catalan president is imminent. -- the feud with a republican senator is unraveling the tax overhaul effort and several months into the latest turnaround plan, deutsche bank ceo is said to be losing support of top shareholders. from new york city for our audience worldwide, good morning and a warm welcome to "bloomberg daybreak." let's get you set up for market action this tuesday. losses onback-to-back the s&p 500 on the close yesterday in about a month. this morning, futures up by four plates. the story in the bond market as the treasury market reopens. yields unchanged. in fx market, the price action is not muted. it is dollar weakness against anything including g10. alix: if you are an investor looking to protect yourself against a political crash with madrid and parcel -- madrid and

barcelona, you are out of luck. yields moving down by 10 basis point and a softer stock market in spain. down by 1% led lower by financials. also watching brent crude up by 1% with the home of barkindo speaking -- mohammed barkindo. they say come join us in a cut, we need you. jonathan: let's head to spain. a moment of truth for catalonia. the president is expected to address lawmakers today. the national police force is set to be ready to arrest him if he declares independence. maria tadeo is in barcelona where she has been for the past few weeks. get us up to speed. maria: two things you need to know. one is that -- is about to give a press conference. he will address the parliament at 6:00 p.m., but there will be a press conference at 1:00 p.m.

nothing unusual. there is a story we put on the terminal, our very own scoop saying there's a unit of spanish police that will be ready to arrest him if they think it is necessary. that means if we get a declaration of independence. the whole parliament security operation is still being dealt by the police force. jonathan: my question would be as follows, the regional president seems to be making a push. is he alone or does he have the support of those around him to make this push? he is what we know is overseeing a very unstable coalition and two factors can make a big difference. one is the fact one side of the coalition is saying let's reword it and not use the word unilateral and not stick to the -- our the question is will he make a

symbolic declaration of independence or listen to the more radical voices and make an actual declaration of independence. if he does, we can expect major backlash from madrid. they have said if needed, he will be arrested. that means the entire regional government gets disbanded and the autonomy of the region of catalonia gets to spend it. alix: it really matters what the optics are versus what they want to achieve. the gradual independence you are talking about -- there are gray lines whether or not that is illegal. madrid willly, but tell you it's very much about optics and how it looks outside of spain. politicians will tell you it's not about whether you are in favor of independence, it's about the law and the law is crystal clear. they cannot do this. the sovereignty of span -- spain belongs to all the spaniards. if there is a vote, everyone has to vote. legally, there are no question marks as to what madrid can do.

the question mark is whether or not carles puigdemont will create the republic of catalonia or scale back and say this is a symbolic move and we can still talk. david: give us a sense how realistic it is the spanish government will arrest him. are those cap officers or spanish officers? maria: there is a lot of tension over the last hour. what you are seeing behind me is catalan police and they are telling me they are handling the security as usual. is verynow, the police sensitive to issues of governance. the big question over the past two weeks have been who is actually in charge of catalonia. is it the spanish police or the catalan police. there was major coordination between the two. police was acting in

one way and spanish police in another way. for keepingank you on top of the headlines that come from that news conference later on as well. for the euro, no damage. it is firmer against a weaker dollar at 100 -- 1.1772. body yields are lower in spain. the pain -- we roll over on the lows35 trading session down by almost 100 points. joining us around the table for a quick look at the market is david lebovitz. what do you make of the story unfolding right now? david: i think it is a continuation of the political saga we have seen in europe the better part of the last year. it's obviously a risk that should be on the radar. our based -- based case scenario is the worst-case scenario will not materialize. if catalonia does officially

secede from spain, that removes them from the european union and creates obstacles from a business standpoint. the economic consequences may play in our favor here and prevent that worst-case scenario. jonathan: what you are seeing on the right is the news conference in catalonia. that is the cap to land -- catalan spokesperson. the -- wasn't materialized. talk me through what you think is the worst-case scenario. david: i think it would be similar to brexit where you see catalonia officially secede in the process of figuring out exactly what that looks like begin. we have never seen a country actually leave the euro. we have seen a country leave the european union, it never -- nobody leave the common currency. is that there are too many unknowns and it's something we don't understand what this process would look like, which i think creates obstacles for

investors to navigate. david: currently the market seems -- -- doesn't seem to be pricing this in. is that because there are too many unknowns or because we think the growth pattern is so strong it almost doesn't matter. david: you have that support from the economy. one of the reasons we believe populism has bubbled up to the surface is because of the very weak recovery following the financial crisis. i think the growth you have seen in europe over the past 12 months -- places like spain could actually work in their favor. it yes, perhaps this is a symbolic move and not an official move. we kind of stay as part of the broader construct. that would be equivalent to a soft brexit. alix: does this mean you kind of want to buy portugal instead? this is a fascinating chart. it is -- this is the portuguese ten-year versus the spanish 10-year and that spread is

narrowing. it's not just that they don't have that kind of political risk , but ratings were upgraded by s&p. is that the way you need to start playing europe? david: i think europe in general can be thought of we spent years playing the core. the numbers are pretty good, but the periphery is coming back online. while there are political risks in places like spain and italy, we think playing that higher beta recovery story makes sense and you can put people in that camp. alix: how do you factor the ecb and your thesis? davidl i think people are ahead of themselves. i think this will be a: tiptoe towards the exit and i think it will be a gradual taper. our view is they will not hike rates until the first quarter of 2019. it is in concert with the growing economy that should lead exports to rally. jonathan: the only reason the

portuguese debt rallied is we were worried about losing eligibility in the ecb program. that was the big laggard for debt more broadly in europe. there is a ton of catch-up that has got to do. is italy really a buy at this point given the election in the next 6 to 12 months? david l: political risk in italy seems to be higher at the current juncture. i think what you are seeing broadly is continue to demand for yield. investors are looking under every rock trying to find income and relative to some other economies, portugal bonds seem to have that today. part of it is the technical story. in general, we are much more optimistic about opportunities in the rest of the world and we have been in quite some time. we think this global synchronized recovery is taking hold and should benefit risk assets around the world. alix: remember last year at this time we thought the search for

yield might be over? david lebovitz, you will be sticking with us. coming up, we have a great lineup of guests, including charles evans, chicago fed president. ceo allison, the former bbc and liz and saunders of charles schwab. great lineup. this is bloomberg. ♪

♪ nasty president trump's -- with bob corker is reverberating throughout the capital. people close to the president worry he has damaged his chances of getting tax reform through congress. here with the latest is kevin cirilli. i keep hearing about this and i

am sure you do. what's going on? kevin: there is concern within the halls of congress. i spoke -- spent yesterday speaking with aides of republicans in congress. they are confused why president trump decided to engage in this political battle with senator corker. they point to president trump of being on the golf course yesterday with senator lindsey frankly,d quite someone who criticized president trump in the past. as akind of you to that signal that perhaps he is trying to work with republican establishment members. with: there is this battle senator corker. what about the battle for the heart and mind of the president himself. but twore not one, people said to be close to the president that came out and expressed dismay. to what extent is there a problem with chief of staff kelly getting his arms around this? kevin: it's interesting because the more it becomes normalized for republicans to speak out

against the president, whether john mccain or senator corker, the tougher it becomes for the perception in washington, d.c. and congress for there to be the type of relationships needed to accomplish several of their goals. on the flipside, the administration says they are on task for tax reform. inside the beltway, people are more skeptical. david: thank you so much. at thiske a look interesting chart of that has to do with the russell 2000. it's basically small caps stock which benefit from tax reform. that white line is the monster rally since august. the blue line is earnings estimates and they have been coming down. also with us is david lebovitz. i like that chart because when everything is rallying we say it's because earnings are so good we don't need d.c. and all of a sudden we may have d.c. and don't need earnings growth. how do you understand this chart? david l: i think it is particular to this asset class.

i think for small caps, it's a combination of better economic growth and the potential for policy reform. smaller companies would see a disproportionately larger impact than larger corporations and they tend to be higher beta security and more of a value play. when the economy gets going, that's when you tend to see small caps outperform. a straightcally been shot up over the last month and a half. the spark that started that fire was likely tax reform. when you look at the u.s. economy, we are expecting another quarter of close to 3% growth in q3. you are still looking at russell 2000 year-over-year earnings growth of about 25% over the next 12 months versus 11% for the s&p. if the policy pipeline continues to become unclogged and we see tax reform, i see no reason why small caps can't keep rallying. alix: is that your

interpretation that the policy pipeline is unclogged? -- said either trump realizes corker can sink the remainder of the gop legislative efforts and is upset by that, or he doesn't know and made it a reality. either way we see zero upside for the budget process, tax reform in a twitter tantrum and the policy upside limit down. david l: i don't know that i would be that pessimistic. i don't think we can signal the all clear, but we are expecting mild fiscal expansion in 2018 and that kicks off with tax cuts. tax reform is a really big thing and can be expensive. a cut to the corporate tax rate and perhaps simple vacation of the individual code seems relatively reasonable bid jonathan: when you sit around the table at j.p. morgan asset management, how do you do the math that stacks up.

a report from politico this morning -- where are they getting the votes from? david l: i think the midterm election will play a big role and i think the inability of the administration to make policy progress so far in their tenure may suggest that there is upside doneto them getting things next year because people will want to get reelected. jonathan: david is one man that doesn't have to -- david, one man that doesn't have to be -- worry about getting reelected is senator corker. david: he is a free man and can do what he wants. alix: we see john mccain doing the same thing. avid: you refer to it as mild moment ago. are investors happier with it being mild given the growth you are talking about and the low unemployment rate? the $2.5me in at trillion, would it cause the fed it to stomp on the brakes? david l: that is the -- of doing

fiscal expansion. we have monetary policy moving back towards normal and you have this expectation fiscal policy .ill get ramped up when you take an economy that is running out of supply come all you create is inflation. the end game here is probably a more hawkish fed and aggressive pass of rate hikes. david: go the other way. assuming you knew today reform, mild, nothing. how would the market react? how much is being priced in right now? david l: i think you would see mild pullback. i don't think it would be a full on bear market. a 10% correction in volatility in nearly a year. i think markets are looking for a reason for a slight pullback. alix: how are you playing earnings? earnings willink be good great year-over-year cop is getting more challenging.

continuing to be optimistic about industrials, we think financials may be flat and we think there is upside for other parts of the market. jonathan: david lebovitz of j.p. morgan asset management sticking with us. we will keep you up-to-date on this news conference with the catalan spokesperson. the spokesperson saying he feels it will be a historic day for catalonia. that is the headline from that news conference. sayingalan spokesperson he feels it will be a historic day for catalonia. david: coming up tomorrow, manus cranny will ship down -- will sit down with charles evans at 8:30 in the morning tomorrow eastern time. this is bloomberg. ♪

♪ taylor: this is "bloomberg daybreak."

pfizer is reviewing options for the consumer health care business. at drugmaker says possibilities include spin off, sale, or other transaction. they sell products such as advil and centrum. last year they said that unit brought in $3.4 billion. american international group warned third-quarter catastrophe cost could be as high as $3.1 billion. they are assessing the damage from hurricanes that hit the caribbean and southeastern u.s.. they will pay out claims from earthquakes that struck mexico. executives at google are struggling to hold washington at bay. they summoned 200 policy staff for a debate at whether they made the company -- new information could make their job tougher. russian linked account used their ad platform to interfere with the presidential election. that is your bloomberg business flash. jonathan: there may not be a

solution to the fake news program. google becomes the third tech company to face criticism from washington over potential russian interference. emilyspoke to bloomberg's chang -- spoke to bloomberg's emily chang. --this issue of people whatever is going to make them feel good. people want to feed whatever their instincts are and the goal has to be to say this is how it looks. place you have to be able to come and look at stuff objectively. i'm not sure you can say that is facebook's job. they are not in the news business, they pass along other people's news -- the same thing with google. the -- that is part of the news that problem here is things can look authentic. people would say i find my information most often on social media and i trust it the least.

jonathan: let's talk about investor trust. year to date, facebook open -- up almost 50%. google -- also known as alphabet -- up 25%. david lebovitz is still with us. do you think investors trust with these companies as they go through what is becoming a big problem in d.c.? there are a lot of questions. there are a lot of questions. there's a taunus questions around the data and the data they control -- there are eight on of questions -- there are a ton of questions around the data and the data they control. in a world where we have tons of data at our fingertips, we need to be more cognizant of the risks that exists. the risk is not everything on the internet will be 100% accurate. jonathan: have we been conditioned by the past that when you -- -- sellout tech you

will get burned again? david l: i think a lot of that has to do with a lackluster pace of growth. it has been in the technology investor -- sector so you see investors embrace that. david: how much of that valuation reflects the possibility of real washington intervention? buy political to advertising, congress really cares about that. that is a tough spot. david l: i think what we are seeing is an industry that has been relatively insulated from politics is finally seeing themselves in a hot seat. i think we will have to be cognizant of this as a risk going forward. alix: what is the valuation risk for big tech? david l: i think tech is probably fairly valued at the current juncture. i think you see the earnings growth and investors are willing

to pay up for these securities. in general, as interest rates rise, that valuation will become less favorable. jonathan: david lebovitz is sticking with us. coming up on the program, olivia blanchard will be joining us on the imf meetings this week and perhaps a little bit about global policy paralysis. he is coming up later and also later, the cash open on bloomberg. futures are positive after the -- futures upback about a tent on the s&p 500, positive 0.1% on the dow. for our audience worldwide, this is bloomberg. ♪

♪ jonathan: two hours away from the market open. let's whip through the market action. futures up positive after a two-day lost.

by about .1% on the dow and the s&p 500. if looking for sign of tax reform, tax cut efforts are slipping. switch of the board. treasury yields are pretty stable and we go nowhere at 2.36 on the u.s. 10 year. a sign of slipping is the recent rebound in the u.s. dollar. it's weaker against everything -- that is your cross asset story. let's get you breaking news. taylor alix: walmart is part of a $20 billion buyback. 2.4%stimate had been for a growth rate. now they see net sales at her that $20and seeing billion buyback is up over 1% in premarket. david: they had a two-year plan

to turn it around and they took a hit to earnings. they really invested in the company with on -- of rates. a.b. it's starting to pay off. the $20 billion buyback, d have anything else you can do with the money? david l: everybody talks about this repatriation issue and the tax issue. the nominal outlook hasn't really changed all that much. what you see is corporations buy back shares an increase dividends. exactly what they have been doing for the better part of this expansion. jonathan: walmart up about 16%, 17% up so far this year. let's get you headlines outside the business world. taylor: in northern california, never and sonoma wild count -- wind countries, fast-moving wildfires -- 1500 buildings have been damaged or destroyed and 20,000 people have been forced to evacuate. say it is toos

early to calculate losses. a student at texas tech has been accused of fatally shooting a police officer. the student was taken to the station after drugs were found in his residen. thet suspect escaped after the shooting, but was laters caught. --sident trump the report says the president is expected to send a significant message to north korea during the visit and the white house announced the president's trip to asia and gave few details. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. david: seven months into lateste bank's turnaround plan and shareholders are getting restless. three of the largest are said to be losing faith in the chief executive, saying he may have cut costs, but hasn't delivered on his pledge to grow revenue which declined in all but two quarters since he took over.

joining us is bloomberg's eliza martin. why now? >> i think it's clear from the outset of his announcement in march that there wouldn't be much time for him to show he could deliver on this plan. deutsche bank has been grappling with very serious challenges for several years now and i think right from the world go, -- the word go, investors were clear they would see the pan from -- the plan for modest growth and we haven't seen that. david: he has done an effective job cutting cost and reserves are up and it must -- in much stronger shape. is it possible the same person that does cutting and reserve growing is not the same person to grow the bank? >> they are saying he is very much the fireman and he may not be the best to rebuild. having said that, he does face significant challenges, which

any ceo in his position would face. he's trying to cut cost, trying to shrink the business they are in and trying to invest in what he described as outdated i.t. and all of that while trying to grow the top line in a market that may not be conducive in the third quarter. david: according to the bloomberg, it's really about growing revenue. he has until may perhaps, the annual meeting. what is his number one goal growing revenue? how can he get it done? eliza: this quarter looks like it want -- it might be difficult because we had a tough trading market and trading is where deutsche bank makes a large portion of its revenue and profit. beyond that, i think it's hard to tell also whether investor patience may lengthen if -- lebovitzh us is david

of j.p. morgan asset management. do you like european banks? david l: when we think about financials in the u.s. relative to financials in europe, we think there is more upside in european financials at the current juncture. we are seeing credit growth continue to come back online rather than being rolling over in a late cycle fashion. we think there is upside, but we think you need to be selective. when we think about european equities broadly, you have nearly 25% of the european stock market in financials. asseta less efficient class than the large-cap space in the u.s.. while there are diamonds in the rough, by the basket may not be advisable. alix: we have bank earnings kicking off here thursday. allison williams pointed out you have talked -- tough comps when it comes to prices. david l: you have tough comps

and you have massive losses -- earningsuarterly reports a one-month does not necessarily affect the broader trend. when you finish q2 at 2.3 -- the net interest will be relatively model -- modest. you also have expected losses on the insurance side from the storms at that yet he of august beginning in september. the majority of the downward insurers.come from you are seeing analysts beginning to price in the fact that this will be an inexpensive thing for companies to deal with going forward. looking for financial earnings to be flat in the u.s. on a quarter over quarter and year over year basis. i would see the risk is to the upside. analysts usually underestimate earnings. i think you can look for perhaps 2% to 3% growth to the upset. underestimated going into

earnings? david: to what extent to the banks have control because of return of capital. whether it is a buyback or a dividend, they have more flexibility than they used to have. to some extent, can they control the earnings because they can affect that denominator? david l: they can and we have seen financial engineering play a role. when we think about the way banks are going to my edge capital going -- manage capital going forward, of course there has been a tremendous focus on cost and trying to get margins up and contain expenses. i think now that banks have more flexibility to use capital, we could see them increase dividends and buybacks. a couple of big banks have announced by back intentions. my guess is that we see a little bit of contribution from a reduction in the share count. when we think about it over the course of the recovery and in

the grand scheme of things, it adds a couple percent. maybe 1% to earnings growth. it generally speaking when we look at the u.s. economy in the u.s. equity market, we are seeing relatively solid organic earnings growth. financials are faced with a challenging quarter, but in general, we don't expect share count to be the main driver of earnings going forward. jonathan: let's finish where we started. you said there was more upside for the european players. i wonder where you need to go for that upside. the very reason we are talking about deutsche bank is because shareholders are unhappy because the ceo is struggling to find growth. david l: we think it will be a function of prime -- continued economic expansion. there has been a massive amount of demand for loans over the past couple of years in europe and we are starting to see that demand he met with supply. think a lot of that has to do with negative interest rates, which is why the ecb should be fairly gradual in the way they

normalize monetary policy. banks in europe are far more incentivized to lend than banks in the u.s. banks in the u.s. can take excess reserve with the fed and get paid 25 basis points. i know you can't name names so i won't ask the obvious question. i will ask of the next obvious question. which country are you looking for these banks? the french players seem to be doing well and italian players face election risk. david l: france looks interesting until the recent political issues in spain, we were liking what was happening there from a recovery standpoint. i think at the current juncture given that we are seeing political risk bubble up to the surface again in europe, you probably want to be more conservative with your exposure or at least temporarily. from a tactical standpoint, we see risk on the horizon and we think a combination of an ecb exit and toward the

brewing populism in various economies around the eurozone could lead to a slight risk off move in the next couple of months. i think a defensive stance temporarily may make the most sense. long-term we see more upside in europe than like places in the u.s.. bex: david lebovitz will sticking with us. walmart stock up over 1.5% reaffirming the 2018 guidance. it says they are looking for growth for 2019 net sales at or above 3%. estimates had been for 2.4% and they expect sales growth at aboutt's e-commerce to be 40% in the full year of 2019 and a monster $20 billion buyback over a two-year period. david: if you have to leave television and commute to work, you can follow stories like walmart. tune into tom keene and david gura on radio.

he can be heard all over the u.s. on sirius radio. this is bloomberg. ♪

♪ alix: -- taylor: this is "bloomberg daybreak." coming up later today on "what'd you miss?" this is bloomberg. ♪ jonathan: shares of japan's third largest steel maker continue to fall. down 20% over two days after kobe steel admitted to falsified data. current --is at the

enda curran. walk me through what could be a global business scandal and play into companies you may not have thought of. enda: it is very damaging for japan and the japanese industrial sector. they are the bloodline of their economy. it comes on the back of other scandals such as takata airbags. if this were spread overseas. kobe supplies some of the against automakers. it will severely backlash on to japan caroline: integrity -- japan's integrity. outthan: important to point it is not clear if any of the companies have received materials relinked -- linked to the sulfide -- falsified data. general motors is part of their revenue. toyota is for percentage points

part of this could found their way into many cars people are driving and into some planes people have been flying on. enda: we don't know yet, but it will certainly damage --one of japan's biggest exporting competitors is they don't have the same corporate governance. it is certainly damaging for japan. alix: we had a great gadfly peace talking about this saying i know the headlines look bad, but the amount of aluminum copper that was that is really small, 38,000 tons of aluminum. is there a reality versus the perception issue? enda: their most certainly is. the optics of it are what counts. japan prides itself on the quality of exports and manufacturing and standards of corporate governance. jonathan: the challenges trying isfind it -- challenge trying to find it. everyone has to go through their supply chains to figure out if

any of this made it to -- into their goods and have to figure out what to do with those goods and how to find them. this piece also pointed out that when you have a carmaker for example using lightweight -- aluminum and durable steel, this company makes all of that. for supply chain ease, they kind of need to stay with kobe. enda: they have their fingers in many different parts of japan's economy and that's why it's potentially damaging. david: still with us is david lebovitz of j.p. morgan asset management. i want to ask a larger japan inc. question that this implies. we have to, and nissan recalling a million -- takata and nissan recalling millions of vehicles -- does this affect investors decisions of investing in japanese equities. david l: if you look at the way

the japanese market has behaved, one thesis has been i will play the yen because we's -- we see this -- the parallel and more fundamental thesis has been corporate governance is improving and they will focus on returning capital to shareholders. i think this is damaging to the is asfundamental thes to why to own japan. if you think the yen is going to be weakened, you have done well holding japanese equities. the issues we have seen -- the corporations in this country encounter put that thesis on the rocks. david: they was a perception maybe the japanese economy was turning around and that they were actually getting growth going so news like this is not welcome. david l: exactly. particularly given the fact people have focused on corporate japan of being one of the brighter spots in that story.

yes, the demographics are not that great an interest rates are at zero, but we have quality mentioned,ho as you are very large exporters on a global basis. i think this does create additional challenges as foreign investors look about how to allocate money and is a reason why we have shown a preference for europe in a lot of our portfolios. alix: it will really come down to what the response is of the government and we heard from the japanese ministry of economy. about kobe learned steel falsifying data on some products at the end of september. we asked them to swiftly investigate the cause of incident and details of any safety issue. we urge the company to inform their clients and make efforts to recover the trust of society as a whole. alix: and the urging, is that like enough to make investors feel confident? enda: i think we have to get

through the election and then we get clarity on a mandate. david: could this infiltrate the election and become an election issue for prime minister abe? enda: there have been corruption scandals and that is why people have a disaffected -- there are areas that need look. -- need work. versus -- ands there are commonalities, especially in the area of taxation. prime minister abe wants to put -- push forward with a competent sales tax.rsial one of the world's greatest economic experiments. not have the fire under his belly to continue the way he has been. policy tomonetary proceed on a different path, for example. the diesele did see issue come into play in the

german election. curran.u so much enda if you missed anything, check out the bloomberg terminal and tv . you can watch us online and interact with us directly. this is bloomberg. ♪

♪ taylor: this is "bloomberg daybreak." let's get your bloomberg business flash. walmart announced a $20 billion share i back. walmart also reaffirmed guidance for fiscal 2018 and projects better than expected sales growth for 2019. up itsll is shaking portfolio. the new jersey manufacturer will spin off the automotive .urbocharger honeywell is keeping era space -- it's aerospace unit. splitting off that division

would add $20 billion in shareholder value. that is your bloomberg business flash. alix: take a look at the brent oil up by 1% almost $57 a barrel. is planning to make the deepest cut to increase global inventory. they are cutting 560,000 barrels a day despite the fact demand is holding strong. joining us in london is stuart wallace. i found this interesting at a time where exports were increasing and they are gaining market share. >> i think they have tried to keep that rhetoric stable and what opec has always tried to do is have predictability for demand. they can control supply, but they cannot control demand so they did -- they do this kind of action and now it is about in solidarity -- consolidating the trust they think they have developed and showing not only for themselves, but for the wider market, we can act when we

want to and therefore the price we see is justified. alix: what's confusing is at the same time you have mohammed barkindo saying he is urging the u.s. shale producers to join cut to take extraordinary measures. he says urge our share -- partners to take responsibility with the urgency -- stuart: you cannot blame them for trying. as i pointed out one of your colleagues, it seems unlikely shale would get into that game because it would mean going to prison. you can talk to the individual shale companies, but there is no opec equivalent in shale. they are far more nimble and commercially minded and don't operate like that. alix: i love barkindo. everything is great and demand is good, but shale producers, you have to get on this. joining us is david leibovitz of

jpmorgan and you mentioned you like energy. is any of that related to the absolute price and what opec does? david l: not as much related to what opec does. we are comfortable with the idea the u.s. producer is the marginal producer of oil and they are affecting whether we have oversupply and undersupply and the biggest issue is a lot of these companies have breakevens well below the current price of oil. we are not focused tremendously on further upside. higherk it can drift from current levels assuming we get better supply-demand balance. part of our thesis has to do in part with a improving earnings story and a rotation out of tech. we have noticed the market cap of technology and the specific market cap of well-liked technology stocks is nearing 12% of the s&p 500. we think investors perhaps could be over positioned for this growth trade.

as we see interest rates continue to rise and better economic activity into the end of the year, we think that could lead to a rotation out of tech and into it energy. jonathan: we always appreciate catching up with you. coming up on the program, up next, jack -- jack ablin, the .rivate jack cio they will join us as we count you down to the opening bell. one hour and 34 minutes away after two days of losses on the s&p 500. s&p 500.about .1% on futures positive 39 points. this is bloomberg. ♪

jonathan: president trump's allies speak out.

they fear issues with a republican senator risk unraveling the tax overhaul effort. heistoric day in towel and with the push for independence -- in catalonia with the push for independence. good morning. i am alongside david westin and alix steel as we get you set up for market action, this tuesday. the treasury market reopens after being closed for columbus day. yields lower by a basis point. story is broad dollar weakness. euro-dollar pushing back to 1.18. after two days of losses, the first today drop in about a month. taking a look at the impact of all the drama unfolding in spain. the stock market over there off

by about 1%. one of the biggest laggards is financials. you have yields on the 10 year at 1.68, up by about one basis point. lots of interesting headlines coming up. brent up 1%. david: turning to washington, president trump's allies are questioning the widths -- wisdom of his feud with senator bob corker. concerns that it may scuttle tax reform plans. joining us with the latest is kevin cirilli. take us through the numbers, here. are there other republican senators that are questionable votes? kevin: people like john mccain and if even one more of them were to get on board with senator corker and unite against the president's agenda, that diminishes the chances of anything getting done by the end

of the legislative year. secretary of state rex tillerson is set to meet with president trump the white house later, today, loving his interview with forms in which he said he would challenge the secretary of state to an iq test if he did call him a more on. a lot of interesting developments in the past 24 hours. you spent a lot of time in that building that we can see behind you. give us a sense of what is going on right now. is there any move to try to patch things up with corker and what about the reports that rex tillerson may not be secretary of state for much longer? kevin: the administration is saying that secretary tillerson has no intention of stepping down. he said that, himself. behind the scenes, i would anticipate that he would not last through the end of the year. i think that is the goal.

to winning outrage over people like corker, everyone i talked with yesterday sees senator corker as irrelevant. they never thought he was on the side of the president, to begin with. david: thank you, so much. alix: apparently they had a great time. is jamess from london at the, senior investment manager at aberdeen asset management and jack ablin, bmo harris bank. what is your base case for tax reform? james: thank you for starting me with the easy one.

muchse case is not change -- has not changed much because of this row with senator corker. in a certain respect, this is irrelevant. senator corker is a known deficit hawk. anything that adds even a penny to the deficit, he is not going to vote for. the dynamic scoring we hear about may allow him to vote for that, but as somebody who is not seeking reelection, he will not feel pressure to go against his core beliefs. that was always going to be a tough vote to go through. it is incredibly tight for publicans in the senate. -- republicans in the senate. their best bet might be to get some democratic support. i still think they can do it

because i think there is electoral pressure for them to do so. it is time for the democrats to vote against the sort of package that is seen as a giveaway. if anything, it is a bit of a democratic policy. i still think we can get something done. yesterday, you will have chuck schumer on speed dial from the white house. jack, how about you? the blue line is small caps earnings revisions. much lower in the last six weeks. that is on tax reform. what is going to matter for markets? is it going to be tax reform or earnings? jack: i think it is earnings. i will say the prospect of tax reform in any legislative action has come to life over the last six weeks or so. if you look at small caps, large

caps, the slope of the yield curve, there is this opportunity, but that is a really -- that is really one of. -- one off. the bottom line is, it is earnings and as we know, that analysts have cut earnings growth, that trajectory in half for q3 because of the hurricanes, but have really ramped things up for qa in the next year. the stormsy look at as a speed bump. james athey, in terms of the u.s. economy, some people said about this tax plan and how it is going to you'll capital expenditure and productivity, i don't mean to cherry pick a headline, but walmart sitting a $20 million buyback plan, this morning. a $20 million buyback

plan, this morning. do you think any companies would be willing to go out there, build factories and improve productivity or are we set to see a whole lot things like these headlines we have seen? great question, and i do believe we will see capex. i do believe we are going to see -- as long as we do nothing to change the cost curve of adding wage labor to the formula, we are going to have all of that reinvestment, but we are going to get robots, technology, perhaps the innovation, but we are not going to get the jobs. person, health care costs have about doubled, everywhere else and if we do nothing to change that relationship, we could get that reinvestment, but it is going to come not necessarily with a lot of jobs.

jonathan: james athey, same question. james: i'm going to have to agree. if you look at the small business optimism survey and the capex, it is pretty elevated. i have heard people make a comparison between legislation passed in 2004 with respect to things like repatriation of foreign earnings and people said there was no that led to share buybacks. if you look at cap and realize leading up to that policy in 2004, you were talking about growth at 4% to 6%. in this case, it has been disappointing for quite some time. rates are likely to increase, in the future. things are hopefully moving in a more pro-cyclical ashen. there are just two very different conversations going on, one with republicans on

capitol hill. the other is from corporate america, which by and large is saying it is a matter of earnings and other issues. there is a op-ed piece in the washington post that said i never made a decision based on a marginal tax rate. unless business can get behind this, what are the prospects of real tax reform? jack: i do have some hope on the corporate side, that we will realign with our trading partners. there are a lot of things the president trump says that i kind of shrug off. when it comes to corporate taxes, he is pretty much right on. when he set our tax rate at 35%, we were aligned with everybody else and now all of our partners, some of which are below 20%. i do think we need to reset that. we need to recognize that is like 5% as a

percentage of total taxes collected. if we can reset that and move the needle, we could see incremental growth, and it does not necessarily have to come at a cost of huge deficit. jonathan: james athey of aberdeen and jack ablin of the amount, you are -- of the mao -- bmo. you are both staying with us. this is bloomberg. ♪

jonathan: in spain, a moment of truth for catalonia. to regional president is set to address lawmakers, facing -- facing blowback from the dread. we are in barcelona with the latest. a heavy security presence, we also had a news conference with -- spokesperson catalonia with the spokesperson from catalonia. hada: that press conference the president not show up, his spokesperson did. he said today could be a day for the books. he did not get into specifics. he said whatever we will announce will be announced by the president. has beenentrance blocked, only members of the media can get in and that is already difficult. major security outside of the catalan regional entrance.

security has definitely been stepped up. where twohe story sources are telling us there is a spanish police unit that is ready to enter this building and catalan regional president if he makes a declaration of independence. jonathan: talk to the importance of the significant wording that the catalan president might use that avoids that declaration of independence that would get him arrested, but still is a message to his base that he takes it forward in the appropriate manner? crucial andis so that is what it comes down to, the word unilateral. madrid has been crystal clear. it can just come from the president's mouth. if there is anything that carries the word, any type of document that carries the word

unilateral, that would essentially get him dismissed and potentially arrested and suspend the regional government. this is a extremely difficult situation for the regional president because we know that the radical side in this coalition is asking him to do it. pro independent supporters are here to show up in force and trying to get the president to make this unilateral declaration of independence. it is clear that he is being pulled from all sides and madrid is ready to act. your reporting has been terrific. they are ready to act, but the question is, are the eager to act? does he actually want them to step over the line so he can take over catalonia or would he like them to back down off of this? maria: that is a great question. he is a man who is not like to make the first move. he doesn't like to act.

he prefers to react, which is why he will be addressing parliament, tomorrow. becauset answer is no, it is considered the nuclear option. if the word unilateral comes up, he will have to. jonathan: maria tadeo, thank you very much. in the markets, let's get you up to speed in europe. market,nish equity euro-dollar firmer against the broadly weaker dollar on the session. up by about a half of 1%. yields are now higher by about two basis points. ever since we opened, the open of the european session over in spain, trending lower with session lows of just over 1% in negative territory. that is the story across assets. james athey of aberdeen and jack ablin of bmo, still with us.

how are you managing your european exposure of our -- after the last couple of weeks where european politics have started to reassert themselves in a way not many people may have wanted them to? james: as you can recall from conversations we had, i have been positioned for the reemergence of european politics , along with other economic concerns and monetary policy exchanges. we have not been doing a lot. been shorting the euro for quite a while. not doing a lot to change and i think it is difficult to do anything in the situation we have just heard about. it is incredibly difficult to forecast. it will very much depend on what exactly is said and how the prime minister responds. jonathan: there is still a decent spread between the

spanish 10-year and the italian 10 year. you said you were sure, how much upside is there on the italian 10 year yield? it depends on the time horizon you are looking at, and we are dealing with an incredible amount of uncertainty. it does depend on what announcement we get on october 26 from the ecb. i think it certainly is expected changes to ecb policy. we have heard a lot from lots of people either within the governing council or observers and economists and other investors and there is a lot of noise and not a lot of clarity in terms of how they might extend forward and at what pace. for now, i don't think there was a lot of near-term upside. we can certainly pay for the kerry -- for the carry.

we can take a longer-term view into next week -- and the next year, and we are looking at the italian elections. the best outcome is a wide coalition which cannot achieve anything. david: jack, what about your perspective? uncertainty can be troubling, but on the other hand, i can create opportunities -- it can create opportunities. do you think markets are perhaps overreacting? jack: i do see opportunities in broader europe. that is a position, we are still overweight, there in relation to the u.s. euro is probably moving to quote unquote,. fair value we don't see -- fair value. equities, relatively attractively priced and still have someone the mental

movement, moving forward -- fundamental move -- still have somewhat fundamental movement. the days when quebec threatened to secede from canada, i remember owning hybrid quebec bonds and wringing our hands about the quality, so forth. obviously, quebec did not secede and state part of the country -- and stayed part of that country. bank of montreal, you would think that the headquarters is based in montreal, it is not, it is in toronto because it moved after that action. i think that the business community could not trust this instability in government and decided to move back to a more stable location. david: well said.

james athey of aberdeen and jack ablin of bmo are staying with us. later, talking about monetary policy and fiscal policy and what we learned from the great recession. this is bloomberg.

taylor: this is bloomberg daybreak. pfizer is reviewing options for its consumer health care business. options include a spin off or other transaction. they sell products such as advil. last year, they said the unit brought in $3.4 billion. executives at google are scrambling to hold washington that they. google summoned about 200 policy staffers around the world for a debate on one of company's size

has made it to attractive a type -- a target for government regulators. new information could make their job tougher. they revealed russian linked purchasing as to interfere with the presidential election. david: it is not just google. twitter, facebook, they all had problems. they were the darlings of washington for so long. google has 200 policy staff from around the world. they have 200 people working on policy. a new source,ot so we just aggregate, it is not us. we will see how that plays out. we are still here with james athey and jack ablin. do you have to start taking a regulatory feel for tech stocks, going forward? jack: they have been a beneficiary of this global arbitrage. if you look at foreign direct

investment as a percentage of gdp, it is not a surprise that hong kong, singapore and ireland have the highest investment. they have corporate tax rates, less than 20%. resetting things is certainly going to put tech at a disadvantage to some of the smaller names that have to pay full taxes. alix: do you feel like the big tech is getting too big and we are finally going to see european and u.s. governments crackdown on that in some capacity? jack: we are starting to see it, already. we got some pushback on amazon, on apple. especially overseas, we are seeing a lot of these tech companies threatening or at least being perceived as threatening to some of these jurisdictions. alix: james athey, i know it is different in your neck of the woods, but what is your take on the influence between washington and the markets? james: with respect to tech, i

agree with the previous comments. it is interesting that in london, we have had the local regulators. they revoked uber's license. it shows the regulatory environment that has existed maybe has been incredibly beneficial to these big tech giants but is now being record highs as being inappropriate, so it certainly think there could be problems, further down the road. jonathan: james athey and jack ablin, we really appreciate it. coming up tomorrow, we sit down with charles evans. looking forward to that conversation. this is bloomberg. who knew that phones would start doing everything?

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see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. jonathan: one hour away from the opening bell in new york. the futures firmer by about 2/10 of 1%.

some decent strength going into the last couple of days and then we just crawl further and -- we just fall further and further back from those all-time highs. the fx market, three days of losses on the dollar index potential, the first three day loss since august of this year. the dollar, weaker against everything in the g10 space and 1.3197 -- up to 1.3197. that is your cross asset story. get you up to speed on what is happening outside the business world. taylor: while fires are ravaging

northern california's wine country. 20,000 people have been forced to flee their homes. winemaker say it is too early to estimate losses, but they say wineries and vineyards have been damaged. a 19-year-old student in texas tech has been accused of -- of fatally shooting a university police officer at the campus police station. the student had been taken there after evidence of drugs were found in his residence. police say the suspect escaped after the shooting, but was later caught. most of puerto rico was still in the dark -- is still in the dark after -- three weeks after being hit by a hurricane. 85% of customers in the commonwealth do not have electricity. puerto rico said it could take months to restore everyone's power. global news, 24 hours a day, in countries -- 120 countries. this is bloomberg. david: walmart announced it would buy back 8% of its stock.

at the same time, walmart reaffirmed earnings guidance for 2018 and said it expects easy -- e-commerce sales to rise 40% in the next fiscal year. joining us in new york, matt boyle. take us into what the story is, on walmart. this is a big stock buyback. matt: we thought there might be a new one coming because they were almost done with one they had authorized in 2015. what we were all looking for was this e-commerce figure. the broader market, only growing about 15%. this 40% figure is not as big as the 60% they did last quarter, but they were never going to keep up those rates. $35, two day the

free shipping, and sort of a counter against amazon prime. this figure shows walmart has turned on the accelerator. the question is, when are the profits going to come online? they have invested a lot of money and it appears to be having some effect in the top line. the question is, do they have the margin for it? spending billions on these new e-commerce the film and centers. they are trying to recruit new challenge from ivy league to work for their e-commerce business. all that has come at a cost to their margins. investors don't want to see that, they know walmart operates on tight margins, but they want to see those going in the right direction. alix: they are going pretty well in that area of their business. matt: they are putting up so many new products, 67 million new products.

you order groceries online, you go up to the curbside, a nice person brings the groceries and puts them in your car and you are off and that is a very popular program that they have in 1000 stores already. jonathan: what is the prospect of a price war between amazon and walmart, online? matt: we love talking about price. amazon dropped their prices at whole foods, but online shopping is not just about price. it is about convenience, reducing friction. people care a lot about returns. who cares about price if the faulted -- if the product is faulty? walmart announced they are making the returns process easier. online, you have price and convenience. alix: i spent a lot of time in a walmart store with only one kid. maybe that makes the difference.

gems -- james athey and jack ablin, still with us. jack: retail is a mixed bag. retail spending is growing faster than the overall economy and so, the pie is growing pretty well, it is just the slices. are different retail is growing at about 3.2% -- sizes are different. retail is growing at about 3.2%. if you look at the home improvement companies, they seem to be holding their ground and expanding. the discounters where you go in bargains,or different and brands. brands can transcend either brick and mortar or online. it is interesting to see this fight between walmart and amazon. alix: that was a conversation we had with the buyback was announced. why wouldn't they spend that

money on something else, because they have to compete with amazon? give they want to something back to the shareholders who are sticking with them and remember who the biggest shareholders are, the waltons. when you have one family owning more than half of the company. david: and you talk about this dual between amazon and walmart, you've got capital on both sides, investors willing to take a hit on the margin for different reasons and that really feeds into the ability to build up this business. what does it do to everybody else? matt: everybody else is going to feel some pain. 62% of u.s. internet users were on amazon, that is to it a three internet users on amazon and the second quarter. everyone else had a lot of room to catch up, but walmart is doing the best it can. david: jack, are there any other winners besides amazon and walmart? jack: it is remarkable how will

this by has been doing, challenging a lot of these things and i think matt's point is a good one. it is not necessarily about price, it is about action and convenience and if you can make the experience much easier, whether it is online or in-store, you are going to gain some share. alix: james athey, can you broaden this out for me? how does it feed into the inflation picture that we wind up seeing? james: as a macro investor, i see that is really the story, we not only have they been able -- have they been able to provide competition, but they have been able to compete on price as well. the reason amazon has been as successful as it has and why we being an other retail successful is because they are able to compete on both, convenience and price and it

really does feel like there is no downside risk, so it looks to me like an industry that has been disrupted and is now consolidating from a macro perspective, this means a have a competitive industry and those who are not immediately able to compete on convenience will be forced to at least compete on price and that just does keep a cap on how much cost increase can be passed through to the customer and how well those margins can be protected. david: thank you. if you are commuting and cannot watch us on tv, you can tune into our colleagues, david gura and tom keene on bloomberg radio. york, this is bloomberg. ♪

taylor: this is bloomberg daybreak. the ubs group ceo. this is bloomberg. now to your bloomberg business flash. activist investor's -- investor -- hoping to win a seat on the board. topntum on their side, the three advisory firm's support him. american international group warns a third quarter catastrophe cost could be as high as $3.1 billion. assessing thetill

damage of the hurricanes that hit the caribbean and the southeastern u.s. howard is firm brevan planning to start two new funds. according to people familiar with the matter, the funds will bet on volatility and interest rate expectations. for years ago, brevan howard had $40 billion in assets. that is now down to less than $12 billion. jonathan: seven months into deutsche bank's latest turnaround plan, shareholders are getting restless. three of the largest are set to be losing -- said to be losing faith. revenue has declined in over two quarters. joining us to discuss is stephen morris, bloomberg's u.k. banking reporter. what do shareholders want to see?

steve: it is all about the same story from the rest of the europeans. they want to see growth start coming through. you have to rally around the bank and start showing the investment bank can perform and they have not managed to do that, yet. only two quarters of growth in his time, there. jonathan: he is the guy that came in to clean up the mess left behind by the former ceo. he has achieved a lot of that. can he achieve phase two and how long are they going to give him? steve: he is due to stay there until 2020. whether he makes it there or not is a separate issue. at the moment, he is struggling because three of the top 10 investors are speaking out against him. he has been accused of not meeting the new largest shareholder, who was cultivated by his chairman, a little bit of tension, behind the scenes.

what cryan needs to do is put in a quarter of growth, and that will smooth things over for a little while and give him more breathing space to do the restructuring behind the scenes. david: to the analysts see any low hanging fruit? domestic german banking says he will not get a hit between now and may. can makeanywhere he progress so he has something to show at the annual meeting? steve: the fastest way is through markets business and deutsche bank has typically been a it -- a fixed income powerhouse. autonomous said deutsche bank's fixed income unit was beyond repair, largely due to staff morale, which is among the lowest in europe according to surveys. he needs to get people going and show an increase in trading revenue. david: has he announced anything that is likely to have an effect between now and may? where is he? steve: aside from giving some

guidance, he has not actually said much which is exactly why the share price is down. when you look at other european banks, barclays is even worse. they face questions about the existence of their investment bank as well. up almost 80% since their new ceo came in. alix: stephen morris, thank you very much. for more, we have james athey and jack ablin. james, shorting some peripheral bonds, is this a call that you want to be buying banks? james: not necessarily. the environment we are in, whereby the capital situation which existed during the crisis was insufficient.

it is the opposite thing that needs to go on when you have economies dragging along the bottom. volatility is low, yields are low and curves are flat. it is not the ideal situation for a bank to expand its net interest markets and make a profit. stevens point about the quickest thing for deutsche bank would be , yes, athe markets normal situation where you got volatility, high yield potentially, monetary policy assisting, but you were not in that environment, so that makes it difficult. you have to speculate or accumulate because they have cut a lot of costs and have cut back their ability to service those markets and in order to expand that business, that is going to include have a cost, up front -- include heavy cost, up front. away from are further any sort of normalization of interest rates or the yield curve.

potentially, the u.s. has deregulation and out expect that you have high-yield and a steeper curve over the next 12, 24 months. think?ack, what do you where do you said? steve: i would agree -- jack: i would agree. the u.s. has a better environment, looking forward for the banking sector. spurif tax reform does some and expansion here in the u.s., that could also boost some loan demand. the needles are not pointing in a great direction. net interest margins are pretty flat, loan demand is pretty flat. trading activity is pretty low on volatility. if you want to invest, you have to make a bet on an expanding economy and perhaps higher inflation and interest rates.

it is a possibility and we are starting to see a little bit of evidence of some inflation, but i would not necessarily hang my hat on that most recent wage number as an indication that inflation is here for the next few quarters. it still remains to be seen. jonathan: how important it leadership? ceoyou putting your money -- on the ceo or the firm? morale is low at deutsche bank. people would feel good about when bobt barclays diamond would walk into the room. do you feel the same way about u.s. players? what i find is, it that theout the people clients want to do business with, the people want to do

business with and to the extent that those people are happy in their jobs, i suppose leadership is important, but i don't think it is as important as the deutsche bank situation. make sure the environment in the u.s. companies are sound and people are happy in their jobs because it is really those individuals that are helping attract that business to the organization. david: one of the things you look for in a leader is not just popularity and charisma, but a commitment to get the job done. when you face a situation where you cannot find organic growth, that is when you start to scramble the eggs. you start selling stuff for buying stuff. -- or buying stuff. is the banking sector something that gives rise to that for a macro point of view -- from a macro point of view? james: the macro environment is difficult for banks because they

are so much at the center of the 2000s period of 2008, seven and 2009. there has been a incredible -- 2007 and 2009. it is an incredibly difficult business, to be a bank and it is a difficult time to take over a bank, carrying over a legacy of problems. banks,ically, for most it is about selling things -- selling things. ablinjames athey and jack are sticking with us. [indiscernible] jonathan: some people to question whether it was gary. alix: the idea that he have it -- if he had a trade he believed

in, he would go and sell it, to top management. check out tv , you can watch us online and interact with us, directly. jgo to tv on your terminal. this is bloomberg. ♪

alix: another thing happening in d.c., today. the trump administration will propose a repeal of president obama's clean power act. joining us now with more insight -- is kit college -- give me the 411. what might we see from the administration? basically, they trump administration is reversing the obama administration on the broad direction of the federal level of controls of emissions from power plants. know,rt, as most people

the obama team was in favor of coal,ess cold, -- cold -- let's eventually get rid of it and move on to renewables. the trump administration is the exact up a set. and want to shore up coal crowd out any further investment in renewables. alix: are usually -- are utilities or power plants really going to go back to coal? are we talking about the margins? kit: nobody is going to build any new coal plants. i would bet on that, strongly. what would happen is if a coal shuts -- coal plant shuts down, it is never coming back. if it stays there with financial if gas prices went up, they would burn more coal. there is some sense where there is more to focus on the end

consumer and how much power prices are going to cost, including industrial users was co2he great good control and renewables. konolige, thank you very much. david: people think the president can just say no more regulation. it will take years through the courts to get this resolved. alix: he did take the twitter and was talking about health care. he said since congress cannot get its act together, he said i will be using the power of the pen to get great health care too many people. bmo, is thef regulation the way we are going to get more equity return? jack: the president does have more influence when it comes to a regulatory environment. david is right, i don't think it is something that he can snap his fingers and implement, right

away. energy, if youon are looking at natural gas prices, i think they are trading at roughly $20 a barrel, equivalent. natural gas is still a very attractive energy source for most utilities, right now. flapping their arms and trying to get utilities to use coal, i don't see as a viable strategy. jonathan: jack ablin of bmo, thank you so much. coming up, another conversation i'm looking forward to. economist,imf chief we are catching up with him, shortly. we continue that count down, next. ♪

jonathan: president trump's allies speak out. they say his feud with the republican senator risks unraveling the white house tax overhaul effort. walmart announces the $20 billion buyback and sees online sales surging. of truth inent spain. a government spokesman says he feels it will be a historic day for catalonia in their push for independence. from new york city, good morning. i'm jonathan ferro. alongside david westin and alix steel. 30 minutes away from the opening bell. .2%story for future use, up on thewo days of losses s&p 500. euro-dollar pushing back up to 118. in the bond market we reopen after the columbus day holiday. let's get you some headlines about the growth outlook. alix: the imf raising its gdp

theth forecast for china euro area and japan. for the u.s. they expect it to grow 2.2% this year. about a .2% upgrade. 6.8 percent this year slowing to 6.5% in 2018. a similar slowdown in europe. euro area growing over 2% this year. they wind up encouraging countries to take advantage of to boostn climate growth potential. they're urging central banks to keep monetary policy loose until they see firm signs of inflation. go fiscal, go fiscal. jonathan: ultimately there is still a message. the progress on debt and reforms risks of sharp slowdown. david: the china number is the

one that really jumps out at me. they are taking it up, not down. alix: they downgraded the estimates sequentially. it is still lower growth. david: it's a downward slope. alix: we will be speaking to olivier blanchard and christine lagarde will be on bloomberg television later this week as well. i bet she has a lot to say about central banks. david: there has been a lot of tussle in washington between the ofsident and bob corker tennessee. it has raised real questions about the progress of tax reform. people close to the president saying this is serious problems for tax reform. kevin cirilli is in washington. trouble is it right now for the president's tax reform on the hill? >> let's pull up the presence latest week that he tweeted out

less than 10 minutes ago. he wrote, the failing new york said little bob corker up by recording his conversation, was made to sound of full and that's what i'm dealing with. he is alluding to the new york times releasing the audio recording of senator bob corker's interview with them from just the other day. this is devastating news for the administration's efforts to a cop was tax reform. simply because senator corker is someone who has a prominent republican stature within the establishment. yesterday i spoke with the administration as well as other aids on capitol hill to republican members. they have really been skeptical the comprehensive tax reform could get done by the end of the year to begin with. this type of disunity especially without a super majority in the upper chamber only makes it more difficult. david: bob corker maybe was never going to vote with the president.

the treatment of bob corker say to senator murkowski, senator collins. the votes he has to get if he's going to move forward. >> that's a great question. what a essentially this does, today is tuesday and all of the republicans will have their weekly lunch in the senate. that chatter around the lunch room table to be quite candid with you is really going to be highly impacted by the disunity within the republican party. voicing whatr is really republicans have been saying in all of the congress for many months right now. that's that they are disappointed to say the least with the lack of ability to get anything accomplished. david: thank you for the report from washington. jonathan: joining us now from chicago is thomas dignan. that imf go to

headline. decent numbers out of china potentially and u.s. growth remains solid. in those forecasts they still haven't factored in fiscal expansion. tax reform, tax cuts in their outlook. should they? >> i don't think they should. i think the level of uncertainty changes day today. foralked about the battle the present and different numbers he has to get support from. from a fiscal standpoint there is a lot the u.s. can do. if i was setting up numbers i think you're better off setting them up without that impetus. jonathan: how significant is the battle between the republican senator? one trump ally saying that actually the president's tax bill may solidify a legacy of failure for the president. words coming from one of his allies. do you think that tussle with senator bob corker is that significant? be. think it can

it depends how much it expands. it's like you have a small fire in the forest and can you isolate it. getime you're trying to anything through congress it is probably not a good idea to battle with your supporters. alix: how do you play this? such a simple question. if you're trying to construct a portfolio and you don't believe this is going to happen what do you do? >> you construct a portfolio based on the valuation work you do. if you are slowly relying on that than you are making a bet on a level of expertise that most people don't have. the direction this can go will be determined by things that are hard to predict. at earningsou look revisions coming down for financials, energy, materials, that doesn't seem to bode well. rely on earnings growth to really sustain the

stock market. what if that rules over? >> to the extent you are relying on tax cuts for the earnings growth you could see a hiccup in the markets. to the extent that tax cuts come through i think you could have a boost. the earnings boost will be pretty significant and right now people aren't from a discount rate factor putting a pretty high discount rate on that. of faith ina lot washington given what's happened in the last year in terms of getting something done on either side. david: if we talk with the white house, gary cohn says growth is going to come from tax reform. if we are not going to get tax reform then where will the growth come from? it doesn't seem to be accelerating. >> we had just gone through eight years of tepid growth. but as a possibility going forward. to the extent you have that and that is one of the things you

see. we have modest earnings growth. i think you do need topline at some point. great margin expansion. i think the hope is companies are able to maintain margins. thank you, thomas dignan. you will be sticking with us. express scripts coming out. it's buying ever core health care for $3.6 billion. that is a managed health care software solution company. a purchase for express scripts for $3.6 billion. taking a look at other equity movers here. walmart, huge buyback. sales growth for 2019 above 3% or at 3%. estimates of bloomberg where for 2.4%. also 40% e-commerce growth. a great big number. we will be digesting that later in the hour as well.

pfizer is looking at strategic options for its consumer health business. it could include spinoff or outright sale. if you tie this into what we is a lot ofoneywell revamping your business that potentially just got too big. jonathan: the message from the imf is growth is solid but now is not the time to be complacent. will catch up we with the man that used to oversee those forecasts. his name, olivier blanchard. former imf chief economist. coming up soon on bloomberg tv. loss on the s&p 500 the first today drop in just over a month. futures are looking firm. up about a quarter on the dow. this is bloomberg. ♪

jonathan: in our revision by the imf with a particularly up a mystic outlook on china. and 6.5% in 2018. the fund warned policymakers not to get too comfortable despite broadening prospects. mohamed el-erian explains the following. it is way too early to declare mission accomplished. joining us now from washington formerier blanchard, the imf chief economist. great to catch up with you. mohamed el-erian says it's the

ok but economy. things are good, but. how do we address the problems that still exist? >> we should always think about the but. especially when things are good. i think things are good. the recovery is strong in most places. he is right. in europe there is still a long way to go. the unemployment rate is still very high. we are seeing the end of the strong pinto of low growth -- strong pinto -- period of low growth. the underlying growth rate seems to be lower before.was we don't understand exactly why. the other is that when things are good we have to think about when is the next recession going to come and whether we have the tools to fight it.

that we haveous the tools to fight it well. these are the issues i would mention. let's pick out the first of those issues to begin with. the idea that we can't get back to 3%. we have an administration that would like the tax cuts to pay for themselves by generate 2.9% growth over 10 years. are you basically saying that's not possible even with what you've seen in the tax plan? is alwaysanything possible. it is likely, no. it is not likely. the big issue in the u.s. and elsewhere in europe is relatively growth is low. you add aging to this and it gives you growth rates which are far below three. there are miracles. sometimes productivity picks up for reasons we don't always understand. it could happen. i don't believe the kind of tax reform that is on the table would generate this but it could

happen for other reasons. jonathan: i want to full this into a paper you are set to publish later this week. within that paper you explore a problem a lot of people are grappling with. the issue of temporary shocks and permanent effects. as we grapple with the everlasting legacy of the financial crisis, what are the temporary shocks that ultimately have resulted in permanent effects? this -- thery of first time we started thinking about this was in the 80's in europe. it looks like each recession led to a higher unemployment rate each time. for a very long period of time. we used a greek word called hysterisis. shocks may have permanent effects. when this stuff is broken it remains broken forever or maybe for a very long time. you may have workers who just give up.

higherow up as unemployment. you can have productivity growth slowing down because some firms go bankrupt. these factors imply that a deep recession like the one we had could have very long-lasting effect. alix: how aggressive does monetary policy need to be in the future to combat that? comes to havesion to limit it as much as you can. it's too late for this one. are some effects still around and should want terri policy be more aggressive. i think in the u.s. today the unemployment rate is very low so that's not an issue. labor force participation has decreased. it may have decreased further because of that. there might be some room to play it. maybe the equilibrium unemployment rate or the natural

unemployment rate is lower than where we are. it could be that labor force participation can be increased a bit. this is airing on the aggressive side of monetary policy. being relaxed about when we increase interest rates. we talk a lot about the composition of the fed and how it's going to look under president trump's hand. it seems he wants to change the composition of the fed. who was a lower for longer interest rates guy but also sees growth potential in the administration in terms of tax cuts. what do you see? don't follow the politics at that margin. done verye fed has well. i hope the president chooses somebody very much like it janet yellen or maybe janet yellen herself. the fed is going about it right.

it's being very careful about increasing interest rates. it's looking at the labor market. for the moment there is no strong pressure on inflation so i think there is no reason to be aggressive about increasing interest rates and i very much hope the fed continues on that. david: we tend to focus on monetary policy. the fed has substantial responsibility to regulating -- one of the things you are focused on is the natures of economic crises that focus on the financial sector. are we set up after the great stress tests andid that sort of capital ratios? >> i think we have made a lot of progress. the nature of financial crisis is something we argue in the paper. it's very complex. i don't think we fully understand exactly the mechanics which lead to a financial crisis. a catlways going to be and mouse game in which new

regulation is put in and the financial sector adapts to it, tries to do arbitrage. the odds of a financial crisis in the short run is low. i suspect it will be with us more or less forever. that's very much the nature of the financial system and its complexity. you mentioned regulatory arbitrage. some people are concerned there is a form going in in the sense that the activities that had been within the regulated banks have moved to non-banks. some of these very large funds have stepped in. is that a danger for the financial system right now? >> it's going to be one of the eternal issues. you basically regulate some playersr and then some go outside the perimeter and you have to extend the perimeter and then some players get outside of that perimeter. i suspect it's the nature of the game. it is basically a game. between the regulators and the financial system. the financial system is variable

very quick. you can never relaxed and think, now we have it. we need higher capital ratios. we need good stress tests. we should be under no illusion that it's going to be always enough. alix: olivier blanchard of the peterson institute, you will be sticking with us. we have the director of research at the imf at 10:30 a.m. eastern today. don't miss that interview. this is bloomberg. ♪

jonathan: protesters gather in

barcelona in support of cattle and autonomy. catalan autonomy. still with us from washington, olivier blanchard. former imf chief economist. begin by getting your initial thoughts on the most recent fracture that has appeared in your -- european politics. >> i don't -- i can't predict what the politics -- how the politics are going to work out. i'm going to make a provocative statement but you have to interpret it as a general statement, not a stamen about catalonia. in a world in which you have the european union i think the scope for regions to actually function well either with a lot of independents or full independence is higher.

we may see more of what we are seeing in catalunya. it may not be on economic grounds a catastrophe. atre are many raw emotions work. from an economic point of view i can think of a europe which would have a number of smaller states and still function well. stalen get economies of -- scale by being a member of the european union. catalunya is an economic powerhouse. spanish j.d.. what do you think under pins this kind of european segregation we have seen historically for a long time? i didn't understand the reference to european segregation. italy historically is a fractured country. regionally it's very separated. this doesn't stem from economics. this stems from culture and

politics. it's not going away anytime soon. regionsnations have which are rich and regions with our poor and there is a strategic decision to stay together because you have a lot of culture and history or to separate because there is no way you are going to make a go of it. there are people in italy who say we are all italians but basically the south of italy has to go on its own. the north has to go on its own. they have to have different prices, different wages. that's a debate which is as old as -- not mankind but fairly old. it will continue. you have the same thing between eastern and western germany. you have the same thing between bavaria and the rest of germany. you have less of that in france fortunately for my home country. i think that's a natural tension. do we stay together because we are friends, we are brothers and sisters, or do we basically go our own way with our own policies? that's an eternal tension. jonathan: olivier blanchard of

the peterson institute. the opening bell coming up next on bloomberg daybreak. we will continue the coverage right there. in the markets, about four minutes away from the open. up .25%. story in the bond market, here we are after being closed for the columbus day holiday. treasury yields coming in by about a basis point at 235 on the 10 year. in the fx market a broad-based dollar weakness. euro-dollar pushing 118 all over again. the cash open up next right here on bloomberg. ♪

jonathan: the opening bell 25 seconds away. after a tuesday drop on the s&p 500 the first to day drops in september 8. we are looking little bit firmer. up .2% on the s&p 500.

dow futures positive. similar moves on the nasdaq as well. switch up the board. here's the story in the bond market. treasuries closed yesterday for columbus day. a basisre lower by just point at 235 on a u.s. 10 year. if you're looking for a reason to sell the dollar may be look to d.c. politics. there is the potential for a tax cut starts to diminish as the president continues his feud with a key republican senator. the dollar index weaker against absolutely everything in the g10 space through much of the morning so far. we are down for a third straight session. the longest losing streak since early august. we haven't seen three days of weakness since then. some record highs to talk of. highs on the dow as well as the nasdaq. you want to be watching ge.

up 1% in premarket and will add to the dow jones rally. let's get to the individual equities that we are paying attention to. express scripts down by over 1%. the news this morning that it's going to buy ever core for $3.6 million. the company gets insurance approvals and negotiates prices with providers. eli lilly is down as lung cancer drug tests failed. aig down .6%. disaster costs may reach 3.1 billion after reinsurance. 600 million more than morgan stanley has estimated. ensures adding to 140 basis revision for the overall financial index. a huge number. walmart up almost 3%. here's the deal. $20 billion buyback over two years. 40% growth in e-commerce sales and growth for full-year 2019 at

or above 3%. ceo doug allen was speaking at the investor presentation. he said the timing was right to act on costs in a more aggressive way. watch the stock as we hit the record highs on the dow as well as the nasdaq. pivoting off of that buyback conversation i wanted to show you this chart. this yellow line is total return for the s&p including dividends and buybacks. the blue line is s&p minus dividends, minus buybacks. you can see just how much buybacks and dividends have supported the s&p throughout the years. were questions of shouldn't you be using your money for something else and will that wind up happening and if it does what does it mean for dividends and buyback growth. investment management portfolio manager where he runs the $6 billion jensen quality holdingund whose tops -- top holdings include pepsi.

let's talk about the drops from walmart. a lot of people would say, surprise surprise. another big buyback. how is the story going to change if at all? >> the difference we would see is they have the kind of cash flow generation that allows them to continue to invest within the business and make the stock buybacks and the dividend payments. what you want to try to stay away from would be those companies where they are doing special buybacks where they are not reinvesting back into the business. that to us is an indication of a lower quality business. we look for businesses that have higher quality characteristics where there is enough free cash flow that regardless of what's happening economically they are able to reinvest back into the businesses on a constant basis and provide a return to their shareholders. jonathan: talk to me about low-quality names you would stay away from. >> it's usually companies that have competitive advantages. real dominance in their markets.

those are the cuts of companies we tend to look for. businesses where there is less consistency in the business. tends to generate more difficulty in terms of what they are able to generate year in and year out particularly when you are in a low growth economic environment like we are right now. to have a fixed number of equities. you're a long-term investor. if you are looking at a new prospect is there a rubric you apply to say this is how much capital investment i would like to see them making in their own business? >> there is. we look at it from the standpoint to get into our universe they have to have a 15% return on equity for 10 consecutive years. that establishes a foundation. within that we want to see high returns on the invested capital because if you have returns on invested capital above your cost of capital you create value and when you create value over the long term that's what markets will ultimately recognize in terms of stock value. david: how much would you like

to see them plow back into the business? >> hips a specific number. it's going to vary by industry whether or not they have the right opportunities from a growth perspective. technology businesses obviously have a lot more growth happening right now. there's a bit more momentum in those businesses. those growth three investments don't necessarily need to be as large in which case you may want to see a more mature dividend and share by black -- buyback play. you currently own 27. you own them for seven years. it's a very longer-term view. can you walk us through your top picks right now? and dickinson. it is very much a low-tech play in terms of health care because it is needles and syringes. there are emerging-market opportunities they have been capitalizing on as people have

started to consume health care maybe for the first time. the consumable nature of what can be is something that very repeatable in terms of long-term growth. at the same time they are making acquisitions. they are in the process of trying to close an acquisition which will give them more andrings to go to hospitals buying systems that want to look at full product offerings which we think will be good for growth for them. the pepsi.ding would strong brand. .verybody knows what pepsi does the opportunity because of how strong those brands are and how much consumers align with those brands is something they consistently reinvest in. as they do that both internationally as well as tobally there is a balance how they move through economic cycles regardless of what's happening in any one particular geography or particular brand. alix: you also have microsoft.

>> from an enterprise cloud perspective they are number two behind amazon. their offerings go to what we think are the higher-margin parts of that cloud offering and they really are integral to the opportunity in the success that those small and midsize customers are looking for. schoenstein,c thank you for sticking with us. more record highs to speak of. i have forgotten how many we have had so far this year. we snapped a two day drop on the dow up 46 points. york, you're watching bloomberg. ♪

alix: this is bloomberg daybreak. you are looking at the hewlett-packard enterprise greenroom. felt --p, morris ops morris on felt -- maurice obstfeld. this is bloomberg. david: general electric has a new ceo and a new director. edgard and joined the ge board yesterday. ge --ad has been pushing as part of the announcement mr. garten said i am disappointed by the recent performance of ge stock but i continue to believe ge represents an attractive long-term investment opportunity with significant upside. the new ceohe sees

as part of the solution. welcome back karen. is this basically conceding to nelson peltz? >> yes. at first they said they have a good plan, we are going to leave you alone. now i think they are forcing their hand. another board member was leaving so the timing worked. the stock has been terrible. ceod: since we had the new everyone is expecting that would really push it up. it is really not had great performance. >> it's down 15% since the little bounce we got when john flannery was announced. there was first euphoria. a change of guard. then they realized this is a $115 billion company. you can't turn it around like that. it's going to be multiple years to get this thing restructured and turn the cash flow around. david: what's the importance of

actually getting a director in the board room? over the plan with jeff in mel. it's not like it's a secret. does it make a real difference does have -- to have somebody in the room and forcing it? >> it's one vote at the end of the day. big things do happen in that room. guys have, what you done hasn't really worked. i think there could be some force change. it out for us in terms of what we saw from honeywell. the spinoff in the industrial specter. when you talk about synchronized global growth you wouldn't think that would be the story. there is a simplification trend going on in industrials right now. people want slimmer more focused companies. conglomerates go in, conglomerates go out.

they used to get premiums, they now get discounts. investors want less businesses. honeywell had talked about going from a to 45. they actually went to six. ge has seven businesses, distinct businesses. there's just a push to divest and shed businesses and focus on fewer things. alix: unless you are investing in tech. thank you. for nelson peltz it's one down and want to go. we are joined on the phone by ali debarge. still with us is eric schoenstein. he manages the jensen quality growth fund. with you.t what's at stake today at the shareholder meeting? >> it's a very important vote in

cincinnati today. for nelsond seat peltz joining the board and pushing some faster changes at company hasthat the been incredibly resistant, frankly surprisingly resistant to adding one board member to an 11 or 12 member board. alix: what's the pushback? >> the pushback on nelson peltz is, we arempany headed in the right direction. i don't think that's wrong. they're probably taking steps in the right direction. we do think it is taken too long to get here. we worry that if there is another hiccup the company won't quickly. we think having somebody who can push them on the board is valuable. the company has been languishing for a decade practically and only over the past couple of years have we seen progress. we think it could be quicker and we want to watch out for another misstep down the line.

eric, how did you vote? you are not really going to tell me. of change couldn't be faster. one of the things it's important to keep in mind is we did go through pretty major recession which completely changed how much the growth and markets is available for consumer tech companies. they have had to reset growth expectations. the company has already been through massive trans information -- transformation. one of the things we found interesting was even though there is this activist investor he has made couple of comments. he doesn't want to change the ceo. he did say that regardless of the vote he's not going to necessarily liquidate his stake. alix: it's not a quick flip. investedoing to remain . you sort of wonder how much of this is really about the strategy and maybe isn't more

that there's harder opportunities for activist investors to make real change. for every success there are ones that don't necessarily work out as well for these folks. david: talk about that strategy. is this more a philosophical question about a global company and whether it should have global brands or local brands? >> it's a great question. the global recession clearly hit procter & gamble. all of their peers were doing better than them over the past decade which suggests there is something structurally incorrect about the way it is built. very much to your question part of the problem is there has been a lack of accountability in the company. in a matrix organization. the company has done a little bit better in terms of getting more accountability at the regional level and the local level. toll who it is losing share

are the local competitors are set up in a way that is locally much more focused. that is one of the big bones of contention by nelson peltz. jonathan: who is doing a good nestle.cter & gamble, >> one of the holdings we used to have that we thought was doing a very good job was .olgate-palmolive similar kind of company. it had been doing so well strategically that it got a little overpriced. all of these companies need to go through occasional transformations where they try to refocus their business. we think procter & gamble is in the middle of that transformation and they need to have the ability to work through necessarily be disrupted by what's going to happen in the boardroom. is it made more difficult if everyone is doing it at the same time given the pressure we are seeing on nestle

and unilever? it more difficult for a whole sector to do the same thing at the same time? >> absolutely. this is where you see that because growth is under pressure a lot of companies are trying to do something. winners ande losers. we think procter & gamble can be one of those winners. same question. which ones are doing it right in the sector? >> more broadly companies who are working together to bring innovation and raise prices in an environment where the consumer growth is clearly slow is our framework. companies like coca-cola we find interesting, pepsi. do have an outperform on procter & gamble hoping they can improve their way going forward. estee lauder is another one where we have a buy recommendation as well. debarge andyou, ali

eric schoenstein. if you have a bloomberg terminal, check out tv . it's really great if you want to check out on something you might have missed. focus in politics in the nerd states and worldwide. the markets don't really care. record highs across the board. up about nine points on the session so far. from new york, this is bloomberg.

jonathan: protesters gather in barcelona in support of catalan autonomy. spanish police are reportedly ready to arrest him if he declares independence. is inergs maria taddeo barcelona with the latest. this word independence, talk to me about how significant it is

and how you can use it in different ways which will have different consequences. first of all i just want to show you what's going on behind my back. it's obviously a real show of force by the catalan police. this is normally used when there is a riot. police are stationed outside the main entrance to the parliament. we have counted approximately 20 officers. the question is what's he going to say. it all comes down to the word unilateral. madrid has made it very clear. it doesn't have to be a written document. it can just be him saying it. if there's any hint of a declaration of independence madrid will have to dismiss him from office. the spokesperson for saide land -- catalan

today would be a historic day. this kind of sets us up for the inevitable doesn't it? >> that's what he said. he was incredibly vague as to what he is going to say. it has been a week where essentially the catalan government has kept us guessing. we don't know what to expect. he is in a very weak position. he leads a coalition of incredibly unstable. the moderate side which accounts for a lot of seats -- this unilateral word, this 48 hour deadline is not something that we like. it's obviously having an impact on the market. the radical side of this coalition is saying we should do it now. there's already protesters outside. off.has been cordoned people cannot get in. it's just for the media. it's a very tense situation. have an idea of

what would happen if he does say the word unilateral. if he does not what to expect over the next 24 hours? >> the spanish prime minister to appeary asked before congress tomorrow in madrid. it will be in response to whatever happens today. the question is if he falls short of saying this he faces a revolt within his own coalition. we know there is serious tension. the radical side once this done today. he could simply say there's no reason for me to actually invoke this article 155 because the legal battle is not really there. a lot will have to do with semantics. if he falls short of expectations he is inevitably going to face a revolt in his own coalition. obviously the people of catalonia. they have been rallying for a bek saying this is going to the big day. there's a huge expectation happening. if he fares to deliver, he's

going to be on the line. david: who does he have on his side. hisainly madrid is not on side. as much as 50% of the catalonian population is not on his side. eu is not on his side. is there anyone backing him? weak forks incredibly that. that's the type of pressure he is under. he has no support. the king coming out last week saying this is completely unacceptable. the european union, we just heard emmanuel macron saying the session done this way, we simply cannot accept. france is a key part not just to spain but also to catalonia. thankind of support other his base and the people who voted for him, it's not the entire population that wants this to happen. it's a very bleak for him. no support at home, no support outside.

in terms of the catalan people it's a very weak vote we saw on sunday. hundreds of thousands of people came out to say we don't like the way this is being handled. you for yournk time. we continue to count you down to that address from the catalan president. the headlines and coverage will continue right here on bloomberg. 26 minutes into the session. after a two-day drop on the s&p 500 we snap back by about .3% on dow as 500 and on the well. record highs across the board in the united states. the coverage continues for our viewers worldwide. that does it for bloomberg daybreak. this is bloomberg tv. ♪

vonnie: it is 10 i want a.m. in new york, 3:00 p.m. in london. from new york i'm vonnie quinn. mark: from london, i am mark barton.

welcome to "bloomberg markets." vonnie: here are the top stories we are covering from the bloomberg and around the world. is tax reform in danger of dying? we will tell you why some of president trump's closest allies are getting more and more worried about the president's ability to deliver. then in spain, a spokesman says it may be an historic day for catalonia, but spanish forces are said to be ready to arrest of the catalan president if he does declare independence. we are live in the streets of barcelona. and the imf has released its global growth outlook. we will speak to its chief economist maurice obstfeld. they are warning policymakers not to get too comfortable. all that, plus this year's