplel repeal of the affordable care act, it will be delayed two years while congress works on a replacement. that would be a huge setback for republicans and president trump. the party has promised to

replace the bill for seven years. a budget is being propose that ignored cuts to federal agencies. meanwhile, republicans are proposing a bigger boost to military spending then president trump requested. according to the latest bloomberg national poll, hillary clinton is viewed favorably by just 39% of americans. that is two percentage points lower than americans. more than a fifth of those who voted for her now have an unfavorable view of her. global news, 24 hours a day powered by over 2600 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. alix: bank of america leading off today. goldman results do any moment. for a preview we are joined by a senior bank analyst.

allison, what is the highlight going to be from goldman? >> expecting consensus down 24% -- goldman underperformed last quarter, some of that is mixed and they also talk about not navigating the markets will. they have more institutional business -- commodities business. we saw those trends continue in the quarter and that is why consensus is expecting the 24% decline. the numbers from bank of america and jpmorgan, almost dead on. citigroup coming in better than expected. margins a little better but for the most part analysts expecting a week order there. alix: we have seen revision momentum from goldman unlike its peers. will they live up to the down expectation? his sentiment turning too much? >> over the last four weeks use

our revenue estimates coming down for the group and the most a goldman. very in mind that they earn the most from overall trading revenue -- that is why there is focus on that in the quarter. will be thethat relative performance versus peers. one quarter of underperformance due to a difference in mixer a tough quarter -- analysts can get over that. as long as they can recover and have a decent quarter. people will feel fine about the franchise it is just when you start to see a trend analysts get worried about market share gain or loss or what is happening in the overall business. david: trading numbers coming in. what is it say about the long-term strategy? can he say oh the volatility wasn't there and i can make money on trading and i will wait for it to come back? >> you want a bank to stick to their strengths. have a consistent strategy over long-term and do not be reactive to one or two bad quarters.

investor, that is what portfolio managers want. to stick with strategy. you might have bumps in the road. on fixedive thing income, we are very focused on the drop this quarter versus a strong year ago quarter and revenue is down from the last quarter. a seasonal trend. revenue will fall again next quarter. a seasonal trend. it does seem like we have seen the bottom in this. revenue -- if it gets down to 40% from the peak, through the trough last year, we have had four quarters of better-than-expected results. this quarter coming about in line. again, there is some noise around these headlines. but it seems like -- david: assuming it comes in, where can they make up the difference in other parts of the operation? >> a strong equity market this

quarter. that does not result necessarily and trading revenue but investment in lending, investments tend to give them -- value that less because gains can be volatile. you can do positive in the quarter. morgan,america, jp lower interest income in the capital market business, bank of america specifically calling out the higher cost in the prime business. that might be on the negative side of things. let me just interrupt you. goldman earnings coming out now. three dollar and 95% estimates but the numbers thick, coming in at 1.1 6 billion dollars. well below estimates. well below what we saw the previous quarter. $1.16 billion. investment

banking revenue coming in at $1.7 billion. -- $1.7 million. talking about strength there that was reflected in trading at $1.8coming in billion. a real disappointment. equity stronger and investment banking stronger and earnings beat on that line. allison? >> that is not good. we will want to see what the shortfall was. one-timers, sometimes you have different gains or something that is episodic. is there a market was nonrecurring? was that bad trading results? the other two coming in better-than-expected but investors will focus on that thick. jonathan: is this something we have to think about now compared to other banks? >> the two things we saw versus

mix in the last quarter was clients, and oldman has a bigger focus -- goldman has a bigger focus on active management and that has been under pressure. america and citigroup are focused on corporate clients and that is where you have seen strength. the other part of the mix is the commodities business. goldman is the most committed to this. we've seen what is happening with oil prices and the volatility has not been there. that is another thing that will continue to impact them. one other thing i would point to is a bitoldman's line cleaner than other companies by the way they report their businesses. so you don't necessarily have some of the same marks that might benefit other companies in any given quarter so there could be noise around that. those of the key fundamental differences. the 24% expecting

decline, coming in worse than that, -- \ alix: 40% drop. that is a big number. where do you stand on banks? >> i'm feeling ambivalent. there are reasons to not like them. year youginning of the could underweight banks, they had had a great run to the postelection. -- now i am more interested than i was. some more positive sentiment has come out of the stocks -- they would be trump trade beneficiaries, tending high tax rates. the reason to like banks is the possibility of tax cuts, regulatory reform seems assured, some version of dodd-frank repealed before the end of the year. and loan growth. particularly the industrial side of the economy showing strength. that will be beneficial for banks.

the reasons other investors have wanted to own banks have been for higher rates and what would that mean for interest margins. but what we have seen from bank of america and the others, it is not clear that margins will expand. that is the wrong reason to own banks. david: one thing that strikes me as the red across those numbers. the actual numbers are not bad. we are going back to goldman sachs, that was off, but revenue overall was 7.9. -- 7.9%. the numbers overall are not bad. what does that tell us about what the market thinks about financials, that they are that skittish? >> everything. great andquarter was past expectations. now it has been about how positive it has been for bank earnings. jonathan: ahead of earnings, not because of earnings, because of

capital distribution? >> that is part of it. there is a sense now that the banks will be able to distribute more capital and work down the size of the balance sheet. that was a positive factor. the other reason people like vstoxx is they view them as a play on rates and to me the recall is the one that is most up in the air. a coin flip whether they go higher or lower. insulatedwho is more from the rate story at this point? >> that is tough to say. bank of america has the most exposure to rates. goldman sachs i would say, their earnings are the least dependent in terms of the bread-and-butter lending. make a lother banks more their money on. however we are seeing the impact of lower volatility as nothing is really happening around those. jonathan: allison williams,

great to have you with us. sticking with us. more on those earnings. jeff hart will be joining us from new york city. this is bloomberg. ♪

>> this is bloomberg a break. i'm emma chandra. later, security analysts on netflix earnings. ♪ >> the story in the markets is a flatter yield curve.

bank of america and goldman sachs taking a hit. weaker net interest margins and net income. .hick trading down that was pretty brutal for goldman. a different story for netflix. they crushed it after the bill. -- after the bell yesterday. -- 4.1 4 million subscribers added. it came at a cost but look at that. up 10% in premarket. we joined now by paul sweeney. here,with us is that he they increased their subscribers. give us the sense to where they came out where you thought they were going to be? >> for the u.s. and

internationally, they crushed straight estimates and their own forecasts from a quarter ago. clearly investors continue to focus on subscribers. even though the company says it is time to pivot and look at the profitability of the u.s. business and the international business, investors continue to focus on subscribers. particularly internationally. that is where the next growth will come. david: this is good news for netflix. they have had some misses on the subscriber portion as well. does this indicate that this business is unpredictable? >> it is eerie they do their best to forecast -- it is. they do their best to forecast. like france, germany, and the u.s., every market in the world with the notable exception of china has netflix. it is hard to predict quarter to quarter. but they are trying to get people to focus on is the

long-term profit improvement as the company matures. the profitable markets like the u.s. and canada. article, whateat is the difference between tesla and netflix? your betting on growth in the future but netflix burns way more cash than tesla. will they care? almost 16 billion dollars of long-term programming liabilities and at some point they have to pay for that. with cash. if the company is forecasting 2.5 billion dollars of negative free cash flow in 2017 -- if you look at it numbers -- in the numbers, they are debt financing this growth. they are debt financing their long-term programming obligations. u.s. andts in the

outside, are more than willing to finance it as long as they grow their subscriber base. it is that virtual circle. as long as it is working. subscribers, more cash flow, to pay for your obligations. in theory, if you are an investor and you are piling into tech because of the momentum trade, and netflix comes out, you will want to do more. what is your take? in this partector of the year. they are posting secular trends so there is a lot to let -- a lot to like there. we've begun to trim back. we think the group has gotten ahead of itself. we mentioned earlier, stocks are hitting 52-week lows. we are cautious and we are cutting back on tech holdings. david: another issue is how big can these companies get? like amazon and google and facebook who dominate their area.

is there a risk? >> that risk factor is starting to bubble up in the antitrust era. we had around the area for google in the market shrugged it off. since the whole foods deal was announced by amazon you are starting to hear more stories about, is amazon two big? there are a lot of losers resulting from amazon's success. it would not surprise me to see political pressure on these large tech companies in the antitrust era. investors need to be aware of that. almost every day we have a conversation on this topic. david: how do you put a value on that regulatory interference? in history it has not usually happened that it broke up tech companies. it didn't happen with ibm or microsoft. >> with microsoft when they had their first antitrust issues, there was a poor performer for a

number of years. i think there is a risk. alix: thank you very much guys. you are sticking with us. terminalve a bloomberg check out tv , watch us charts click -- click on and graphics and interact with us. we will break down goldman sachs. this is bloomberg. this is bloomberg. ♪

jonathan: berkeley and citigroup suggest that the central bank meeting may be there. gently preparing the grounds for an announcement on tapering of asset purchases while j.p. morgan chase raises forecasts on upside risk for the euro. of thursday, president draghi set to speak? he gave a speech a month ago in portugal -- >> generating action in the bond

market. jonathan: do you think he will clarify that on thursday? >> i will follow ecb closely, i think central banks get some of our attention. we believe that the him to decide. loading up on $80 billion worth of securities every month, do you think central banks get too much attention? >> the incremental moves from that baseline to what they might do in the future might get too much attention. they have a huge distorted effect on asset prices and that is part of the reason asset markets are up so high but the next wiggle, the next move they make, will get too much attention. jonathan: going forth, how do you think about the central bank and getting phased out slowly? just ignore it? >> the grand experiment post financial crisis, central-bank boss, globally -- central banks

bought -- their response, i think we don't know what the final chapter looks like. until they reduce the size of their balance sheets and get interest rates to a normal level we don't know what the long-term impact will be. the jury is still out. jonathan: what is the normal level and do you expect a significant backup and rates? in interestbackup rates is calibrated to the nominal growth rate of the economy. in the u.s. it is somewhere in the neighborhood of 3%. europe is a touch lower and japan even lower. that is a long way from where we are now. the jury is out. alix: there is still a lot on the table that the idea is that as long as rates are low the search for yields is still the hot trade. as we see a slow backup in boone yields in europe, treasuries are still not rising but they are well above their lows in the high-end of their range. is the risk on search for yield

trades still working? >> you see that more and the bond market in the equity market. those yield stocks, bond proxies, have not performed well as utilities. utilities and unloved well. telecom stocks are interesting right now. you can get verizon at a 5% dividend yield, so if that is yield, the equity market there is still good dividend yield to be had. sign me up. equities aren cheaper and further back in the cycle, there is a potential more upside for the ecb if they become more hawkish. what do you see in terms of what regions equities have value in? >> we liked europe at the beginning of the year and we positioned our portfolios that way. other investors have caught up to a contrarian trade. now we are dialing back a bit on the european exposure. the burden of proof is on the european economy to actually come through a deliver the

expectations that the market has now built in for europe. if it does that there is upside for europe. if it disappoints you will want to be back in the u.s.. jonathan: italy used to trade under where spain is and now it is above 50 basis points. can you be constructive on europe without being constructive on italy? >> maybe not. here is what i would say about how u.s. investors and global investors based outside of europe perceive europe. they go for the safe stuff. they articulate a positive view on europe and then they go to germany or the multinationals. if you really believe in europe you have to go to the banking center, italy, spain, it is only when investors are buying those kind of stocks in countries that the market will be overbought. there is still some upside for europe but also the economic growth has to come through. jonathan: eddie, great to have

you with us. around the trip world tour with eddie. coming up, deutsche bank, strategy, weighing in on the big moves in the fx market. dollar weakness is the big theme in g10 today. looking forward to that. in new york to get you up to speed on the market action. futures softer on the s&p 500. down a 10th of 1%. largely flat on the dow. largely muted price action across u.s. equities. if you get to the other screen, the fx market, euro-dollar, is where the strength is. ♪ joanathan: the republican health

care bill is dead.

mitch mcconnell abandon efforts to repeal obamacare. dollar is at the weakest level this year. income sachs, fixed revenue trading tops 40%. from new york city, this is "bloomberg daybreak." i am jonathan ferro. futures rise. 150.uro dollar spikes to that is up .6%. the dollar is down against everything. treasuries are up to 30. alix: taking look at the equity market, it's the upside of 9%. the bank of america and goldman sachs got hit by that flatter yield curve. it's about net interest, incoming net interest margins.

it's the worst quarter for big trading since 2008. we will talk about bank earnings later in the program. david: at least for now, it is down. mitch mcconnell said he will just try to repeal obamacare. what led to this? that in can tell you the last couple of minutes, the president has tweeted out we were let down by all of the democrats. most republicans worked really hard. said, do always great health care bill. stay tuned. i spoke with several republican aides. they told me they feel they are going to be forced to work with and deal withrats

the division in the republican party. they would have a two-year window to come up with a new type of plan. there is skepticism that the republicans will actually even take up the majority leader on his offer to repeal obamacare. david: is the present right in saying that it would be obama's fault? if it really goes down, doesn't he worried that it splatters back on him? how does this affect tax reform? yesterday, the feelings among americans are how he is handled health care. he has a 40% approval rating. blamed,ook at who gets there could be a government shutdown in the fall.

government is controlled by republicans. the is a big gamble on democrats taking the blame. the alternative is deeply unpopular. david: thank you very much. alix: in the market, the biggest reaction to drop in the health care bill was in the fx market. it slipped to the lowest level since the beginning of september. joining us for more is the cohead of ethics research. it's great to see you. why just the fx market? alan: that's a great question. it is been so quiet for so long. volatility is muted in the equity market. it feels to me like what we see is something of a reputation.

talk, maybeawkish the fx market is better to take on an international component. they can put this in conjunction with the dovish views of the fed. alix: it's hard to keep track. a look at the chart. let me take a look at what happened in the market. a 23 price target by the end of the year. we think the catalyst will be more policy certainty rather than the out come itself. no matter what gets past, we think just moving forward will provide the certainty necessary to act on higher confidence readings. dropped, is that a bullish call? peter: i think it's a nice

statement. i would shorten that statement. the policy uncertainty to the reality uncertainty, it keeps getting wider. i believe the message of the markets. we don't have that much confidence. the u.s. dollar has declined significantly. think about the mexican peso. buy the rumor and you sell the fact. here we are and that's what happened to the dollar. that is what has happened to the bond market. when does the equity market catch up? every time i come on, do not trade because of an opinion. wait until there is some confirmation. there is no confirmation to get negative on the stock arc it did joanathan: did the enthusiasm faded in the market? , they're soo back

much policy uncertainty. the republicans won all three. that was going to bring certainty to it during we have so much more uncertainty now. is the government going to shut down in the fall? are they going to pass a budget? imagine what happens to the market if you repealed obamacare and said we will just figure it out. how are insurance companies going to do these things? uncertainty is getting much wider. joanathan: in terms of the federal reserve, the one institution it did not get excited about stimulus was the federal reserve. the majority did not. this might remove some of the upside risk. it hasn't really changed in the

last 24 hours. alan: it has changed a little bit. account thee into stimulus. the big changes been the inflation story. look at how this fed narrative has changed. they said the sequencing is changing. now all of a sudden, they are pushing the next rate hike, which is huge. that has changed. weeks, that is allied the week cpi number. do you think they will initiate in the next couple of months? barring conditions going through some volatility, global markets will start selling off and they will have to reconsider the balance sheet. they will have to get their own autopilot. david: the markets react.

sometimes they overreact and overcorrected. is there an overcorrection? peter: i don't think it's necessarily an overcorrection right now. we have just broken up the euro has broken out in if you think back to where the pound is now, everybody talked about brexit and it comes down to 120. markets are very interesting. they take on a life of their own. happens when you have lied volatility. overreaction might be netflix this morning. people may have been short against those earnings. they had a similar reaction when home depot's numbers came out. let's see how it behaves today. that's going to tell me a lot about netflix and tank of

america. , thaty turn around today would concern me. they are going to be staying with us. coming up, more on the results of bank of america and goldman sachs. live from new york, this is bloomberg. ♪

anna: johnson & johnson has boosted its forecast for the full year. the biggest maker of health care products is expecting an acquisition of a swiss drugmaker. united health is putting its

problems with obamacare in the rearview mirror. they had a better than expected second-quarter. they added customers in medicare and medicaid. shares of netflix are searching in premarket trading. they have a record-setting quarter. they beat for caps for prescriber growth and boosted the international audience. that is your bloomberg business flash. joanathan: frexit negotiations continue. they lead their teams in brussels. this is all technical. we spoke earlier with the former u.k. ambassador. >> the british people increasingly are becoming aware that brexit is going to be arely and the negotiations not about a wonderful

relationship. that's not an option. it's about admitting the damage. there is one exception. it is sterling weakness. that is not because of the brexit talks did that is because inflation is under expectations. alan: sets us up for a no change bank of england policy in august and policy will be steady. it gives the bank of england more time to see where the economy is growing, or what exactly it is doing. zealand, thet new dollar did not do well. it is not a good thing for currencies.

joanathan: where is it coming from? a lot of people read those speeches. he looked into other people's eyes. what were you thinking a year ago when you said something completely different? it's mostly an idea that we ease policy in what we see an emergency situation. we don't have an emergency anymore. there are more cases of removing extreme policies been tightening. joanathan: the bank of england's concern. should well be considered financial stability. the bank of canada should be concerned about stability. should bef sweden

concerned about financial stability. realize they are quite hot property levels. alan: you've seen the macro credential policies take aim. rates, if you interest if you hike interest rates, you do damage to the economy you don't want to do. i think this was macro credential policy that was like a scalpel approach. that scalpel can turn into a very sharp chainsaw. economy probably needs some tightening as well. seeing hotwe globals? where do we see the economy now? peter: the stuff you don't need has gone down in price rid the things you do need, housing, education, they've

gone up in price. tradable goods have gone down in price. nontradable goods have gone up in price. it's a supply and demand dynamic. if we think about the policies going on in washington and why the dollar is weakening, we are trying to affect the markets. we are taking away free markets for freemen. that is a concern for the fed. we may be importing inflation from the rest of the world. the u.k.w with numbers, that is not good for those countries particularly. david: is there anything the fed deflateoe can do to prices? answerhistorically, the

is if you pop it, the air will come out. my one-word answer to that is no. joanathan: how do you think about that from an fx respect to? -- perspective? any of the central banks can tap on the break. nothing happens. you can go through the windscreen. that could happen in sweden where they tapped the break and currency when up. break, the economy dies and the currency also dies. initially, you will be on par with tightening leading to stronger currency. joanathan: of the economies we have mentioned, canada, australia, sweden, they have been quite hot robbery markets.

have you changed your views on that? alan: i think there is a bigger dollar story going on. things like sweden are getting hold along by the euro. i've been bullish on sweden for a long time. finally, i think it's in our favor. on the bank, ish think it should be. going to: they are start to qe program. sticking with us. that's coming up at 1:30 p.m. don't miss that conversation. you are watching bloomberg. ♪

alix: the act the market is from

the big bank. both are weaker in premarket. goldman sachs is down 1%. take a look at the bloomberg. this is their fixed rate revenue. this was down 40%. it's the weakest since 2008. you can keep adding the superlatives. they keep getting bigger. the fixed number is going to get the headlines. is there something else going on? >> i think it is weakened by. this quarter came in worse and we had an email from a trader friend talking about he volatility, that signals things are not getting much better in that business. third quarter seasonally is a week quarter.

we're going to see summer doldrums. it's going to take a while to see some signs of recovery. on the other side, overall trading came in line because banking fees are better. that tends to be a better business, especially the advisory business which is good for them. the comp ratio is 40%. the have discretion in terms of what they are doing there. you can see the cost-benefit from last year. it's aimed at trying to help protect profitability in a tougher environment are in is this reflection of a flatter yield curve? bank of america, take a look at the bloomberg here. that was also disappointing in the last quarter. on the call, the cfo said it should rise in the third quarter.

this quarter had transient factors. do we have an idea how much it could rise? allison: they have a court business they sold a month earlier. that impacted it. that was about half of that taken away. that's going to be on going, that business income is gone. that is a negative. long-term interest rates are negative. the other thing we saw also a jpmorgan was lower income in the market business. they have the business of taking deposits. that is not the capital markets where we have a lot of the impact this quarter. the prime business in equity services, that has been hit by higher funding cost.

joanathan: when we look at the are many reasons why things happen and they are external. you don't talk about with happening inside the bank management. there used to be a dream team. have we get any idea what inping inside goldman sachs terms of management and changes that may have happened in the last couple of quarters? are they starting to do something different? has nothing really changed in the management? allison: in terms of goldman when i was evaluating, i think it's a strong and consistent culture. has had a very consistent culture over the years. it's a combination of a lot of different banks. culturethe consistent

would be supportive. even if you do get some departures. banks, howvidual much of this is a larger picture of the economy and how fast it is growing? are people needing the services of the banks as much as we would like them to need it? peter: one growth has been very slow. the notion you're talking about each quarter, people are forecasting often what the 10 year yield is going to be. we had a bounce a couple of weeks ago. everybody said we are back off to the races again. we are not. i think we are going to keep going back-and-forth. as the economy is not that strong, we have seen that with the atlanta fed rejections. loan demand is going to stay

soft. bank earnings will struggle because of the volatility pressure. historically, there has been some important to me in july -- activity in july and august it leads to fall volatility. this is going to bear some watching. joanathan: you will be sticking with us. david: that's what i was thinking. how dear you break down the line items. joanathan: he just wants to forget about the quarter. coming up this thursday, it's the ecb and that guy right there, president draghi. ♪

joanathan: from new york city, this is bloomberg daybreak. let's look at the market action for you. we are awaiting economic data in the united states.

the big price action for the fx weaker dollar is the story. the euro is dropping through 2017. that is a year to date high. it is up .6%. pricerops the import index for the month of june. it comes in line with expectations. index comes ine a little bit softer than expected. the previous number they evised, negative 0.5% and senate republicans are given up on their efforts to replace obamacare. they may repeal it effective in two years and work out the details.

joining us is the policy correspondent mike mckee. the dollar really reacted, but the rest of the market did not worried what effect would stepping back to replace obamacare be? michael: we can talk about tax reform in a minute. if they can't get this done, can they get tax reform done? they don't have two years. the conditions of obamacare is not particularly good. it is not collapsing, but it has financial problems. unless they are fixed, insurers are going to see this as a losing proposition. we have seen the exchanges limited to one insurer. david: they are going to have to do something one way or the other. week, we had haley barbour on the program. he kind of addicted mitch

mcconnell would take a run at this and move on. >> it will not surprise me if senator mcconnell brings health care reform up next week and if it does not pass the senate or fee does not have the votes, set it aside for a while. reform, move on to tax which is one of the pillars of economic growth, also the budget. david: what is left on their agenda if they can get past health care? michael: it does not encompass everything. we did not put nominations on the list. they still have to fix obamacare. they've got to raise the debt ceiling. they've got to pass the budget. they are talking about increased military spending in the budget that requires more borrowing. aey've got to pass

resolution. the government will not be funded after september 30. they are going to move on to tax reform. that becomes a big consuming issue. you have steel sanctions out there. those negotiations are going to begin. an incrediblybe busy fall and people don't think they will get much of this done. david: they don't have the fall to work on. michael: they have recesses for the holiday. even with two weeks for the senate, the house is out. you have a lot to do in the month of august. david: thanks so much. it looks like we're on to tax reform. what may they be able to change and what would make the most difference western mark joining us is the man who leads tax services. welcome to the program.

the two questions are what is doable and what would make a difference? i hope there is an intersection of those two things. difficult heard how of a job congress has. what would help his simplification to stimulate the economy and generate the right revenue for the country. it makes it difficult without having health care past. without the tax implications of that coupled with let's going to happen in the future, it's going to be difficult. waysally have to look at to reduce the rates. that can be done. it has to be done based on a balance. it has to be balanced in the , onet if you take revenues thought is the health care bill still has the taxes. maybe that can be an offset.

it looks like they lost that you it definitely is. gainers,ok the revenue one is repatriation of earnings. david: let's talk about corporate tax. those of the two main things we are talking about. could they do that as a separate matter? is that doable? joseph colon especially to the individual rates as high as they are. you would not have to reduce revenues. you can't include any economic factors. progrowth plans, you're going to have to stimulate the economy, that would offset some of the shortfall you will have. rate, many will

argue are lower than the statutory rates. if you cut some of those changes, you will have some winners and losers. david: you can pay for some of the with repatriation. that's a one time deal. cutting the tax rate would be forever. how do you pay for forever? joseph colon alix: the other big question, will these be permanent or last 10 years? that's important for the market. why would you put money to work we know this is going to end in 10 years. joseph colon i can't predict the future. say at one point, people get together. they will have some comprehensive plan. maybe just before

2018. what's going to help the economy is certainty. creates problems and does not help companies make decisions. wages, if people can be confident the wages will increase, they will pass that down to some of their employees. that becomes very important. rates and a permanent repatriation and changing the tax code in the international arena, that makes comprehensive sense. joanathan: when obama was in the white house, they got used to a d.c. that did not do much and it did not matter. are we in that direction and? areph: it looks that we

flipping between health care and tax health care. they need to have a conference of plan and come back and say this is what is best for long-term growth. you are going to have some winners and losers. i really think that is best for the country. david: to make it even more they are actually quite different issues. create able to territorial approach? joseph: if you think about states, youe united have within states where they would like to get the income. getand is going to look to money from microsoft or apple.

you're going to have some time taken to be effective. david: many thanks. it's really good to have you with us. now let's get an update on headlines. emma: thank you. republicans have promise for seven years they would repeal and replace obamacare. even though they control both houses of congress and the white house, they are giving up mitch mcconnell is pushing for a simple repeal of the affordable care act aired that would be delayed by two years. house republicans are unveiling a budget for the cuts to federal agencies. republicans are calling for a bigger boost to military spending. toresa may is encouraged

fight ministers. they want to put an end to the backstabbing. several of her ministers spoke out against the chancellor. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. joanathan: thank you very much. coming up, shares of net likes are moving up after the company crushed subscriber forecasts. next hour.joined mitch mcconnell is waving the white flag, giving up on the health care bill. that one may take if you years. looking at futures this morning, we are a little bit lower.

the big price action is in the fx market. ins is the weak us so far 2017. we are up .7%. from new york, you're watching bloomberg. ♪

emma: coming up on bloomberg markets at 1:30 p.m., buried tiller. this is bloomberg. your bloomberg business

flash. oracle is ramping up its cloud service in the middle east and africa. they are hiring 1000 employees in the region. the cloud revenue is 58%. inckson came up short revenue. they missed estimates. they are turning the company around, but it will take time. drop in thesurprise u.s. inflation rate. that is down .3% from may. it's the first drop since over. bank of england policymakers are concerned inflation was getting out of hand. joanathan: there is uncertainty. alix: putting health care aside does it make health care more or less likely? we heard the macro and from the tax guy. how do look at d.c.?

peter: do we have to look at d.c.? i just think they've been running in place for so long. in peoplected ignoring it. getting something through the house and the senate is very low. we have to get the equities as individual markets. we are sort of looking at this deflationary pressure. that is taking over the world. let's look at retail. at the brokers in the middle. doesn't matter if you are buying if you're going to the store. they are benefiting. all three of the stocks are near

high levels. .e look for the markets if those messages are negative, we will get negative. they are not particularly negative. parlor game to say we think they're going to do this or tax rates are going to stillt trade they are historically, they are at record levels. inflation is low. has no reale fed pressure to do anything. the same people complaining for rates, thatut bond is not happen. we have to look at data and analysis and shape our opinion. my opinion is worthless. data and facts is how we try to

approach. many people say they believe in markets. peter: that's another story. they want the markets to confirm their beliefs rather than listening to what the market says. we have to listen to what the markets are telling us. david: thanks so much. we have talked a lot about health care. that is trade. the announcement of a nafta negotiation. our next guest is the ranking democratic member of the trade subcommittee. welcome back to the program. it's an honor to be with you this morning. are there many people in washington who believe in markets? jersey,epresenting new

you put faith in the markets? markets, ignore the you are flying out there by yourself. i think we look the markets. trade,u're talking about there are human factors and market factors. he to combine them. -- you need to combine them. they came out with their principles for the reshaping of nafta. it has caused quite a stir. david: it's the first time the u.s. has targeted trade deficits specifically as a goal. two you agree with that approach? a factor the ecb taken into consideration. we have environmental matters. we have worker and wages matters. currency products matter.

i think all of them have to be taken into consideration. i am most disappointed about the specificity not being there in the principles. i read to them last evening. that's disappointing. you have an administration that goes into the negotiations saying this is a disaster. of act off that situation. principles need to have. i'm very disappointed in what i read last night. david: it's not so much that you disagree with the approach, you don't have many answers to what they want out of these negotiations. >> absolutely.

absolutely. your details all on the table. i realize that. we came in with great expectations. not only the american economy, more specific than that, middle-class wages and future for those workers, this does not do that as of today. a.expected a revolution taking the agreements of a few years ago, they are taking those principles and trying to make them applicable to some degree. the specifics are not there. our first this morning.

we are six months into this new session. we are having our first meeting on the trade committee. we will have representatives from business and labor. it should be quite a hearing. this is a dynamic subject, particularly for those of us who want to do something about stagnant wages for middle income people. ass is a priority as far democrats and republicans are concerned. you cannot simply leave it to the markets. you've got to have some approach. briefly, you have to have some approach. what is the one thing you think they could do with snap that would help? protect american manufacturing.

we don't want to go to a protectionist stage. it does that american workers have to be gaining by whatever trade deal we have you the mexican workers did not work out well. this is a corporate deal done without an understanding of the environmental issues. i think these of the things to talk about. the president talked about it during the campaign. this is the real stuff. we need more specifics. we should have an interesting hearing this morning. alix: we're looking forward to it. thank you very much. you can check out tv . you can look at our hearts in graphics and interact with the strictly. to rewatch. this is bloomberg ♪.

joanathan: let's check on the market quickly. sachs makesoldman up 7% more of the dow. goldman sachs is making up the bulk of the dow. it's down about 40 points. goldman is softer by four percentage points. the s&p 500 is softer as well. screen,t to the other yields are still up by three basis points. theytory out of d.c., abandon efforts to replace obamacare. they may just repeal it for a little while while they come up with a replacement. the fx market, euro-dollar is up right 3% to this the highest

since 2015. we are up about three quarters. sterling after that inflation data came in below expectations. we will be talking about banks. they -- bank of america's off .3%. deposits were up $47 million year on year. if you want to dig a little deeper. from new york, you're watching bloomberg. ♪

>> the republican health care

bill is dead. senate minority leader mitch mcconnell abandons efforts to replace obamacare. ways onlock in the sea optimists surrounding the economic agenda. the dollar slides. wall street earnings review. goldman sachs fixed income training -- trading the worst performer since 2008. a monster 40% drop. good morning. this is bloomberg daybreak. i am jonathan ferro alongside alix steel and david westin. today looks like this. futures up, costs down one quarter of 1% on the s&p 500. the big move, the price accent -- action in the fx market. the dollar, 1.1556. weaker than every thing but sterling in the g10 space. treasuries are decent, yields lower by three basis points. 2.28 is your yield on the u.s. 10 year. for the open, let's get you up to speed on bank earnings. here is alix steel.

alix: netflix and banks. these are the areas we are watching. anflix is on track to open intraday record high, the number is 4.1 4 million. that was the international subscriber growth. creditan update from suisse. michael pachter upgraded his price. we are going to be talking to him. he has been a bear on netflix since 2011. bank equities, goldman sachs off by a percent but the number is for fit. it is the worst fit trading quarter. the ceoe worst since position changed in 2006. was this a continuation of one-off or is this going to be systemic? the flatter yields curve taking a toll on goldman sachs has less exposure to consumer banking versus bank of america.

that stock down by 5/10 of 1%. if equities trading was better than estimated, but for bank of america, that interest income was slightly lower than net interest margins. the interest margins should improve in the third quarter. a lot of these issues that were transitory and should improve, we are also getting some readthrough on the deposit data. so how much they are going to raise the deposit base to attract customers. we are seeing a little bit on the asset management unit, not so much yet on consumer banking. that is squeezing the more so we have been breaking these down throughout the show. jeff hartehter, also of sandler o'neill. and michael pachter is still bearish on netflix. david: it is trading for about half of what it is trading for. here we are not going to get your placement for obamacare anytime soon.

having counted the votes, republicans say they will try to reveal the existing law and take a couple of years to figure it out. .oining us now is kevin cirilli so mitch mcconnell, majority leader, said we will reveal. is that going to happen? kevin: it is looking unlikely. i have spoken with several staffers that say that is very unlikely, simply because it just doesn't seem like republicans would want to head into 2018 without having an alternative plan that they want to craft twother than starting the year window when obamacare would be repealed. the key focus to work with is democrats on an alternative on that and that is in congress. i just spoke with a moderate democrat from west genia who told me he is floating the idea of actually getting all of the former governors who are now senators -- there are 11 of them -- in the conference, in the

senate, to form a new gang as it comes together to put together a bipartisan plan. last night, i spoke with a paulr aide of senator rand who is against the majority leader's proposal, who said that is the risk that conservative space and that by blocking the majority, he could be forcing the majority leader to work across the aisle with democrats. david: when all else fails you talk about bipartisanship. we have seen this movie before. but does it ever work? is this realistic that they get a bipartisan majority? >> it is realistic that they would do some type of small alternative, a small fixed to the obamacare exchanges. it is not realistic that there would be a full repeal and an entirely new plan. the republicans my frame it as such but these are small fixes. should they vote to repeal obamacare, on the off chance that they do, i spoke with several sources, conservative

financial services, who said that would actually free up some of the funds for tax reform. but the thinking in washington is that tax cuts are coming and not a total tax reform. that is where we are. david: thanks so much, kevin. jonathan? jonathan: in the market the biggest reaction to the senate dropping the health care bill is found in the fx market. the dollar extended its declined to the fourth straight day, trading the lowest level since september. joining us now for more is saira bloomberg stocks reporter molly renick. why is it so insulated? at least on the surface, but what is happening in the sea? >> we have all of the economic pieces in place. we have interest rates low and even when you think about the aca, when fiscal stimulus comes into play this could extend the

bull market into decade territory. jonathan: do we have the economic fundamentals in place but the fx markets are pricing out the hike from the federal reserve and fading the economy. in the bond market, it is pretty different to what you laid out. >> fx markets share a positive also because of the weak dollar and these multinational companies, but actually while we are big fans of the u.s. bull market we actually prefer non-us market . we think europe is going to catch up and their economies are stronger than the u.s. and we are big fans of emerging markets, like brazil where you see political issues but the reform story over there will remain in place so we think there is value. alix: sticking with the u.s. for a second, oliver, it comes to how you factor in the trump agenda. with mike wilson, this is what he said yesterday. he said we think the catalyst on

expansion will be more policy certainty rather than the outcome itself. no matter what gets passed in the next few months, we have been just moving forward with a decision on the affordable care act and that will provide the certainty necessary for companies and individuals to act on their higher confidence. we hear that from ceos. i don't care if it is 20% or 15% corporate tax rate, just get something done. is that a consensus view? >> i guess we are going to find out how accurate this is because we got a solid decision on health care. it is going to be booted down the road for another two years. reformaves us with tax and financial regulation and what that means. this is the idea that could extend to a longer bull market if that happens. the question is whether you want that now. across the market there are still so many places within the sectors that seem lofty given the games postelection and

financials of the easiest one. we had such a pop after the election. if you look at the gains through now, all of that appreciation, which is part of the market, came in those first couple of months. you might be holding on to something that, timewise, is pretty hard to get your hands around. perhaps that is factoring into why these banks are weaker on fundamentals because they have communications of fundamentals going to soften this quarter. alix: i know you see other value opportunities elsewhere but in the u.s. do you feel like as long as there is some clarity, like health care is dead and we are moving on, that is a positive for certain sectors? is there an equity rotation? >> we think equities will continue to rotate which we have seen over the past few rates. we saw a growth rally but with rates starting to firm and the fed starting to talk about how inflation can be transitory, we think it is time for investors to look at cyclicals. they had a pop around the election but they have been out of favor for a while so we do like financials.

we think they will return more cash to shareholders. longer up looks good for west credit quality. america overnk of the long run. great management team, good, strong control. jonathan: so what does that mean for the big secular story that has already been up in the text value -- the tech value? >> tech values are weak now but if that were to happen we would see it as a buying opportunity. they are structural growers so if the economy does we can from here, they have pricing power and if repatriation comes through it is great for these companies with strong balance sheets. >> i think there is still, as far as anything that comes from the economic side, to continue to support the cyclical moves we have seen. that has been shifted to just look straight at the data. things have been choppy or choppier and we saw

that when tech did drop off. we've seen that with the macro indexes that will help push that cyclical trade forward. david: talk about the strength from the economic numbers as oliver just put it. when donald trump got elected, the markets went up but it is based on the expectation of growth on his policies. the stock market is still someng records, but at point, don't those two have to converge again? ultimately, the stock market can only be supported by underlying economic growth. >> you start to see it pick up in the middle of 2016. really, we saw gray television earnings growth numbers in the first quarter and we expect that to continue in the second quarter more in the mid-high digit numbers. we don't see anything in place for a recession or bear market to occur. david: that is earnings growth

but gdp growth has been modest. it is sub 2%. that is not robust growth. can earnings growth keep having that kind of growth when you don't have more robust underlying economic growth? >> you can as long as you see things like multi-year highs. you see low unemployment and is that allah remains weak, that will help the larger companies that have non-us sales. these are enhancing the economy and continuing to grow. >> great stuff, oliver renick and saira malik. you are going to be sticking with us. coming up on bloomberg markets, 1:30 p.m. eastern, tune in for barry diller, the iec chairman. this is bloomberg. ♪

alix: in bank earnings today, it is the tale of the flatter yields curve turning -- hurting goldman sachs and bank of america. inc. of america the most sensitive to rate changes among u.s. banks. it had a weaker debt interest income and goldman sachs was off by 40% year on year. joining us from chicago is jeff harte, sandler o'neill analyst. what is your take away this morning? >> good morning. for bank of america it was a good looking quarter. the interest income was less than we expected but it looks to be driven more by a trading rally which has fallen into a couple of different revenue buckets. there were a few items to back out but clearing out, it looks like a solid quarter to me. goldman beat as well, which is good, and the concern there is the trading number. it looks like it is going to be

the second consecutive or not only missing expectations but underperforming that is going to fuel questions on what is wrong with the goldman sachs franchise. alix: that is a great point and part of that has been the commodity story and there have been rumors that they were going to move out of their commodity business because they had such a hard time with this. what is your biggest question for goldman on the call that starts in 15 minutes? is, onethink the key thing goldman has done is they haven't stayed with commodities. >> "we are going to continue to commit balance sheets where we can't comply." and a lot of them have just gone the financials route when it comes to commodities. that is a big question. are they still comfortable with that decision or, after a couple of years of returns, is it time to rethink that and maybe go more of the way of their other peers?

jonathan: just to pick up on that, it is easy to get taken away by a couple of callers and say the company needs to change its strategy but the situation in commodities has been continuing lower since 2011. things have been hard in terms of commodity trading revenues. why has goldman state where they are? are they just happy that everyone has abandoned the ship? >> when it comes to a lot of the actual -- everybody has kind of on theed the segment financial side of it and goldman stock more with this. it is certainly, from a mixed perspective, commodities are a bigger revenue component and that has been a tough environment. i think longer-term, what i think we will hear from goldman on the call is that we are not in this business or here or there overtime. this is a business that corporate and investment clients are going to need and we are the

big provider there. in townot the only game but close to it and that is not a bad place to be. i would not expect much in the way of strategic changes but it is a question that has to be considered. alix: jeff harte, thank you very much. i'm going to hop on that. active global equities portfolio management, what is your top story? >> one of our names right now is bank of america. we like the management team and we have nice control, nice loan growth, and credit quality, that is one of our favorite things. alix: why are you on the banks? is it deregulation? exposure to higher interest rates? is it the dividend results or is it a better economy? butt is all of the above deregulation will be the bigger picture for the sector as a whole. we like that rates are firming positive for them.

we think the economy getting better will provide better loan growth for them and it is really a perfect form for financial's right now. year out of favor for this so it is time for people to take a look at those for the longer-term play. david: one of the problems the banks have had is disturbing money to the shareholders which seems to go away. in bank of america's earnings statement they specifically said they were on target to distribute a lot of cash. is that already baked into the prices? >> i think that is just short of shorter-term, of in terms of taking a breather and coming into play. you could see some multiple expansions for the banks. david: how concerned are we with loan origination? we thought it would be growing faster than it is growing but the overall economic pace, how concerned are we that it is not going? >> not concerned unless we start to see some pictures of an economic slowdown.

we are concerned about if inflation really was to bubble up and that could raise rates faster than expected. the you think that would cause a classic end to this bull market? other than that, other than political noise or other black swan type of events, those have tended to be buying opportunities for the markets so if we start to see that we will be buyers but if we see real signs of inflation, it might be time to exit the bull market. slix: are there any gray rhino to? david: in china. saira malik is going to be staying with us and coming up, we get to the record blowout quarter from netflix with one of the biggest there's on the street, michael pachter. live from new york, this is bloomberg. ♪

david: i am david westin.

dominant inlready streaming video but its latest numbers just reinforced that dominance with global subscribers estimated to reach 108 million by the end of the third order. it is about the original content on netflix and it is inspected to continue with more analysts raising their subscriber estimates and price targets. to be are surging on pace trading at fresh record highs. for more, paul sweeney, bloomberg intelligence senior industry analyst with us. good news? >> investors continue to focus on subscriber growth. companies are trying to get to focus more on revenue and profits and things like that. more traditional metrics. but this is a momentum stock and a momentum stock tied to subscribers of that is the focus. they blew out the numbers on domestic and international subscribers so i think more importantly for the stock, your third quarter as well, it is not like they pulled into the second quarter because they are forecasting subscriber growth in

the third quarter is also very strong. david: great news, they've got more people watching but they are making less money as they have more people watching. talk about the balance sheet. >> this is the their case for the story which has been trampled. the bear case for the story is building a programming liability that they may not be able to pay for. if you look at the programming liabilities, they topped out at about $15.7 billion this quarter , growing about a billion or a billion and a half. this is a company that will have negative cash flow between two and a half million dollars this year so at some point, investors -- this company is going to have to start paying for these liabilities. and don't worry, we are continuing to add subscribers. that will drive revenue growth and cash flow growth as international markets approach and start to turn a profit like we saw in the u.s. markets.

jonathan: that is the change, the regional revenue mix. lot more about overseas markets in netflix than we did several years ago. interesting to me that they emphasize investment in local production houses in europe. should they be really concerned about regulatory issues in europe at this point? >> they are producing a lot of content outside of the u.s. for local markets. the now have the give ability to produce some local country and local region programming, latin america, europe, and next will be asia. this is a production move for them. secondarily, i think it is a preemptive move with the we know theho say, regulators have historically looked closely at economics technologies, facebook and google, and they are trying to forestall that by investing in local economies and the local market. jonathan: just in terms of the strategy around the content, is that the easy way of replicating things to do what you did in

europe? >> i think so. they are in every market in the world with the exception of china and they are unlikely to do that unless they do a joint venture. now they have a kid ability to produce around the world and they have the checkbook to not only by the best movies and the best scripts in hollywood but also markets around the world because they have to program on a global basis. david: it is difficult enough to produce for a given market. when you go over and produce in lots of markets around the world, how do you put a value on the residual value of the library? you are investing a ton of money. do i know how that works in all those markets? >> typically, the residual markets outside the u.s. is lower than the u.s. because of the size of the market. netflix has had an interesting strategy. they produce programming all over the world and they try to find programming that, even if it is produced in latin america with narcos, they would play it in other markets, so they try to

think of programming genres based on their data and analysis that they think will have a more global flavor even though it may be locally produced. that is obviously raising the risk profile from a programming perspective for this company and it is simply because they are partnering for a global market. the upside is there is a global consumer base and a subscriber base out there for them. jonathan: what is the line? trouble in shortsville? paul sweeney, bloomberg intelligence. ahead of the open, we are four minutes away. futures are softer, down a quarter of 1% on the dow. and the s&p 500. the opening bell is up next. you are watching bloomberg. ♪

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delivers consistent network performance and speed across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. jonathan: from new york city to our viewers worldwide, you are watching bloomberg daybreak. moments away from the opening bell, let's get you up to speed. coming in today, stocks that flecked to kick off the week.

-- dead flat to kick off the week. we kick off the dow by a quarter on the s&p 500. -60 points and negative six points respectively. as you hit up the bell ring in new york, some big move energy. the dollar index down by 6/10 of 1%. the low for 2017, euro-dollar spiking higher. ratesonference and decision just two days away, treasuries in the nice bid as well. the yield a for basis point blast. two .27 on the 10 year. let's see the cash open. alix: softer on the margin here, dollar off by -- dow down by 2.1% and s&p and nasdaq off as well. her oil prices, potential they could cut oil from libya and nigeria. on the other hand, you have banks and yields pushing lower.

you have banks pushing lower as well. there considering the health care bill is off the table. with hospital stocks, they have gotten beaten up in the obamacare appeal. you have community health of by 2%. getting atech is also pop-up 13%. fda past it breast cancer drug approval and harley davidson -- not a hospital -- down by 10%. a loser on the day. it had an earnings beat but it and outlook. as for an earnings season as we continue to have the conversation of u.s. versus europe, i want to look at earnings in the u.s. and europe. this white line is the s&p estimate. it may have actually risen since the beginning of the months. the blue line is european

earnings estimates. they have actually declined since the beginning of the month. the bottom panel is what investors are going to pay for future earnings. they are both pairing quite a bit for future earnings as well as zero stocks which is the purple line but a little bit less when it comes to euro stocks. as we see money flowing into europe as we see equities on record highs, our earnings going to support the sentiment? and if they do, where? jonathan: a question for the quarter and the next several years. we caught up with jay polaski of pulaski global strategies and this is what he had to say of the europe versus u.s. situation. europe iss growth in better than in the united states and valuation, in terms of the banks, european banks are for safety percent of what u.s. banks are selling for. the price to be does not for this month of the next 3-5 years.

alix: still with us is saira malik. also with us, gina martin adams, , let'sa, -- so saira begin with you. >> when you have in the u.s. in the bull market is inflation in europe and the rest of emerging markets, you have markets in their earlier innings so you can have that same u.s. trade you had a few years ago and you can capitalize on it in europe. we do like financials. that is the key to european recovery. so if the economy can do well, financials can do better and that will increase loan growth and that should be what helps play out the european market story. jonathan: in the global recovery, are you playing the european recovery exclusively? >> we are playing the european recovery. we think on a region specific basis, those economies are improving and it is in fits and starts. election,french european markets rallied and we

haven't seen sustainable market recovery there which means there are still factors to get in that area. david: so if there is growth like that in europe, particularly in earnings and corporations, is that topline? can they actually sell more stuff? is that in europe for international? >> on the top line, if you through to a bigger surprise on the bottom line. after you have been through such an extreme malaise, these tiny growths in an environment that has shrunk your cost base to as low as it can get, that is the story on the stage of the recovery. we look at the earnings of europe versus the u.s. scenario, i think it is more about economic surprises than anything else. we came into the year expecting the u.s. to continually recover. upsides surprise on the reinflate it european expectations. over the last month, we have seen the reverse. european prices have slowed down and u.s. prices have stabilized

and that is creating a dicey summer. the european versus u.s. stock equation has been relatively equal on a full-year basis and you've got to see much faster surprises in economic growth to sustain the recovery in european stocks. david: is part of the surprise you might have on the cost side in the sense of reform? we talk about the trump administration and growth but we don't talk macron. he could have a pro-reform agenda through his legislature. could that give a boost to the french companies? >> absolutely. you see, for the most part, a topline surprised. you've seen surprises on sentiment improved. the pmi's all over the world are improving and in europe they have improved the most. so you need to see that topline surprised and sentiment feet into the second half and certainly policymakers can play a part in that. >> the other part of the story is financial conditions. the concern is that you see the euro move as the european central bank gets more hawkish.

it tightens more here than in the u.s. how do you factor that into your a list europe scenario -- your bullish europe scenario? >> we see rates rise around the world so we don't see big currency issues or tighter financial conditions from one area to another. we think it will bubble up globally. you are seeing it globally around the world. we see it as something that ruins the european recovery story more so than the u.s. one. we see the u.s. recovery far ahead of europe and the bull market, the valuations are higher than in europe so you can get that relative valuation play out by the u.s. alix: at the end of may, we were looking at euro-dollar-106. 115.e are in how do you factor that into your estimates? that's got to hurt some companies. i think the currency is a big risk into the second half. gina: it is the rate of change. it is absolutely the rate of change.

the consensus is for this very benign currency environment. into the second half, there is affected to be no change in the euro-dollar exchange rate and that has been a big surprise for europe and a big boost for the u.s. it is no surprise that the tech stocks have performed less in the u.s. so far this year. come fromh sales outside the u.s. we've seen a lot of that. i think this is all down to the ecb and the surprise has been the ecb has gotten a little bit tighter. the ecb is driving a lot of different markets. they are driving what is happening in rates and the dollar and what is happening in relative performance in the equity markets as the value growth shifts in the u.s. that has partly been driven by the ecb story so that is incredibly important to watch. jonathan: anyone can thank president draghi. in europe, iarket had this question earlier. it is the spread of italian debt.

bcp over spanish debt, about 60 basis points at the moment. a reasona premium for and that is because many people think there will be an election in the next 12 months and it could be dicey. i asked, can you be constructive on europe without being positive about italy? gina: i think you can be because there are certain pockets in europe where you are seeing a lot of strength. we are being bold on france and we think generally, we got political risk out of the way and an improving economy and the government doing the right thing over there. i think there are areas in europe like france and the u.k. where you can find good ideas that should perform well and you don't have to go into the other end of europe where there might be some political risk on the horizon. jonathan: france hasn't done a thing yet. if you don't trust politicians and you want to play in europe, where do you go? >> you trust economic growth instead. what you do around the world is look at the economic growth and earnings and count on those. find the right companies.

when we've seen these risks come to fruition, they are short-term events that you can use as a buying opportunity. jonathan: saira malik for joining us, and jenna martin -- gina martin adams, thank you. this.ssion looks like down one third on the dow. up 2/10 on the s&p 500. the price action is the fx. hi, we are up by 0.85%, the exception to the dollar weakness ruled today. sterling at 1.3023. treasuries with a strong bid, yield high by basis point and 2.27 on the 10 year. you are watching bloomberg. ♪

alix: this is bloomberg daybreak. this is the hewlett-packard enterprise greenroom. coming up on bloomberg markets, barry diller of iac interactive. david: netflix has begun to reshape the tv business overseas just as it has done at home. the online streaming service top analyst estimates for subscriber growth, past the domestic total for the first time ever. our next guest has been one of the bearish analysts on the and $82nce 2011. at price target, good enough for second lowest on the street, michael pachter, managing wedbush securities, you change the number after it came out yesterday. you are moving towards it you are still half of what it is trading at.

you are a little bit skeptical about netflix. >> i am reading my target because i have to be fair, they are growing subscribers faster than i had ever modeled. they have already surpassed saturation in the u.s. -- at least that is what i thought several years ago. they continue to grow so that is impressive. there is something going on. they are beginning to replace broadcast television in a lot of households so i have to give them credit in value. have such ahat i low price target relative to the share price is that i am old school but i think i am right and i think that cash flow matters. i think that any analyst who is being intellectually honest, buy or sell side is going to look at the negative cash flow and if you try to forecast the turnaround it is going to take massive price increases. they are not going to get there at $10. i modeled out about $13 a month

domestic and about $11 internationally and you get the cash flow to breakeven so to justify this valuation which is near $80 billion they will have to raise prices to something close to $20 and grow their subbase from something like 100 to about 150 million subscribers. all of that may happen but that is pie in the sky with lots of competition, competing for the content and for the eyeballs and if it happens, five or six years out. i think in five or six years i will have a $170 or $180 price target but i can't get there now and i think investors are being absolutely foolish to give netflix so much credit as if they are google search or facebook social media. it is just not true. everybody is competing and those eyeballs are going to get stretched between competing services.

david: they are growing very impressively, as you say, but at the same time they are paying for that growth through new content that they are paying a lot out of. there is a lot of money on their off-balance-sheet. also paying my lower prices. what is their theory? at what point can they either raise their prices or reduce their investment in new programming so that they can actually get to a proper position? >> if you look at their cash flow and track this negative $2.5 billion high-end of their guidance and you divide by 100 million subscribers and you do the math quickly they are losing two dollars per month per subscriber. i promise you, i can come up with a service that costs $12 to providers and sell it for $10 and make up for the losses in volume but that is what they are doing. you don't want to blame management. investors are bidding up the share prices. this is not management fault, they are giving investors what they want. investors are bidding up

the share price because they have bought into the myth that netflix is building something with that free cash flow that is going to last. it is analogous to amazon building fulfillment centers. they build one near your home you can count on same day delivery and you are more likely to be a prime member and spend more money. how are we going to make a bet " or "as like "theoa series of unfortunate events." both are excellent but there is no word-of-mouth. so netflix is going to get a steady state of content spin and they will have the leverage that to generate huge profits. the truth is they will never get to steady-state because once you watch everything that they have produced, you want something new so it is a never-ending vicious cycle with lots of competitors bidding up the cost of the very same content.

10 years ago, it was just hbo and the four networks but now it is three premium cable networks, amazon, hulu, and netflix and new entrants like amc and fx. there are lots of bidders for content and the fact is we watch the same amount of television now as we did 10 years ago. we just watch it in different places. netflix is not going to corner the market on great content. if i had to bet on a horse it is hbo. they have more people working there who are really good at producing content. serrandos whoed is doing a phenomenal job but he used to be a video store owner. he's been doing this for maybe five or six years and he is up against the wisdom of hbo >>. on the price target, $82 -- jonathan: what is the catalyst for a price collapse of netflix over the next 12 months?

the realization that the world thinks the way you think or is that something going to happen? >> i apologize for being cavalier about this that when required on the 12 months price target, this is when it reaches now. the only way i'm going to be right as far as the market is concerned is if domestic subscriber growth stalls. that could happen in the december or march quarters. jonathan: i just want to be clear with you about it. you've got a 12 month price target of $82. it is what you think the company is worth but you don't think we are going to hit it. >> i do if domestic scriber growth stalls and i think the outsized performance on domestic growth in june is actually going to bite them in december and march because those customers are not going to join again. they join now. i don't know that content gets that much better in the next nine months so i think if you see a stall on domestic subscriber growth, the stoxx then start to crater and i think that could happen.

jonathan: great having you with us on the program. michael pachter of wedbush securities. still with us, gina martin adams. we've gone through the limits of things that have influenced tech. one thing that stood up is tech is traded as a bond proxy in a way that it hasn't been for a while. gina: it has this extremely defensive earnings stream. when we look at tech sensitivity and the dollar rally, earnings growth is stronger than the index so there is this resiliency and the secular growth story. and making for a bit of a defensive trade. the other problem is the rest of the sectors that are specifically are ended have become more volatile. financials have traded in much greater alignment with the 10 year. the energy sector has traded in stronger with oil prices. on a relative basis, tech actually looks more defensive. the other thing to consider is consider the stoxx index that

has the greatest amount of cash that pays back to shareholders so they are increasing dividends. until this year they were increasing share buybacks as well. there are some long-term stronger fundamental reasons for the secular trade. now all of that said, tech volatility relative to s&p volatility accelerated quickly over the last month. whenn turn quickly investors shy away from a sector and that is something we have been on watch for. alix: if you are an investor who look at the momentum trade in tech and said i want to get a piece of that and you have earnings coming up for netflix, is that the right way to frame the story? gina: i think you always want to consider a combination of price momentum a as well as longer-term valuations. on those metrics, tech stands near the top of the sector ranking scenario for the s&p 500 . even considering overdone present momentum in june, it is still scoring well because the earnings outlook is strong. tech is one of the sectors where

we report not only faster earnings growth but faster than s&p 500 sales growth. that was the case in the first quarter. it is a sweet spot for tech earnings in 2017 along with lower volatility in the earnings stream. it creates an environment that is positive. alix: within tech, is there a sector that has the momentum run that does have more value? gina: not a lot. services in general tend to trade on different dynamics than hardware or semiconductors. you look for semiconductors in and then we have the more defensive place but in general, basically all of the tech has participated in the rally this year. alix: great to have you on set, gina martin adams, bloomberg intelligence chief equity strategist. if you have a bloomberg terminal check out and watch is online. click on our charts and graphics, and interact with us

directly. here about michael pachter talking bearish leon netflix. this is bloomberg. ♪

alix: goldman sachs down for 10th of 1%. you have martin chavez, the cfo on the call. the big question is what happened with trading. he definitely said commodities were particularly difficult for them and it was the worst quarter on record for commodities trading. that a whole bunch of them are dedicated to try and fix it. intently focused on this topic. gina martin adams of bloomberg intelligence is still with us. why is it so hard for goldman right now? gina: i think it is hard for the entire financial sector to be fair because the stocks have become so correlated with the 10 year that the yield curve is flattening, trading across the board. revenues have been like so i

think it is, to be fair, it is difficult to cross the sector. goldman gets a lot of attention because it is one of the two biggest capital markets companies in the state and in the world. so it is a representative of the issues going on across the sector. >> the question is what they are doing with their commodity business. whether it is low volatility with less dispersion or reducing the opportunity set or lower revenue, is goldman going to have to rethink what their business strategy is? >> i think all of the companies are going through something like that where they have had to rethink most of their allocation of resources as a financial sector earnings stream. they threw a bit on the fire in this low rate world. we agree there is a general rethink going on across the street as to where to allocate resources within this very constrained environment. david: they got hit but they are down 40%. that is more than any other banks. anything else going on at goldman? gina: it speaks to the

allocation of capitalsource the business and, as alex suggested, maybe they need to rethink the allocation. aboutt something to plan desk complain about by the financials. the overwhelming macro environment is it is just really tough to make money when the yield curve is flattening. jonathan: right now, as lord lifetime gets it on the call and it's jamie dimon. david: i wouldn't be surprised. jonathan: gina martin adams of bloomberg intelligence, thank you so much. 26 minutes in the session, stocks down by a third on the doubt and 1/10 on the s&p 500. you are watching bloomberg tv. ♪ >> it is 10:00 a.m. in new york,

and 10:00 p.m. in hong kong, i am vonnie quinn. bloomberge to "

markets." ♪ vonnie: mitch mcconnell -- on plans to repeal and replace obamacare. will republican simply repeal the law and what are the pitfalls of doing so? and baking news, goldman sachs turns it it's worst trading performance since the new ceo, can goldman turnarounds in? sharesnology, netflix are up right now as the streaming tv service crushes its international subscriber numbers. -- if anything might slow down on the juggernaut.