republican bid to kill obamacare fails and mitch mcconnell says it is time to move on. global technology stocks dropped after amazon earnings disappoint, the second quarter reports reminds us that dominance comes at a price and jes staley takes pains as he completes his turnaround plan, the credit suisse cheap says he feels good -- chief says he feels good. i warm welcome to bloomberg daybreak, i am jonathan ferro with david -- alix steel, david westin is off today. futures are softer, down a third of 1%, euro-dollar is still firmer, north of 1.17 and euro strength carrying through the week for a third straight week and treasuries choppy. between -- movers,ighting the amazon premarket, down 3%.

it is down because net income declines and second-quarter operating income missed. an operating lost expected in the third quarter. negative headlights as amazon continues to grow and powershares crippled to down a can someone percent. european banks in the spotlight in europe with lowball the theme. 70% increase in second-quarter profits for credit suisse and ubs, core equity tier one ratio the story which fell meaning there may not be a lob pass left over for a potential buyback. -- eley banks still getting their house in order. jonathan: a man wearing the biggest smile with the stock up to several huge interviews on bloomberg tv, including from the

credit suisse ceo and just daily, the berkeley -- berkeley's chief to. >> the republican attempt to scrap obamacare has collapsed in a early-morning vote. john mccain and two other republicans .48 democrats to block a stripped-down repeal bill and the senate majority leader pulled the measure from the floor and said it is time to move on, they would have ended the requirement that individuals buy health insurance and companies provided for their workers. russia is striking back at the u.s. after the senate approves new sanctions, moscow ordered the u.s. to reduce diplomatic staff. they say total u.s. staffing in russia should before hundred 55 people by september 1, not clear how big a cut back -- 455 people by september 1. the public feud between top white house officials has turned the communications

director anthony scaramucci attacked reince priebus and steve bannon and a foulmouthed tirade to the new yorker, calling reince priebus a paranoid schizophrenic and steve bannon seeks immediate attention at the expense of the president. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am end much under a desk i am emma chandra. this is bloomberg. jonathan: that was the child friendly version of the scaramucci rant. mccain voted against the measure that the cbo estimated would lead to 16 more million by 2026 and mitch mcconnell says it is time to move on. mitch mcconnell: this is a disappointment. . disappointment indeed

our friends in the house, we thank them. i regret that our efforts were simply not enough. >> joining us from washington is our executive editor craig gordon. how do they move on? >> they move onto other things, not health care. there is a defense bill coming up and tax reform on the horizon in the fall. a is hard to overstate what crushing defeat this is for mitch mcconnell, donald trump the republican effort to repeal obamacare. they thought they could get 50 votes and at the end of john mccain said it is not good enough and it puts a stake in the effort for some time. >> in terms of the democrats, they want to still talk about health care and a bipartisan conversation, is that next or is it sidetable? a serious picture bipartisan conversation, the health care system is teetering,

washington needs to step up in places where it is getting afraid around the edges. it is hard for democrats, republicans have been going after this bill for seven years in harsh terms talking about it as if it was the end of the republic and the idea that mitch mcconnell and chuck schumer will sit down and have a chat is hard to picture. the august recess is well timed for the united states senate and they need to go home and lick their wounds and maybe come back to figure out what they can do. jonathan: what can they do on tax reform? you have to do health reform, but health there is not getting done, what is left for these guys? >> tax reform is next on the horizon, the big six, the white house and congressional leaders on tax reform put out their principles yesterday, notably lacking was paul ryan's favorite part of the border adjusted tax which seems to be dead for now. cuts, some other

middle-class tax cuts, and such. if you thought helped there was cap -- health care was tough, tax reform is covered but republicans are on the same page. the divergence not the same in health care. able move quickly in the fall and tried to get it done by the end of the year. jonathan: appreciate your insight. jpmorgans now is the head of equity solutions. , the bestn with you case for the republicans getting tax reform done anytime soon? >> one of the lessons we have learned about washington is that things are not possible until they are inevitable. i think the political pressure of the midterms will force republicans to retrench and push forward on a modest package of

tax cuts. this will not be tax reform. this will be modest, temporary tax cuts, similar to what we saw in the president bush's administration. >> we had another blow to those who like the border adjusted tax yesterday, paul ryan said it is off the table. it is a temporary tax cut, what will be the rate? >> we do not have the official estimates from the cbo and the rest of the alphabet soup by the tax foundation has done some estimate that, without the border adjustment tax, $1 trillion in revenue over 10 years. the lowest a corporate rate can get is about 27%. that is concerning when 150 of the largest companies in the u.s. already pay a rate lower than 28%. >> the other big news yesterday

was anthony scaramucci and what he did on cnn and the new yorker article. we love to read the headlines but what does that say about the leadership out of the white house? if you are an investor or congressmen, how do you view that? >> my fear is that the markets towards washington will begin to sour, even further in the weeks ahead. many of the trump people have retrenched from their postelection gains but washington, d.c. will shift from its non-action over the past six months to a state of dysfunction. i am concerned about september. breaks more debt ceiling mint chip that will be bellowing in the background between now and the fall. i fully expect a government shutdown at the end of september.

these will weigh on market sentiment in the fall. stephen parker is there with us. you go from nonaction to dysfunction, when you think about dysfunction and the potential for a shutdown later this year, is it something you have to pay attention to? concern but not something we are expecting or preparing for. our view on washington is that any sort of policy change at this point, i say this as an investor and not a citizen, nice to have but not a need to have four markets. a lot of the beneficiaries of tax cuts and deregulation, those names outperform the broader market by 10%, 20% and they have given that back. markets are at a place where their expectations are much lower. the interesting pivot when you look at this function in washington is looking outside of

the u.s. for opportunities. we like the opportunity in europe and who would have thought coming into this year that europe would be the location of relative political stability relative to the u.s. jonathan: for now. a honeymoon time. when you think about washington, d.c. and have conversations with investors, what is the number one question and what is your response? >> the number one question is -- how much worse can it get? a great answer, no one does, especially after reading the article about anthony's armuchee. -- anthony scaramucci. there has been general intrigue about the trump white house but now a concern that they can bleed over into the functioning of the u.s. government. jonathan: great to have you and get your insight. stephen parker was stick with us. -- will stick with us. we will talk about the

dysfunction in washington and what it means for investors on wall street. from new york city and worldwide , you are watching bloomberg tv. ♪

♪ jonathan: a huge day for european banks, we got quarterly results from three and others and ubs is falling the most since january after reporting a decline in capital ratio but credit suisse jumped after results showed their ceo restructuring plan is gaining traction with shares since pairing earlier gains. we spoke with several banking executives and listen to this. >> really good, it is working.

believe that we identified we are delivering. a trend in growth, generating almost $23 billion of m&a in the first half, our best performance since 2011. >> not happy with where we are, down in the second quarter, we have made recent important hires. corrected. that overall, the investment bank had a pretty good quarter. >> confident we can achieve our target but not easy. coste talking about net savings target, we are observing headwinds of cost -- absorbing headwinds caused a regular three changes, technology investments, what we need to do to keep up

our competitive positioning. >> today, there is a positive momentum which is continuing and that environment should let it cater longer and not step in. jonathan: joining us is matt theer who conducted interview with the ubs chief. a decline in the capital ratio and potentially a bit of a warning fly for anyone hoping for big share buybacks from ubs anytime soon, what did he say? matt: that is the concern driving down the shares this morning. it is the decline in the capital ratio at 30.5% from 14% and -- 13.5% from 14% -- ubs wantedat to talk about the great success of their wealth management business, they run the biggest

wealth management business in the world and they so real growth and inflows everywhere outside of the u.s. with registrar margins. -- with pretty strong margins. a slight concern they were not as focused -- jonathan: the most important spread is what they want to talk about versus the spread between that and what investors are trading, that is front and center today. going forward, big picture, wall street versus europe suffering from an environment that is not really helping them in terms of getting client to come in and puts rates on and build up the activity in the investment bank. what did he have to say about that? matt" the investment bank saw -- ratededge but ubs by ubs has purposely shrunk its investment bank over the recent couple of years.

ubs, you see a juxtaposition of quiet activity being muted in the investment bank and we heard this from john cryan and we have heard it from u.s. banks on wall street. client activity being active and as high net worth individuals go, or their wealth management division, private investors were getting into markets and they told us that, especially in europe where they had been out and risk-averse last year, getting back in and at risk on this year. whereas the hedge fund clients are not seen any activity from them because there is no volatility where they make money. investors like private clients, family offices, they were getting back into the markets and getting very engaged with the markets. jonathan: and important distinction. you have to probably get a airplane to berlin. thank you. hanging around for that view.

great to catch up. for more on the health of the european financial sector it -- sector, we turn to stephen parker. about the situation with arclay's.isse and br restructuring turnaround plans, an update on where we are at barclays in credit suisse? a with barclays come turnaround in restructuring giving the bank a hit today with the cost of exiting. more pain from the past and result to the charges that it -- pounds the9 billion bankers had to put aside. and the investment banking side, you still have difficulty is just daily pointed out in the

macro business pointed out. suisse, we saw this time is that core businesses for doing well, trading driven by the wealth management side. also, the cost improvement, particularly on the global market side helping of business. upx: we have seen the catch play out with flows into europe getting a 30 billion this year but how much more is there to go? priced its and will book value for the s&p financials and the euro stoxx financial and the euro stoxx financial is the blue line of the white light is the s&p financials come a huge discount, does that need to be related and how quickly? >> i would not expect the convergence to where we are in the u.s. but there is still room to go from a valuation perspective. when you talk about the bait -- banking sector and europe, it is about confidence and if you think about where we were one

year ago, talking about the banking sector in europe on the brink and today we have a big recovery, not just in bank stocks but incompetence run europe, and consumers, businesses, in the currency. all we have seen about $30 billion come back into european stocks so far this year, that is after $100 billion left last year. people are getting more excited about the prospects for europe but i do not think we have seen all of the money go into european markets. jonathan: we have to think about europe former u.k., you missing that she mentioned the scandal and the u.k., the numbers are staggering, $9 billion for barclays, 18 billion pounds for lloyds come a third of their market cap in terms of tales for the scandal, are those issues done with and can they put that behind them, or will it carry on? staley says this is it as far as they can see on ppi, what we heard from lloyds is that the

-- they are factoring in a higher number of weekly claims. before,e said this repeatedly, that the past was behind them. of have to imagine the bulk it is behind him but you're are still seeing hundreds of millions of pounds of charges in the quarter. this is weighing when business and activity remains muted and other parts of the firm. alix: thank you. still a cloud? wasthan: this scandal massive, if you live in u.k. come you get a phone call every five minutes about ppi, you were given a loan and missed payment protection insurance, no one knows they were actually sold it and everyone to go out there and claim literally thousands, if you were mis-sold ppi and the banks have been paying out

billions since the crisis came out and many people in the u.k., they think the ppi payouts were more effective than qe because the money went straight into the pockets of the consumers who went out and spent it. the money was so much, lloyds bank 18 billion paid out and barclays at 9 million. the: bp, the payouts from oil spill, it is hard to quantify because they keep on rolling it. producers are like moveon. howard marks would join us next week i tuesday at a: 30 a.m. eastern, a fascinating read on where we are ♪ in the markets and vibrations. this bloomberg.

>> i have your bloomberg come up flash, at&t has with the biggest bond deal this year and the third largest in history, they sold $22.5 billion

of debt, almost 3 -- that is according to a person familiar with the matter, the bond sale probably be less funding at&t needs for its $85 billion takeover of time warner. stephen parker still with us. the at&t offer, the huge subscription and at&t is the lowest rung of investment grade credit, not the juiciest. shows demand for the deal how must cash is still out there, how much people are still looking for yield, how much money is left to be put to work. that will continue, even as clients get reinvested, there is still a lot of cash. the good news is that we are seeing companies using these debt deals to take over rather than buying back shares. jonathan: as our colleague in thisut, a 41 year

offering. for a technology company, media company, for many companies that come to market offering these deals with long durations, how on earth do you know what that sector looks like in 41 years? i am glad i am an equity investor and not a fixed income investor. thesek people have long-term liabilities and looking to offset them however they can with long-term income. there is a lack of bonds on the market because of global central banks and people are looking anywhere they can get it did jonathan: i will be discussing this later on today and join us for that on 12:00 p.m. new york time and 5:00 p.m. in london. ♪

♪ amathan: friday, july 28, i jonathan ferro. print,r away from a gdp futures down 31 points.

we were riding towards a fourth straight week of gains on the s&p 500, we could erase some of that at the open. the bond market, ahead of the gdp number and a little bit with treasuries often yields higher by two basis points. story backweakness in the market with the .1715.ollar at 1.17 -- 1 that is your cross asset story and now let's get to headlines. senaten years -- republicans have promised to repeal obamacare but it has fallen apart. john mccain joined two other republicans and all 48 democrats to defeat the stripped-down plan to overhaul the affordable care act. it would have ended the requirements of that individual buy health insurance. mitch mcconnell has pulled the bill from the floor and said it

is now time to move on. russia is retaliating to new u.s. sanctions approved by congress. the u.s. has been order to reduce the number of diplomatic and other personnel in the country and will have to vacate two properties in moscow. the foreign ministry says relations between the countries have become hostage to the domestic political battle in the u.s. it is a victory for american retail groups, paul ryan has given up on a proposed border adjusted tax, he and other republican leaders say they are tax, retailers have lobbied against the tax, saying it would raise prices on everyday goods. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. this is bloomberg. alix: thank you. record highs got yesterday before pulling back after earnings with shares down companyemarket, the

forecasted a potential quarterly loss for the first time in two years because of an increase in spending as amazon continues to meet the demand busy senate e-commerce business. joining us is our bloomberg intelligence director of north american research. when does the market care about them spending too much and not earning enough? whenvery short-term hiccup we get a quarter like this when the expenses rise faster than expected and the forecasted rock the third quarter -- forecasted for the third quarter, stock will pull back today but if history is an indication, the bulls will drive this bus in the focus will be on the long-term growth opportunity of e-commerce in general. 7%, 8% of retail sales, a ghost 9%, 10%, little percent over the next 5-10 years. that will be the story once we get over the short-term hiccup. alix: prime membership, continuing to see growth, will see the same kind of growth the markets expect? >> i think so, the prime

membership number out of third-party researchers is about , inillion prime subscribers the context of 15 million subscribers for netflix, a big business and growing very quickly. try members are profitable for amazon -- prime members are profitable for amazon. a long-term play, on the growth of e-commerce and jeff bezos knows this and continues to invest. jonathan: he was the richest man in the world for five minutes. alix: now he is only second. jonathan: the amount of fake investors put in jeff bezos as if amazon was almost a private company and he can do what he wants. in terms of where the money is being spent, what have we learned over the last quarter about what will come in the coming years in terms of what will suck the balance sheet drive and meet investment after investment after investment? >> number one in the core

e-commerce business, global story, not just another fulfillment center in south jersey, they are in india, australia, more fulfillment centers and getting closer to the customers to get the same day delivery and maybe delivery within one hour. on the cloud side of the business, a loud and operating expenses going into the cloud business, amazon web services is the largest cloud computing company in the world. that grew its revenue about 42% this quarter. that is a profitable business, unlike the core e-commerce business and investors are like, keep investing in the cloud business. jonathan: dominance cost a lot of money and it gets you into trouble, and analysts the other day said we have a hold on amazon, not because they do not think the stock should go up and the company will do well but regulatory issues he things around the corner once the whole foods deal goes through.

what is the base case around the regulatory hurdles coming down the road for amazon? huge player in e-commerce, the dominant player and you could say the same about facebook or google or other companies that get held up in terms of dominance. --hink they are still e-commerce is still a small part of total retail sales. in the context of the retail sales marketplace, they feel they are in a good position. they are also a huge creator of jobs in this country. they have a lot of political support behind the company. they are a global company and where i think a company like amazon will likely see some of the initial pushback from a regular for a prospective will be outside of the u.s., the european union, we have seen a lot of u.s. technology company starting with microsoft 20 years ago and now with google and facebook, facing eu regulatory pushback as it relates to size and scale which may be an area for amazon sees pushback. alix: the idea that tech

earnings are that important for the s&p is sound but this is s&p estimates for this quarter versus tech estimates for this quarter. tech estimates have risen in the last few months, since the year "s&p estimates normalized and maybe went up a little bit but not a lot of movement. are the numbers good enough to continue the outperformance we have seen in tech? stephen parker is still with us. have we seen enough good numbers from tech to justify the outperformance we have seen? stephen: we like tech and believe in the secular growth story and we will continue to look and acknowledge it has become a very popular trade, a crowded trade, we have seen it in the reaction to stocks were earnings that beat expectations but the stocks of pulled back a little bit. that could continue because we have seen a lot of my shift into this part of the market but our view is that weakness you are seeing in technology is a buying

opportunity rather than a time when you want to move out of tech. jonathan: not just tech outperformed but make it cap have crested on earnings, no doubt in part because of the weaker dollar, what is the upside risk? >> it is the case that the dollar is helping the revenues, especially those coming from abroad, and that will likely continue to be the case. if you look at the previous feedback loop when the dollar was rallying, it took about six months for the companies to start to feel the heat from the stronger dollar. we may be only at the beginning of the positive feedback loop where the dollar, the downtrend in the dollar and the expectations of further weakness actually continues to support those stocks. jonathan: how difficult is it to claim to a somatic trade when you get these huge swings after what you canuge -- get is the average price change on earnings day.

8% on a company that is the size of amazon, that is the average move after earnings, that is scary. when you investor cause you up and say we have a big move on amazon this morning, schaub we move or get out -- i we move or get out? what do you say? stephen: we focus on time horizon and for our clients, they are thinking over the next 12-18 months if not the next 3-5 years and when you look at the themes like technology, you have to keep the time horizon in mind. intoll them, when you go earnings season and when you get an opportunity and see a big swing in a stock, especially if it is a pullback, be ready to buy. alix: where else? we learn from earnings season, where does the outperformance justify the valuation? u.s.,n: talking about the

a more sector specific view, we like technology and health care. on a more cyclical part of the market, we like financials and energy. we think those sectors are for you above market type of growth with below market valuations. having seen the cycle move further along, you want to be more targeted as opposed to owning the market broadly. jonathan: when you want to gauge risk sentiment cross asset, you grant to the market and picked up euro swiss and software was trading. what a week it has been for the swissie, what is going on, is a reflective of what is going on more broadly with wrist sentiment or something very specific to what is happening in switzerland? >> a little bit of both, the fact of sentiment is supported is not helping the so-called safe havens, the swiss franc and the japanese yen. the fact that the swiss franc has underperformed the yen so sharply highlights the fact that --e of the countries current

monetary flows, some repatriation by japanese investors, may have weighed on the swiss franc. ascenthe euro swiss, the we have been seeing and the fact that what many believed to be the beginning of a very steady uptrend and euro swiss from here. the swissie is still very undervalued, including against the euro and oh -- overvalued that is an further weakness may lie ahead. also sawo-dollar tremendous moves this week, the highest level since 2015. however extended you think the euro is looking at swiss? the euro-dollar is on a steady uptrend, long-term care by is 125, we will get there, if not today, i would imagine that more near-term, the risk may be on the downside for euro-dollar, it looks stretched on the upside against the dollar.

,oing into the data later today we think the fact that the data will continue to improve will highlight the market has turned to bearish on the dollar to quickly. at the same time, it still rests on the euro side into the inflation data next week which could highlight this inflationary impact repatriation could have on the euro zone inflation outlook from here and the concern that it may cause -- the governing council at a crucial time for them where they have to really call it quits on qe and engaging qe taper. from that point of view, the markets may have gotten ahead of themselves for some profit taking cannot be at weighted. -- cannot be excluded but the trend is towards the upside and any dip in the euro-dollar will be bought into. alix: much more on europe in the next segment. both of you are sticking with us. coming up, we speak to the cofounder of loop avengers and talk amazon, future for apple, tesla, this is bloomberg.

♪

♪ thehis is it hewlett-packard enterprise greenroom, we will discuss the fed coming up and look to the boe meeting next week. ♪ flash,oomberg business the outgoing ceo of general electric's on the short list of candidates to run it over according to bieber -- uber according to people from the your with the matter. meg whitman has taken herself out of the running, saying there is a lot of work to do at a fee.

-- hpe. a 45% interest in quarterly profit, the figure was show a double-digit gain and the company benefited from stronger demand from asia and latin america. the euro area's received a stronger economic report card, two of the region's biggest economies, france and spain, extended solid growth while confidence in the nation bloc unexpectedly rose. the good news has european central bank hopeful the inflation will pick up and allow the banks to unwind some of its stimulus. here to talk about the strong economic report card in the euro zone is stephen parker. the ecb wrote a speech about the importance of eurozone convergence, the idea that it is not just germany performing well. countries as diverse as france, spain.

talk about the importance of the broad story emerging in europe. >> the recovery is no longer multi speed recovery, we have the breadth of the recovery not unprecedented in the sense we have not seen such concerted recovery across all eurozone countries. the last time we saw that was well before the lehman crisis. it is in converging -- encouraging to see a euro area which was plagued by problems of regional imbalances is now starting to recover in tandem. this is important for the growth outlook and the inflation outlook. especially if the sizable output gap with the eurozone starts to close and ultimately underpins the ecb's constructive outlook for the economy. valuation considerations have already attracted inflows into the region. the better the growth outlook in countries outside of germany, the more inflows you will see

their which has been playing out to the benefit of the euro and will likely continue to support the single currency. jonathan: on the economy, i consider the following confusing, what can the ecb do, when you think about germany and the performance of the economy at the moment, unemployment at a record low, the economy doing very well and german business confidence at a record high. yet wave growth is not taking up in a considerable way and the headline inflation rate this ,orning came in at about 1.5% 1.7%, what hope does the ecb have of getting inflation back towards target, if he likes of germany cannot get it done themselves in their own country, given the dynamics of the economy at the moment? >> i have to strengthen that point by arguing that if you ,ook at german unit labor costs the german coming from in terms of wage growth is a sharp reduction in the wages we have seen in the early 2000's and in recent years when the germany

was still the sick man of europe, to regain competitiveness, went through a painful adjustment in wages and now seeing payback. if you take a longer-term view, wages have not recovered that much, they have revisited the levels we saw 16 years ago in real terms. on that point, the recovery is certainly not helped by the support of the purchasing power of the domestic consumers. before long it may have to rely on the global recovery fort some help. is the time being, it comforting enough that we see drops in unemployment rates across the board, germany at full employment. whether this will generate wage growth, it could, given the starting point, the first derivative will still be strong enough to see something up in domestic consumption, whether it will pave the way for a structure stronger recovery in the eurozone, i strongly doubt. it is the case that the

environment of fairly weak wage growth is predicated upon other factors, not only be cyclical upturn for downturns in specific economies, something that has structural components to it which -- any central bank will have a hard time fighting or dealing with anytime soon. for the time being, the ecb could enjoy that a cyclical recovery will push wage growth from here and the phillips curve may work for a spell. alix: we will have this exact same conversation in 40 minutes but now related to the u.s., what are we going to learn about the u.s. economy today, about your view of europe? stephen: we will see an improvement over the first quarter expectations higher which is normal in terms of the cycle. we will see better economic growth as a result of better global growth. that applies to europe. since therst time

crisis, we see synchronized expansion around the globe and for the less seven years, eight years, it has been the u.s. and a few bright spots here or there but across the u.s. now, europe, japan, emerging markets, we see expansion everywhere. as it relates to europe, them both from an economic perspective and earnings perspective is more leverage to the global growth story. not just about the domestic recovery but also the improvement we see in emerging markets which will boost europe going forward. , thankn: stephen parker you very much. alix: check out tv if you have a bloomberg terminal, click on the charts and graphs. go to tv on your terminal guests alick and asked question which we will do in the segment, especially around gdp. this is bloomberg. ♪

♪ the u.s. senate passing a

new sanctions bill and rush is retaliating. ordering the u.s. to get hundreds of its employees out of the country. what are the bigger application for u.s. and european oil companies who try to operate in russia? joining us is our oil strategist. we will hear from exxon in seven minutes, they have a huge position in russia. how does this place them going forward? >> it places them and other companies in a very difficult situation, which is exactly what russia wants to do. it has been looking around for a way to get back at the u.s. in particular over the sanctions and has decided that, with a u.s. administration very focused on jobs and trade, and money, that it will try to fit them in the pocket. them in the pocket and

pulled u.s. that out of rush is one way of doing that. companies like exxon are much bigger than just their operations in russia. it will certainly cause some difficulty. but i think they will be looking at ways around it. they have a very international pool of staff to pull up on. ,lix: when we going to earnings what will be the theme for big oil in the u.s.? what have we learned from total and shell in the last few days? >> all of those companies have beaten expectations on their earnings. shell said it was working to live in a $40 per barrel oil world. it seems from this that big oil has really worked hard to adapt to what it now sees as perhaps not even a lower for longer oil world but lower forever oil world.

i think we will be looking to see exxon and other u.s. companies moving in a similar direction. jonathan: when you speak to the ceos of these companies, they are planning decades in advance and some much longer, look at what the shell ceo had to say the other day. >> the whole move to electrify the economy, electrify mobility in places like northwest europe come in the u.s. come in china, is a good thing. we need to be at a much higher degree of electric vehicle and attrition or hydrogen vehicles, or gas vehicles, if you want to stay with the outcome. jonathan: he was talking about his next guarding potentially an potentially -- car being an electric arc and the u.k. is talking about facing up diesel and petrol engines by 2040, is this on the horizon big

time for them? he wentutely, i think further than to say his next car may be an electric car, i think he said it would be an electric car. thatnk this is something european governments, european companies, big oil in general, is very much looking towards, how it maintains relevance in a onld where the focus pollution, not just climate change, but local pollution, is cutting into their core business. jonathan: thank you. ♪

♪ jonathan: repeal collapses.

the republican bill to kill obamacare fails. mitch mcconnell says it is time to move on. global tech drops after amazon disappoints. o takes some pain as around. to turn good morning. a warm welcome to "bloomberg daybreak." with alixhan ferro steel. david westin is on a well-earned holiday. futures are softer here in the united states. looking at the s&p 500, we are lower by a around one third of 1%. down six or seven points. the euro-dollar firmer. the moving year of swiss is the one -- the moving euro-swiss is the one to watch. alix: a two-year high at one point. selloff continuing in the bond market. about bund yields up by

five basis points. today, copper a little softer. and the vix over 10 -- that was a move. now up 7%. exxon earnings also crossing. earnings and production missed. production under 4 million barrels of oil equivalent a day, which is what the estimate had been. there isng, because the surmised that they are being more disciplined. something to watch. x is higher.-- cap- so more money, not enough production -- we will have to look at the details. jonathan: let's get to the big story in d.c. gop senator john mccain joined two of his colleagues to block a stripped down obamacare repeal bill. mitch mcconnell gave remarks on the senate floor following the

failure of the skinny house health care plan. >> i think the american people are going to regret we could not find a better way forward. we look forward to our colleagues on the other side, suggesting what they have in mind. so now, mr. president, it is time to move on. jonathan: joining us from capitol hill is bloomberg's chief washington correspondent, kevin cirilli. how do they move on from this and get other things on the agenda done? kevin: now, they can did with the failure of lawmakers' u inability to pass health care reform, they can now move to tax reform. that is why you saw administration officials, led by steven mnuchin, announce a framework of sorts yesterday on

tax reform, most notably saying willorder adjustment tax be left out of that. but this is a devastating political defeat, not only for mitch mcconnell but also for trump and congressional republicans as a whole. there were audible gasps on the senate floor when senator john mccain became the third senator around 1:00 a.m. when he voted against the skinny repeal know, catching everyone off guard. jonathan: we talked about how there are not two parties in congress, there are 3 -- two of them are called the republican party. how divided are those republican parties? that division going to resolve itself? you looksentially, if through the headlines and look at the past week, with the criticism against reince the arrival of anthony scaramucci, you have a

situation where the previous house speaker paul ryan world -- whether priebus-how speaker paul ryan world collapsed. folks workinghe behind the scenes are on tax reform here there is agreement on lowering the corporate tax rate but disagreement on neutrality. this is headed for a showdown in the fall. the freedom caucus, the conservative wing, has said they want to do that, but they want to have some offset measures associated with it. the white house and more moderate republicans are an easy about that. all of this adjusts that potentially there could be some political storms ahead. jonathan: you talked about the importance of palace intrigue because of the connection to policy. anthony scaramucci, if you put google, scaramucci

comes up in the results. that epic rant --how well received is that? kevin: his comments speak for himself. as a reporter, you have to let those comments for themselves. as far as how it is playing out in terms of policy, republicans today companion -- campaign for seven years to address health care. they could not do it. now they have to get their act together on tax reform. alix: kevin cirilli not taking the bait. jonathan: you can google it later, see what comes up. alix: we sell market reaction yesterday. you look at the s&p, another leg lower eyes health care headlines continue throughout the day. compass point research says the markets are going to look at more skeptically -- look at d.c.

more skeptically. >> sentiment will sour in the weeks ahead. many companies have already read chased -- re-traced from the haselection gain, but d.c. gone towards a state of dysfunction. alix: joining us is luke hickmore, from aberdeen, and michael ingram, bgc markets strategist. do you agree we will see this session? >> that is possible. you have a president who, when taste with roadblocks, seeks to and the markets are playing the part of frogs in boiling water. one of the investors on your

program said politics are not important for the markets, it is fundamentals which are important. but you cannot separate the two. it is clear that governments can affect economic outcomes, otherwise why bother having elections at all? and it was trump's election that helped recapitalize reflation trade. alix: michael's view is normally not what we hear. on the table, it is fundamentals, ignore d.c. politics are incredibly important at the moment. it is all about how much you can get done. it looks increasingly difficult to get anything done to move the economy on, really get going with infrastructure. here, a kind of looks like he has lost a lot of

political power in congress. that is there risk we face. we have been talking about the september-october debt ceiling problem. if he has lost the power to try to get that through cleanly, that is a massive risk for markets. jonathan: at this point, the market is open for business. a billions of dollar offering. futures are soft today, but we are near all-time highs. the market looks pretty frothy at the moment, wherever you look. i would not disagree. september and october can feel years away. the whole of august, europe is pretty much on holiday. you start the driving season. possibly, trade has a very short-term impact. we have to start thinking about the debt ceiling problem. markets need to start thinking about it right now. if you cannot get through a repealsimple path to

health care or a tax plan, getting through the debt ceiling without making big concessions are tough. that i have never heard associated with health care. if we are starting to warm about the debt ceiling, how do you position yourself for that? michael: my reflexive response is to expect a spike. but there has been such horrible trade in this year, timing is absolutely everything. i will certainly be looking for volatility around september, may be scaling into any decline. but going back to what was said a moment ago, markets seem totally to synthesize -- desensitized to risk. they start to get price into money markets. we certainly got a tailwind for risk assets now. the earnings seasons on both

sides of the atlantic are proceeding nicely. on the macro level, things look good. but there is a certain level of pricing perfection. luke hickmore of aberdeen and michael ingram of bgc, both of you are sticking with us. coming up, howard marks joins us tuesday. warning about potential risks in the market and that investors are not getting compensated for the risks they are taking on. this is bloomberg. ♪

emma: this is "bloomberg daybreak."

another scandal for wells fargo. the bank says it may have pushed car buyers into loan defaults and repossessions by charging them for unwanted insurance. wells fargo's mate came as much as $80 million to those affected. the outgoing ceo of general election -- general electric is on the list of candidates to run uber. but uber and ge are not commenting. takeng whitman has herself out of the running. amazon has reminded investors that dominating e-commerce comes at a price. forecast ar potential loss for the first time in two years. second quarter expenses increased more than revenue. the company boosted spending on warehouses to data centers. that is your bloomberg business flash. jonathan: thank you. big day for european banks.

bloomberg spoke with many of the executives, including credit suisse's ceo, tidjane thiam. >> feeling good. we think the strategy is working. it is 18 months out of 36. things we a lot of identified as key are delivering. we had a challenge in growth. we had our best performance since 2011. jonathan: still with us, luke hickmore and michael ingram. there was a point last year where we asked the question who has the hardest job in european banking, john cryan or tidjane thiam? who has the hardest job? might be jeff daly, if the fca has its way. i probably think it is mr. thiam.

credit suisse has a lot of issues to unwind. that is in 12 months as well, but you can say john cryan has --e a 180 four deutsche bank 1880 for deutsche bank. i would not necessarily see any issues in two or three years time. jonathan: it shows how low the bar is that you can see in existential threat and raise enough capital, and it is success in europe, because it has taken so long to work out some of these issues. where many people want to play recovery in the european economy, and they say look at the banks as a proxy for cyclical recovery. what do you say to those people? michael: look at what is going on now. we have a regulatory revolution. the nature of banking being transformed. you are seeing, i would say, the at three,of borrowing

landing at six, and being back on the golf course at 3:00. those days are gone. be aately, this could threat to these type of financial hubs. it is on the up. they definitely have a tailwind. but are we going to see this sort of profitability from this business model that we saw pre-crisis, that is not achievable. isathan: luke hickmore, what the credit story for the banks in europe at the moment? luke: improving, as it has been the last 10 years. credit suisse is an interesting investment. it is about a year and a half behind ubs in improvement, but they are coming through. bill o'brienhiam on them as well. for us, that is a more attractive place to be. and banks as a whole, all of

this regulation intends to improve the balance sheet. they have a lot to get through with the revelatory change, but generally, it is ok. the relationship people have got with banks in europe is changing dramatically pay that is possibly the ecb's reaction as well. for credit investors, it is a pretty stable environment. alix: the story in the u.s. is as you see the fed raising rates, you see a spread in the market. is it a different narrative when it comes to banks? luke: certainly, it will come at some point. with a -4.4% rate on cash, investors are happy to take zero coupon as long as they are investment grade companies. as the environment changes and rates go up, which could take a long time, that will change, but that is that long time.

optically, spreads for european credit look really expensive, but where else do investors put their money? jonathan: high-yield spreads this morning. i think we got back to where we saw of the situation of european high-yield. help me understand how much rate risk is in european credit at the moment because of what the ecb has been doing. depends how you look at it. if you look at the stack of yield, more of is coming from credit risk then rates risk. sensitivity, it would beforerise of 1.5% people start piling into european credit. the at&t deal you were talking about in dollars today -- massive. the we have had lots of these mega deals in european credit this year. they are being taken down again and again. alix: to wrap it all up, when we

are looking at the tight credit spreads, we are also looking at banks in the u.s. as well. where do you want to place your bets? is it an american or european banks story or in emerging markets? short-term,r the probably emerging markets is the place to be. certainly in terms of the broader picture, it is the region where we have the biggest upgrades. it is an asset class largely under owned. if we are in a turning point in the cycle, they are relatively late cycle. but there is limited capacity to actually invest in this asset class, because it is not that big. structurally, the u.s. looks far better. a lot of the jews has been taken juicest -- a lot of the post-trumpken out

election. now that health care is being shoved to one side, they may be in a position to pursue the tax reform and the regulatory -- de-regulatory agenda. going back to where i look on european banks, i am still quite worried. for there is potential credit, margin spreads, credit spreads to increase, but at the end of the day, the regulatory agenda has piled on massive costs, operational and capital costs. they cannot pull the leverage lever anymore. they have to look at less asset-intensive sources of income. not everyone can be a wealth manager in asia. alix: if you cannot go to asia, where else. luke hickmore and michael ingram, both of you are sticking with us. oning up, gene munster

amazon, apple, tesla. why he calls tesla the most innovative piece of technology since the iphone. this is bloomberg. ♪

alix: exxon out with quarterly results. one ofe the biggest -- the biggest laggers not helping itself. production estimates also missed. joining us is a niche kapadia -- is anish kapadia. and ubs and has a cell on exxon. your initial take on earnings? anish: overall, pretty weak results, especially in context oil majors that

reported yesterday. if you take the earnings, those earnings probably include some gainssale gains, so probably end up being even weaker. the key thing the market is probably looking at is cash flow. are cash flow generation was less than $7 billion on a clean basis. 15% looks like it is about below consensus. the key thing on exxon's cash flow is exxon generated, for a third quarter in a row, 15% less cash flow then shell. exxon has a 40% higher enterprise value then shell. it is increasingly hard for exxon to justify that premium valuation it is trading on, given the weakness and -- in cash flow generation. alix: so who are the winners so far?

obviously, exxon on the downside this morning. what are the standouts to you so far? michael: -- that damage was one traded another quarter of cash flow delivery. of 2016,eak first half shell has generated four quarters in a row of strong cash flow, shown it can cover its full cash dividend going forward. in comparison, you look at exxon. it has been three quarters of relatively disappointing cash flow in relation to that of shell. i think, from our perspective, we would recommend switching out of exxon into shell. alix: how is everyone doing on $50 oil? generally, pretty well. you will back to the $100 oil price environment.

-- $50 perd to 2017 barrel. most of the integrated have cut out cap-ex. that means they are now able to the bond them in. alix: it is great to get your perspective. and chevron out in 15 minutes. jonathan: i am shocked that they can do more with $50 crude. for theig questions chief executive is. later today, "bloomberg real dedicated tonutes fixed income, coming up here on bloomberg tv. ♪ whoooo.

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potential he a fourth straight week of gains. gainuld raise the weekly so far in the s&p 500. in the bond market, yields are higher by a basis point. the dollar weaker against sterling and the euro. the gdp number is a miss. comes in at 2.6%. the estimate was 2.7%. second quarter annualized gdp in the united states coming in at 2.6%. the previous number revised lower to 1.2%. core pce comes in at zero point 9%. the estimate was 0.7%. -- core pce comes in at 0.9%. it is a miss on the headline gdp number at 2.6%. a marginal one, mind.

revised tos quarter a lower 1.2%. joining us, michael mckee. what are you looking at? michael m.: personal consumption. we jumped to 2.8% in the second quarter. consumers came back. the other thing i was going to look at was business investment. non-residential fixed investment up 5.2%. let me pull up this chart. we have a chart of business fixed investment. this has not updated yet, but you can see, in the chart, how business fixed investment, business spending, had been going up. a little bit in the second quarter, because we are not getting anywhere in washington. business may be waiting to see what happens with taxes. alix: part of that is the big gains in energy, will energy propel gains going forward. this sets us up for potential

disappointment in the back half of the year? michael m.: you have energy prices rising, the dollar weaker, which helps export in the u.s.. 4%.aw exports rise the net exports number falls. that contributes to gdp. with the dollar getting weaker, it helps on the trade front but pushes oil prices higher. we see oil prices near $50. that could ring people back into the market and increase drilling -- that could bring people back into the market and increase drilling. jonathan: at the moment, yields and the dollar are rolling over. do you think we are trading off the back of what we do see -- a soft employment index number and a miss on gdp but a substantially lower read on the previous quarter as well. certainly not as strong as people hoped. michael m.: people are trading

on the pce headline number in the fixed income market. it comes in at 1% down from prior quarters. inflation is nowhere to be seen. the eci number is not bad in context with the fed. you look at what has happened the last five years. eci has started to move higher. it moves up half a percent. not as strong as the previous quarter, but it is showing growth in wages for americans. ecifed tends to watch the more than it does hourly wage and earnings numbers. alix: what do we know about consumption? looks like solid consumer spending. we also have final sales to consumers up. walk us through those dynamics. michael m.: the consumer is at least hanging in there. it is a little weaker in the first quarter, but we have had seasonal adjustment problems in the first quarter. this is more return to normalcy. in the third quarter of last

year, 2.8%. the second quarter of 2016 was 3.8%. we are not approaching where we could be, and consumers are hanging back. they are not adding a lot to their closets, but they are still buying stuff. jonathan: we want to bring in michaelkmore and ingram. your initial take on the numbers, please. luke: probably bullish in the short-term to euro treasuries. the employment cost index is possibly most important for me. the tight labor markets in the u.s. and lack of inflation off the back of that, senior from that perspective is important. you possibly rolls over later in the year, but for now, it probably relies on a long treasury position. jonathan: michael ingram? michael: i would go with that. this is soft inflation data. it paints a picture of an economy that is affectively treading water. maybe reflationary dividend will

.e paid -- will be repaid you also have to go back to the fomc decision and the market reaction to it. downgrade of the inflation outlook. the market took that as an "a-ha" moment for the third rate hike this year. acrosse are seeing buy the curve. is that a reflection of the fed? how do you stack this up in terms of what the fed has to do? luke: i think janet yellen was getting more dovish anyway. this probably plays into that. i think the market has got itself a little short again as well. read too much into market reactions a few minutes after the gdp is tough, but it

does go into maybe we have rolled over that little bit of inflation we have had for now. jonathan: i know it is backward looking, but i want to play the following game -- let's say we put the six months of data in front of the federal reserve at the beginning of the year. you think they would have hiked interest rates? have.i would she has been clear that she needs to try to get policy rates higher so she can react to the next slow down. they also recognize the misallocation of capital has been going on in a massive way the last 10 years. the wayrates is part of to control that. they would have raised it. it may have been one and done rather than two or three. the 31 looks increasingly shaky. you look and get another six-month update about what the first half of the year,

how will that shake things up in terms of rate hikes in 22018 -- into 2018? luke: i think she, or the committee, want another one done. that has to be seen in the context of tapering down the size of the massive allen she they have. this looks to be september or october start. you will want to see the reaction of that before they really start raising rates again. that they do want to get another one done. alix: what does washington think about this? michael m.: they are probably going to be pleased we saw a firstd from the weak quarter, but it will not get you to a sustained 3% growth quarter. , but it will not be sustained unless there is a way to continue business spending. these numbersat -- and i have been taking a more detailed look -- you take a look at inventories.

inventory is the weakest level of inventory in years. -- 300seeing 300 million billion stockpile in inventory. it is nothing compared to what you normally see. that it is weaker than it could be, but it probably means businesses are not seeing demand for the long term, that causes them to build up their stockpiles. it does not look like we have an inventory overhang they are trying to work down, except autops in the arqule -- industry, but agriculture may be contributing to this as well. we are not seeing the business confidence to put a lot of stuff in the warehouse, because they know consumers will buy it. story was we would see a change in the second quarter, start to see inventory build up because consumer spending was in there. consumer spending was ok.

came in solid. is this going to be a make up potential in the third and fourth quarter? michael m.: that depends what business think will happen going forward. if they think consumer demand will hang in there, they are going to have to build stockpiles, because they will not have enough stuff to sell. the real question is where do we go from here? maybe i am just making this up, because we do not really know -- the numbers have just come out, but it is this uncertainty about what is coming out of washington and what incentives there are for people to stand. jonathan: luke hickmore, if you are long treasuries, do you see anything in the data that would make you uncomfortable about that position? luke: probably not through september. the september-october that ceilings -- that is probably the only thing i have. jonathan: luke hickmore, thank you. michael mckee and michael

ingram, thank you. more breaking earnings in the united states. alix: this time, chevron. here is where the company stands on earnings. earnings coming in at $.91 per share. that was a beat. we had a miss from exxon earlier. production coming in at 2.7 million barrels oil equivalent a day. that is higher than estimates. let's see where the stock is trading. relatively flat on the day. looking to see what the call brings in terms of guidance. coming up, gene munster on apple, amazon, and the tesla model three. why he calls it the most innovative piece of technology since the iphone. this is bloomberg. ♪

emma: this is "bloomberg daybreak." this is the hewlett-packard enterprise gearing room. coming about 2:00 eastern, the former chancellor of economic advisers. this is bloomberg. ♪ your bloomberg business flash. terry odor of fell to third place in global auto -- toyota fell to third place in global auto sales. than 2.5o little more million vehicles. sold a little more than 2.5 million vehicles. a full-year figure will show a double-digit gain. the company benefited from stronger demand from asia and

latin america. the ipod is one step closer to oblivion. apple will discontinue the nano and shuffle. the ipod upended their music industry. the success of the iphone meant fewer people needed ipods. alix: thank you. apple abandoning the cheaper ipod. the company will report earnings next tuesday. we also had amazon taking a hit in premarket, forecasting a potential quarterly loss for the first time in two years. howard marks of oaktree capital spoke out, saying the super stocks that lead able market inevitably become price for perfection, and in many cases, the company's perfection turns out to be illusory or ephemeral. the question is if the world's company cane continue to grow. we are joined with gene munster.

i want to get your take on amazon's quarter. they seem to care about margins and expenditures. when did that shift? gene: every quarter, investors will get nervous. -- as anen in 2014 investor, you need to accept that this will be constant, the needling against the story. the coreissed is businesses are doing exceptionally well. their e-commerce business accelerator, which is hard to believe when you think about overall e-commerce going to 10%. so great growth across the board. i want to get back to your question -- profitability is always in the back of investor'' mind. alix: today and tomorrow. and the retail -- the four to one of

analysts who have a hold rating on amazon. here is what he had to say -- >> if the government allows the hold -- whole foods deal to go through, there is nothing to to $2000 company to go per share. caveat is records were issues. what do you think about that? gene: it is definitely amazon's biggest issue, in part because some of the stuff going on between trump and jeff bezos. at the end of the day, market share, even though they have low out quarters, is still relatively small. 20% of e-commerce. if you look at total commerce, it is about 3%. when you think about government intervention, you need to go back to the standard of care. do they have monopoly -- they do not. and is the consumer be negatively impacted? in this case, most consumers like amazon.

it is good food for thought, but i do not think it is an issue. jonathan: do you think it punches above its weight? when we go back to the day the deal bro, youoods saw these huge grocery stores down 15%, is that a company punching above its weight, or does that make sense? will continue to have a big impact on broader retail. not done doingis acquisitions. the company they will acquire is target. it makes a ton of sense for them. to answer your question, there will still be a lot of fall at around broader retail, but some of these companies are going to get eaten up by amazon to continue their pace for retail global dominance. alix: let's turn to the company we love to talk to you about --

apple. in terms of expectations, analysts looking for 1.57 in terms of earnings growth. revenue, coming in at $44.9 billion. that is a massive number. what is your expectation tuesday? all about what they will say around the next phone. it is less about what is happening in the june quarter. the timing of the phone is getting reflected in street numbers. there still needs to be a shift down in terms of estimates for the september quarter, because the more we progress, it looks like the phone -- most of it will be in the october quarter. think of this, as numbers come down september, they will probably go up for the detailed -- december quarter. what is important is the trajectory of the next cycle. alix: what is it going to be? should be of high

single digits from being flat last cycle. that is a nice step back. they will have this newer, higher ar phone. even with positive commentary, you could get some investors trading out of the stock, because it had a 50% move the last year. there is this game of selling into the cycle. that does not change long-term around this story, where they continue to have great dominus -- dominance around the phone. jonathan: you work on the south side before. someanalysts start having big blue sky thinking moments and start thinking about what apple could i, how much they could spend, how much they could do. he talked about amazon potentially buying target. what can apple potentially do? they should do is buy tesla. elon musk probably will not let

it happen, but that could transform apple. there is a lot of talk that they should by netflix. in that. of a believer it would aid their subscription business, but apple historically does not by brands. the simple answer is they should do a lot of things. the better question is what are they actually going to do? toy are going to continue acquire technologies p they just acquired a company that does tracking of your pupils for augmented reality. spent a lot of money for that company. people do not really talk about it, because they have never heard of it. that is the unfortunate story around the mna -- the m&a story with apple. alix: if you have a bloomberg terminal, check out tv . interact with us directly. go to tv on your terminal. this is bloomberg. ♪

jonathan: the value and technology of teslas model 3 has the potential to change the world. that is what loup ventures' co-founder has to say. still with us is gene munster of loup ventures. let's start with why? gene: not only because they will be electric, but autonomous and affordable. those three factors -- when people think of tesla, the first thing that comes to mind is electric. the second thing is expensive. but the model 3 marks the point to, as you going pointed to, change the world. let me to find that affordability piece specifically. the average model 3 is going to percent more than the target of kami. but if you look at the total cost of ownership -- that

factors in lower cost for fuel, insurance, repairs, then you get about a 14% difference. this is for a car that is infinitely better in terms of features. people buy cars for different reasons, but if you look at ownership, it is close to the toyota camry. if you put this together, it will take longer than you think that be bigger than you think. jonathan: we had a guest who said that the importance of the iphone -- it is the vehicle of tech creation in the last decade. think about airbnb, uber, those apps sit on the iphone. is that how you are thinking about tesla, as an investment opportunity, the things that go around it and sit on top of it? gene: it is a little different. there is a play about what will happen inside a tesla and the things i can be built around that.

there are things at the home that can get bill -- with panels getting built. the governors in phases. the next 10 years, people will be focused on the number of vehicles they will produce. they did 70,000 last year. we estimate 600,000 in 2020. that is really the focus around the story. demand is not a problem for this company. it is manufacturing. the second piece and the higher order -- and this is where the stock can rocket the next 10 years, is they deliver on their mission statement, which is accelerating the globe's adoption of renewable energy. that piece is much more exciting than talking about apps that can be built on top of the car. this company can change the world. alix: is it a battery company or a car company, and what should it be valued at? gene: it is a disruptive

company. it will change the paradigm of around transportation and energy consumption. isate to say this, but it both. what kind of valuation do you put on it -- it is a $55 billion market cap today. if you think about the opportunity going to 1.6 million vehicles, the stock should the higher. it will be a bumpy road, but patient investors should be rewarded. jonathan: always a pleasure and privilege. coming up in the next hour, robert morgan will be joining us. counting down to the estimates bell. you are watching bloomberg tv. ♪

strong consumer and

business spending power. second quarter gdp rebounds. the republican bid to kill obamacare fails. mitch mcconnell says it is time to move on. global technology stocks roll over after amazon disappoints. from new york city, good morning. this is "bloomberg daybreak." david westin is a way. we're 30 minutes from the opening bell. futures are softer. 0.3%dollar is firmer up and it is a weaker dollar story. treasuries just off of the margin. we are up one basis point. some earnings that are coming

out will not be helping what is happening with equity markets. myth, but it was really the fact that they saw a third-quarter operating loss, up 400 million versus 300 million operating loss. that, but care about tomorrow it is about how awesome amazon is. exxon mobil taking a little bit of a hit. $7.1 billion is that cash flow from operations. light -- capex was also a bit light. chevron had a pretty boring quarter. that stock goes nowhere. you had sales and operating revenue in the second quarter coming in at 33 billion. by 0.7%.own

sales coming in at 4%, alesica come sales -- com s also a bit light. this first starbucks made up i meal -- made up by meal and snack sales. >> the republican attempt to scrap obamacare has collapsed in an early-morning vote. otherccain joined immigrants to block a scrip -- stripped down repeal bill. russia is striking back at the u.s., hours after the senate approved new sanctions on russia. the foreign ministry says that

the total your starting and russia should be 455 people by september 1. the u.s. was ousted from warehouse is in moscow. scaramucci called reince priebus a paranoid schizophrenic, among other things, and said that steve bannon six media attention at the president's expense. chandra, this -- i am aemma chandra. jon: they are all dressed up like they are in the jungle going for each other. >> the one i like is the twitter one that "the daily show "" did. where the and signals are all

the same. my daughter said, who is that? an economic data, -- the big news is gdp coming largely in line with consumer spending. particular weak spot was residential investment which fell by most since 2010. joining us is michael mckee. >> if you don't want to be a paranoid schizophrenic, this is basically good news. is onss spending equipment. we were looking at overall business spending.

businesses are putting some money to work. thatlked about the idea they will get something out of the administration and washington and it will help them to increase their spending. the other one that you talked about was inventories and inventories held down gdp. the worst inventory performance since 2008 when that great recession was just beginning. you should see a rebound and we should see production rise. >> you have solid consumer spending it inventories were down. that we willply see a pickup and inventories in the third quarter. >> we will see what happens. a lot may depend on where confidence goes.

jon: gdp, one read this morning, inflationary forces in the united states. fed, howre at the would you look at it? >> the fed tends to look at monthly numbers, instead of the quarterly. , looking at inflation, is the lowest quarterly pce index in a year. we are talking about reflation, and it has rolled over, and we are seeing disinflation halving the inflation rate. that will not give ammunition for a rate increase. u.s.a quick dip on the dollar. $2.31.nchanged at at thedown by about 0.3%

start of the open. macarthur, the chief financial officer. >> i think that this was relatively good news. history repeated itself. we had a weak first-quarter and a better second quarter and the .onsumer came back to life thes always nice to see consumer come back online. jon: i asked this question to lou kick moore earlier, what does it feel like to be long treasury? is or anything that makes you uncut -- is there anything that makes you uncomfortable? >> even though the fed is in a

box that they would like to see longer-term the expectations and rates will continue to go up and that will be bad for treasuries. >> you said that residential investment is the biggest weak .pot since 2010 there is a labor shortage and lot shortage for company builders. imply that there will not be what we saw today. >> there are two separate issues. as far as residential investment , for newned constructed housing, the demand continues to rise because there is such a shortage of existing homes. is concerned eci

there is a story that has been too familiar. there are a lot of conditions in the labor market that have changed over the past six to nine months. see -- the bear side to that is it is not about telecom services. there are structural changes happening in the wage market. you can see housing and rental inflation continue to grind lower. where does that turn? been an ongoing roller coaster throughout this cycle. the recent trend has been for inflation to slow down and we continue to see import prices rising, commodity prices rise. this bodes stability for some

inflation. preference -- prices you referenced have taken a downturn recently. >> we are watching the economy get a little bit better. one of the features of tax reform would be that it lowers taxes for smaller businesses. what is the lower demand? we've heard about entrepreneurs not getting started. will it contribute to growth? >> i think we are starting to see more loan formation and the financials which we may talk about from an equity standpoint is one of my favorite picks.

jon: michael mckee and warden mccarthy. , the man from blackrock will be joining us. payroll is friday. how did that happen? >> where to the summer go. jon: the countdown begins monday and tuesday. market open is 19 minutes away.

>> let's whip through the action for you. likely to give up the weekly gains so far.

we are softer in futures by about a quarter. biggest -- amazon is down on the premarket by two or three percentage points. equities are softer in europe. the dax is done by 0.5%. treasury yields are higher by a basis point of 2.32. the average of the year as well for the 10 year yield. market to my the euro is weaker against the dollar and the pound. the bank of england decision next week. people putting their hands up for a rate hike. we trade firmer on the day. we are up 0.4%.

>> the stock that is down is amazon. roughly 4%.res down it is spending more because it is growing more. they sounded the alarm saying super stocks that lead the bull market become -- for perfection. the perfection eventually turns out to be illusory or ephemeral. where do you come down on this? a different buying opportunity? do you have to take a note of caution for howard marks? >> it is a case-by-case basis. the -- highyou have expectations and a miss on the numbers.

amazon would not fall into that category at the reasonable price standpoint. likeu look at a country ,acebook, google, or alphabet and microsoft which had a great quarter and succumbed to -- not exceeding expectations, but high expectations. >> facebook is reasonably priced even though it is trading with a current pe estimate for next year of 24 times? >> the pe for amazon next year is between 50 and 100. you have to look at relative valuations and facebook, microsoft and elf would fall into the reasonably priced category. sector, technology is not a

ate we would be rushing into the moment. there are more attractive areas in the market. know how youo value a company like amazon when there is so much investment being made in that company. >> it is difficult to do. that is one of the reasons that we avoid a name like this. lumpiness in the quarter. it is tough to get your arms around it. at the total valuation a trillionalf dollars. the other point i would make quickly is everyone is giving them a free pass on the foods acquisition. this is their largest acquisition. they have increased their workforce.

there is some execution risk. >> rob morgan? >> i like the text base. walter thatree with amazon is a little rich but i would go farther and say that the whole thing is a little bit rich. i like the sector in general. >> you like it from a strategic point but not the price of the story? dividendare other growers. i like the am not so crazy about pricing as a thing. >> what did you make of what happened yesterday in the market? they wound up having a dip and took it hard in terms of tech stocks. in the press, we said it was because of this jpmorgan note

that warned of volatility. do you buy that kind of explanation? >> what you are seeing with the volatility is at historic lows. the market is very skittish. we have seen that for the last couple of months starting on the june 9 friday. investors make the mistake that we feel good to buy when volatility is low and stocks are at an all-time high. what you saw yesterday was indicative of what we have seen churning. it is going back-and-forth between growth, value, tech, and financials. as we enter a more risky period

in the calendar, i think you will see more volatility like you saw yesterday. >> you are sticking with us. coming up later, the vice-chairman for -- joining us live. on howard marks, his take the risk in the market and how to handle it. this is bloomberg. ♪

exxonon wrapped -- wrecked the oil industry's forecast. shares are touching a 52-week low ahead of the open. joining me is the oil strategist, julian lee. there were two things here.

one is the production decline. the other was there cash flow, which missed estimates. talk about those issues. >> the production decline, if you look at their drilling, you can see that to some extent, this was inevitable. wellsrilled just over 500 last year compared with more than 1200 and 2015. that has an impact. it has an impact further down the line with the production that you expect from those wells to offset the natural decline elsewhere. you could see this happening. >> who is coming out as the best of the best in the earnings season? >> it seems to be the european

majors doing well. shell kicked this whole thing off with better-than-expected results earlier in the week. was up front saying they are positioning themselves to live in a $40 per barrel oil world. they are looking at not just how to survive, but how they remain profitable. many of them were starting to see it as one that may last for longer. >> part of that will be production discipline. the have we learned about production discipline? >> we are seeing a great deal of discipline coming back to the industry.

was is an industry that saying that $100 per barrel oil was an absolute minimum. now here we are with shell saying that it can survive and grow in the i-40 dollar per barrel world. in a $40 per barrel world. they believed that opec would guarantee the price floor. plans were made accordingly, and they have reacted quickly, if you prepare them with the reactions of some of the state oil companies that are still struggling. the international majors have reacted very quickly. >> great to see you.

walter todd joining us as well. we want to talk about the value. that is quintessential value. would you touch it? jon: with opec disarray, i do not know. futures are softer. the s&p 500 with no real drama. amazon with disappointing earnings, weighing on the benchmark. i say no real drama because we are off about 0.1% of the all-time high. the bond market is treading water. there is a weaker dollar story in fx. these days families want to be connected 24/7.

that's why at comcast we're continuing to make our services more reliable than ever. like technology that can update itself. an advanced fiber-network infrustructure. new, more reliable equipment for your home. and a new culture built around customer service. it all adds up to our most reliable network ever. one that keeps you connected to what matters most. jon: the action is as follows. features are softer on the dow. somee way down by

disappointing amazon earnings, making up 2% of the s&p 500. a little bit soft. market, gdp comes in. treasuries are on offer at the market. the dollar-weakness story continues. that is your story across assets. let's get you that cash open. >> softer markets in the u.s.. the dow fearing the best. one getting hit the hardest. let's check in and see what

amazon stock is doing today. story with earnings down 77% from one year ago. they are basically spending so much to expand their e-commerce business. usually the market winds up rebounding from the negative trade. dig oil reports. by 1%.s down exxon was a disappointment. you have production down and the cash flow, down $7.1 billion from operation. missed i consensus by about 15%. chevron is super solid. they can help on the upside or

downside, but sometimes those refining margins tended to bite. in the first quarter we had energy underperforming, telecom underperforming and tech performing well. 3.5%. is up almost by 5%. is up the steady as she goes is tech. a really interesting reaction in the market. we talk about the volatility and continue to talk about the quick rotation. how do you trade that? volatility within the index is not that high, -- the moving beneath the surface, what are your thoughts?

>> our thoughts are that you -- those who have been attracting more money recently, that would be the energy that you referred to, financials that have picked up since the stress test results. materials would be another category. you still want to have exposure. jon: as a journalist, as a broadcaster, it is what you come to expect. there anytime soon. the rate market is going against of them. point, but i good

would say that if you have a comes offhere the fed the idea of hiking and interest rates, pressure comes off the two-year. i'll think they are going to change from starting to reduce their balance sheet. you can see the curve steepen, even in an environment where the fed is likely to raise rates in the near term. what is going to happen in --ope is going to put rusher standpoint.the ecb >> what is your value versus growth call? -- icent to like growth tend to like growth here. i tend to think that value does better in a bear market than

bull markets. i think rove continues to look attractive. >> -- i think that growth continues to look attractive. i like financials, and i like consumer discretionary, which i s a contrarian pick with the "mall-mageddon." >> i haven't heard that. >> you can steal it. jon: howard marks coming out coupleek -- i found a pockets of complacency. trudges in long there and incredibly well received by the market. >> i like stocks long-term but i am very complacent -- very

worried with how complacent the market is. it would not surprise me to see a 5% rollback here. move off ofpared to that. some short-term pullback might be coming. thank you both very much. amazon is the biggest lag or in -- lagger in the s&p this morning. amazon boosted spending to meet growing demand in the e-commerce sector. >> i don't think it was widely different than we have seen in the past. the top line is above expectations, but they invest more as the businesses ramp. less profit in the near-term, but setting themselves up for

continued domination of a lot of different sectors. >> is this a knee-jerk reaction? what to you think? think it is fair for the stock to pullback given that guidance was lower than expected. but the stock is back to where it was on tuesday. the company is continuing to execute extraordinarily well. most long-term investors do not pay too much attention to long-term quarters. >> this company is a monster. a 4% move is shaving $20 billion off the market cap. so many people, investors and analysts have come on this program and brought up regulatory matters.

>> over the long term we think this can be the largest company in the world. the one thing we worry about is regulatory concerns. -- we worry about international governments pushing against big tech. governmentout intervention on the international side. >> at this point, it is hard to identify where they have a monopoly. what is your time horizon for this to become a problem? >> i don't think that the current laws on the books about what is a monopoly will impact amazon anytime soon. think a lot of folks are going

to look at them where it is not just a harm to consumers, but the harm to competitors. > -- >> most of the street's focus on the next iphone and what it means for timing and the number of units. i'm focused on the services sector. the business continues to see extraordinary growth. >> apple is saying look over here, we are a services company, but they get so much revenue from the iphone will stop what do they need to do to convince investors that that transition is happening?

>> they have already convinced me and i am doing my part to convince others. you will see that the next iphone is going to be a leg up. you need to see other profit drivers for this stock to work. we think that the app store can account for the vast majority of rough it growth. while the iphone is the most important product from the company, in terms of growth and the incremental dollars, we think the services sector is going to drive that. jon: this value company or growth company. what should you apply to apple? real earnings are about 7.5 times and forward earnings trading 16 times. what is the appropriate motion to apply to apple and how do you see that evolve as a services

company? thise reality for stocks week is you have to look at the futures. the value of these companies is just the discount in cash flows back to today. that is how we look at amazon, apple and all of our companies. let's with your the scores. futures are soft, margins are moving. amazon falls by about four full percentage points. you are watching bloomberg tv. ♪

>> this is bloomberg daybreak. markets, on bloomberg the former chairman of the council of economic advisers. et is at 2:00 p.m. by: a months-long effort republicans to pass to slaton collapsed after today. john mccain joined his collects to block a stripped down repair bill -- repeal bell. regretle are going to that we could not find a better way forward. forward towe look our colleagues on the other side suggesting what they have in mind. mr. president, it is time to

move on. jon: joining us with the latest in washington is kevin cirilli. we talked about how congress has failed to get this through and how the blame game will begin. for anyone in the market, they are waiting for that thing with a t in front, tax cuts. >> you heard from the majority leader in the middle of a knight who said it is time to move on to my that came hours after the congressional leadership and senior administration officials outlined a plan for tax reform that would not include the border adjustment tax. of theso put a timeline fall. these adjustments are starting to take the front seat now that health care has failed. jon: within the white house, it is like the hunger games.

the director of communications is making communication more interesting. in, ite outside looking does not look like that team is together. it looks like we have two republican parties in congress, and a very divided white house. >> you make a great point and how these palace intrigue stories influence policy. the politics inside the white house are very much divided. when you look at the arrival of anthony scaramucci to the communications director role and the report last night about his criticism of reince priebus, the buzz in washington is that the president is losing confidence in his chief of staff who is the former chairman of the republican national party as a result of that. mr. previous is very much aligned with paul ryan. the divide between mr. previous and president would suggest

storming trouble ahead for his relationship with the speaker. he says i made a mistake interesting a reporter and it will not happen again. >> maybe you should not have a conversation without saying it is off the record. >> that helps. >> happy friday. >> bloomberg, kevin cirilli, great to have you joining us from d.c. >> we will report it if you do not say off the record. congressional officials are no longer including an import-based tax code.

republican leaders stated and we are now confident that without transitioning to a new domestic, consumption-based tax system there is a viable approach to ensuring a level playing field between american and foreign companies and workers while protecting american jobs and the u.s. tax base. douglas,s is like congressman, thank you for being with us. plan can democrats approve? forward ine can move a bipartisan way from the middle out. the question is, have republicans learned anything from this proposal? they kept everything in secrecy, rejecting democratic alternatives. if they want to work together,

we have a basis for doing so. >> they come to you and they say, let's talk. what is the plan that they can come to you with, that they would support. >> you referred to the outline, we have 600 words that provided less detail than we got from , 13 months after the original blueprint was outlined. we don't need more national debt. number two, let's follow the minutia rule that we will not widen the income inequality in our country.

number three, let's consider fairness for all businesses in our country. the advisors get off with playing a fraction -- paying a fraction of the former tax rate. >> it seems to me that you want it to be revenue neutral. what is the tax plan that you can support? >> secretary paulson said that you could not get below 28% without eliminating every corporate tax to duction including those that enjoy broad support like charitable deductions. that shows you how difficult it is to get there. i think there are some ways to lower the rate.

but not by borrowing or taking advantage of small businesses and individuals to make up the difference for what these multinationals refuse to pay. >> do you like the corporate tax rate? >> i like a rate that is balanced. it idea that you could drop down to 15% is not realistic. realing below 28% is a challenge. in terms of the effective rate it is competitive. what is thean, incentive for the democratic party to work ahead of the republicans, when ultimately, there is the potential to watch them not achieve very much but ultimately get back congress? >> we have a responsibility to try to grow jobs it is a good then party.

i favor a tax code focused on growing that economy and american jobs. i think we are ready to work. we haven't had anything other than broad generalities. -- i serveortunity as the ranking democrat on the house committee. all parts of the business community, academia to the table to explore what are the ramifications to the american economy and individual businesses. what are the implications to suddenly moving through a broad number of pastors? had, --gress congressman, the final question, what are your thoughts about

communication at the moment? >> it is amazing. when our country faces somebody challenges, governing by tweet and expletive is not the way to build confidence here or around the world. doggett,ssman lloyd thank you for joining us. much more coming up on bloomberg tv. we are looking at an equity market that is down by 0.2% for the s&p. this is bloomberg.

jon: 26 minutes into the session. let's wrap things up on bloomberg daybreak. gains for the week's secure headed for the fourth straight weekly gain. down about one third of 1%

following what many people are calling disappointing earnings weighing on the benchmark. or 4%ve been down 3% throughout most of the morning. the story in the bond market today is u.s. gdp with a little bit of a rebound and inflationary forces in the cost index over the quarter, disappointing. yields are lower by one basis point in the dollar weakness rounds up the week where it started. sterling 100gainst -- that does it for us. bloomberg markets is coming up next. from the york, this is bloomberg. ♪

vonnie: from new york, i'm vonnie quinn. mark: i am mark barton and this is "bloomberg markets."

♪ vonnie: we are following the collapse of the gop's effort to repeal the affordable care act. some breaking economic data. here is julie hyman. >> it is the university of michigan's consumer confidence index. coming in at 9.34, in line with the initial reading. index hast conditions been consistently higher than the expectations index. this follows on the heels of the other, bigger economic report 2.6%.g that gdp -- that came out earlier this morning.