to have risk begins diminish from the market. the white house has yet to announce was premises. chinese retail sales, investment, and factor out what outputxpectations -- misses expectations. let's get you up to speed on the market reaction this morning. the biggest weekly drop on the s&p 500 last year, we are back a little bit. euro-dollar a little softer. that treasury bid that remains throughout last week comes back a little bit. great to have you back. you missed a big week last week. dollar-yen now up 0.5%.

the vix much calmer. gold taking a braek. copper getting hit on that weaker chinese output data. broccolithink jonathan withought the brisk back him. morning break.ur we have missile-defense talks in washington, and minutes from the wednesday.g out on walmart reports second-quarter results. president trump went into the weekend with a foreign affairs problem, north korea. he came out of it with two problems as white supremacist groups rioted in

charlottesville. joining us is kevin cirilli, bloombergs washington correspondent. start with charlottesville. the present came out with a statement from his non-vacation. immediately he got a reaction from his own party. and he thinks this problem within his own party -- can he fix this problem within his own party? >> he is facing criticism of several top republicans, including senator orrin hatch, to fully denounce the neo-nazis and charlottesville, virginia, over the weekend. vice president mike pence made public comments last evening in which he did announce was premises and neo-nazis and -- white supremacism and neo-nazis. we should note that on friday

president trump said he was going to hold a press conference on monday. the daily guidance from the white house does not have a press conference scheduled. the department of justice investigating whether or not the incident and charlottesville was domestic terrorism. david: the president will come out with a statement, and his subordinates will come out and clarify it. to put it gently. we saw this on north korea. he was fairly belligerent much of last week. then we had general mcmaster saying we were not close to nuclear war. >> i have spoken to several top aides from senate republicans saying he missed an opportunity to unify the country. on north korea, dominating the sunday shows were generals from the military saying there is not going to be war with north korea at this time.

diplomacy with north korea a central issue. later today, president trump expected to try to force the issue with the trade representative with china. the bottom-line according to the generals over the weekend is that there is not going to be any military war now. david: we will be back with you shortly to talk about that china trade policy. jonathan: joining us to talk about geopolitics is rodger for vice president of strategic analysis. i want to talk about the aggressive rhetoric we had experienced over the last week. is this the new normal we should adjust to and expect words to remain just words? >> i would be cautious to say words are just words. i think you will see a continuation of this stronger rhetoric out of the present and

the administration. -- president and the administration. >> a look at the situation in the bond market, is this what risk off looks like for the balls? -- bulls? will they be satisfied? >> there was clearly stepping back. in terms of a correction, this is pretty modest. what we are still looking at is excessive liquidity in markets, continued optimism about global growth. we may be added to the point in that momentum. point inat a tipping that momentum. i think the history of this administration, of the president is to make extreme statements and backtracked afterwards. you get a little reaction on the statement, but those are beginning to weaken a little bit. we are going into nafta talks this week.

six months ago, you would have thought this would be the end of the world for mexico. but they are barely making the news cycle. ignore the tweets at focus on fundamentals, and the geopolitical, ignore the rhetoric and focus on fundamentals? what is the right call? >> you would like to ignore all the tweets. we thought they would be under control with the new chief of staff. i think they give us some sense of what direction the administration would like to go. clearly this is a president not into the details, not into fine-tuning, not into policy details. what we need to do is listen to the general direction and see by the details get filled in economic policymakers or the generals and military leadership. david: there has been a lot of talk about north korea.

one of the things we have been hearing from various people like mike pompeo is we are not ramping up on both sides, moving towards armed conflict. >> we have not seen the movement of forces you would expect to see prior to an early preventative action on the and is love. both sides are certainly always ready. the ussr significantly increased its force structure on the korean peninsula. it has not started to remove nonessential personnel or sending out strong state department memos to its own employees. north korea does not seem to be moving into a war fighting posture. on the physical structure on the ground, we are not seeing what would match the rhetoric. david: we are not seeing ramping up on the u.s. side. is there any dialing back of

maneuvers? we know china is urging the u.s. to dial back on the military presence. >> it is difficult for the u.s. to back off your at the end of this month, we have a large military exercise between the u.s. and south korea. these are the exercises china is --ing to freeze the u.s. with the u.s. the idea that north korea would stop its nuclear test. the united states wants to demonstrate it has a strong commitment to south korea and is very serious about stopping north korea and wants to show military strength as a way to encourage chinese to take action. alix: when we talk about the risk and the markets, what is the risk? it is not necessarily clear what we are supposed to be so scared of? >> the immediate risk would be an accident or miscalculation on

one of the two sides. the north koreans look like they are possibly getting ready for another missile test from one of their submarines. they could be launching a missile to the waters off of guam. around these military exercises every year there is an increase for potential conflict. last year there was the landmine incident. if both sides are running more frequent activities closer to each other, you can have something that could pop up into an accident and trigger a sharp confrontation between the two. that is the immediate risk. alix: now markets have to price in an accident if it wasn't already difficult. up, a lineup of guests

including goldman sachs, pimco, and barclays. this is bloomberg. ♪

♪ >> this is "bloomberg daybreak." i am emma chandra with your business flash. according to people familiar romeohe matter, entertainment of the could go public as early as next month. over charter communications, according to people familiar with the matter, altice is planning to partner with investing groups for help.

in china, the economy showed further signs of slowing down. rose slowertlook than expected from last year. retail sales missed estimates. rose muchn japan, gdp faster than expected in the second quarter, raising at an annual rate of 4%. alix: thank you so much. for more on china and japan, we the bloomberg -- we are talking about not a boj.er pboc, but a tighter you have japan leading asia. in some respects. >> we are seeing the best figure out of japan. consumption is holding up. it looks like they are gaining

traction. inflation is not going anywhere. that is despite the strongest labor market in decades. i think it bodes well for abenomics. he suggests that perhaps japan's economy is starting to gain traction. alix: in terms of the china data, it was not terrible. it missed estimates. concerns about the back half of the global growth story this year. >> absolutely. we have had tentative signs out of the eurozone that maybe things are weakening in july. six months ago, i thought the story would be we would be surprised growth momentum in the first half of the year. we have seen that in the japanese numbers. in the japanese numbers, we might have seasonal issues. we had very weak second-quarter data in the last few years.

we may get a get back in the third quarter. more probably, the chinese data coming off of strong june data hints that maybe global growth that everybody has become comfortable with now may be beginning to slow. i don't think that is discounted in markets. it is very tentative. i think there are signs in the eurozone and china that maybe this growth momentum is starting to slow them and that maybe the story in the back half of the year. jonathan: i don't think many people would doubt that japan could do the heavy lifting in that story. does that mean the u.k. is going nowhere fast? >> there is some debate at the --gins that the boj should start shrinking their balance sheet. i want to focus on the government in terms of what they can do to get inflation off the ground. wanting toople keep

is the labor market. with that the strongest labor market in decades. inflation is going nowhere. e needs to get people spending money, yet money into the pockets of people on the ground. david: give us a sense of how important this is politically for mr. abe. he has important elections coming up in the coming weeks. how important are these numbers right now? >> critically important. lawmakers are calling on him to refocus his efforts on the economy. this will give him some justification that is policy is working and fundamentally japan is headed in the right direction. that is a major win for him. it is important for the bank of japan because governor kuroda's term is up next year.

it does not take away from those arguing he should get another term. abenomics is on track and delivering. alix: the first half of the year was all that credit stimulus in the economy 2016. in the back half, do we have to see more money and more stimulus into china? >> they are reluctant to do that. we had strong credit growth in the first half of the year. i don't think they are comfortable with that level of credit growth. i think that will be slowing. that is another level of uncertainty in china. on the japan side, keep in mind, they shifted to a 10 year yield target a few months ago. the monetary base in japan has flattened over the last couple of months. we will see whether that continues. it turns out that the level of

yields is low enough in a global sense that they have not been buying a lot of jgb's in the recent months. for the bank of japan, the monetary basis is starting to flatten out. is growing their balance sheet more slowly. we are starting to unwind this aggressive monetary stimulus around the world. i think china is going to be part of that in slowing credit. growth.t jonathan: the enthusiasm continues to build in europe. what does that mean for the investment strategy on the back of that? >> during the first half of the year, we would discuss the fact ort is this a trump rally global growth rally? i thought it was a global growth rally.

i think it is still early. i think if there is us rise in the global test surprise in the global environment, and maybe that momentum begins to slow and that changes expectations about profit growth at the same time central banks are going back on liquidity expansion. that is not a good combination for risk assets. david: our colleague from bloomberg news reporting from hong kong. by ag up, we are joined former export import u.s. chairman. we will be talking about the action the president may be starting against china later today. this is bloomberg. ♪

alix: -- vonnie: -- jonathan: her ties to u.s. president donald trump. joining us from oil and is matt miller. forgive me as many people out there, including myself look at this german election and include it is a nonevent. >> angela merkel herself when she began her campaign over the weekend actually forgot to tell people to vote for her. that could be assigned that she is so focused on her message or that she is a little complacent. 16 points ahead. it doesn't look like there's any way martin schulz can challenger. she has done so well as a world leader, and there are not any crises here other than the diesel issue that would really concern voters. a lot of people see it as a

nonevent. jonathan: let's talk about the diesel scandal. how is martin schulz addressing that issue that differs from chancellor angela merkel? is the blame at the door of the government as well? >> they have both addressed it over the weekend. angela merkel has put alexander dobrynin in charge as transport minister. he is seeing as in the pocket of industry. developed ties to the out of industries. martin schulz over the weekend othersout volkswagen and , saying these cannot make profits -- jonathan: i believe we are having some technical difficulties there. cinch, great to have you

with us. if he said at the start of the year what the greatest threat in europe would be, many would say democracy. that has not happened during things look good in europe seems to be the takeaway. your point early on his things may not look so good in the back half this year. walk me through that. >> markets move on surprises. i think a surprise in europe is that growth picked up to such an extent. there is a lot of optimism in france that there is going to be major economic reforms. i have heard this once a decade for the last four decades. i have yet to see major economic reforms in france. i am skeptical. it is now expected that these reforms in france will become reforms across europe. after tremendous pessimism two years ago, eurozone was going to break up, europe was going to

come apart. now we are in the opposite extreme, this renaissance of growth for europe. everyone is excited. we had 2% growth in france. that is terrible in the u.s., great in france. math.t get the jonathan: comparisons matter. >> right. this optimism. europe has a demographic problem that is bigger than the u.s. problem. there is much more resistance to reform in france than people are taking into account. we have gotten into a bit of a euphoric stage. as the elections past, if we don't get real action in france during the second half of the year and growth begins to slow, i think we will have a much different perception about europe. jonathan: those late to the

european risk rally, the high was may 15 this year for the equity markets. does that remain the high for 2017? >> it will because. a lot of it will depend on what happens in french politics and policy reforms. if we don't get them, it could be. jonathan: we will be sticking with us. ending up, fred hochberg, former import export chairman. in the markets, no risk at the moment. it is risk on. positive 14 points on the s&p 500.

jonathan: you are watching bloomberg daybreak. we are about two hours away from the cash open. positive in the dow

is up by half of 1% on the s&p 500. europe is pretty good as well. euro-dollar through last week, a fifth straight week of gains. a similar theme against sterling $1.17.e cable rate at that's the story across assets but let's get headlines outside the business world. facingresident trump is criticism for failing to personally denounced white nationalist after the deadly rally in virginia. it let the white house to release a statement saying the president condemns all forms of violence and hatred and that includes white supremacists and neo-nazis. rally whenied at the a car ran into a crowd of

counter protesters. to national security officials art tamping down fears of a war korea.rth mike pompeo and h.r. mcmaster say there is no indication that war will break out with north korea. the u.k. will try to regain momentum and the brexit negotiations this week. the government will publish the outline of its position which includes proposals for the ireland and official documents after brexit. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: president trump's handling of the north korean crisis in the uprising of white supremacists in charlottesville over the week and raise important questions of what affect it will have in his legislative agenda and his approach to trade with nafta

negotiations beginning wednesday. joining us is the beta partner director of economic policy, welcome to the program. all, hasxtent, if at president trump's handling of north korea and charlottesville affected his ability to get things through congress? a i think it has affected significantly. the republican party has been fractured since before the president was elected but this weekend's events and the scope of conversations and rhetoric toward north korea threatened to further fracture the party3. you can see it in real-time over twitter with senators hatch and rubio and mitch mcconnell coming out and seeing it's appropriate to make their own comments about charlottesville since the president's words were not strong enough in their view. when you look the legislative agenda that congress has in front of it, nothing that difficult votes. points oning to put

the board against the most aggressive players. the debt ceiling, keeping the government open be on september a budget and bunc tax reform. if you don't have a leader in the position to twist arms, you'll not get legislation passed that requires any difficult votes. i think the events in charlottesville underscore what i expect to be the emergence of two things the next couple of months which is an increased focus by this administration on reducedd also expectations for tax reform. if you cannot lead your party with a difficult vote, you will not be able to pass a tax bill. senatorou mentioned orin hatch's remarks who was the most senior republican senator. we should put up what he tweeted.

can the president put this back together with his own leadership on the hill and can the get tax reform this year nonetheless? >> i think he will face a tough challenge getting his party connected. poleyou have the gallup with a 36% approval rating for the president and continued headwinds like the public jr.imony from donald trump and paul manafort before the senate intelligence committee, later in september, the president's plan to release a tax reform outline that will be contentious. if you look at the state and local tax to duction's which is a nearly $1 trillion revenue raiser, and you use knowledge about the nation and you see this 41 republican congressman from a handful of states that

benefit greatly from a state and local tax to duction like california and new york and new jersey and pennsylvania and connecticut, how will you get to stand behind you? that will be a difficult list for this president and i don't see a path forward especially if you create a scenario where orrin hatch feels personally confronted by this administration happening in the backdrop were donald trump started his own twitter war with mitch mcconnell earlier this week. david: thank you for joining us. president trump came to office in the back of promises to reform u.s. trading relations. this week, we will see whether he can move forward his agenda even as he deals with north korea and the aftermath of charlottesville. joining us now is the former chairman of the export import bank of the united states. welcome back to the program. let's start with today. the president is returning to washington reportedly to sign something having to do with the section 301 against china. what is that and what is it likely to do question mark >>

it's part of the 1974 trade act. it will give the united states representative to commence an investigation about intellectual property and stealing trade secrets. it does not the fo force u.s. representatives but it gives them the ability to do so. he's got other things on his plate like nafta which will start in 48 hours. i spent eight years as chairman of the exim bank and had many trips to china and many u.s. companies have fears about putting their technology into china with fears of a being stolen. the problem with china is we have a lot of issues. north korea's the largest at the moment. we have issues around currency, iran, the south china seas. out hard to just pick one and save we can solve one thing. is it on the other hand,

possible the president is doing something carefully calibrated? the one issue is the requirement that u.s. companies going at it china share intellectual property and it's not even starting with 301. it still says should we take a look at this? i have not seen a lot of examples of a nuanced action am a part of this president. we have not seen a lot of that but yes, a certain nuanced be carefully calibrated. at the moment, that is speculation. have we established whether the approach toward foreign policy involving china and north korea is divorced from the relationship toward economic policy? administration says they are two separate policies but the

president made the link himself. since president clinton, when he formed the national economic there is a lot of coordination. should we assume this has consequences for policy of china does not do something in the way that would set a foot -- satisfied this administration of a nice couple of months toward north korea that they would do something in the trade channel? >> i would say that would be a good speculation. they are all interrelated and connected. somethingalso have called nafta and they will start official negotiations finally on wednesday. at the same time, the reports of what they may change does not sound that radical. how do you square that with the president saying we will trade -- change the trade deficit. >> normally the trade deficit is not part of these trade agreements. ,f you look at nafta as a whole

it's a $12 billion surplus in terms of manufactured goods and services. if you single out manufactured goods alone with mexico, there is a deficit. it's a question of doing the math. i think that becomes complicated and whether it sets down markers about trade negotiations with germany and other things, that's the consequence here. alix: how do you measure success, then? >> at the moment, i think it's hard to do that. they are talking about including september.y you can do some tweaking along the sides but if you say deficit reductions first and foremost, president trump has been clear about that for decades about the importance of deficit reductions. having worked with the obama administration come i think

devin said reduction is like diet and exercise. think deficit reduction is like diet and exercise. it's like eating a little bit more at dinner and doing more exercise. what is your base case for trade now versus six months ago? >> we have not seen much in terms of policy. we hear a lot of rhetoric and a lot of talk. we have not seen anything concrete in terms of policy. i think that goes across many policies in the administration. we hear a lot of noise but don't hear concrete policies coming out of the administration. a health careard proposal coming out of the administration and i'm not sure we will hear anything detailed on nafta. set a record for auto exports over the last 12 months.

clearly, mexico and the automakers have not adjusted anything to all of this rhetoric. regarding mexico, the peso is 17%. will it be complacency or a decent move? >> we had a big move from a depressed level. a lot of things look like they are big moves this year because the dollar peaked at the end of last year. will weaken aso the year goes on. i think emerging markets in general have gotten a lot of capital inflows. i think the bank of mexico has finished hiking policy. i thought there is more upside than downside a few weeks ago and i still think we will see the dollar higher but i don't think the nafta issue will be the catalyst we thought it would be six months ago. formerthanks to the

export import bank chairman. bob will stay with us. burns,with us, nick will beschool professor with us on bloomberg daybreak. live from new york, this is bloomberg. ♪

emma: this is bloomberg daybreak. coming up next hour, the chairman and ceo of market field asset management. this is bloomberg. ♪ now to your bloomberg business flash.

toshiba is talking about selling its chip business in japan but snack.caught a the problem lies with the timing of payments. the group led by bain capital has offered 19 billion dollars. delta airlines is looking at new york and los angeles as the main basis for the new jetliner made by bombardier. delta is the first major u.s. carrier to buy the bombarding you -- bombardier. are thee, higher wages one thing that's missing and what ecb president mario draghi called a robust recovery. unions and finland are demanding higher pay. your pay would give the ecb confidence to reduce monetary policy accommodation more quickly. that is your bloomberg business flash. finflation - can we make that a thing? david: that's very witty.

mike pence is on a latin america tour is looking to shore up response to the crisis in venezuela. president trump has said that you was military action is an option but the vice president speaking in columbia -- in columbia emphasized a peaceful solution. me here toident sent continue to marshall the unprecedented support of countries across latin america, to achieve by peaceable means, the restoration of democracy in venezuela and we believe it is achievable by those means. david: in the meantime, then i venezuelanthe economy continues to deteriorate. the state oil company is reporting production dropping 10% and profits falling as much as 90% last year. bob sanchez still with us. cinch isou make -- bob still with us. for an economylt to function dependent on energy.

to have good policy. clearly, we are not doing within a menstruation there that will give us good policy. the opposite side of that is had some goodust gdp growth in the first half of the year. it looks like it is recovering a little bit. it can marshals resources in a fairly productive way to control the economy. there is no signs of control in argentina. there is no economic policy coming from the administration. there is unrest domestically. it may and up being the biggest casualty of the oil price to klein rather than focusing on russia and the middle east. venezuela baby the biggest casualty. alix: people say you cannot wrap then as well into emerging markets. there is a certain amount of money coming into some third

world economies that they cannot back it up. >> i think emerging markets in general continue to be big beneficiaries of central bank liquidity. and beneficiaries of the search for yield. come to an and anytime soon? i don't think it will happen in the second half of this year but i think 2018 will be a very different year for emerging markets. it will be a different year for central bank liquidity expansion. alix: a pleasure to speak with you today. if you have a bloomberg terminal, check out tv by watching us online. interact with us directly. if you missed anything we talked about throughout the hour, feel free to click and go back and watch. this is bloomberg. ♪

alix: investors are hungry for

bond offering. the yield is 5.3%, a record low coupon compared to other companies that have a junk rating like hurts - hertz. we talked about this last week. 5.3% is the price come are you surprised? apparently elon musk said he wanted to reward the bondholders for getting it done. david: time will tell if it's a reward. why the attractiveness of a company as in a group or opposition is being reflected in the bond market question mark many people don't get it. do you get it? >> i get it.

it's the reach for yield. what seems like a safe investment isn't always say. it's a good yield today but dial it forward a year or two and investors may not be so happy. they pricehy did this low in why do investors keep buying? do you just think of total return? is that why investors have kept going in? the total return has been pretty good. >> they have so much money to put to work. investors are saying i understand this company. name, why brand aren't you buying that? you see record inflows into these funds. you got to put your money somewhere. jonathan: you talked about getting burned at some point.

at some point, the corporate structure of a company like tesla has to matter. it could come out with secured debt down the road. you've got an eight year maturity see you have time. a lot of investors are working with that runway. if you look at the maturity wall, you've got a fair amount nextbt that is coming due year and 2019, 2020. that's what i would be concerned about. alix: how much leverage are we taking on in the system? i feel like everyone has a different opinion. are we super over leveraged? >> i think it's a timing question. the spreads are tight but when you think about it relatively, it seems like a good deal today. with bonds, it always comes down to bond mass so it's a question

of when rates eventually start going up, there will be an adjustment in the market to compensate for credit risk and for rate risk. that clearly is not being priced in today. alix: where then do you invest in corporate credit? >> that's a great question. that has been a challenge this year for a lot of investors. i think there is a fair amount of opportunity selectively if you look beyond the u.s. and even in the developed world. emerging markets hold a lot of good value in the market today. also long-term. fundamentals for certain countries are far better than what we are seeing in the developed world. what are people buying exposure to? >> that's a good point.

for the dedicated investors who have to buy benchmark issues, you are not seeing as much value there. we saw the republic of iraq come in a week before last. that deal was oversubscribed. it's really the corporate issuers who are less well-known in the marketplace and some of the sovereign debt where if you are looking at local currency, you will get much better total return potential. we are looking forward to tesla and their pricing. what will be the next young company or investment-grade company where we will be excited to see the risk? >> amazon will be back in the market next week. another $30ng at billion next week. altice?hat about to go to the equity

market because this is a company trying to buy something with $60 billion debt which is a lot. it's not rated that high. you would have thought this market froze up last week. a special thank you to our guests. coming up later, nick burns joins us with the latest on the north korea tensions with united asset and a market field manager chairman and ceo. from new york, you are watching bloomberg. ♪

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jonathan: the president of the united states is still not announcing the violence in virginia. the japanese gdp climbs 4% and retail sales and investment in a factory output, they missed expectations. from new york city, good morning , this is bloomberg daybreak. to get you setup for the market action this monday, let's go through the boards. positive, up about half of 1% on the s&p 500. euro-dollar is a little bit softer with the dollar showing some strength. treasury yields are coming up by about three basis points. it's really reversal of

what we saw last week with the dollar-yen up 4/10 of 1% and the vix is now greek or -- is now weaker around 13. copper is also getting hit , down3/10 of 1%. how much copper will china use so that's reverberating. for the morning brief. over the next week, we will get u.s. retail sales numbers, nafta talks will start wednesday in missile defense talks in washington will take place and we will get minutes from the fomc meeting last month and on top of that, walmart reporting their second-quarter results. today, president trump will return to washington. he's focusing on trade but the looming crisis over north korea and the fallout from the whites of premises riots in charlottesville will compete for attention. our chief argent and correspondent is with us now. we believe the president will be

signing something with china today, what is it? instructent trump will representatives to investigate areher the chinese implementing practices requiring u.s. businesses to turn over intellectual property when they are doing business and conducting business in china. as a result of that, that investigation could potentially lead to new tariffs. you look at it more broadly, particularly as the united states looks to address the growing threat of north korea's nuclear ambition, you have to remember that the president feels this is a bargaining chip of sorts with the chinese. when you look at the numbers, 40 lastres during obama's

stand were implemented against china. david: north korea has loomed a large. what exactly is the strategy from the president of going --er them on a google actual on intellectual property. what does he want from the chinese question mark >> the president said he would need help with china to get a negotiate a better trade job of the measures a number suggest he has not been as aggressive with trade measures as the obama administration from last two to this year. on the flipside, he is holding back according to sources. he wants to pressure them and say that if you're not going to corporate with me on these economic -- on north korea, i will hit you where it hurts on the economy. eventstalking about the over the weekend from charlottesville, the president cannot with a statement that was not particular he well received especially by his own party. do we expect to hear from him again on this subject question mark >> he was supposed to havoc

press conference later today but there is none on the official white house schedule. he did not denounce white supremacy or the kkk and neo-nazi is an and that's what this is. these horrific images is what this was. vice president mike pence speaking in colombia last ofning, the department justice has opened an investigation at the urging of ted cruz to look at whether this was an act of domestic terrorism. clearly, everyone from the speaker of the house and senator orrin hatch as well as representative david brett have denounced the bigotry for what it is. the spotlight on the white house is on the nationalistic core. at the forefront is mr. bannon. what does the future hold from him? >> i have spoken with several

senior aides throughout the weekend. all of them tell me that this was a missed opportunity and a missed moment on behalf of president trump who campaigned on the notion that he would you devised -- that he would unify the country. there is always rumblings but i that nationalism is an ideology that embraces this phrase domestic terrorism movement. i would caution against that. david: thanks for a much. north korea has been working on nuclear weapons at least since the it clinton administration but things have come to a head in recent days. give an assessment of the real level of risk. burns joined by nicolas from harvard business school. he served as u.s. ambassador to greece and nato and became undersecretary of state.

under president george w. bush. welcome back to the program. give us the assessment. what's the level of risk right now with north korea? we here's fairly belligerent things out of the president and we also hear general mcmaster and mike pompeo dialing it back. where are we? the trump administration's right to assert that north korea is posing an existential threat to the united states. they are developing an intercontinental ballistic missile with a nuclear warhead that within a year or two or three could target the western part of the united states and western canada. i think most people agree that's an unacceptable threat. president trump's reaction last week was erratic and i think dangerous. that he would think about the use of nuclear weapons , initiating a nuclear strike against north korea but his advisers are trying to pull him back. one of the robbins is there is not any consistency among

president trump, secretary of defense mattis, sex -- secretary of state rex tillerson and national security advisor. at a critical state in this crisis. war is not imminent. i think the president is roundly criticized for having become too emotional last week in what he said and to blunt in what he said. the fact is, no american official has even met kim jong-un. so it's time for diplomacy in eime to see if the chines government can help the u.s. to blunt this threat from north korea. david: you have been the center of highly charged international negotiations. explain to us that negotiation's and is it possible that president trump who claims to be a good negotiator from business experience is playing a bad cop

to let his advisers be the good cop? is that a plausible way to negotiate? i think it's clear that's what president trump is trying to do. he believes the best way to negotiate is to insult someone and speak in strong language at the beginning in the hopes that the person come towards you with a compromise. in theblem is that nuclear age, no american president since dwight d. eisenhower has ever directly threatened the use of nuclear weapons. too blunt, it's unsettled, all of our allies in asia including south korea and japan. frankly, you want to or tray a consistent message to the north korean government. you actually do not want to corner them and you don't want to make them think that maybe they should strike first given the danger of the use of nuclear weapons. -- thatthat's what what's likely ahead as

negotiations of some kind, perhaps facilitated by the chinese. we should go there. future, if north korea used nuclear weapons or conventional weapons to attack south korea or japan, the united states of course would defend those countries, of course we would respond but that's not the current situation. i think negotiations are probably most likely ahead, maybe months from now, because the en administration wants to see north korea cease and desist from missile testing before the those negotiations can begin. alix: what's clear is that president trump saying that china, if you don't help us with north korea, we will crack the whip with you on trade. experience, how does that play out? can i play this trade versus north korea war with china? chinese are sophisticated. it's a very professional government. it's clear what president trump is trying to do. he saying that if china can help

us on north korea to freeze andr nuclear weapons ballistic missile tests, the president will back off on trade. he is asking his u.s. trade representative today to begin an investigation into chinese theft of american intellectual property. it's a slow process. this is not the most dramatic action the president could take. it's a signal to the chinese that if you don't cooperate on north korea, i can strike out at you with trade sanctions. david: however we get there, it seems important we be aligned with china. former secretary of state henry kissinger had a very interesting op-ed over the weekend in which he said we have to be as one with china. essentiale prerequisite for the denuclearization of north korea.

do you agree with henry kissinger that we have to come up with a joint approach where we agree on the policy and can try to get north korea to cooperate and does it include the u.s. backing off on military presence in the area? >> that's a brilliant op-ed. the united states and china have to work on this together and the chinese are frustrated by kim jong-un. they don't want to see a nuclear crisis in the korean peninsula. south korea and japan have to be as much a part of that as anyone else. i think you're looking at more of a quartet. i think it would not be a good decision by the united states to a freeze proposal which the chinese and russians are outwardly offering. in essence, kim jong-un it would stand down in return for

which the united states would free our military activity in the area. we have been there since 1953 so we have to train with the south koreans. south korea's not the problem, it's north korea. with that aside, i think the secretary kissinger is right that china is a big part of the solution and president trump is recognize that from the beginning. summitember the maralago in february. if china and the united states can get the north koreans into a freeze of the nuclear program and get them to negotiate us, that's better than where we are now. jonathan: you mentioned the history going back to the 1950's. aes the u.s. government have clear understanding of the history and how we got here and what the north koreans actually want? >> i think very much so. president clinton and president george w. bush both made

agreements with the north koreans. the north koreans cheated on both. i think we also understand that we have to be very clear with the north koreans that any nuclear threat against the united states and canada is unacceptable as it is against our allies. the problem here is kim jong-un, not donald trump. you can criticize what he said last week and i do criticize it but i think we need to see international solidarity to isolate and sanction this north korean regime and force them back to negotiations. david: thank you so much for being with us today. have a great lineup of guests this week. live from new york, this is bloomberg. ♪

jonathan: the risk off mood from last week appears to be easing. the prospect of war between the united states and north korea begs for a look at equities. it's a calm her weekend. how do you apply any risk premium to a market around an issue like this? >> you have to decide if it really matters. what's going on in the economy is ultimately driving markets. it is what it is. clear, what be would matter is a nuclear war.

>> it's the words that don't matter. i can understand people getting nervous and i understand waking up in the morning and seeing headlines talking about guam. you spend a lot of time worrying about it. i think markets were ready to go down a bit and that's what we saw last week. sox: the valuations were high last week that there was no margin for error. do you agree with what we saw? a i think people have at pretty good year so far and had an inclination to take some chips off the table. alix: the formula is you still want to buy thedip? >> some things just went down. think things that surround north korea has great fundamentals right now.

those are interesting markets and have done better than people expected. don't have to buy at the second goes down but this is an opportunity to build a position. david: how do you take into account the fact that it is august. cannot take the same cues from the market as in september? could be incredibly dull like last year or could be volatile like two years ago. i think you have to allow for the fact that the markets that we have right now, the default is externally boring. but they get very volatile in short periods of time and i think that will be the case for the rest of this cycle.

if the world's ok, you want to be in equities. it's not that i think high yield is dangerous but it's not well compensated at this point. listing: it's an and point that you like the equity story and perhaps not the high-yield story. >> i don't think you will see a significant underperforms and credit. the compensation available in high yield is no longer interesting. alix: good stuff, he will stick with us. mike mullen, retired u.s. navy admiral and former joint chiefs of staff on the tension between the u.s. and north korea. no one else you want to talk about on this issue. this is bloomberg. ♪

emma: this is your bloomberg

business flash. the maker of angry birds is planning an ipo they could value the company at $2 billion. rovio entertainment of finland could go public as early as next month with revenue growth of 34% last year. showsna, the economy signs of slowing down. industrial output rose less than expected at 6.4% in july from your ago. the chinese retail sales and investment also missed estimates. a surprise in japan, gross domestic product rose. faster thanexpected in the second quarter it increased at 4%. that's the best among g7 nations and the eu new so-called rule is one of the ways investment banks and brokers market their services to potential clients. the rules require that firms charge for research and that may include the notes from analysts and strategists. that's your bloomberg business flash. alix: it's interesting in terms

of how much they will charge. jpmorgan said $10,000 would be the lowest for equity research. this will be interesting over the next six months. jonathan: it establishes whether you want access to the research or you want access to management. if you are a researcher, are you worried about your job? jonathan: i think that started a while ago. alix: this actually came up from morgan stanley. yhey are topping equit trading. if they only have a certain number of dollars well if you to research and they want to pay the top five guys, presumably we are in the five because we're number one. it's like another boon for morgan stanley. david: very pragmatic. michael, how are you

guys thinking about this at the moment? >> we are not great consumers of wall street research. do a lot of work on the bottom research. it's not that useful to us. the way we look at the top down is typically a little different. but not that important research has gone through this process of beingre-regulated the last 20 years and unfortunately, it has gotten worse. we had to navigate through the 2004 reforms and other reforms that made it harder to get paid and i think you will have a sell side which will be underpaid for the services provided and they will respond by cutting back on the services. a simple start is the

companies will not make recommendations. is it that simple? it's one of the things that we did as a firm like 10 years ago. you cut down on specific recommendations because then it's not research. are they going to make this a companywide thing? think it depends on whether they view it as an opportunity. europe andeep it in some view it as an opportunity and maybe they will push it out on a global basis. david: what about corporations? what about investor relations people? off, they felt cut could mediate. there is no read for investment firm to work with just a dealer. a can build a network of relations with sell side. we are about to find

out how much capacity there is on the sell side? >> i think you will see a retrenchment. we are always told that we need regulations but the big just get bigger. jonathan: good to see you and thanks for coming on. coming up, united states navy a part of the joint chiefs of staff. from bloomberg. you are watching bloomberg tv. ♪

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change the way you wifi. xfinity. the future of awesome. ♪ jonathan: from new york city, this is "bloomberg daybreak." ain't jonathan ferro -- i am jonathan ferro. futures are positive. 100 points on the dow.

biggest weekly lawsuits march of this year came through last week. the story in europe decent as well. the dax up by one percentage point. stronger dollar retracing the move last week. pointsmuch every day the you need come out of the u.k. this week. retail sales, a lot we will see over the next couple of days. about 12 basis points off the in for 2017 we hit engine -- june. let's get some headlines outside the business world. general that's top south korea. the chairman of the joint chiefs easingf reassured moon diplomatic tensions with north korea is the priority.

president trump is being criticized for failing to denounce white nationalists after the deadly rally in virginia. that led the white house to release a statement saying the president condemns all forms of violence, hatred, and that includes white supremacists and neo-nazis. one person died at the rally when a car ran into a crowd of counter protesters. the trump administration will go ahead with plans to invest in china in a growing trade dispute. the u.s. has accused china of violating rules of intellectual property and the china forces u.s. companies to translate technological know-how. i am emma chandra. this is "bloomberg daybreak." . the danger inng the current crisis with north korea, few people are better qualified than admiral mike mullen. he served as the chairman joint chiefs of staff under president obama and before that served as

chief of naval operations. he joins us from our washington bureau. welcome back. over the weekend, you were on nbc news and said the level of frederick from both sides -- rhetoric from both sides may be reducing options available. what options are being taken off the table because of rhetoric? that the rhetoric is so far out there that if there is no response to the current level of rhetoric, let's use the phrase "locked and loaded," the president does not have a lot more room to maneuver because he is in that example talking about military options. there is not a lot of room between locked and loaded and having to use them. i worry on both sides there has been so much bombastic rhetoric that it takes maneuver space for our leadership and the leaders

in the other countries as well away from them in terms of trying to resolve this crisis peacefully. how do you assess the level of risk? how close are we to real conflict? pompeo anddirector general mattis over the weekend said, made reassuring statements that we are not -- that war or conflict is not imminent. i think that is positive. that haveevelopments occurred so rapidly in north korea in terms of developing the missile systems as well as the jong-untechnology, kim is moving at a rapid pace, much quicker than many of us anticipated. he has been met by president trump with a very straightforward, direct message

on we are not going to let you have nuclear weapons. in that regard, i think the risk is significantly higher than it has been historically. kim jong-un is hard to predict. i don't think he is a rational actor. there are a lot of people who say he would never use nuclear weapons because that would be suicidal. i think it would be suicidal, but i am also not one that yet believes that is not a possibility. i think the overall risk is exceptionally high. david: general mcmaster spoke out over the weekend. we are going to play that now. >> we are not closer to war than we were a week ago but we are closer than we were a decade ago. this has been a problem we have procrastinated on for a long time. now it is coming to a head where the threat from north korea to the world is very clear. it demands a concerted effort by

the united states with our allies and all responsible nations. david: as general mcmaster says, this problem has been building over an extended time. not unique to donald trump's administration or even the last two administrations. is there any reason to believe we could go forward if a medically and resolve this problem without having a nuclear north korea -- diplomatically and resolve this problem without having a nuclear north korea? >> i think the answer is yes. what would be an indicator to me that it would be possible would be movement from china. as long as we have tried to resolve the situation in north korea, china has stood back. i don't think china can stand back anymore. the only way this gets resolved is through beijing. that does not mean we are out of it. i think we need to be there to support them. i think we need to review it from china's perspective. what are their interests? and try to give them some

guarantee that we are not going that this is not about reunification or regime change. it is singularly about getting rid of the nuclear capability in the north. and support china in leading the effort. i think that is the path. i think president trump has started to move the president in china. whether that will continue, i don't know. that to me is the most important and most reliable path to a peaceful solution. referredneral mcmaster to the op-ed piece by henry kissinger over the weekend. here is a quote from it. an understanding between washington and beijing is the singular prerequisite. china at this point may have an even greater interest in forestalling the nuclearization of asia. does china have that compelling

interest right now? >> i think they do. my interaction with china in the last three or four years, the nuclear issue has clearly moved up in terms of their concerns as a priority. historically, it has been instability at the top and nuclearization below that. i think now the nuclear issue is on par with the instability. they have the interest. i agree very much the u.s. and china should figure out a way to figure out the end state and both approach it together to try to deliver that. alix: you mentioned the risks are exceptionally high. the mentioned north korea being willing to use nuclear weapons. i have to think there is a big gap between the rhetoric and actually going to nuclear war. short-term, what is the biggest risk someone in the market is going to have to start paying attention to? >> i have said for years i think this peninsula more than almost

anywhere else in the world has the potential for violence, conflict breaking out more rapidly and more intensely than just about anywhere else. i still think that is there. i worry that has intensified now because of what happened recently. i think what general mcmaster said is right. we have been at this a long time. a head.ming to it is really important that leaders around the world stepped up to make sure this is resolved peacefully in that conflict does not break out. alix: is there a potential risk in the short-term in terms of where we windict up having military exercises in south korea, north korea may want to test missiles near guam, what we need to look out for on that front? >> there will probably be a lot of rhetoric coming from the north when those exercises start.

they have been going on a long time, so i don't think that would be something that would be a break point. jong-un starts firing missiles in the direction of guam, and the president has been clear on that, i worry that could be a break point. i don't know that it would be, but that is a significant step and direct threat on united states territory but i think ups the ante significantly. i differentiate those activities significantly in terms of risk. david: which brings us back to the question about what options are off the table, if north korea were to fire missiles withd the area of guam, the president have any choice but to take military action given what he said? >> that goes back to your first question. i don't know given what he said that he has a lot of maneuver

room to take other options. i would like to see the 15-0ions just put in place by the u.n. going to affect. i would like to see china enforce the sanctions because those have not worked well because china has not been vigorous in enforcing them. those are possibilities. i think the maneuver space to do other things is very limited right now. david: if you had your old job back, chairman of the joint chiefs of staff and you were advising the president, what would be the number one thing you would urge him to do or not do? now, i never shared publicly the advice i gave to a president. i would just as soon stick with that line.

i think the most important path right now is through beijing. clearly, it appears to me, the president is moving in that direction. i would use that as an indicator for how well this initiative and crisis, whether it is going to be resolved or not. david: many thanks to mike mullen. theyg up later this week, will all be right here with us. live from new york, this is bloomberg. ♪

emma: this is -- "bloomberg daybreak."

the analyst with a preview of this week's earnings from walmart and target. ♪ emma: now's your bloomberg business flash. snag.in japan have hit a the problem is over the timing of payments for the business and governance issues. the group has offered $19 billion. the second-largest online mall in china posted a wider second-quarter loss. they spent more on marketing for the midyear shopping promotion. revenue rose 40% helped by the partnership with walmart. the oil trader who was once iswn as god said opec showing a sign of weakness and not strength. he made the comments in a letter to investors saying he is closing the flagship fund and

that the fundamentals for the next year have deteriorated. alix: that is fascinating. there is a school of thought that says it is because they do not have a physical trading business. he had both and was just trading the paper commodity. if you are missing the physical stuff, you do not have the insight you should and that is why it did not work out. david: he is a legend. alix: he was literally called god in the commodity world. david: that is a little dangerous. alix: that was like the ultimate sign of capitulation. this week, we have u.s. retail sales, missile defense talks in washington, and minutes from the fomc meeting last month. walmart reporting second-quarter results. still with us is michael shaoul. i want to start with the fomc minutes. what are we going to hear about

how they are looking at inflation? >> i think the majority of the fomc thinks inflation is ok. it is not where they want it to be but it is not the deflationary problems we had a couple of years back. i think there is a fairly hard consensusbuilding around september being when they start to trim the balance sheet with another rate hike. i think that is what is going to happen. alix: we still have the market assuming we will see one rate hike in december. is the weaker inflation worth that kind of pessimism? >> no. you see service sector inflation is stuck in the mid-2's. food inflation is weak. negative.me has been you had your first positive in two years, the longest time since the 1950's that food has been negative. it is interesting but not that

important as far as the overall economy is concerned. i think the fomc probably wishes it had not targeted inflation so vigorously. it is a metric they wish was higher in an economy doing ok. it is not the worst combination in the world. jonathan: why do economists remain so bullish inflation still? >> i think it is overdue. the stock is transitory. there is a long history of things like food being weak and then stronger. i think there is a since the labor market is better than it was a couple of years ago. there is not a straightforward relationship between employment and inflation. i have been as guilty as other people. i thought we would be above two by now. i think we will be above two sooner or later. it does not bother me much. david: what prevents them from

redefining the problem? in theot any statutes -- statutes. why don't they say we will look at employment levels? >> nothing prevents them from doing it. david: how would the markets react? >> i think it would be confused. i think that is the best reason they are not doing it. they are telling you they are not worried about it and are encouraged by the way things are going in the u.s. and what is happening outside. another point nobody makes his we have had 100 basis points of rate hikes with no visible deterioration of the u.s. economy. i think that emboldens them to take the next couple of steps. we have a column on bloomberg. the biggest asset for the fed is the lack of credibility. offe is not a lot of risk fear in the markets. it is a good thing and enables them to hike more. >> there is also less reason not to.

they don't want to be the cause of the downturn in the u.s. economy. i think they understand 100 basis points is low and they would like to be higher. the fact they got away with four nothing terrible has happened i think encourages them to continue to take the next couple of steps. jonathan: when they say they are data dependent, how hollow is that statement? >> how can you be dependent on something which is not dependable? i think they have taken a couple of steps away from that and i think that is a good thing. eight -- doople people eat dinner not in front of the tv? my bad. [laughter] alix: you can check out tv and watch us online and look at our charts and graphics and interact with us. just go to tv . this is bloomberg. ♪

♪ jonathan: we have a diversion asia. japan is running hot and china not so much. sales and factory output all missed expectations. what is the future for the asian economy? still with us is michael shaoul. what do you make of the divergence of japan versus china? >> japan had good june data and mediocre july data. i far as japan is concerned, think that is the economy no one has paid rate attention to this year and yet it's data has been consistently strong. the rest of the economic data looks ok. the japanese credit data is the stuff we follow. gdp is nice when it is strong but does not matter much. japan is the one country on the

planet you can argue does have enough work for credit -- corporate credit and has had a problem with deleveraging. finally, you're seeing credit growth between 3% and 4%. that is a big deal for japan. jonathan: how misplaced is the obsession with the inflation story in japan? case, one can understand why they are assessed about it -- obsessed about it. there are times deflation is a real problem when credit markets are doing badly and things are falling apart. there are times like right now when globally inflation is at a very unusually low level. japan's employment looks great. the participation rate is moving in the right direction. they have many issues after 20 years of doing the wrong thing, but i think they have made tremendous progress the last couple of years. david: one place that does not have a problem with too little credit is the united states.

you have concerns about commercial real estate. >> the retail component has had a lot of publicity. there are signs of what i would call chronic oversupply in the new york office market, the west coast market. the new york family market looks chronically oversupplied. if there is a sector that starts go down, that is the one you want to watch. someone earlier said if the rally in november was because of growth and not trump, if you have chinese off, does the growth and inflation and fundamental story fall out of bed? >> if china really deteriorated, that would concern me. i don't care if july is weaker than june. june was fantastic and july was mediocre. i look at 12-month moving

averages. that is ok. china is in a better position now than people thought it would be in november. alix: when you look at the u.s., what areas have potential for growth? some revisions downward have not been great. >> i think most of the economically sensitive sectors look ok. this has been a fairly benign earnings season. industrial sector looks fine. homebuilding looks great. technology is not cheap but they are delivering what people want to see. i think the fundamentals are good enough to keep the bull market going. jonathan: what do you make of people that look at the situation and try to turn it into something you think it is not? you see boring, stable. other people see a crisis brewing. >> if you are worried about where the s&p is going to be at the end of the day or week, there are a lot of things that matter. if you are looking at this as a , the kind of stuff

that gets people excited and drives the data news cycle does not matter that much to you. alix: we want to get your theghts on this question on credit growth downward trend. >> it is true. i think it is driven by specific issues. the automobile market rent very hot and now it is less hot. i am not an expert in u.s. education, but i think student debt is part of that. jonathan: michael shaoul, thank you. from new york, you are watching bloomberg. ♪

u.s. officials say a war with korea is not looming.

they haven bid begins to drain from the market. a weekend of ugly rallies in virginia dominates d.c. the president has yet to denounce white supremacists. japan is running hot, china not so much. chinese retail sales, investment, and tech output mixed expectations. from new york city, good morning. this is "bloomberg daybreak." i am jonathan ferro alongside david and alix steel. counting down to the opening bell. futures positive up my .5%. softer./dollar a stronger dollar story in the fx market today. bid drain the haven from the market, u.s. treasuries up three basis points. let's get you set up with stock movers. here is alix steel. alix: it is the corporate bond

story we love talking about. that is tesla. they are raising 1.8 lean dollars after there was so much -- $1.8 billion after there was so much interest. the stock up by 2%. morgan stanley raising its price target today. fascinating you have all these analysts upgrading price targets, so much demand in corporate bond market, and yet we are talking about high-yield spreads and a concern about a bubble in the market. risk on in terms of tesla. fiat chrysler up by almost 6%. it is said to have received and rejected a bid from a chinese automaker. the idea was the bid was a smaller premium to the current price. they were approached and did not like the number. nvidia got hit last week on earnings that disappointed.

today, they are getting upgrades from analysts. one sense it is a buying opportunity. the pullback is what investors have waited for. it says datacenter sales will resume growth. that is what will lead the next wave of growth for the company. analysts sticking with the stock. jonathan: waiting for someone to say the pullback is not a buying opportunity. david: that is the real question. is there something more fundamental we should be concerned about? jonathan: in the markets, the risk off mood lasted about a week. it appears to be easing of the prospect of war abates. we spoke earlier about the risks imposed by north korea. >> you can see his advisors trying to pull him back. they are accentuating the need for diplomacy. we are not at a critical state in the crisis. war is not imminent. i think the president is roundly

criticized for having become too emotional last week in what he said and too blunt in what he said. >> if kim jong-un starts firing missiles in the direction of guam, and our president has been clear on that, i worry that could be a break point. i don't know that it would be, but that is a significant step and direct threat on united states territory that i think ups the ante significantly. >> president trump's reaction was erratic and i think dangerous. he implied he would think about the use of nuclear weapons and initiating a nuclear strike against north korea. his advisors are trying to pull him back. >> if both sides are running more frequent activities closer to each other, you could have something that could pop up into an accident and that could trigger a confrontation. i think that is the immediate issue of risk in physical terms.

is then: joining us now senior portfolio manager. what a week for rhetoric heightened between north korea and the united states. what does risk mean to you as far as north korea is concerned? >> if you look at the environment we have been in as of late, extremely low volatility. pullbacksly get 5% from a peak in equity markets every two to three months if you look at the long history. we have now gone about a year without one. although i do think the underpinnings for the equity bull market are still in place, i think we are vulnerable to a pullback. if the war of words does heat up again, geopolitical concerns could be the spark for a pullback. jonathan: is that a reason to sell or excuse to sell? >> i do not think it is a reason

to sell. the way we are positioned, we began the year bullish. we have been pulling back on equities and other risky assets as things have run up. we are cautiously positioned now. i think if we get a 5% to 7% pullback, that would be a reason for us to be adding. contrarian in that you mentioned a lot of people are looking for the buy on the dip. jonathan: that has worked for the last eight years. >> especially when it comes to geopolitical events, it has not paid to get overly bearish in terms of geopolitical risk. when you think about something like north korea, it is an issue that is difficult for markets to deal with in general because it is one of those very high impact but low probability events. it is also binary in nature. i think the markets will tend to

ignore it unless the threat appears imminent. david: we have some news that broke a few minutes ago. ken frazier has quit donald trump's council amid the backlash over virginia. the president quickly decided to respond. he said now that ken frazier has resigned from the manual effect -- manufacturing council, he will have more time to lower ripoff drug prices. the president came out with what was perceived as too little, too late on his condemnation. you would think he would come out and say i am against white supremacy and yet he has not done that. jonathan: the question is whether big business needs the business working for them -- big

business working for them and not against them. is that one to matter in a fundamental way? >> the president has not done a great job in terms of building bridges with the business community or congress. i think a big issue is we started the year with this administration on the expectation we were going to see progrowth policies in terms of tax reform. theou look at the way health care issue was handled, it dims prospects we will get anything comprehensive in terms of tax reform. i would point out it is a lot easier to cut taxes than it is to take away an entitlement program. even if we do not get copies of tax reform, we could get tax cuts that would be beneficial to the business community. it will be difficult for republicans to go into 2018 with a goose egg in terms of legislative victories facing election. you stilltill say --

say buy the dip. thinking isid the what we have seen the last eight years will continue. the idea is stocks will continue to rally. he is saying thinking the way we thought forever is going to hurt you. what do you think about that? >> when i think about the underpinnings for the equity bull market we have experienced of the past eight years, the long noninflationary business cycle expansion, i see little evidence the end of the business cycle is near. strong growth in corporate profits, we are having another fine earnings season. we are likely to see earnings growth about 12% year on year. even for the calendar year, we will be looking at something like 10% earnings growth. that is something we have underestimated going into the

year. we were expecting 6% to 8% and it looks like we will beat that. the long monetary accommodation looks like it will not end. the fed has been hiking rakes, but we have seen a lot of weak inflation prints which indicates it can continue with the glow -- go slow approach. think if those three underpinnings are still in place, a lot of the good news is priced into equity markets with equities 18 times forward earnings. that is a risk valuation. i think if we take some froth out, it is time to buy again. alix: fine earnings season. "you look fine." that means it is not great. fine is an understatement. david: may be better than fine.

are you concerned about the when youin the economy do not have workers making more money to spend? could that start to interfere with corporate earnings? >> i am not super concerned about the consumer. the labor market continues to be strong. we have had the unemployment rate down below the fed's estimate. acceleratefailed to and that felt like a waiting for godot thing. if you look at other indicators that tend to be lead indicators of wages, and i think if we continue to grow and add jobs, that will eventually come so i am not that concerned about the consumer. jonathan: ed campbell will be sticking with us as we count you down to the opening bell in new york. u.s. retail sales and fed minutes.

from new york city, you are watching bloomberg. ♪

after a times like this week we had last week, i love looking at technicals looking at the eager picture -- bigger picture. august tends to be a rough month for equities through october. joining us is the chief equity strategist. we have a chart that brings up seasonal performance. august through october tends to be the worst. what can we expect?

>> august is interesting. it is the one month of the year where you intersect a bullish season and bearish season. it is the one-month of the year sell stringave a pattern. it is the only month marginally negative going back to 1928. not sell and go away. i usually tell them to stick around until july or august. david: that is seasonal. what does not look seasonal is the divergence. that does not seem to be cyclical. that seems to be a real virgin's -- divergence. >> we had the same set up last sid year. it had a bearish diversions in 2015. it is meaningful.

it is not just on the s&p 500. gettingrish divergence on the rsi does suggest the market should follow this bearish seasonal period meaning we should sell strength. there is some resistance around 2500, 2530 if we can even get there. we ran some data on second half performance when the first half is above average, you can dip to 2200. i do believe we are in a secular bull market that started in april 2013. i think that is still early stages. i think we could see maybe 2600 into yearend. i do think bouy on the dip. jonathan: the other thing you are looking at is what is

happening with u.s. debt. walk us through this. >> i love this chart. it tells the story perfectly. in 2015, you had a credit interruption that led to the market pullback that was significant. they did not bring the s&p down 20% or more. but for the market, it was a huge drop for a lot of stocks. right now, we have a divergence. that means the s&p broke out above 2400. the spread did not confirm the breakout. in 2016, both the high-yield spreads came in and the s&p bottomed. since then, they have been in lockstep. this is the first time any year and a half they have not been moving lockstep. the last time we saw that was 2015. now we are set up similarly with a double bottom. if that clears-

on the high-yield index, it could be another double bottom and lead to the interruption of the bull market we think equities are in. alix: the bull market a short-term pullback that could be significant. are there certain sectors more vulnerable than others? >> sure. seasonality does apply to sectors. we ran the data going back to 1989. most sectors have poor seasonals with the exception of some defensive groups. when you think about the trend on gold, it sometimes perks up this time of year. technology could be venerable -- vulnerable. it could pullback 12% and still be in a solid upturn. i think technology is well-positioned. sick nichols generally -- cyclicals generally look

well-positioned. the improvement we have seen in those names is meaningful. financials look quite strong. when i look at the pattern for , stocks that have done nothing for a long time and then start to strengthen. of financials reminds me of technology the way it came off the market lows in 2009 and started to lead. i think financials are similarly positioned to tech. alix: good call. good stuff. great to have you here. stay with us -- still with us is ed campbell. i was interested in the chart. tesla is a perfect example. they had tons of demand for their bonds but then you have a lot of upgrades of the stock as well even go there is so much risk associated with the company. >> a lot of what i'm hearing

from stephen is similar to the way we are thinking in terms of the concern about august related to the technicals and the issue that high yields often lead stocks. during the financial crisis, that was the signal and has been at other times as well. overall, a similar opinion. short-term cautious because of some of these issues in low volatility and the lack of a 5% pullback. it is buy on the dips. the equity bull market is still in place. jonathan: amazon is going to do the same, a very different company. supply is an issue. declining credit standards as well. those are concerns but for another day. jonathan: where is the

inflection point? we have had institution after institution in the last week say it is time to be cautious. >> the credit cycle leads the economic cycle. our view is we are pretty much in the clear in terms of being concerned about an economic recession until 2019 or so. some next year i guess you start worrying about credit. jonathan: ed campbell will be sticking with us. the market open about 10 minutes away. up.res are buy the dip story according to mr. ed campbell. that continues. from new york, you are watching bloomberg tv. ♪

david: this is bloomberg. i am david westin. kevin frazier is resigning from president trump's counsel manufacturing leaders. joining us is kevin cirilli. bring us up-to-date. >> good morning, david. earlier this morning, kenneth frazier announcing he is resigning from the president's manufacturing council. in a statement, mr. fraser said i am resigning from the president's council. our country's strength stems from the diversity made by men and women of different belief america's leaders must honor our fundamental values by rejecting expressions of hatred which run counter to the american ideal all people are created equal.

he grew up in north philadelphia. he is the son of a janitor and went on to attend penn state university. president trump himself responding to this resignation in a tweet. he said -- the president has yet to tweet denouncing white supremacy and the nazism -- neo-naziism. penceresident mike denounced the acts over the weekend in a speech last night. mre president's daughter tweeted a similar sentiment over the weekend. still no tweet from president trump. the presidenttold will be meeting with jeff

sessions and the new f.b.i. director earlier -- later today. they said the president will be issuing a new statement. what do we know about that? >> there has been no statement as of this time. the white house said the president added a new meeting to his schedule at 11:30 eastern. he will be meeting with attorney general jeff sessions as well as the f.b.i. director to discuss charlottesville. we should note the department of justice has opened an investigation into what happened over the weekend is domestic terrorism. david: what happened to the support from the business community for president trump? they seem to be leaving his council. where is the relationship now between the president and the business community? >> there was great optimism when president trump took office that his agenda on a host of issues

would be able to spur economic growth. the administration is still optimistic about the 3% growth rate with president trump in office. those expectations from the business community have been more muted. david: thanks so much. jonathan: the opening bell four minutes away. the week dominated by talk of nuclear war and geopolitical risk. the market dropped about one percent -- 1.5% on the week. the opening could be the comeback. the s&p 500 futures positive .6% . the opening bell next. you are watching bloomberg tv. ♪

got you outnumbered. the dinosaurs' extinction... don't listen to them. not appropriate. now i'm mashing these potatoes with my stick of butter... why don't you sit over here.

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appetite ahead of the open. here is the score in the treasury market. the geopolitical tensions begin to rise. they recede this morning. strength starts to filter through against the euro and sterling. let's kick off the trading week this monday morning. here is alix steel. alix: we are seeing action from the rally in europe. the nasdaq up 49 points. the s&p and dow just had their worst week since march, but we are seeing a little relief. earlier, he said this will be an important day for the market. if we fade this rally into the close, what does that mean about

how wildly the risk sentiment has turned out to be? there are a lot of movers to watch that have the potential to move markets. home depot is one of them. it makes up about 5% of the dow. plus this year% and represent about 2.5% of the dow as well. about 74% of s&p earnings have seen growth. about 80% have seen sales growth. what aboutn now, this? this shows analyst revisions for sales growth in the next 12 months. att analysts are looking revenue growth in different sectors. the blue line is utilities. the purple line is real estate. the yellow line is consumer

discretionary. this is for the overall s&p which has been pretty steady. discretionary has fallen off a cliff in terms of revisions down 1.5%. it raises a lot of questions about the health of the consumer as we head into the back half of the year. still with us is ed campbell. let's begin with the top line and bottom-line divergence. what is your thinking? >> i go back to the index level. it has been pretty firm. i think that explains why even with the geo plutko saber rattling -- geopolitical saber rattling, the market did not link ha -- blink hard. the estimate has stayed firm at about $31 per share.

that is a benign level. that was not the case in the past couple of years. the estimate came down remarkably and flattened out. there is a little confidence in this earnings rebound. not every sector but the earnings rebound is for real. jonathan: companies have been phenomenal at reducing the bottom line. does that start to matter in a bigger way for the earnings of these companies? >> the one that pops out is consumer discretionary, the retail sector. i think at this point, you cannot confuse the health of the retail sector with the health of the actual consumer. you look at amazon.com and the internet, it has reached critical mass where it is a giant bargain-hunting machine. i look at the retail sector and the s&p to earnings just reported. sales up 15%. etf down.

clearly, there is a lot of bargain shopping. clearly having an effect on the whole sector. alix: if you look at the upgrades, energy, materials, tech. comps weret bad something underlying? >> certainly in energy and materials. one thing i have been noticing this earnings season is the s&p is strong right now. beats are better than they have been traditionally. small-cap stocks are similar. there are several sectors showing negative year on year growth. the multinational tech stocks are firing on all cylinders right now. sox: definitely, which is interesting because we are talking about nuclear war. in terms of earnings, if you beat, you get a little upside.

if you miss, you get a lot of downside. what does that tell you about the state of the market? >> i don't know if i can tell so much the state of the market. alix: there is so much good heist in that you are not being rewarded like in the past. >> there are expectations built in. i go back to the general earnings environment. we started off the your thinking we would get 6% to 8% in terms of s&p growth. it is looking like it will be 10% to call percent now. ofhink in that type environment where earnings outperform and the business cycle looks healthy, that is a tailwind for the market in general. david: if you look past the second half, are we setting up a situation for future earnings growth or pulling the earnings backup into 2017? capital investment typically

gives rise to productivity to give earnings in 2018 and 2019. >> we have not seen much in terms of capital investment. that kept things margins high is we have not seen a big increase in wages. 12% in terms of earnings growth this year. i think we will have a hard time replicating that next year. have high single digits, i think that is enough to continue the rally. story goeshe wage into something you said a few minutes ago. surely across all sectors, if there was some consumer price tolerance, these guys could put pressure is up. there is -- could put prices up. there is not. what does it mean when companies are looking at their markets and saying we cannot put prices up

because the tolerance is not there to take it? >> i'm not sure it is so much true of tolerance as it is consumers have gotten really smart about their buying habits. they will not pay too much for something. they can easily find the cheapest price. for the consumer sector, strategies are shifting quickly. you look at how disney is ending its relationship with netflix and deciding to do its own thing. -- therehe big brands is interesting research out today talking about how a lot of brands are pulling back. whether it be ralph lauren, pulling back from retail chains and department stores. i think there is a big strategy shift that will be a story going forward as far as how those individual brands handle its digital strategy. whether it is disney leaving netflix and that sort of thing. that is the story going forward for the consumer space. it will be a much different

industry. that goes to the capex story. if you are online, you don't have to build stores. i think that is part of the story. alix: that is the structural story. with the cyclical story in the markets, i find it is hard to give visibility. these are the c.e.o.'s issuing guidance. it has picked up a little bit. it was the lowest since 2000. how does a c.e.o. provide visibility to investors when there is no visibility? >> that is a great question. i think that explains why you are seeing less guidance. there are so many questions on repatriation, taxes. now every drug company c.e.o. has got to be wondering what the latest tweet means about ripoff drug prices. clear skies ahead. [laughter]

david: they thought they had visibility. the problem is it was wrong or premature. they thought they would get 3% growth with tax reform and all sorts of things, infrastructure spending. for a developed economy like the united states is something we could sustain for about 12 months or so. true trend growth for the u.s. economy is probably closer to 2% when you look at our mature demographics and what we can expect out of productivity growth. i think the idea we can grow at 3% to 4% for a long time is too much to ask for, for an economy like the united states. alix: bloomberg did a monthly poll of economists. they said they do expect tax cuts to be passed by november of 2018 and only expect that to add .2% to gdp.

that is going to fall in 2019. does that mesh with your best case? >> if you look at the post-crisis environment, united states growth is stable at 2%. the hope is we would get program policies that would fuel above trend growth. my expectations and the market expectations have been scaled back significantly. like i said before, i don't think we get comprehensive tax reform because i think that will be too difficult to deliver. we have seen massive divisions in the g.o.p. caucus. they have narrow majorities, especially in the senate. i think what we ultimately get is some tax cuts without tax reform and they have a modest impact on gdp growth. if they come at the right time, i think that will be beneficial. david: many thanks to mike regan.

ed campbell, thank you as well for being with us. we heard this morning from corporate america with ken frazier resigning from one of the president's councils. now this tweet. speaking out on the tragic events in charlottesville over the weekend. jonathan: about 11 minutes into the session. after the biggest weekly drop, the follow with one of the biggest daily pops since june. positive 131 on the dow. from new york, you are watching bloomberg. ♪

emma: this is "bloomberg daybreak." the former u.s. ambassador to china and former senator from montana at 1:30 p.m. ♪ retail the spotlight over the next two weeks. jcpenney getting hammered along with dillards. this week, we get second-quarter results from walmart and target. joining us for a preview is patrick mckeever. he has a neutral rating on walmart. neutral on target. $50 price target. we look at retail sales tomorrow. walk me through your response to last week's earnings season and what it means for the big guys.

>> what we saw across the board last week from the department store space was a sequential improvement from the first quarter which was terrible. it was a little better. a little less negative on the same-store sales. what i think we will see this week from the big bucks discounters -- big-box discounters starting with target on wednesday and walmart on thursday is the same thing, just a little sequential improvement. julyt did in the middle of give an update on the second quarter. they said to expect a modest increase in same-store sales. that would be the first time in four quarters we have gotten positive same-store sales from target. walmart i am at 1.8% growth for the quarter from walmart u.s., which is a touch above the first quarter when they did 1.4%.

alix: we saw last week with macy's they did not do terrible at the end of the day and the stock did not get rewarded in the market. in fact, it got punished. it's at the same set up we will see this week for target and walmart? >> i don't think so. think the sentiment is far worse toward the department store space right now. versus the big-box discounters. walmart has done well year to date. i think investors like what they are doing with e-commerce. haveome of the moves they made in the area, i think people are starting to look at walmart as a more viable competitor to amazon longer-term. target has been more mixed too negative. they are in a big investment .ear this year some of that is retail prices. they have talked about a $400

million reduction in operating just from investment and retail prices. they are in more of a reset year. walmart did some of the same things of couple of years ago that target is doing now. i think the stocks will hold up better than the department store stocks did last week. jonathan: tesco went through a huge restructuring. i wonder whether we have seen the carnage yet, the big store closures, the big headlines that have thousands of jobs at risk. when is that coming? in the mind of many, it should. >> i think it probably is coming this year. the numbers are off the charts in terms of the announced store closures so far this year. and a good number are in the department store space with jcpenney and sears and even macy's is closing about 100 stores. it extends far beyond the department store space across specialty apparel retailing,

footwear, you name it. i think we are going through a bit of that this year. alix: you brought along a chart that shows retail sales versus how much people are making in terms of income. we are making money. we are not spending it in the same places. >> as we step back and look at the broader picture, it is supportive of consumer spending performing decently if not better into the second half of the year. if we look at the chart i brought, this is tabulating wage and salary income from the monthly jobs report and showing it next to retail sales. see on the far right is this significant diversions them -- divergence where retail

has weakened more than should he based on the retail trend and where household sentiment is running. i think there is upside potential for household demand in the second half. whether we get that tomorrow morning is a different story. tomorrow's data provides one of the first key underlying inputs into the q3 tabulation. alix: that was my question. what will be the strength and weakness we will see tomorrow? >> so many weeks, we have seen this big drag from auto sales. i don't think you see a big drag tomorrow. they should meander along with the rest of the report. consensus is looking for about .4% gain. i think that is a fair forecast. i would highlight maybe some upside risk in terms of what we are seeing on the income side. alix: great stuff. thank you, patrick mckeever and carl riccadonna. if you have a bloomberg

terminal, check out tv . you can look at charts and interviews. this is bloomberg. ♪

>> one of the reasons why he does not ruling -- like doing that, he likes doing the opposite of what the media thinks he will do. i think he is also under the impression there is hatred on all sides. i disagree with it. whether i was the white house to medications direct or not, i do not think you will change the president. the president will do what he wants to do, how he wants to do it. david: that was anthony scaramucci, he was white house commute cases director for 11 days -- communications director for 11 days. this morning, we have had a shakeup as people react to what the president said.

mark c.e.o. ken frazier resigning from president trump's counsel saying this. trump fired back right away on twitter. drew armstrong is here to explain this situation. this is the president picking a fight with merck. >> and over an issue that does not seem like the type of thing you want to pick. the is saying i am a member of this council, we agreed to advise you -- the c.e.o. is saying i am a member of this council that agreed to advise you. i think a lot of the criticism trump took for not forcefully denouncing violence by white merck with an

african where can c.e.o. is saying i don't want to -- african american c.e.o. is saying we don't want to be part of this anymore. a relatively easy moral stand for them to take but one we have not seen other companies do yet. david: we have not seen anybody come out in response to this incident. we did have others resign after the travel ban. this is not the first time c.e.o.'s have said i cannot agree with you. what is likely to be the response in the drug industry? council. also on the we are waiting to hear from them. we are waiting on some answers. cleveland clinic has said they are staying on for now.

they will remain, although the council has not met in a long time. jonathan: there is a message in the price action. it is a market that does not believe what the president has to say on drug prices anymore. six months ago if he said those things about pharma companies, the sox could roll over -- the stoxx could roll over a little bit. do we have a market saying we don't think those words will deliver much? >> there been a lot of threats made by the president on twitter on everything from countries to nations on the korean peninsula. i think people are trying to gauge how real any one of those are. these have merck, not been one of the prime bad actors in the drug industry.

they do take price increases. a lot of the industry has broadly attracted criticism on pricing. they sell expensive drugs. when you put them up against valeant, they are not in that category i would not say. jonathan: through armstrong, thank you very much. 26 minutes into the session, let's wrap things up quickly. the s&p with potential for a big pop. the dow up 131. the s&p 500 positive 21 points. from new york, you are watching bloomberg tv. ♪

>> it's 10 a.m. in new york, 3 p.m. in london. from new york, i'm vonnie quinn. welcome to bloomberg markets. ♪

vonnie: your the top stories. from around the world. follow hitting president trump over his failure to strongly personally denounced the rally in virginia. ken frazier just resigning from the manufacturing counsel. speaking out on twitter. meanwhile the president is expected to announce a new investigation into china's trade practices. will the chinese retaliate and what about the growing north korean nuclear threat? company preparing to go public. we are 30 minutes into this monday trading day in the u.s. abigail doolittle is with us.