day a value of 3 trillion -- a value of $3 trillion. the latest turnaround plan, john cryan comes under pressure to find growth and billionaire howard marx said it is better to turn cautious to some than to wait until it is too late. from new york city, good morning, good morning, this is "bloomberg daybreak." i am jonathan ferro. into the market action this thursday. futures are up on the s&p 500, positive five points. downaded at 117 flat to about 0.25% down. reversible treasuries yesterday following the fed's statement. 230. alix: the damage deutsche bank as doing to the dax.

the underperformer over in europe is deutsche bank hit. again.e is down we are at a two-year low. it is the opposite for copper trading at a two-year high. the vix is a lower again. that is the wrap of the market. now twitter earnings are crossing the wire. jonathan: quarterly earnings helping by video advertising even as the social network field to add any new monthly losers and thus dock is down. second quarter sales fell 4.7% to $573.9r earlier million and that beat the average estimate of $537 million. alix: this is a big deal. a big question is can a growth continue? the answer from the second

quarter is no, no second monthly quarter growth. and putl be rough twitter in a difficult position. not be surprised and that is the number they focus on top that is what they care about. butthan: revenue was ok user growth is why it is getting punished in the premarket. up on this green for you this is how we trade. down by three full percentage points. the revenue to beat, user growth is a mess. -- is a miss. that is the story with twitter and the story with deutsche bank , reporting a 10% decline. the ceo john cryan said -- >> if you take the first half of the whole, it will be indicative of the new footprint of the bank.

we said in some areas, the revenues do not meet our expectations. that is good and bad. the macro environment in europe is very positive. if you look forward to predictions now for the eurozone, it is up 3% and that is well over the u.s. and we should be well positioned. we are very exposed to interest rates going up, very positively exposed and we make money without additional costs. lowlevels were generally across and our american peers said the same. there is a lot if positive tail wind but with the timing of the improvement, it is difficult to gauge. think a little bit more certainty on the direction of interest rates. there is a positive mental attitude, pmi indicators are looking strong particularly in

germany. the friends story has been the real pickup for the eurozone. >> do you get a better sense of interest rate, the direction from janet yellen yesterday? 4g do you think for mario draghi, a sense of tapering? >> there wasn't much from the fed yesterday. interest rate increases are looking slightly less likely. in europe, an interesting picture, we see the prospect of growth but no increase in inflation. interest rates are not moving because inflation is not moving. economic growth prospects are improving so we have seen the euro go up in value compared to the dollar. the bond markets, government bonds has not changed very much yet. weston the yield on the bonds go up. >> globally, the inflation problem stills -- appears to be

the same. >> that is correct. as much of a technology phenomenon. the macro picture is still very good and in the world, there are difficult hotspots and geopolitical difficulties. most of the emerging markets all shall reasonably good prospects. will johnank that cryan here to discuss more by deutsche bank is the man who conducted it, matt miller from frankford. the turnaroundo plan, he delivered the worst quarterly in 3.5 years. where is the growth going to : they expecttt operational revenue for this year to be lower than it was last year. told me is they have set up the pipeline, the infrastructure groundwork is being laid and now they are waiting basically for activity

to change. he said he does not know what will spark that and does not necessarily expected in the second half of the year. years, he will invest more in technology and more already in people. remember they had cut bonuses and reduced pay and lost headcount, that trend is down. now, they are turned it around and paying people more and trying to attract bigger and onter minds to capitalize client activity when it starts to pick up. expect othero not banks to be nice are kind to other banks. a low qualityd it and a lot of people feel that about deutsche bank. she -- he has cut costs. the growth story fascinates me. -- oncus of journey germany, what are investors say about the repo this and if that

is the right decision -- refocus and if that is the right decision? matt miller: there was an as is is still doesn't there was an existential threat to this bank last year. while, i remember being on set in new york talking about did this with you and david and a question of whether the german government would have to step in and bell out deutsche bank. -- bilail out of deutsche bank. that did not come to pass. they move a big part of their balance sheets from london ahead of brexit as they start to move or add more people to work your in frankfurt. one of the interesting things i thought john cryan told me was the do not have very high litigation costs and do not expect those to go back up significantly. lostdo not have very long provision. one thing the germans do not do

very often is borrow money but when they do, as they pay it back so they do not have to be concerned about that kind of thing. jonathan: you can pick up the soft spots quite clearly. given what's happened wet hedge fund activity in the past few quarters and that is not rebounded. is that something that can really build on and build momentum across europe? was pretty: cryan open about that and said the advisory business although it was a strong spot, it changes a lot because so much depends on how many deals you get done and in which time period you do it. they happened to get a lot close and finished in this reported quarter. that is why it has done so well. they have built it up and attracted the right people to come back and continue to do so and will start to pay more in bonuses to smaller pool of

people and that is important part for this kind of business. alix: great stuff. bloomberg's matt miller. put it at future what they were talking about, that breaks down the revenue streams acted deutsche bank. equity sales down 28. digital generation down 24. the advisory unit is up by almost 100%. isn't this a deutsche bank issue or for the broader european banks? joining us to talk about it is "bloomberg daybreak from jake -- mislav matejka from jpmorgan. answer the question, deutsche bank or european banking issue we have to focus on? mislav matejka: our review is banks will do well. if you think about the environment, the curve steepening and it is peaking and we think the banks will perform well into the rising bond yields. the focus is on the domestic leverage banks.

deutsche bank is really focused on germany. will germany get enough of a foundation to take advantage of whatever improvements there is an economy overall? mislav matejka: germany, it is a all-time record highs. the economy is doing extremely well. banks, thatfor the is not the key issue. they key issue is the net market and the mpl's and a margins will do better as the yield curve steepen. beating and you can focus on deutsche bank of offer me eurozone bank sector is still a buy -- still focus on deutsche bank but for me, your role does eurozone bank sector is still a buy. david: why is it the market agreeing? with the exception of hsbc, nobody is above 1 and deutsche

bank clyde -- claude up to 0.5. up to $.50.ck mislav matejka: u.s. banks have reiterated their long-term is going down. if you think about the eurozone think, they are open this year, 11%, 12% compared to the market, they are strongly outperforming this year, but still quite cheap. it is a bit of a discount. and on the tapering story is ahead of you. if you think about 2013 when is a fed did taper, the 10 year bond in the u.s. what from 1.5% to three percent so it doubled. 0.5 --bonds today art at today are at a 0.5%. jonathan: if you speak to a banking ceo in europe, a care

less about the curve than what the front end is doing and the front end is negative. they have the stomach of the cost and the shape of the curve is quite misleading when we look at europe. is it the actual problem is that the negative rates off 40 basis points and doing nothing with it anytime soon? mislav matejka: it has been there for a while. in september or october, mario draghi will lay out the tapering plan. if you have an eye on germany, all-time highs. 6%dit growth is up 5%, year-over-year and is that consistent with the nominate the -- nominal bond yield? the best correlation with the eurozone banks has been a long the end of the current curve. germanyear bonds in moves up, european banks will perform like they always do. jonathan: germany has been ok

for a while. due faces existential threats. -- deutsche bank faces existential threats. is there a better place and that eurozone for the bank recovery story outside of germany? the banking sector certainly has not been doing better. mislav matejka: our out of view is spain. past six to 12 months and remains the top stories. the mpl's are slowing does significantly and the growth at 3%. the banks have consolidated. spain is number one and then a little bit of italy because it is so cheap. spain is the top one per alix: great stuff. mislav matejka of jpmorgan and you are sticking with us. the headline out of twitter what is calling shares to fall is no monthly user growth. you know that the company will

highlight daily users which are 12 million but we do not have numbers for active daily users. caron, senior fixed income portfolio manager will be here to talk about plans for the fed to unwind the balance sheet and what it means for yields. this is bloomberg. ♪

david: this is bloomberg. i am david westin and we heard from the federal reserve yesterday and pretty much confirmed everything we thought. the fedss the path that is on, lewis alexander and mislav matejka is still with us. , let'sg with you lew

start with the balance sheet. they set relatively soon they will roll back the balance sheet and people think september, what to do you think? i thinkexander: september. janet yellen and her testimony made it known they are not particularly worried about the the economy. david: go to what it means. it will be gradual and not abrupt. how does that change the tenor of knows people will be holding?'lewis alexander: they will put out more securities into the market over time as they stop purchasing of those things. moreover, the reserves which the bank hold which has been very large, are going to start shrink. means the, that private market has more duration and the price of duration will go up and a steeper yield curve over time. david: in addition to the risk

of private market? lewis alexander: yes. david: what does it mean in the bond market? mislav matejka: in terms of the fact of all of these for the recent bond yields will be higher in the u.s. but not are aggressively. and the equities which is my key concern is the issue of these stories for all these years, a lot of people say it is not going to have much of an impact. i am worried to some extent 2013,e tapering, like in s&p 500 traded on 13 times forward and eurozone on 11 times forward. equity markets are right now 25% to 30% more expensive and therefore, this is not so great. alix: if you were treasury holder on the short side, you got hurt yesterday. the market reacting was tremendous. the dollar dropped like a stone.

was that a correct reaction to the statements that we got? mislav matejka: yes, within the whole of the key story remains that interest rate differential between the u.s. and germany, the 30 year high that is only one way it is going to up, even the u.s. comes down to europe or europe towards the u.s.. the dollar has been falling for the last few months if you look at the ftse in 2011, it was 7075 and still and 90 plus. there is a long way to go. we think the trend of dollar weakness is here to stay. david: you said you are concerned for the second half in equities now and europe and the united states. how much is tied to balance sheets? the fed and the possibility of draghi tapering?

mislav matejka: the important issue is that the trade-off between growth and earnings on one side and the policy is going to go wrong. the start of the year very bullish, very bullish on the first half of the year for equities. the second half, the earnings momentum will slow down because the base effect is becoming way more difficult. as of the same time, the liquidity story will be unwinding the wood equities are trading at 15 year highs. we do not think it will be very detrimental but clearly, is left -- it is less bullish than 5, 6, 7 months ago. alix: do you feel like we are in a central-bank convergence or divergent story? lewis alexander: more of a convergence story. you have the ecb i think set up toward a program in the fall. and the fed is in some sense

continuing to move ahead. the adjustment will be gradual. the fed gradually tightening and the rest of the central banks of moving from maximum accommodations to something more moderate. the story in japan is different and since they are lagging here. i think it is more of story than diverges. jpmorganlav matejka of and lewis alexander, you are sticking with us. common, facebook earnings and we will talk about it with laura martin and james cap mac, -- much more after another solid quarter at facebook. this is bloomberg. ♪

that i am in which render i am emma chandra with your

business flash. comcast is testing is cable business. second quarter revenue rose 60% thanks to hits like "the fate." starbucks is making its biggest acquisition ever and was spend 1.3 billion dollars to buy the remaining 50% share of east china outlets. starbucks will have complete ownership of 1300 stores. be and is in sight for libor, the benchmark that underpin is more than $3 trillion of product and will be phased out by the end of 2021. it will be replaced with a more reliable system. it became a word for corruption. that's your bloomberg business flash. alix: thank you. what would you label as more reliable? anyway. >> something that you actually use.

nobody is the user there for some time. alix: twitter is getting hit in premarket. typically the move on earnings is about 11%. the number that's really disappointed at a monthly active million.bers at 328 sure, the company saying up 4% but quarter quarter were no growth. the first quarter did have the growth and the market was pleasantly surprised. on at the call, you bet that twitter will point to daily active users. there are no actual numbers for that. it is hard to get a good comparison why daily active is more reliable benchmark. you know it is the question on the call. david: you see the stock down substantially but revenue was up . they are making more money. at first, how can you make money on twitter? alix: it is a pretty big day. it is all about who is there and

what are the eyeballs? looking forward to the call and what it means for the broader tech sector. jonathan: after more than a decade, nobody knows what to do with the platform. alix: you have to ask the donald trump. david: he knows. jonathan: if you ask anybody about twitter, they do not get it and that is the same problem. mark makepeace will join us to talk about why shareholder rights matter so much to indexing. from new york, you are watching bloomberg. ♪

>> from your, here is your market check. 110% of the dow.

stock alone shaving 40 points off the ftse. the dax also low. dropelped by the revenue at deutsche bank. it has been a -- in a story of weakness. 229 is your yield. let's get headlines outside the business world. republicans on a quest to repeal obamacare.

yesterday, the senate rejected a reject majorld or -- russia's has if the bill becomes law, president clinton will respond. according to a person familiar, those making more than $5 million a year would be 44%. it is not clear if president trump supports the move. >> senate republicans looking for way to repeal obamacare.

what is next to vote on? plan so alacement skinny repeal is their last best hope and that could be a problem for congress and wall street. even if a time up with the bill, the earliest they can bring it up is september. count the days in yellow. there are only 12 legislative daysand during those 12 congress has to raise the dead sylvan -- aviationze the federal administration.

something has got to give. ifwill happen in that month -- what is all of the meeting for marcus? is it interesting thing would probably not have a major effect on the u.s. economy. -- the gdp when a in the quarter that it happened. havee are saying right now equity valuations stretched. people are not sure what will happen next.

quirks you talk about confidence. out,we started this game certainly they will not shut down the government. what would that say about getting anything done? it is not a matter of doing what's right for the american people, but desperately trying to get some sort of victory. start what it means .ith outside there islast year, provide policy.

you are seeing the numbers gradually come down. i think this is a slow drag. i agree the government shutdown would be another shot towards .hat scenario -- >> that is the downside. what is the upside? could this get there meaningful tax reform. system isrent tax crazy. if we can do the structural reform i would think you are the positive for the economy.

i think that big, complicated reforms -- i think in some ways this is exactly what you're seeing with health care. >> let me talk about the politics. is notely, the problem the white house. it is a republican party. -- t is a republican party >> the white house and members of congress have been negotiating for a while and the est >> it is also important to keep in mind they can bring anything to the floor on taxes. >> the ultimate issue at play is

the fact we have three parties .n congress that the last minute, to get the government funded, you have to bring in democrats because it gives the democrats leverage. he said a government shutdown would be a good thing. if the fed can't fix that, is stimulusup to a fiscal to fix it.

>> the economy is growing and unemployment is down. i think inflation will come back up. not robust -- is i think corporate tax reform would contribute to that. themately, that is what objectives got to be. >> as we diagnose the us --nomy, you say we are certainly with wage growth.

>> one of the things going on, is less over. when they shift jobs, they tend to get higher wages. frankly, a simple demand loosing have -- sn't going to >> thank you. great to see. coming up, joining us on the rules on company voting rights and corals.

there are concerns about future growth. this is.

>> coming up on bloomberg markets, southwest chairman and ceo on the company's earnings. >> we are in a busy earnings they. here are some of the names we want to highlight. he on the downside.

-- all of those lower. sawsory fees the only that some growth. who knew that steelmakers would be crushing it this season and twitter on the downside. company,etric for the research to discuss twitter and -- book

this is taking it away from -- ve users and engage >> that is exactly right. -- the sizehe mark of the audience because at the end the day, the size of your audience and how engaged. their audience is not growing and that is a concern. they are trying to visit the company to online video. they help the consultant to advertisers. betterbers came a little than expected, but a lack of new

users -- >> they are trying to pivot the company in online video. it remains to be seen if they can make that pivot. ridiculous tois .ave the ceo of two companies is a company that lenny's focus on the full-time ceo.

>> the torture stories -- no growth in users essentially. 17% year-over-year growth. up 40%. >> that ointment problem for twitter because there are not social media platforms. facebookle it was just . you take a look at the digital marketplace today, it is a duopoly. long-term, not good structure industry.

is a because they don't care for our they blind at what they are saying? >> you can take a look at street numbers the next couple of years. areink what investors saying is the growth has probably plateaued. can still pull the revenue from instagram, whatsapp and messenger. >> for messieurs, the story is a great thing.

quite expensive over the last few months. , potentially illusory. we established long-term relationships including america online, yahoo! and prodigy. . it is a bit of a struggle. what he really struggled to pick out is it is very hard to forecast the future for technology companies. to say -- when you think about

is -- >> mastec outperform the s&p almost two to one. i think investors are coming back and saying where can i get real topline growth? facebook and google are not technology companies. they are media companies. the question is how long will that last in terms of growth. -- youould note definitely don't want to miss

that. in the earnings market, it is ups rising. seeing a volume increase internationally and in the u.s..

>> blue apron down 30% since last april. more declines ahead for snapchat. joining us now, the ceo of the

london stock exchange. great to have you on the program. they are the big pension funds. want to be able to influence for governance reasons. when you have companies come to the market with no voting rights, difficult. in the past, these standards have been set by the regulators, but regulators are competing for listeners. does for those.

issues have a real impact on their risks. knows, why do we shareholdersct from themselves. risk and don't a forget more and more want to passively manage to about 30% of the market wants to passively managed. wi-fi percent? 5%?hy >> 5% gives them a voice.

-- there to show with the market looks like so we want to reflect the market in its totality so we only try to take these the shut these minimums for a small number of companies. companies will increase voting shares. >> the think it will have any impact on what kind of companies will come to the ipo market? >> i don't think so. i think we will stop one or two companies who are coming with no voting rights and shareholders .ave no say in no voice >> what happens to company already listed? how many are there question mark >> there's about 36 companies.

most of those are small technology stocks. what we have said there is a five-year. five-yearre period -- period to see if you want to increase above 5%. >> great to have you on the program. -- we county down to .he cash futures positive from your company are watching bloomberg tv.

>> deutsche bank revenue drops 10%. pressureomes even more -- comes under even more pressure. city, good morning for our viewers worldwide. we get you up to speed on the market action. up to 10 sub 1%. rollover.ssion, we some of yesterday's move up. the swissie, another leg lower.

a two-year high is a reflection of stronger growth in china in the thick down again under 10:00. >> also, at 1:00, u.s. treasury $28 billion ofl notes. >> the federal reserve leaves interest rate unchanged. while the dollar tumbled to a 14 month low.

-- great to have you with us on the program. talk about the importance and white moves under -- one of the most liquid markets on the planet. is a little bit of an overreaction. dissuades theit fence from doing what they plan to do. they were probably executed in october. i think the markets are looking for something more hawkish and didn't get it and reacted. >> i have to agree. it is acknowledging reality that inflation has come down. >> that word about financial stability and whether they could

really acknowledge what happened for inflation. >> i think financial stability is a really good point. -- one of the projects is they have looked through the model for the u.s. and what they highlighted is a 2% decline in the dollar. the dollar is down several percent. that is the equivalent of about three rate cuts. you all of a sudden get exasperation.

>> they don't actually want that. going and whatp reverse that? download,y is the fix -- the bond volatility index i wonder if that raise rates and starts to remove balance sheet. there is so much liquidity in the marketplace. you might think it is more important to get that balance sheet down. inre is a clear eagerness

the park offense to get the ball rolling. rates are still negative image still have a ways to go. >> i think effectively what it has done it has helped keep cash levels high. i don't think people are worried about things. isi think what has happened there is high levels of cash, meanss stopping which chopping off that part. i don't think volatility means he blows a, but if

bubble enough, when a verse it is usually bad. we have to be worried about that. >> are we identifying the market version of a policy dilemma inflationown risk to and they don't know what to do? >> typically, where look at it, if i look at real rates, a dilemma.ere is you've got global growth, commodity prices moving higher. doing better. be i'm still ok with that.

>> anything structurally, they are in better shape. there have been a lot of of dollar denominations in emerging markets. we may geting thing, a new makeup of the federal reserve. case in point, you have randall with a confirmation hearing. he said as a in a complex undertaking, some refinements will undoubtedly be in order. change is coming to the fed.

>> i think the fed does not want to conflate their policy with policy.gulatory i think mayor being very careful not to conflate the two and i think that is a key aspect. -- alsortainly possible for the financial sector and the banks. i think it goes on. surprised if it is either one. i think it may go for a more conventional type it. if i had to pick between the 2 --

ans is certainly administration that a while -- values loyalty to having someone that values the anti-guy would be favored. >> if the two come together and that is in the form of reserves held by the banks. >> does that really dovetail with reducing the balance sheet? think there is necessarily conflict because it's hard to make the argument that banks aren't lending for calls -- a qualified borrower. >> unless you're in --

both of you are sticking with this. painful quarter. the bank. revenue falling 10%. bank weighing on the backs today. this is bloomberg.

a 10%tsche bank reporting decline in second-quarter revenue. side, wouldvisory want to build industry sectors. a lot of highs in the second

quarter have been in the u.s.. london will be an important venue for us, the we will try to on germany. >> is it only a little bit more? idea you will move a fifth of the balance sheet out of london. what is the headcount? >> only on the balance sheet. there is this idea of a london branch to melissa -- whether we have an adjustment to where our people are depends on what a break looks like. ensure and 2019.

making sure the competences are the same. there is a positive impact here. >> will review best your -- guess your business is going to look like? >> going outside the european union, it becomes a risk. it probably will gravitate to we have to respond to put ourselves in a position.

is it more difficult to attract ?he best minds >> certainly many parts of -- it will being more difficult to move people here. it is not english speaking. new york and london have a lot of attractions. it is actually where the infrastructure is. i think it is going to be difficult if all the banks and london are going to move somewhere else. likenfrastructure is there internet. isi'm not sure the language a problem with frankfurt. german business the problem. the problem is what there is to

do in the city. says you have to move to frankfurt, does life get hard? >> in all seriousness, you look it how this negotiation continues. here is the breakfast phil. we're going to pay the money. >> it is easy enough to move house but to take the parts implement with you is going to be difficult. i don't think in the -- it is in the uk's best interests. maybe you start to ask her more and at some point you find a middle ground.

i think that is where we are. it does not look like a positive for the u.k. >> when this happened over a year ago, we thought it was quite simple. like this might be more than two years. >> it has to be at least a five-year timeframe. i wonder how much negotiating power the u.k. really has. i feel like the scales are tipped for the eu. tohink they're going to try drag it out for as long as they can to try to get into advantage. >> talk about a crazy move. yesterday, the euro-dollar. how far do you think euro-dollar can move?

i will address that question. essentially, all of this is happening while good things are happening in the market. the data has been good. they seem like they are going ok. imagine a scenario where things are not going well and then it becomes more challenging. >> i think that is where it gets concerned. right now, the fed looks like it is dovish. as far as the bond yields, the way a look at the u.s., the u.s. is being largely driven by what is happening in europe. i think it is going to be hard 2.5%.e u.s. to move above

we need to really believe this is happening and yields are happening. -- our yields going to have to inevitably go up and how far will they go? >> i think over time but very gradually. think it is something that is going to work against inflation. although things have picked up. -- i think the euro probably needs to pull back. that has been a move over a short amount of time.

>> you have some political stability, but let's just use them. maybe that is a bit of a rocky foundation. it's not great. >> it's not great and it is also not horrible. important is more the eliminations of the negative. as long as we don't get a major pullback, i think it chugs along ok. i agree with kathy. the backend cannot deviate so much from the front end without there being some policy action

and your point, we need to see the data. >> trawl swarm will be staying with us and to, we will take a look at facebook. more martin will give us her thoughts. live from new york, this is bloomberg.

>> this is bloomberg daybreak. experts.as done predicted less than a 10th of that. -- biggests is making its

acquisition ever. starbucks will assume complete ownership of 1300 stores. china will be one of its biggest drivers in years. rice that is your bloomberg business flash. thee should -- second-highest was raised in 2007. fund.s not just one what isave to wonder going on at this particular moment. >> they don't know what to

invest in. brought that up. when we were talking last week, we were talking about private equities. here's what he had to say. >> the very best firms have raised capital. many have growth funds and real estate fund. mabel sell some stakes in companies and keep some for themselves. >> you have to do something with the money then. you have investors saying what did you do if i money? go looking for bargains.

when you have howard marks shuttling to find value, i've struggled to find value two. >> he said if you add on the leverage, you are looking at more than $1 trillion. i cannot even fathom that. >> there is one more and that is liquidity. turn and say i want money back. >> coming up on monday, don't miss this. from your, you're watching bloomberg.

>> one hour away from the open.

-- so is the benchmark in frankfurt. question, where does the growth come from created -- growth come from? >> the data here in the united states. .o 44 is your higher still as we say every single time, historically very low. coming in at a punchy six point 5%. better than expected without stripping out transportation and then low expectations if you do. the estimate their 0.3 so kind

of mixed. -- they thought that might show up and that would be the transportation department. us, jim turning of morgan stanley. what you expecting tomorrow? >> we are looking at north of 2.5%. healthy rebound in consumer spending. although it has been slow, one of the things we haven't seen we are not seeing the money rush to housing.

it hasn't been. it has not happened. i think so. we have gone through a recent round of soft data. when the detainees is we have to -- the onus is on the data to rebound. you are going to start to give the first round of data. the market is not positioned for that. i think we are starting to

see some signs of it. it has been a short. p of timeeriod. , butnk it is coming unfortunately this is not happen overnight. >> the other thing we are getting is corporate profits. take a look at the bloomberg here. down.uarters how significant is this tomorrow? what is going to improve it? profitsnk corporate actually not doing too badly, but it will be a bit of a drag tomorrow so i don't think it is

economy.g on the pace matters. everyone wants higher wages. what we want to see a slow, organic growth. think we are being set up its profit margins are robust and many people would argue they should be coming down .onsiderably at this point we have to be considering what the trump administration is doing.

let me take you inside the bloomberg. -- leave out boeing. this is the proxy for business spending in the economy. we had a big rise and then it started to roll over. since trump's election we have started to see an increase in those orders. this is just the past year. the rate of increase flattened and this month we did see a slight decline. they have been holding out, looking for a tax cut in particular.

-- those are two terrific charts. the question is, kennedy delivered on? >> they felt it will be tax reform. says, -- a lot of it has not happened yet. is i don'tays said make capital based on those rates. are they misleading us only --

the ceos may say that in turn excerpt that certain extent it may say that. you see this giant rise in investment read before you get to the end of the year. >> have a view what is going on in washington? providing thomas how do you think of it? >> that is the thing. they can create conditions such that demand my first, but they cannot create actual demand. they can make it easier to

invest. if you don't get investment coming you don't get growth. that is why we're stuck around this gdp level. they are saying all of these companies are waiting to see what happens in d.c.. in matters, doesn't it? flows atall about cash whatever discounts. and howe of profits fast will interest rates rise? >> what is interesting is this a we don't care what the rate is. just get it done.

is it just getting something? highestmatter for the tax rate or at >> if you are a thosempany, using some of tax schemes, then it may not as much and free up cash. when they said they are not interested in him in a? >> thank you for joining us. we can cross over to emma chandra. republicans are --

they may ultimately lead to a bill, plus a few other provisions. congress has struck a deal to limit president trump's power to limit sanctions against russia. chiefhouse medications tells cnn the president may sign the bill or he may veto it. british regulators and banks will try to replace it with a more reliable system. dayal news, 24 hours a powered by more than 2700 journalists. this is bloomberg. up, kerry simpson will

be joining us. is for the same stocks. this is bloomberg.

>> this is bloomberg daybreak. coming up later, an interview --h southwest hermann southwest chairman and ceo. now, your bloomberg business flash. lows has taken a $3.5 billion

stake in nestle. -- a new drug combination slowing the growth and mobile facebook.ing sales at 45%. jumped by that is your bloomberg business flash. >> for more on facebook we are joined -- what jumped out at me, this book has a mobile monopoly.

>> does that become a problem with facebook in the end? everybodyn't because is trying to do mobile apps. you have hundreds trying to do mobile, but facebook does it better. how impressed have you been? very. 20% ande delivered by their operating expense estimates so they are over delivering on their revenue almost $4- they did company wasthis intoed in a dorm of

thousand four. for the second quarter, we've asrd we are not able to grow fast. had he factor that and when the numbers compared to peers are so good? interestinghat is in theirlook back grocery -- growth rate has come down since then. what i have to say about this company is a every year say how much money they are going to spend in they cannot spend it. the economic power of the model is so strong. until we see happening, i think theird to count projections of slowing growth. >> no question this is a great

story. is there a problem for them? people like you don't believe them. the market is going to be isappointed when the market true. >> a lot of the companies are black boxes. we have the flow through and we don't have an adjusted line. 42% toargins went from 47%. -- their margins keep going up, the stoxx are going to keep going up. when mr.yesterday zuckerberg said they start might

it is not the first company that has gone into video and had trouble. >> there's an -- spending more money on video and try to compete with youtube. adsybody sees that video are the next big opportunity. everybody on the internet should be pivoting towards video and that is what facebook is doing. that it should be showing up in marketing expense. they are spending more money and content and this costs can't keep up as a percent of revenue because revenue is growing gap 40%. memo spoke of a

cautionary tale. >> many cases, the company turned down eventually. one paying capex out is this quote. with savage long-term relationships with many partners including america online and prodigy. his point is how difficult it is and as you pointed out, facebook is something that started in a dorm room in 2004. how do you project your views forward? >> i would say facebook is different because it has a network effect. any communications business -- facebook is a business that aggregates people and they just .it 2 billion people

here, every person that adds to the network ads to the whole network. >> thank you. really appreciate your time. >> watch has online. if you miss anything, you can go back and click on it. this is bloomberg.

slump,r a three-year european majors posted their thatperformance since crash. bloomberg spoke earlier about the company's growth. >> it has come at a law of opportunities. altogether, it is a deal that has worked out very well. dollarsign have billion and we promised, we will get that by the end of the year a year early. ,> joining us now from london what have we learned so far

about companies handling $50 oil. we learned they are doing as well as -- the reason for that they have done a good job. the downturn industry has been severe and: sharply. they are finally reaping the rewards of that. >> the issue is how do they cover dividends? where are we on that right now? >> they appear to be on a sustainable. a lot of them giving their dividend shares. wheregetting close to there could be ending the

program. >> we have the u.s. credit taking off tomorrow. we have exxon and chevron as well. what can we expect from them? >> they had an excellent set of results the first quarter. it is very much the same story. theyone is adapting to lower price of oil. learned they are starting to her back a little bit. -- it seems they are reacting to oil prices. some of these service providers seeing less demand from their

customers. constraintseen some . it is a really big boom back in 2014. seeing any evidence of a crash. if i'mn't decide impressed with taken do with $50. >> from new york city, you are watching bloomberg.

♪ jonathan: the busiest european

earnings day this month. a combined value of $3 trillion report. deutsche bank revenue dropped 10% four months into its latest turnaround plan. the ceo under pressure again defined growth. a little bit of social anxiety. twitter plunges and facebook hits a record as howard marks rings the alarm. good morning, good morning. you are watching bloomberg daybreak. getting a set up for the opening bell about 30 minutes away. futures of. -- are up. a new year today high close to 118. we retreat to 116.98. treasuries of it hit yesterday. yields up to basis points. .et's get you some movers alix: good and bad earnings. twitter down by 11% in

premarket. it did the the top and bottom line, but it was about the monthly active user numbers. 328 million is your number. no growth quarter to quarter. they will be highlighting their daily active users. but there are%, no numbers associated with that. making the call to analysts and investors that is difficult to make. on the upside is facebook. -- upal 7% in premarket almost 7% in premarket. billion,t $9.32 earnings beat monthly active users topping estimates as well. mobile ad revenue as a percentage continues to grind higher. now at 87%. another killer quarter for the company. other names to watch, proctor and gamble and verizon. both up in premarket. you have earnings and revenue beating estimates.

they see core earnings growth of the full-year coming up 5% to 7%. verizon added more subscribers than at&t. not as much as t-mobile. their revenue also the estimates. subscriber growth was 10 times higher than analysts estimated on average. these are big numbers coming in from not just the tech sectors. jonathan: i think twitter just needs to find a different data report. -- day to report. getting punished this morning. another record. dow.cord closing for the 29 for the s&p 500. 44 of the nasdaq. billionaire howard mark is sounding the alarm. bank stocks. "the super stocks that lead the bull market inevitably become priced to perfection. the company's perfection turns

out to be perhaps illusory." out of that --is alphabet. erry, the story is it is time to get out. your comments? terry: i think it's always difficult to use valuations of the timing signal. we know high valuations will typically be to lower future returns in the future. that is what we try to express our clients. if you like the look at the fang stocks as a proxy, that is actually false. the business models are some of these really secret companies is sound and changing the way we actually work across our economy. in terms of general e-commerce as well. . i would push back a little against that jonathan: the vix.

he says more about how people feel about what volatility will be in the future, not necessarily what it will be. maybe a sound of complacency? -- we have avix feeling below vix is a sign of complacency. when we step back and do a lot of our work we understand the fed and other central banks have some volatility, but they are a simple argument. is there a linkage between macroeconomic variables and low financial market volatility? what we found is if you look at traditional variables, gdp, employment, inflation, the volatility of those variables is lower in this decade relative to prior decades. we think there is strong linkage. hello volatility is supported by the low macroeconomic volatility environment. alix: we are looking at 10 days straight, maybe 11. going back to the fang argument.

you are talking with the durability of earnings. key if the fundamentals outperforming at some point the multiple will be too high. play can get the juice in the equity market. terry: if you look at different valuation metrics across the technology sector, probably trading about 16 times warnings -- earnings. in 2000, that was about seven or so. that was a rational -- and a rational, exuberant environment. we are well below everywhere at that cycle. yes, we had strengthened the technology sector. we could have a correction but the fundamentals and business models are strong in the valuations relative to history are still attractive. david: howard marks is right. the question is when. a business has a

certain cycle to it. when will it become a mature ssiness, which all become ooner or later. businesses are continuously involved in trying to create new revenue. it are pushing back on this strong company with solid leadership, you might be missing out on future gains. they have 2 billion users now. up 17%, which is extraordinary. can it be 3 billion, 4 billion? is are a natural limit to the size of this company and its growth potential? growth is obviously going to trail off sooner or later. we have to start thinking about how you create future growth. do you try other organic measures, nonorganic measures through m&a.

other sectors have built up a huge cash buffer. there is opportunity to create nonorganic growth. alix: what howard marks is saying is these are reasons to be -- to look at potential worries. do you still want to be invested? connection you need to buy. fear of missing out. we are obviously positive on the macroeconomic environment. think the cycle has probably more years to play out. a lot of people are worried about one or two more quarters. we think this can last for a couple more years. diversification, we don't want to just load up in technology and financials. be very diversified across the

sector. we want to tell our portfolio so we are confident. jonathan: do you feel under pressure to take more risks? terry: this is a very big point. because of the volatility environments and talking to clients is the field clients are under risking portfolios. they are looking at low volatility environment and saying this is as good as it's going to get. i have to think about more diversification and build up my fixed income risk. we think that is false. look back over your in the macroeconomic cycle. that will support your risk. jonathan: what is your biggest concern at the moment? volatility, -- low volatility in the global growth environment. we cannot break out of this next level. we are looking about 30-40 basis points relative to last year. we are not recovered fully. particularly in the united states were growing at about

2.1%. how do we get past that? that is were some of the fiscal reforms and policymakers in washington. alix: don't think investors are fully invested in the risk portfolio. you want to subscribe to the recent five-year greek pricing? the you want to buy the 100 year bond from argentina? there is money going into that. -- they maymewhere have that argentinian debt. alix: you are not going to get canape for the risk you take. you have to take it. terry: we think you are getting paid to take risk in this environment. alix: potentially 4.5% on a greek five-year is getting paid? aboutwe can't talk specific companies insecurities, but we look at these deals and say they are attractive. and the fear of missing out, inflation remains low.

if inflation is not moving higher, interest rates are not going to be moving higher. where can you get a carrier trade? five years ago it might be 4% or 5%. times ise it several critical where we are in the macroeconomic cycle. we have some people saying we are late in the cycle. i daresay that is probably why some.ors are derisking what if we are still midcycle? terry: when we think about this, we look at unemployment. we know we have strong employment numbers with 4.3%. however we still have the wage inflation. that suggests we still have opportunity to go. there are other metrics. business investment on the line. they are not recovered similar to previous cycles. adage that economic

cycles die of old age, we don't subscribe to that fact. alix: good stuff. great to have the onset. you are sticking with us. coming up in the hour we have some flight and donuts. this eeo us up with allies and the ceo of dunkin' brands. he usually brings us doughnuts. jonathan: he used to work around the corner for a group of the most random of places. nigel travis. david: i think we have to get you some doughnuts. alix: this is bloomberg. ♪

♪ david: this is bloomberg. yesterday the fed it for we all expected it to do. recognizing inflation numbers are not heading up as expected in signaling it will start moving of the balance sheet has perhaps as early as september. we are now joined by the chief u.s. economist bloomberg television. carl, start with inflation. what are they going to do on inflation or lack thereof? carl: they will be in a cold sweat if we don't see the trend turned by the time we get to the september meeting. we have more data coming. if we get another solid job print on friday and see the unemployment rate grinding lower, they can take a leap of faith that inflation is turning. if you do see inflation grind lower even further into a now in september, they will be a significant cap at the fed that is saying we are not defending

asymmetric inflation target and accelerating the face of tightening holier this far. 50 basis points below their 2% objective. david: how do you see it? will janet yellen be proven right? terry: we talked a bit about the balance sheet, but it is very much a function of where he are in a growth element and the output gap. at the same time, the fed has -- it is going to adjust interest rates. because inflation is printed lower, it will have a lot of the conversation. we expect that a push out in the december hike but in september start moving towards the balance sheet communication. alix: the fed for the most part did what economists and analysts were expecting them to do. the markets in a very extreme reaction in the bond market and fx market. do you need to rethink a you

look at the approach when it comes to the fed and investing from that kind of thing? terry: there was a clear linkage between the fiscal policy and monetary policy angle. we knew we would get fiscal stimulus that will be to inflationary pressures. at the same time, you have this new development for the ecb is potentially removing some stimulus later this year. future, that can be positive for inflation at the same time we have to understand what kind of environment we are in. the fed will be a worry but it will not shift a lot of investors. whether the fed gets to pull the plug so to speak on the record in september, they depend on mario draghi and the communications about ecb tapering. as we mentioned on this program, the balance sheet could have significant consequences on currency. that is true for the fed and the ecb. if for some reason you see the

dollar appreciating, and i think that's a real risk, if the balance sheet proceeds in an economy doing so so, the stronger dollar means weaker import prices. that another letdown for consumer inflation. jonathan: i you promoting jackson hole? carl: very good reading between the lines. we had jackson hole and other speak in the interim as well. jonathan: the ecb meeting at september 7. september 20 of federal reserve meeting as well. i wonder if they should be so sensitive to what happens at the ecb. what should matter is the domestic economy. carl: it is the domestic economy but the fed has shown time and again they are much more sensitive to international growth prospects, and the currency that has preceded it. while they should be focused on the domestic economy, if the dollar is weak substantially,

that is meaningful feedback. erry: the fed is in a difficult situation. they have created this price reflation. that's fuddled and the higher consumer spending. it markets turn a little bit and misinterpret the federal react negatively, we will have an unwind. that can be very troubling for them going forward. jonathan: they have become haunted by the on transparency. they remove one word from a statement and you can move the most liquid market on the planet, with the removal of one word. somewhat. that's how difficult -- ridiculous this is. if someone stumbled across bloomberg and looking for the sports channels and a nothing about the federal reserve, and you told them trillions of dollars for the treasuries looked on the removal of ,

the word "somewhat" you would start laughing. david: it reflected what we had heard from a number of fed officials for they were becoming more serious about this inflation backsliding. it was not the idiosyncratic components that had initially been highlighted back in march when this first started in everyone shrugged it off. now it gets more and more serious. wonder if we are all focusing on what the fed is going to do in september and december. both of interest rates and balance sheets. where are they trying to get to and what of a time to get to the balance sheet? we know it will come down. how far and how important is a potentially to markets and investors? -- terry: we know it is not going back to pre-pricing bubbles.

normal?balance sheet we had to account for the fact we had increasing currencies across the united states economy. that the liability of the fed. they have to have matching assets to make sure everything matches. on the policy instruments, their inflation targeting. if inflation for levy sitting at 2% sustainably, there is no need to be aggressive here. generally the fed has that terminal fed funds rate level at 3% from where we are today. david: let me push you for one moment. that the number i have heard about. if we do it gradually, that won't be a problem. some people on the ideological right thing 2.5 to three is too high. or 1.5, what effect for that have? terry: we know how this has worked. is called suppression of term premium.

expect terms to adjust more if we overshot the target data 1.5 trillion. -- down to $1.5 trillion. jonathan: great to have you with us on the program. gary simpson is ticking with us. facebook opening at another record after second-quarter earnings. we will speak with one of the only analysts that doesn't have a buy rating on the stock. and his outlook on twitter and amazon. the opening bell around the corner. you are watching bloomberg. ♪

♪ alix: deutsche bank reported a 10% decline in revenue. that stock getting hit in europe. the ceo spoke to europe about the need to focus on revenue. >> it will come to his reduced cost in the future.

we continue to try to modernize the bank. we distinguish between just running expensive and investing. we want to keep up the investment because we need to move on for the modernization program. it is a bit of a mixed picture. we have been focusing on costs. no need a focus on the revenues. alix: gary simpson from blackrock, where are the european banks able to grow revenue in relation to the u.s. peers? terry: you need improvement and small and medium enterprises. wishes he translate back in the better revenues of the european banks. potential interest rates rising. inflation will overshoot the target, that would help, probably have this cyclical improvement happening in the eurozone region. that should feedback and better revenue opportunities for eurozone bank. jonathan: you have to take more risks? the you have to go to italy as opposed to france?

terry: we want to remain diversified. different economies are at different stages. the problem has been nonperforming loans. they have been great targets for bringing in nonperforming loans. we are seeing improvement in the banking sector specifically in europe. it's an opportunity. david: when you talk about small and medium enterprise lending, what will drive that? is reform likely to drive that? terry: one thing is sentiment. we have record high pmi's. at the same time general consumer demand is picking up. we expect that to be translating back to the top line revenue growth. simpson, a lot of excitement about what ecb might be with qe. what are they going to raise interest rates? terry: there are a lot of over excitement about ecb essentially raising interest rates.

we don't see that happening this year. maybe 2018. they want to get to 2% and inflation is hovering a little over 1%. all we talk about the cyclical recovery in europe, there is still a lot to be done on the structural reform side. i think we should pause little bit on the excitement about ecb raising interest rates. jonathan: terry simpson will stick with us. the opening bell just moments away. futures are positive. a series of record highs potentially in the session on this thursday. s&p 500 futures positive up one quarter of 1%. you are watching bloomberg tv. ♪

♪ jonathan: this is bloomberg daybreak. the "again with stocks at an all-time high. futures going positive, up one

quarter of 1% on the dow. seven points positive on the s&p 500. the tech heavy nasdaq given the facebook boost. the opening bell rings. here is the story in the bond market. big hit following the federal reserve statement yesterday. treasury yields off by three basis points. a stronger dollar story after that dramatic dollar weakness we saw in yesterday's session. up by not even 1/10 of 1%. potentially more records. alix: you better. -- jeff bezos is now the richest person in the world. today surpassing bill gates. you see the nasdaq also in the lead, up by five pence a 1%. no doubt helped by facebook numbers. let's look at the names lifting stocks right now. facebook up by 5%. the revenue coming in.

$9.32 billion. you had monthly active users surpassing 2 billion, beating estimates. the mobile ads percentage of total ad revenue coming in at 87%. twitter, you brought this up, what are they keep reporting the day after facebook. their stock is down by 12%. the number of active monthly users, 328 million. quarter on quarter flat. no growth. the daily active users, we don't get specific numbers. that's not providing a lot of clarity for the stock. facebook really have that great earnings quarter, putting pressure on snap. the ftse russell excluded snap from stock indices, or they will exclude. they have a couple of years to change their voting rights. indices theyher won't need to buy snap.

european versus u.s. go, jeff bezos. the richest person in the world. the busiest day for european earnings. analyst are working overnight. 89 companies reporting. let's look at earnings growth of u.s. versus europe and how equities are performing. in dollared basis terms of the s&p performance versus zero stocks. -- bureau stocks. -- euro stocks. they have really held onto the gain in a big way. everyone cites earnings growth and cyclical recovery, but at the end of the day the earnings growth we are seeing is a consumer staple and materials over in europe. in u.s. it is tech in energy. you have some defenses leading the way and earnings growth in europe. will that be enough to ignite the next leg of a rally? jonathan: it is one of the

busiest days of the year so far for the european companies. $3 trillion worth of earnings. we are still with terry simpson of blackrock. people say buy europe. when you put the u.s. versus europe story together, how do you talk about it? terry: is important for the global economy is shifting. we want to position our portfolio that. there is opportunity in europe and international markets, but it very fundamental case to be made about europe. that fundamental case is the earnings growth in the united states held up after the recession and has quite recovered. we did not have that in europe. we are on the verge potentially if we have higher inflation coming up, that's a better pricing power. i think that's the fundamental story people are not looking at. jonathan: how you fold in the composition of the individual indices?

is weighted toward tech at 23%. that's the biggest waiting. it is like banks versus tech. is that more of the bet instead of europe versus the united states? terry: yes. the composition indices are little different. if you're buying broad europe you're making specific bets on sectors, particularly financials. this is where active portfolio management comes in. , we want to go with more cyclicals and less defense is an opportunity or if you want to go outside broad investing that's what they can benefit. david: you make the comparison. and the is go europe hesitant about the united states? can we keep this up in the second half? terry: the valuations in the west are high levels. it does give cause for concern, but you think about making the relative value call in europe and emerging markets. u.s. as well.

the valuation gap has not caught up in the leading up in the pleading is to being very favorable for international markets. if it closes, we are concerned about that and 80 reduce our positions. . they will still remain overweight international markets alix: are looking back in some sense. uro seeing upgrade after upgrade. you have potential pmi stabilization. they are not living higher. terry: good point. when you think about this and forward-looking economic indicators, we try to think of how the market will evolve. right now we are probably in a sustained global economic expansion. that had its second derivative growth in the second half of last year is no longer the story. this could at least fueled sentiment and push markets higher. theyer think about those, are coming into international markets but they are not anywhere they were at the height of the crisis.

david: we focus on europe and the united states. we tend not to talk about japan. you are high on japan? terry: japan will have a nice opportunity to hit three-year earnings highs in terms of gross highs. we seeing a very big improvement in the balance sheet discipline. they are cleaning up some balance sheet. a lot of people are looking at europe and looking at japan as a third international market. there is some good opportunity in the valuations support that. alix: facebook earnings beat analysts in the second quarter. monthly users topping 2 billion. and is a neutral rating with a 106 he five dollars price target on the stock. facebook versus twitter, the worst to comparisons for twitter in the last 24 hours. a concern for facebook is can continue to grow at the rate it is? the street ignores it.

>> expectations were for 43% growth. every single time we are seeing them outperform. when you think about the overall advertising market, 90% plus of the dollar is going to the duopoly. it is tough to compete against that. twitter is having an identity crisis in not knowing exactly what it is and is not as making strategic missteps that further exacerbate the problems. jonathan: how difficult is it to keep a hold on facebook? >> not easy. to be clear, it has nothing to do with the company. i'm an added instagram user in consumer. when you position these stocks, which will outperform relative to the group and the benchmark?that the position being taken. taking into account the expectations versus what they can deliver. jonathan: trying to be fair

about this and do a delicately, you initiated a hold on facebook. you can take my bloomberg. this is painful, james. especially hold in the middle of 2016. here is the rip. what you say to people in the cargo about it? james: when i was right you also pulled up this chart. [laughter] look, timing is important. it would be nice to be right on everything. eigh which have to w companies are going to outperform in the peer group. the expectations for facebook of always been incredibly lofty. they had delivered against that, but you have to take into consideration that content costs are rising. none of that has played out, as we have seen from the numbers, .but you have to take it into account david: you suggested rather than

compare facebook to twitter, we should be comparing it to alphabet. they are consuming almost all digital and dollars. -- digital ad dollars. they are increasing profits but they are spending more money to get traffic. to have a similar situation with facebook? what other margins looking like? aes -- james: traffic acquisition costs were slight concern. it is being overshadowed by emerging growth levels are firing on all cylinders. like you to, the cloud -- you theb -- like and youtube in the cloud. she said that's a good thing.

the question i was asking was something you touched on. the regulatory issues that could be around the corner. has significant might they be and what should the time from the come up? james: there is time for regulatory scrutiny around all the mega-caps. facebook probably has more room to operate than say and amazon. i think the catalyst, the potential is greater and it would come from amazon. that would trickle down to the other mega-caps. alix: and other call is amazon. you have a neutral rating on that as well. i'm trying to point out it has a monster run. expectations are high. jonathan: howard marks is a neutral and so on this as well. alix: jeff bezos is now the richest man in the world. you have howard marks who came out and said, yes, their

fundamentals are good but at some point the stock does can have the kind of momentum it does. walk me through the philosophy and why you have a neutral rating. james: it is predicated on one thing, regulatory risk. i think there is absolutely nothing to stop this company from -- my reports talk about the road $1 trillion. i think it is there if and when the fcc approves the whole foods deal. if that happens, they rubberstamping the fact they can go after groceries, restaurants, and then what is next? the cpg industry. they will take over a greater and greater aspect of the overall economy. if the government allows the whole foods deal to go through, there is nothing stopping them. this company could double from here to $2000 per share. the world's first one trophy dollar company and there's only one thing standing in its way. the neutral rating is predicated on one thing. if it does not go through, you get a recalibration in the

multiple contributors to the stock. jonathan: you've been a great sport. y simpson, thank you. another series of record highs. s&p 500 up by about 1/10 of 1%. in new york, you are watching bloomberg tv. ♪

♪ mma: more earnings season late in the day with ceo's of southwest airlines and dunkin' brands.

♪ sales growth this year will be the weakest in two decades, giving ammunition for dan low it was taken a stake in the world's largest food company. joining us to discuss the consumer products division, former wells fargo head of strategist, martin adams. you run the equity strategies team. great to have you with us on the program. let's talk about happening in this sector. you have the likes of kr and heinzaf failingt -- kraft and heinz failing. wises struggling simms the growth? gina: the first is consumer speaking in general. the recipient a few years ago and has been slowly going lower.

consumers are always looking for value opportunities. they are looking for stretching their dollars, eruros, whatever it might be. the second thing that's happening is that branded items are taking the brunt of the punch. the consumer is looking for value and finding it in offbrand items, store branded items and migrating to different opportunities. it is easy to go up to the shelf and in a grocery store, pull items and look at the ingredients and see they are the exact same. you pay more for the branded item than the nonbranded item. consumers are hip to this game and that's. hurting the company's mother anyone else jonathan: activist investors don't usually go after the big ones, the other covenants were $200 billion or more now. can they make big changes? gina: i think you have seen across-the-board activist investors make a change in terms

of share repurchases. share repurchases have become a bigger part of the lexicon. increased dividend payments. they targeted companies a very high levels of cash to find better utilization of the cash by deploying it to shareholders. you have seen that across-the-board. this impacts not just a tiny company with a large company. activist investors have had a huge part in that. they can make a difference. whether or not they can drive or steer the ship for a large cavity like nestle is an individual analyst question. and the broader scheme, i think they have made a difference already. alix: all these guys are enormous. they have so many different brands. this feels like what we saw in energy and industrials. they built of their brands to become a huge conglomerate to protect themselves when one of the brands do not do well, and now that is hurting them. what is the likelihood a pair down or go through and stick it out? gina: you will probably see

continue spinoff. this has been going on for quite a long period of time. when you look at industrials, they got bigger and started to tear down and become more specialized. tech is going through this now and getting bigger and bigger and we are not seeing the paradigm happen. it is happening in consumers. this is the story of the broader economy as well, and where your economies of scale work in where they don't, have attached you are to value versus brand. i think it's a very different story. we can't really paint the economy with one big brush, but sectors go through different transitions at different times. is there essentially a wealth transfer going on from consumer goods and attack? -- into tech? classic economic theory says that is a good thing. there is more money to spend on something.

who is spending the money on something else? gina: i think a lot of it is tech. when you look at their share of global markets, they continue to grow. that is assessing how dominant it is as an industry in the broader economic landscape. . i think you make a great point you can't isolate was happening to the consumer sector alone. to face with a choice of spending a little more for the or spendingr iphone less on the items they are going to purchase a target, they seem to be moving more towards technology as their option of choice. some of this is technology in the general pricing dynamic. technology reduces prices for everybody. that has been historically the case and will continue to be the case. we are seeing pricing all over the place change. for attack lower prices -- four tech lower prices are a good thing. we would get david: we will get earnings from amazon today.

there is price discovery, which eat away at the monopoly that is -- has historically been there. is that a good thing? gina: amazon, netflix, priceline, expedia, they are changing the face of consumers. the consumer discretionary sector is a direct competitor of this group, of the consumer staples group is directly feeling the pain of the segment of the consumer space which is technologically oriented taking over a lot of decision-making, a lot of value, a lot of pricing. you are spot on. that group'game is price discovery. what is the value of a television program, a movie? it is the same as priceline and expedia. what is the value of a plane ticket or a hotel stay? you canna martin adams,

file for research on the bloomberg terminal. record highs across the board. nasdaq and the leadeth fortunes of 1%. tech, and telecom, consumer discretionary. is about facebook and verizon. if you have a bloomberg terminal, watches online, click on our charts and graphics, interact with us directly. just go to tv . this is bloomberg. ♪

♪ there is no sector of the us economy more in play right now than health care. we get hourly reports about what congress might or might do. yet health care stocks don't seem to be feeling the pain of all the uncertainty in washington. here to take us through what is at stake is kevin cirilli on capitol hill.

tracer.hat what is going on today? i have not heard an update in 10 or 15 minutes. i'm outside the house financial services committee were steve mnuchin is set to testify. all that talk is about whether or not there is enough support for this skinny repeal bill of the affordable care act. the senate is set to most likely tackle this legislation that would repeal part of the employer in individual mandate. that is the cross of the bill designed to win over conservatives and more moderate members. i've got to be candidate. i interviewed the caucus chairman who said this get a bill faces no chance of winning over conservatives in the house. david: we have a full screen of what it means. tracer, why have they not falling off the edge of the table? zach: health care stocks a rally

more than the s&p 500, up 16%. the reason is investors have gotten comfortable with this overhang of repeal and they are increasingly betting it won't happen, for it does, it will be the biggest deal. david: pick one particular part of the health care sector, health insurance. if the skinny repeal happens, they will do it with the individual an employer mandate. we are told that causes chaos. by our insurers not getting hit by that? zach: you have seen united, aetna, humana, all fullback. pull back. david: if you do away with the mandates, he will cut back on a lot of coverage. you will have less people covered. about 15 million or so will be hit by the mandate.

doesn't that take a fair amount of money out of the health care sector? zach: it does, and i don't overlook the human toll. -- 15 million, 60 million people that lose insurance. most of the insurers that stuck around from obamacare are not-for-profit. they are not publicly traded stocks are looking at. david: thanks to you both. jonathan: this was bloomberg daybreak. 26 minutes into the session. a record high for the s&p 500. a record on the nasdaq as well. the coverage continues right here on bloomberg tv. is bloomberg markets. you are watching bloomberg tv. ♪

vonnie: it is 10:00 a.m. in new york city, and 10:00 p.m. in hong kong. from new york and i'm vonnie quinn. mark: and live from london, i'm mark barton. welcome to "bloomberg markets." ♪

vonnie: here are the top stories we are covering. investors are scrambling to react to a wave of earnings reports on both sides of the atlantic. from energy to format the banks, we are covering the biggest movers. then, move over bill gets --bill gates. we look at how he did it as amazon is to report results later today. banking, -- headed to the graveyard. julie hyman is with us. it is 30 minutes into the trading day and we are off to a another record start.