bankers of the world on tender hooks. tom: let me do a foreign-exchange check as we exit. this is bloomberg. ♪ ♪ president trump says his fed chair decision is very close. j powell is the front runner. manufacturing data outperforms. economy maintaining momentum ahead of mario draghi's next move. groundwork to steer policy for decades to come. from new york city, good morning. warm welcome to "bloomberg daybreak." i am jonathan ferro. assignmentis on

today. alix: a really exciting couple of hours lined up. the theme is capital markets. they will be talking about mifid, regulation, tax reform. to help highlight that, i will be joined by david solomon, co-ceo of goldman sachs. jonathan: i want to know who at goldman wants to move from london to frankfurt. alix: nobody. jonathan: nobody i have spoken to. alix: i am asking him that. that is my last question. jonathan: let's get up to speed on the markets. futures are firmer as we end the winning streak on the s&p 500 in yesterday's session. we pop higher. in the fx market, the euro showing a little strength, up 0.1% as we march toward mario

draghi's decision. in the treasury market, 2.40 on the u.s. 10-year. david: thank you so much. that's get an update on what is making headlines outside the business world. emma chandra is here. emma: the chinese party has elevated president xi jinping to the same status as mao zedong. it would give xi more power to enact policies after crucial reshuffle tomorrow when the new topll elect a political body. in the u.s., republicans are sending out mixed signals about the state of 401k retirement accounts. the top congressional tax writer indicated their status is still under review. house ways and means chairman kevin brady says sitting plans

is still on the table. ipoi arabia says the aramco is on track for next year. the government plans to transfer ownership of its state-owned oil company to the market. react.hatzker in -- riyadh. >> it was announced in vision 2030 we should have at least -- under management. emma: global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. jonathan: thank you. president trump is expected to announce his pick for the fed chair. investors agree

on, flatter yield curve from here. all potential fed leaders are seen as more hawkish. you'll spreads will narrow past decade low levels. saywellus now is steven , neill nuttall. great to have you with us around the table. is that the appropriate trade ahead of this regardless of who is the chair? we wouldm not sure think about it as a trade. there are many other things to think about. we know in a relatively short space of time, it is likely the current administration would have appointed five of the seven governors, including the chair and vice chair. it is not just about the chair. the chair is important. it is also not just about the level of the policy rate.

it will be about deregulation. stepping back from that, adding all of that to the potential tax package, it is the overall macro backdrop in the states. stephen, as you sit around the table, what is the conclusion you are making ahead of the decision? the first point i would make is we have a controversial view. we would argue the curve steepen spirit jonathan: how? fives we would argue move higher. you asked about talking to many different strategists, we have seen that in europe with the reduction we believe will happen year,from the ecb next higher european yields is something we think we will see. david: where are you on this

steepening versus flattening on the yield curve? it seems certain. yet.n't see any inflation what do you see changing? neill: in the short term, we believe the market has partially discounted the more hawkish appointments, taylor or walsh. if we get that, we think there will be a backup in the 10-year through the 2.40 level where we are sitting now. in our view, that will be a pretty parallel move across the curve. beyond that, it will be the on the outlook of monetary policy, the outlook of regulation, and whatever fiscal package we might get. jonathan: is this is a difference in degree or difference in kind? steven: i would tend to agree that data is going

to drive things, particularly inflation. i think what is confused -- confuses maybe too strong a word, frustrated, janet has been the low level -- cpi if we see that pick up next year, whoever comes into the fed, they are going to need to respond to that emma particularly with unemployment so low. david: i want to explore this steepening yield curve. it is kind of a brave call. this is showing the data going the other way on various approximations. it is all going down. what is going to turn this around? i think a key point we focus on is the work our rate strategists have done on the reduction in global here we -- qe. a key in the market is why have long-term yields been so low? we addressed not so much the relationship between u.s. qe and

u.s. yields, but global qe and u.s. yields. you will not only see a reduction in the balance sheet from the federal reserve but less fine from the ecb, that will have a fairly significant impact driving u.s. yields higher. jonathan: when qe was first introduced, what it really did was generate inflation expectations and drive treasury yields higher. they pulled back. is kind of counterintuitive to say when they pulled back, yields rollover. it is: the way we look at on a more global perspective. when the fed first started doing qe, they were not alone. you could argue they were successful. since then we have had very aggressive buying from the japanese, very aggressive from the ecb. if you look at it from a foreign exchange perspective, a lot of those investors have looked for yields abroad because yields in

the eurozone, in japan have been suppressed so much that it has pushed money abroad. jonathan: fed chair nomination, who is it going to be? steven: i will go with a very safe bet and say janet yellen. jonathan: really. neill? neill: this administration shows it has a great ability to surprise people. we would probably go with powell. jonathan: neill nuttall and steven saywell sticking with us. fantastic show coming up over the next three hours. u.s. commerce secretary wilbur ross will be joining us in about 40 minutes. the markets, about two hours and 20 minutes away from the cash open after yesterday's losses. 0.1% onpositive about the s&p 500. about 0.25% on the dow. this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak." ship will only be able to about half as many of its iphone x smartphones as planned this year. about 20 million phones will be shipped. apple has been struggling to resolve technical issues with the new face authentication issue. oil production cuts through the end of the year, opec will be working on an exit strategy, the goal to reinsurer investors it will not flood the market with oil once the limits expire.

from vw.ilestone fixtors have approved vw's of missions detection systems. that is your bloomberg business flash. jonathan: european markets are preparing for the end of qe. the european central bank meets in today's gonna and mario draghi is widely expected to announce plans to start tapering bond buying program. the euro is rising. strategists are beginning to agree on one thing, shorting german bunds. for more on how markets are preparing, still with us neill nuttall of goldman sachs and steven saywell of b.n.p. paribas. we think they will announce tapering to start in january. extended forill be

six months. having said that, an alternative may be nine months and 20 at the buying, which would be largely equivalent. jonathan: a consensus bills once again, short bunds, and a great reason to do it. i feel like i have been told this many times. is this time different? steven: at the end of last -- wasl: again last year, it at all-time highs at around 2.20. being short bunds if you got the right end of the curve has been inappropriate trade. n- and april great -- a appropriate trade. we believe investors have misunderstood the breadth of the recovery. david: is there significance to the question of whether he goes to september, not so much

because they are buying bonds, but if it goes to september, they have signaled they are not going to consider rate hikes until after september? our view is the market is focused on the ecb finishing that program by the end of next year with a balance sheet around 2.5 trillion, no more than that. the path to that as stephen suggested is around 30, cutting from 60 to 30, possibly 20. we would expect them to go through to september, possibly giving themselves a bit of room. with this hike coming after that, i think the market is expecting a hike not before 2019. anything from the ecb that challenges that would move the market, otherwise that path of getting to zero by the end of next year is pre-much priced in. david: how potentially

significant is that getting to the end of next year? it would be the first time we had a second central bank coming off of qe. we had the fed saying they're coming off of it. is there importance for the market in the second when saying no more? steven: he gets back to that opening theme in the reduction of global qe being important. we think it is that huge flow out of the eurozone recycling that large counter cycle surplus. view isd make here, our there would be at least a six month gap between the end of qe and a six-month hike. i always think someone somewhere has stumbled on bloomberg tv by accident and they are wondering what on earth we are talking about. i want to make it very clear as

to why. offlix had an offer today $1.6 billion in bonds. you don't have to worry about the duration or stuff, just what is at the bottom of the screen. it had a yield of 4.8%. neill, it interests me because i wonder how much longer these marketes can come to the bonds at 4.875%? how much longer will that last as we talk about the withdrawal of stimulus, the federal reserve unwinding the balance sheet? about these talk spreads, they are at extremely low level. we know credit spreads typically start to widen before the end of the expansion phase of the business cycle. our view is we still have

something in the region of two years to go of the expansion phase. we are getting to the point where we would expect credit spreads to start to widen. given the carryover over treasuries, it is expensive to short at current stages, so we would suggest we are probably some way off that, but you are right we are getting to the end of that phase of the market. david: neill nuttall of goldman sachs, steven saywell of b.n.p. paribas staying with us. this has been an instrument married a here at bloomberg. we unveiled our new european headquarters in the heart of london. it is the first wholly owned and designed bloomberg building in the world. it has been rated the most environmentally friendly office building in the world. you have had a chance to tour this. jonathan: i was fortunate enough to do the walk-through in june. i was jealous of my colleagues and former colleagues in london

who get to experience this over the next decade and beyond. have you walked over there? steven: it looks amazing. it looks fantastic from the outside. almost literally designed by bloomberg. norman foster was the architect. he said mike bloomberg was there every step of the way in the design and construction. it is mike's building. jonathan: a commitment to the city of london as we discussed brexit. that is one hell of a commitment. david: and it is not in frankfurt. jonathan: i don't see many banks or institutions out there building big headquarters in frankfurt apart from the ecb. david: our very own alix steel will be interviewing ken bentsen in washington, d.c. this is new york, and this is bloomberg. ♪

♪ u.k. chancellor of the exchequer philip hammond wrapping up testimony in the house of commons after european president spoke to the european parliament in strasbourg, saying the outcome of brexit is fully in the u.k.'s hands. still with us, steven saywell and neill nuttall. tell us how brexit negotiations are going. steven: our assessment is they are probably going in line with expectations. once the u.k. an ounce their ,xit -- announced their exit the european union was they did not-- stance was they did vote.

surprisingly other discussions around trade have not started. we are not surprised at the lack of progress so far. jonathan: until then, cable hanging out around 1.32, and we might get a rate hike in the next couple weeks. what do you think of that? >> i think it is dangerous. we have a controversial view that the bank of england wants to hike rates, and the main reason is we believe growth will slow substantially next year, we are calling for just 1% growth in the u k next year. one of the strongest indicators we have is the overall net positioning indicator. very few clients actually want to hold long sterling in this environment. they either want to hold short or cover that. the market is flat. there is significant potential for short positions to rebuild

again in sterling if we get negative news. jonathan: that is all well and good. i wonder what that means for the bank of england's that ability if they don't deliver in the next couple weeks. steven: i think a lot of analysts are focused on that. we would look at the probability of a hike in november. it reached 90% in the market, but given the more dovish rhetoric last week, it has eased back to 75%. i think the point we would make here is the bank of england has been clear, if did he continues to come out in line with expectations -- data continues to come out and model with expectations, there is a strong need for a hike. neill: we agree with stephen. we believe the forward-looking view for the u.k. remains challenged. we are flat on sterling. my best guess is our next move

would be to go underweight. david: has mark carney given himself a way out? around?he turn that neill: inflation has been picking up in the u k and part of that is in response to the fall in sterling following the referendum. the thatink looking forward both growth and inflation will start to ease. jonathan: no credible central banker should have changed their view on the next year in two months. what are these guys doing? the benefitive them of the doubt, there could have been a plan here. if they talk very tough on inflation, that could support the pound, and that could mean they don't have to hike. maybe there is a plan to talk tough but not have to deliver

the hike. jonathan: i have seen that before. he was called the unreliable boyfriend. i can see the headline in the financial times if he does not deliver this time. still does steven saywell, neill nuttall. great to have you with us. alix steel will interview ken bentsen, the sifma ceo. david ricks, have eli lilly ceo. about two hours away from the cash open. so many earnings coming out this week. more than a third of the s&p 500 delivers through the week. futures positive. will we step back to another record high? this is bloomberg. ♪

♪ david: this is "bloomberg daybreak." we have some breaking news now, general motors just out with its earnings. it beat on both revenue and earnings per share. they came in at $1.37 per

share. they reported profitability across all segments, including $200 million swing in latin america. this is significant because there is an softness in the marketplace for vehicles. they had some downtime because they were switching models. they showed they can even make money even when there is a bump in the road. chuck stevens will be joining us , chief financial officer, to go over these earnings. revenue coming in at $11.4 billion. it looks like a beat from caterpillar, even after we had those machine sales numbers yesterday that were absolutely solid. expectations from the analyst community has been drifting higher. this is a stock that is up 42% so far in 2017.

we will talk about that company in the old economy later. let's go to alix steel live at the sifma annual meeting in washington, d.c. alix: thank you. i'm joined by ken bentsen, ceo of sifma. he is the guy in the thick of it. thank you for being here. ken: thank you. alix: i want to start with mifid, the evolution of the buy side versus the sell side relationship. what he thinks is going to happen is you are going to have companies able to price research in the u.s. like europe without becoming a residential investment bank. what do you think? ken: that is what we are trying to work for. what we have been working on in the u.s. is to get the fec to int sec to recognize -- sec

order to get the buy side and sell side to comply with these rules, in order to comply we are not in conflict with the u.s. law. this is a very settled matter over many years of discussion. what we are asking for is not the question of whether we are for or against unbundling, but we want to make sure we are in compliance with the u.s. when our clients on either side are complying with european market alix: u.s. banks don't have to worry about mifid. do you agree with that? ken: we hope so. we have petitioned the sec in the normal course of business. they have been receptive to that. we have been trying to bring them up to speed with what is happening in europe and why that would impact the u.s. we are hoping that they are going to come out soon. this rule takes effect on

genworth first. alix: what is the biggest thing you need clarity on? ken: they will need clarity from a dealer side that if they take on bundled payments for research , which would normally have been out of the soft allergan, that they are not deemed a registered investment advisor as opposed to be deemed a dealer. from the buy side standpoint, unbundlen -- if they are they still under the regime that allows for bundled payments in u.s. law? thes trying to rework plumbing in the u.s. so that you are compliant with european law and not tripping u.s. law. alix: what part of the capital markets is not working now? ken: we start from the standpoint of what is. betterss is half-full or

in the u.s. our capital markets are the envy of the world. when you look across the world at the level of finance compared to europe and asia, they would say we want that. we cannot be as aligned on bank balance sheet to grow our economy. there is so much more we could do here. we have seen ipo's pullback over the years. we have seen impacts in the secondary markets, corporate bond markets, where we could do so much better. we think we are at an inflection point now, which is where the u.s. treasury is that, what can we do better in terms of our regulatory structure in terms of recalibration. let's adjust the dials and make sure we are getting the most out of our capital markets so investors can do the best, create economic growth, and create jobs. alix: u.s. ipos are up 108% this year. ken: this year, but

historically, they are down considerably. a good start this year compared to last year. if you look at five years or 10 years, they are down considerably. cftc, ftc,ave the now we can look at what is realistic in terms of rolling back relation to help capital markets. what you think is going to get done? ken: some seeds still need to be filled, but you're right important positions are filled. i think regulators are going to look at the rules methodically. they will get treasury reports. alix: this is a guideline basis. ken: they will say where can we recalibrate on things like supplementary leverage ratio, liquidity ratio, not do away with them entirely, but is this an impediment to u.s. markets? ruy will look at our swaps les. are they creating fragmentation

in the markets? with other line up jurisdictions? way impeding capital formation? we still want investor protection. are is a primary goal, but our rules structured in such way that we can bring small and medium sized companies to market? thoughts.oin ken: that is not something we have been interested. our investors are looking at block chain. alix: thank you for your time. appreciate it. ken bentsen, ceo of sifma. david: thank you. terrific interview. we will be talking soon with eli ricks, he -- lilly ceo. as you commute today, you can

tune into tom keene and david gura on bloomberg radio. live from new york, this is bloomberg. ♪

♪ >> this is "bloomberg daybreak." hewlett-packard enterprise greenroom.

coming up, u.s. commerce secretary wilbur ross live from washington. this is bloomberg. now to your bloomberg business flash. 17% atuarter profit rose fiat chrysler. jeepwere boosted by new suvs. facebookg group for and google wants to get congress out of the advertising business. it is proposing self-regulation instead of a proposed federal law that would require more disclosure for political ads. the federal government will scale back the use of sneak and peek searches for technology companies. microsoft has argued cloud computing is in jeopardy if customers cannot trust their data will remain private.

that is your business flash. david: eli lilly reported third-quarter earnings this my, eating estimates on earnings-per-share and revenue. the stock is higher in premarket trading. we welcome now david ricks, ceo of eli lilly. he is coming to us today from his headquarters in indianapolis. dave: great to be with you. david: most investors would want to know what are the principal drivers for this earnings per share increased? q3 washe performance in very strong, driven by innovative products. topline growth of 9%, driving 19% bottom-line growth. e only group operating expense 3%. this is about our pipeline launching, now products watched since 2016 are more than 20% of

our revenue base and growing rapidly. we will be able to reinvest more of that and deliver value to shareholders. david: in addition to announcing these strong earnings, you also said he would take a strategic look at your animal drug business. where are you on that? dave: animal health is a great part of our business. we have grown substantially in the last decade, more than triple. this paid a key role in growing rapidly. it was important source of diversification. we have added through -- to that business through acquisitions. we have also run organically. we have put that together as a globally competitive top-tier animal health company. we want to look at the best options for that going forward. we will take eight months or so to do that and get back to investors in mid-2018 with our

decisions. david: is this strategically important to eli lilly, or are you looking at a spinoff? dave: we are looking at ipo, spinoff, merger, or keeping it are all in scope. there are synergies with the human pharma business. there may be benefits to independents or another combination. we want to look at all of those. more: you're getting competition in the diabetes area to one of your key drugs. if the fda approves a competitor,, that affect your bottom line -- how might that affect your bottom line? dave: we are used to competition. we have been around for 90 years, also hundred years, and so we are comfortable with that. competition is good for patients. it gives them an option. drug class you mentioned

is already a competitive market. there are six or seven drugs in that segment. stop working for patients and blood glucose levels are climbing, adding tru licity can help control their diabetes and manage the disease much more effectively. only one out of three americans fail.p1 after orals there is still a lot of room to grow this class. david: thank you. david ricks is the ceo of eli lilly. jonathan: from new york, this is bloomberg. ♪

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david: president trump has proclaimed this national minority enterprise week. secretary of commerce wilbur ross will join the president at the white house. with our colleagues from radio, we welcome secretary ross joining us on bloomberg television and bloomberg radio. thank you. wilbur: thank you for having me. david: this week has been around or sometime. what is different this year from last year? secretary ross: i think it is different for several reasons. first of all, the trump administration is much more business oriented in general than the previous administration.

second, many of the moves that are being made, particularly in the tax area, will directly benefit smaller companies. those aree, most of now llcs or limited partnerships or some other form of pass-through income vehicle. the trump administration is proposing to cut the tax rate peak of the % downdual rate of 39.6 to 25%. these are young companies growing, have to make capital expenditures, so the ability to write off capital expenditures immediately will be a very powerful boost to their cash flow. the third thing is that by giving awards to the folks that we will be doing today, we are

emphasizing some of these spectacular successes that individual minority dollars have been able to achieve -- entrepreneurs have been able to achieve. overall, these tend to be relatively small businesses. minority enterprises in the u.s. that have paid employees. those entities have a total of andt 8 million employees $1.1 trillion in revenue. there is plenty of room for them to grow. ist of the role of the mvda to facilitate that growth by cooperating with the small business association and in terms of exports incorporates with the foreign financial

services, and those have some cities in 100 and 60 embassies overseas. it is a very comprehensive package to help minority enterprises. david: you were for to some of the ways in which the tax reform plan that has been suggested might help minority enterprises. one of the issues in washington today is what part of the overall outline are sure to survive, in which ones wont'? won't? we have heard the most about the middle class tax cuts and the pastor t -- pass through tax cuts. ross: it has certainly been part of the basic program for a while. it is a basic element because of its impact on small business, and small business is also reform the another

president intends, and that is the repeal of the death tax. it is that enough to die. fined for not be doing so. that is a real problem for small businesses, particularly farms, which tend to be relatively illiquid and often have to be sold just to pay the tax. david: there is a perception that the estate tax benefits only the very wealthy in the country. do you disagree with that? secretary ross: the reason it benefits people over a certain size is everybody under that size has been exempted. the question is is there any fairness to having just one portion of the population pay a death tax on values that largely have already been taxed? most private businesses start out with very little capital, so

by the time the entrepreneur dies, what has been built up is retained earnings on which tax has been paid. it is a little unfair to tax that twice. not,: it may be unfair or but is it possible to square the passion to get rid of the estate tax with the passion for middle-class tax cuts. it doesn't appear that they have much to do with each other. secretary ross: they are separate issues. you could argue, and we do argue that the corporate taxes, the normal c corporate rate and the rate for flow through benefits the middle class because when you think about the components tax isbusiness's costs, one component, wages is another component, and material and equipment costs is a final component. the degree to which you have reduced the cost of one, it is

logical to think that there would be room to improve the amount allocated to some of the others, particularly wages. david: thus far will we hear from the administration as well is the wonderful tax cuts everybody is going to get. there is not much talk about how that is going to be paid for. as secretary of commerce, the quarterback of the economic team for the white house, how concerned are you about some of the things we may have to do, such as cutting back on business interest rate deductions, cutting back on 401k inductions? -- deductions? ross: the president has announced that he intends to get rid of the special gimmicks result in very low taxes for higher income individuals. 80% of the state and local

exemption goes to the upper 20% of the population. another example of what the reducent is doing to to the discrepancies. jonathan: senator bob corker is doing the rounds on the u.s. networks today, and he said the president from leaving the tax overhaul to congress would be the best way to have success. what do you have to say to that? secretary ross: congress is being asked to draft the details of the program. the president has put forward a framework, his objectives. there are lots of details to be ironed out, and that appropriately is the work of congress. committees have to do all the little comments and clauses because at the end of the day that is what

makes or breaks the tax code. david: the constitution also gives it to congress to do these things. on the other hand, have you ever the major legislation pass congress without strong leadership from the white house? are we getting that? secretary ross: the so-called affordable care act under the obama administration certainly had relatively little detailed guidance from the white house. it was basically done in the congress. that is the biggest piece of legislation from that administration. david: what is the next step? what is the timetable? hopefuly ross: we are to have this voted in by the end of this calendar year. the budget resolutions that have been going through are a precursor to that. in order to get the tax program

through, we will need to avail ourselves of reconciliation. reconciliation means that you basically only need 51 votes. given the very partisan nature of congress right now, anything that needs 60 votes is going to be very suspect. the budget resolution and its provisions that there can be a deficit of two 1.5 trillion over o $1.5 trillion over the 10 year cbo report. jonathan: i wonder if you have spoken to the present about who you think would make the best fed chair for the country. secretary ross: there have been discussions for a lot of us. i will not comment publicly until the present makes his determination. he has asked for a wide variety of people to give him their opinions.

[crosstalk] jonathan: the front runners at the moment seem to be jay powell and taylor. you have a preference? secretary ross: i don't think i will be discussing publicly the choice. it is an important decision. he is taking it seriously. he is doing considerable vetting. david: thank you very much for being with us. great to have you back. secretary ross: thank you. david: we turn to kevin cirilli, who has been listening to the interview. what do you make of it? kevin: great interview. first and foremost, they are still ambitious on getting that tax reform done by the end of the year. that is what you also heard from secretary ross about how they plan to combat allegations that this is just for the wealthy.

you are still trying to hear the administration craft that message carefully. the fed, he did not say who he wants specifically, but that is still very much on their minds. congressalk turns to finally getting that budget finished. i am hearing on capitol hill that the house is likely to take that to a vote if not tomorrow, definitely by thursday. that will keep them on their timetable. they say they are hopeful they will get it done by the end of the year. you are hearing some folks say it is not done by the end of the year, it could be done by january. jonathan: just to summarize, looking through the rest of the week, what are the key times you're looking for on the two subjects, fed chair and tax cuts? chair,any day on the fed

but in terms of tax reform, thursday. that is when the budget will hopefully be done. jonathan: thank you. coming up on this program, look out for an interview with alix steel alongside david solomon, goldman sachs president and co-ceo. markets, here in new york city we are one hour and 30 minutes away from the cache open. abouts are positive, up 0.6% on the dow. looking positive on features after yesterday's marginal losses. for our audience worldwide, this is bloomberg. ♪ jonathan: president trump safety fed chair decision is close.

eurozone any factory output outperforms today's gary shilling an economy maintaining momentum ahead of the next move by mario draghi. a name added to the constitution laying the groundwork for him to steer policy for decades to come. from new york city, good morning, this is bloomberg daybreak. i am jonathan ferro with david is an and alix steel washington, d.c. and she will catch up with us later. the market action this tuesday, we snapped a winning streak in yesterday's session and pulled back from an all-time high. s&p 500 futures positive. president -- a decision from president draghi on thursday about the asset purchase program and treasury yields back to 2.40 on a 10 year for the first time since may of this year, going higher for basis points on treasuries.

trump is expected to announce his pick for the fed chair any moment. uncertainty lingers on who will lead the federal reserve, one thing many investors are agreeing on, a flattening yield curve, whether the resident jesus taylor, yellen, others, or others more hawkish, strategist predict yield spreads will go fast -- joining us is markus schomer from pinebridge and terry simpson. is that your blue -- view at bloomberg "surveillanc -- >> spreads are tight and one of the reasons we think about credit spreads in the fixed income market where we try to say to clients to have cautions at these levels as it is tight and somewhat expensive. you want to look at what the fed will do and the next chair and holdover with caution. not tight spread compression going forward. you gon: at pinebridge,

across the different candidates for fed chair, a big spread between them, what are your thoughts on the individuals? >> the most interesting thing is that nobody seems to care. i talk to our traders yesterday about this. they had no preference. they think the market will shrug it off. the market has been buffeted by so many things and bailed out by the constant qe around the world, not just in the u.s., in europe and asia. they want to see action before they react to the potential risks out of the choice. david: if this assumption is right, no matter who takes over the fed, they will be normalization, maybe gradual, not seeing a lot of inflation or growth, the back and does not come up, that leads to a flattening yield curve, if that

is right, what does that do to an investor? --if that is right, you will there will be an adjustment to the backend as we get better global growth and inflation expectations shift. a steeper yield curve right now, the market pricing in the short end effect. then again, the idea that long on interest rates, still a huge demand for fixed income compressing along in the yield curves and not a lot of inflation expectations built in. that will keep the yield curve flatter but we do not expect that to persist. jonathan: what will drive risk assets in fixed and to come -- fixed income? >> it -- there will be risk appetite across on the metals. credit spreads are very tight. we understand this is part of the central banking portfolio rebalancing but you want to step back, some company have caught

-- some companies have gotten better but a limit to how much spread it -- credit spreads can get tight. .avid: thank you general motors release its earnings for the third quarter over 30 minutes ago and it beat estimates with shares trading out in premarket. chuck stevens, their chief financial officer is there to take us through the earnings. you beat on revenue and on earnings-per-share. a nice story, what is the real story. there is some softness in the vehicle market. >> i would say that the story from our perspective is the third quarter was very much on plan, when you look at production downtime we had any production being down 26% year-over-year. within that, we generated solid results at at the enterprise level $2.5 billion of profit and 7.5% margins in north america

importantly $2.1 billion and 8.3% margins which demonstrate the resilience of the business, even in a quarter where production was down 26%. we took a big step towards getting our dealer inventory in line as we go through the fourth quarter. we expect our dealer inventory at the end of 2017 will be lower than 2016, which will set us up for a good start in 2018. david: in inventory, the need to get that down. if you broke out the 26% reduction in production between softness in the marketplace and planned changeovers in models, how would it break down? ,> roughly 50% -- roughly 50-50 half of the reduction over 100,000 units was related to planned downtime on full-sized trucks and crossovers. as we prepare for launches. the other half was to ally

supply and demand around passenger cars primarily as we see segment shifts. we made a big step, taking her inventory down from 980,000 units at the end of the second quarter to 860,000 units of the end of the third quarter. rightsizing our inventory and we still expect to end the year somewhere in the range of 800,000 units, which will be down 50,000 units year-over-year. david: you mentioned the product mix, you end up with general motors being a truck company come is that where you are headed come ultimately? the end of being a full line manufacturer like we are historically with shifts different than they have been in the past. ,rucks, full-size suvs certainly, crossovers finally imported, one of the strengths we have any reason our business model has been so resilient is our crossover launches. those segments continue to grow.

passenger cars are still important, the compact segment is one of the largest in the world and in the u.s. we would expect to continue to compete and win in that segment going forward. just of a lower-level that historically. david: you did well in north america and china, let's talk about latin america, you have a big swing from 100 million in the red to $100 billion in the black, what does that tell us about you merging market business? >> great question. first, stepping back, for the first time since 2014, we were profitable and all reporting segments and for the first time since 2014, we made money in south america. our team has done a great job rightsizing the business and our breakeven point is 40% lower now than at the peak three or four years ago of the south american and brazilian industry.

a right sized business model and right size call structure with highly leveraged to the upside. thinking about our next generation product, we will start to launch in south america over the next year or two, that will be a big driver of significant earnings improvements and we are constructive and bullish on the business model in south america. let us to the global architecture which is so important to general motors strategy and how it fits with nafta. we have gone through four rounds of negotiations and not going well from the outside it seems, they have a round five and round six. how concerned is general motors about where this negotiation is going and what the you know about the heading of it? >> at the end of the day, i think we agree that nafta has been important from an auto industry perspective and important in north america from an economic perspective. modernizing nafta is important to continue.

we support modernization of nafta and building a foundation for long-term growth and long-term success of the auto industry in north america. we will continue to engage constructively with all of the stakeholders working on nafta to ensure we come to that outcome. , there forward basis will be more to come and more information from that perspective. we are focused on engaging constructively with all of the stakeholders to end up with an outcome that works for everybody. david: one of the most important jobs as a senior executive in general motors is convincing the street you are a tech company and not a car company. where are you with ridesharing, electric vehicles, autonomous vehicles? about theu think current company, we are a tech company already. our vehicles are highly technical with millions and millions of lines of code. if you look at technologies we deployed like super cruise in the ct6.

that is a misnomer. on a go forward basis, i like our position with a very strong core foundation that continues to develop and launch new technologies and new capabilities, while we are putting ourselves at a leadership position in the future of transportation as a service. the future of electrification. i do not think you can do one without the other as it is critically important to have that capability, the engineering capability to launch these and develop these products safely. we already are a tech company, david, and we are showing that capability in the technologies and the leadership position we are sticking in the future of personal mobility. david: thank you for being with us. chuck stevens, the chief financial officer of general motors. jonathan: dow earnings so far. at $1.76 and revenue

for the third quarter in line of $5.75 billion. --parative store sales at positive 3.4% with the print positive 4.1 percent and customer traffic with a bit of a comeback. up 1/10 of 1%. that stock has had quite a year. caterpillar, mcdonald's all delivered and futures on the dow up 145 point. coming up, a tax reform conversation with mark warner joining us to weigh in. -- a nice morning of earnings as the dow outperforms with futures positive. from new york, this is bloomberg. ♪

>> this is bloomberg daybreak. i have your bloomberg business flash. third-quarter profits rose better than expected 70% for fiat chrysler, the earnings -- .7% for fiat chrysler will only be able to ship half as many of its new iphone x smartphones as planned according says 20 million phones will be shipped as apple has been having problems with technical issues that involve the iphone x's new identification feature. barclays is risky business with the british bank pushing into riskier debt trading and return to dealing and complex credit products in the u.s. their ceo is encouraging the

investment bank to take more chances to recapture the market share. that is bloomberg business lash. jonathan: the european central bank the main event, it includes -- a meeting concludes in today's and mario draghi expected to announce plans to tapering bond buying program. joining us is maxime sbaihi, our bloomberg intelligence correspondent in london. talk to me about the base case and what economists are expecting this thursday. >> the consensus for the ecb to announce a tapering on thursday and go for nine-month extension at 30 billion euros. we expect a shorter time horizon , six months at 40 billion because this is what they managed to do last time. in december, they tapered and made a decision. we expect them to follow the guidelines of the december precedent. jonathan: i understand how that may satisfy the hawks, the

resident of the bundesbank, talk about the kind of medication mario draghi can offer on thursday, if a push to taper timeline or a reduction, how they satisfy the likes of the chief economists who still is concerned, looking at the inflation target of where inflation is, about where this is headed in the next couple of years. an easy task for mario draghi to find a compromise because if you look at the ecb, none of the 25 members have been against tapering and none of the members is for a rate hike. they are on the same line. a good compromise would be a six-month extension as it would bring the qb horizon much earlier --qe horizon much earlier and keep it open ended which is the main criterion -- priority for the ecb is to keep flexibility in the program and an open ended nature of the program which will guarantee flexibility. jonathan: and terms of the

politics, spanish politics has been a total mess. the market has not. because of what president draghi has been doing. how will he tackle that subject this thursday? >> he will probably get the question. as always, he will answer that he is looking at the eurozone as a whole and that the catalonia crisis is not something central bankers are looking at. you saw in cyprus, and greece and he has the same answer, he does not want to get involved in national politics and will just focus on the eurozone as a whole. greatan: maxime sbaihi, to get your wiki ahead of the ecb decision on thursday. , european stocks edging a little bit lower on the stoxx 600 i-8 10th of 1%. -- a 10th of 1%. around the table on the markets

with us joined by terry simpson of blackrock and markus schomer of pinebridge investments. the short, i have heard this before. [laughter] heard ago again and from country to country to country, not delivering in a massive white. extension,ave this as we get the meeting, one of the things we will think about and importantrd, about this open ended nature, the ecb delivering the communication to the rest of the market because, if there is inflation trouble in dynamics, as much as the aggregate story -- -- thatzone, that is important, david: -- can you imagine a scenario wheredavid: they pull back on qe and the bond yields drift lower? >> yes, it will be an extension.

there will be more buying, a reduction but more buying than appetite for here i was in the europe talking to clients and they are not worried about this. because of the open-ended nature of the program. whether six months or nine months is almost irrelevant for the market and much more important for the ecb internally. if they give themselves nine months, they have more time to deal with the, i am sure coming german demand and negative interest rates which is the bigger issue for mario draghi coming in the first quarter once the german government has allowed the cut -- the coalition is in place, because to end negative deposit rates will get louder and that is the problem for the ecb. david: is there any scenario where they would start raising rates before the beginning of 2019? >> it doesn't appear like it. the ecb is winding -- committed to winding the taper down.

we will get more details as we go forward in the meeting. it seems like they want to announce a reversal of qe, a tapering of it, then get into rate hikes. jonathan: investors are saying short buns, a picture in the german press that says "go long and stay long." it was the german finance ministry celebrating the tenure of wolfgang schaeuble and they do it by dressing in black and standing in 80 -- zero. [laughter] not know if you can look at a picture and make a definition. jonathan: culturally, this is where things will stay, balance budgets in germany. >> there has been tremendous improvement in germany and you have to recognize that. it has been reflected in assets, particular risk assets in the eurozone. there is still work to be done. >> this was to say goodbye.

that is the big change coming. there is anus -- >> article in the german press how much this coalition will spend, adding up the promises, 100, 150 billion euros. i am pretty sure we will get looser fiscal policy in germany in the next few years. david: terry simpson, blackrock and markus schomer of pinebridge investments will both be staying with us and we will talk to steven swartz coming up, the first president and ceo. ♪

david: this is bloomberg, i am david westin. u.s. -- --will tell you this graph

blackrock may this goal. -- made this call. and we have markus schomer from pinebridge. >> the graph is indicating that credit spreads are almost multiyear type levels, from a violation respective, not as attractive. technicals, investor position across the market, it seems to be an extended tray for people position for u.s. credit. at this point, we are advising clients to take down credit risks, particularly go to neutral. not getting out of it but not advising clients to adding exposure. david: why don't we see default rates go up, normally with this kind of phenomenon, people are making dumb loans. >> that is a fundamental argument based on bond protection and there has been less covenants. because there is such a demand for yield, the issuers have the

power. fundamentally, we worry about, the asymmetric risk profile where there is probably more downside potential that upside potential. we are calling caution to investors. jonathan: we could see something counterintuitive in europe were spreads have really tight and when the economy improves and the ecb backs away, typically expected to get tighter. could we see something different this time? >> i think it is the same dynamic and europe as he described in the u.s., a big demand for yields and the european story is crazier where high-yield is trading more or less in line with u.s. treasury's. the evaluations are more out of line. the demand is there. do not forget the default rate is not going up because the cost of financing is not going up. if the fed raises rates more times, do we then see the default rate go up? that is the risk looking forward in terms of u.s. monetary policy. nordstrom came to the

market and were trying to raise money for the buyout, lenders wanted 13% and they could not come up with -- call set up, -- call that up. , not always all in risk and buying everything, you have to step back, particularly when credit spreads are tight. you can look at individual credits and say what is the story? when interest rates are a little bit higher, a data on trade, no longer a data on trade. jonathan: terry simpson and markus schomer, thank you. coming up next, mark warner will join us. ♪

jonathan: one hour a trade away from the open in new york city as we will streak in yesterday's session and pulled back marginally from an all-time high. . firm recession as features

s&p 500 up a 10th of 1% and more so on the dow. had decent earnings from general motors and solid earnings from caterpillar and likewise from mcdonald's. that is your equity picture. the bond market story is 240. a move through 240 for the first time since may of this year. fx market, dollars frank is concerned, against sterling but not really against the euro, 1.1760. a couple of days away from decision time for president draghi and the european central bank. let's get you up this be on headlines outside of the business world with emma chandra. >> president trump and republican senator bob corker added again over taxes. bob corker calling on the

president to stay out of the tax overhaul efforts and expressed concern the white house is making the protest harder. president trump gave a response and said bob corker could not get elected dog catcher and deciding tax cuts. the communist party in china has elevated the president to the same status as mao zedong, they revised and constitution that has his name under the guiding principles and get some more power to enact policy after a crucial reshuffle tomorrow when the party will elect a new politburo sound the committee, the country's top political body. saudi arabia says the ipo is on track for next year, the government plans to transfer ownership to the state point oil company to the sovereign wealth fund and give it a huge amount of money to invest. the head of the fund spoke to erik schatzker. , we shouldnnounced have in 2030, $2 trillion of assets. interview complete

with him at 10:30 a.m. new york time on bloomberg tv. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am emma chandra. this is bloomberg. david: hearst is one of the nations largest diversified media companies with major interest including cable television networks, espn, newspapers, 300 magazines, including fashion titles harper's bazaar and elle and will require a global health content business. joining us to discuss what it takes to manage a media business in this internet age is there ceo steven swartz. hearst is very big and what we think of as old media. -- big inagazines magazines with espn, how does it look to a see you managing a more traditional part of the

media business? many people think it is a melting iceberg. >> we are 130 years old. today, we will have our six straight year of record profits. of old media and any sector of media is certainly not true. look at the history, we went from newspapers to magazines, newspapers survive, magazines to radio and radio to television and television to cable television and now streaming television. new brands get created an old brand sometimes have their growth temporarily interrupted. we do not have a history of media brands going away. david: you have very old media brands, do you see -- how do you avoid -- can you grow the top line or is it a matter of cost control? >> various media sectors are at different points, one of the

earliest to get hit or newspapers and we took our hits 2008, 2009 at, this is our six straight year of growth for hearst newspapers under our fabulous president. we are seeing revenue growth, the san francisco chronicle, which struggled for years in the digital age, is now nicely profitable and growing revenue. it depends on where you are. the cable television networks have had the longest uninterrupted run. they are seeing disruption. their growth is slowing or interrupted. you just have to adapt and get your cost structure under control. and you have to find new sources of revenue growth. david: espn has been a big player for hearst. normally bob iger is here defending espn. where do you see espn, can it

continue to grow? >> all cable-television networks are being disrupted. it was the best business model in the world, getting paid by every household in america. now technology is allowing a small number of households her year to say that -- per year to say that it is not for them. most people still love television and i think espn is the most unique of the cable television assets. fabulous leadership from john skipper and bob iger does a better job than i do and a great job of leading that enterprise. david: it is not just the traditional media hearst is involved in and you have been in the forefront of going into digital, often business to business, how big a portion of -- is that? >> a third of our profits come from business data and software.

the biggest business we have is the bond rating group and financial information business. it is having a phenomenal year. that is the biggest asset we have in a group of assets that include phenomenal health care data and software businesses. aviation data, automotive. the whole business-to-business sector is an area we can cut through the clutter of consumer media and find tremendous growth. david: what about margins in that part of business? >> in the business-to-business, whether data or software businesses, are very healthy. we still have very good margin businesses and what you would call traditional media. david: thank you, steven swartz, ceo of hearst. next, we talk with democratic senator mark warner of virginia. this is bloomberg. ♪

>> this is a bloomberg daybreak, i am emma chandra and this is a greenroom. coming up, alix steel interviews david lonmin from a meeting in

washington. this is bloomberg. ♪ had aeral motors third-quarter profit that beat estimates and they cut north american vehicle production by more than a quarter, mitigating the impact of suv sales. technologies has raised its forecast full-year for the second quarter in a row, they make products ranging from elevators an aircraft landing gears, increasing production of a new jet engine. they are making a major expansion into aerospace. customers coming back to mcdonald's, for a second straight quarter increase of u.s. after years of declines. mcdonald's same-store sales in the u.s. beat estimates. that is our bloomberg business flash. david: tax reform is at the top

of the president's agenda. as we just heard from wilbur ross, hopeful they can get it done this year. for a report on how likely that is, let's go to our chief washington correspondent kevin cirilli. hill, all eyes on capitol particularly the house of representatives set to vote on a budget passed by the senate last week that would advance this timetable for tax reform by the end of the year. as we heard from wilbur ross, a lot of attention on how they will pay for this $6 trillion plan. president trump said yesterday that he will not touch 401(k)s -- good news for asset managers like blackrock and aig. it drew criticism from senator bob corker, republican from tennessee, who said on good morning america this morning

that he thinks the president should let congress do it. as we heard from -- we heard from wilbur ross, that is ok with the administration. i anticipate the tax-writing committees will get to work, have public hearings on the tax reform legislation by next week at the earliest. once they get the budget passed in the house. jonathan: this would not be the fourth government floating an idea and backtracking, we had the border adjustment tax, just not for state and local taxes, talked about 401(k)s, then backed off from them all. what next? kevin: it is a $6 trillion plan at all of the things floated for how to pay for it will anger or upset various financial services constituencies. state and local deduction tax has its critics. why thehappens, that is crunch time will happen in a

vacuum for when this is being written. it will bring out all of the lobbying class in order for there to be a widespread debate for how to pay for this. they have to come up with six train dollars to pay for this -- $6 trillion to pay for this and if the administration has its way, it will be done by the end of the year. david: six train dollars will get your attention -- $6 trillion will if your attention. mark warner, we welcome the democrat from virginia, he comes to us from the russell senate office building on capitol hill. we want to talk about tax reform but first the bill you are proposing with co-authors including john mccain, tell us what you are trying to accomplish. sen. warner: over the last 10 months, as one of the coleaders of the investigation into the russian meddling and what we found is russia interfered in our elections, they tried to

test the security of 21 states electoral systems. we found a sophisticated way they used social media to .romote division, to get chaos we are saying, digital advertising rules have not kept up with the rules already govern tv and radio. we want to make sure there is the same kind of disclosure role, somebody runs a campaign advertisement for or against me, i should look at the advertisement and there should be some tagline. we are asking the companies do use at least reasonable efforts to make sure that foreign-based advertising, already legal, doesn't -- already not legal, does not unduly influence our campaigns. as a former business guy, tech guy, i do not want to slow down and the vision. -- slow down innovation. but we do need to make sure we

restore trust. i believe this is the lightest touch possible and i hope we see these companies support this legislation. david: bloomberg reports that the trade association for international -- interactive advertising will go to the hill saying it should be self regulation. is that good enough? sen. warner: i do not think that cuts the mustard. they camefacebook, forward and told me about the fact they took down a thousand accounts in france because of russian inter-parents -- interference during the french election. others in the united states. the russians interfered that much if not more in our elections then the french elections. this is the lightest touch possible and i think we need to at least equalize the disclosure requirements between tv and radio, and digital advertising. this is where the growth is coming in political advertising,

it went up to $1.4 billion in 2016. it will beampaigns, more because you can target down so specifically. are meant to ads appear and then disappear. whether you are for or against an issue, these companies retain that context so people can get a look at it. david: a lot going on on capitol hill and let's turn to tax reform. the president said it is a big priority. anyway the democrats, you as a democrat, can play a constructive role in tax reform? sen. warner: i wish, i spent years trying to get on the finance committee. i was the founder of the so-called gang of six that was trying to implement the simpson bowles plan that would be tax or form and bring down our debt. the plan never got a full hearing and now looking at $20

trillion in debt. i heard your earlier report, tax reform is hard. if you're going to bring down rates and simplify the code, i know we need to do that as a business guy, at the same time, $20 trillion in debt, you should not do a tax cut plan using borrowed money. you have to make trade-offs. there seeing, anytime republicans float a potential pay for that the president or somebody else should sit down. i believe it would be easier to get a bipartisan plan with 65 or 70 votes out of 100, rather than what the republicans are trying to do right now, locking the door to any democratic input and say they will try to get 50 out of 52. you have to were three holding up -- two or three holding up the whole process and not good for those who believe we need a simpler code. david: you referred to your career in business and put that

hat back on and take one specific asset, the president says he wants growth and american companies are not competitive internationally because the corporate tax rate is so much higher than elsewhere. theou agree that getting corporate tax rate down would help u.s. business and growth? sen. warner: i would. we had the world worst and most complicated tax give. we have the highest nominal corporate tax rate. revenuesou look at our , tax revenues as a share gdp, out of the 35 advanced for thrown nations, america false 31st out of 35. we have not only a high rate in terms of revenue collected but the bottom of the barrel. the reason every other industrial country has dramatically lowered their corporate rates to high teens and 20's and our effective

corporate rate is in the mid-20's. to bring it down lower, they have some kind of mass consumption tax. so they can raise more revenue than we race and yet offer businesses a much more competitive international rate. you.han: thank coming up, a rare interview with the head of the saudi arabia sovereign wealth funds and how their investments will be used to diversify the economy in the kingdom. if you have a bloomberg terminal , check out tv and watch us online. .nteract with us directly go to tv on the bloomberg terminal. from new york, this is bloomberg. ♪

♪ jonathan: a rare and exquisite conversation with the ceo of the saudi arabia public investment fund this lt hopes to grow

assets by 2025 to $2 trillion and returns of 9%. he spoke to erik schatzker earlier today. local, domestic and less than 10% internationally. the diploid investments. -- deployed investments. this number will continue. we will have cash. portfolio,w in our that is one of our objectives, the growth of our folio. -- portfolio. and025 -- between 2020 2025, it will come up in the in the national front -- international front to the 5%. -- 25%. >> where is that cash coming from?

we look at the investments we have today, -- we need to look at leverage. that is what everybody is doing. it will be limited to the same things. use theroject, we can forrlying project as a base therage with no recourse to risk of the portfolio. up,ow do you plan to lever and how much leverage are you comfortable using? >> we just hired a new head of treasury and corporate finance. that is part of his mandate. he will be coming in within a month or so. that is one of the questions we will be asking him and hopefully

have a better answer. >> at the moment, do you think you want to lever up one time, two times, or less? >> it will be less. >> in what neighborhood? >> we are still working our strategy but conceptually have it and numbers yet to come. >> with the intent of improving returns? >> absolutely. >> you have made investments in individual companies, not just in saudi arabia, uber. will you continue to do that? >> yes, not only uber. we have done costoc in south korea -- costco in south korea. item. a big ticket , if we we will continue

see good opportunities then we will continue. we had a good process. governance and process. the number of people in 2015 was less than 60 and today it is above 200. in two years, it will be about 500 and in 2025 over 1000. the number is growing and we are bringing experts, in addition to advisers we work with. the best of the advisors from all over the world, from saudi arabia, new york, everywhere. if you look at the brainpower and the muscle power we have, it is really big. at the same time, we said we will not go to the investments until we are more comfortable. g companies is enough but

we will see more in the future. saudi arabia -- how we get those big returns leveraged? the other conversation -- is the ipo happening? david: what other big investments -- one of them is uber, did not work so well. jonathan: coming up, more conversations. alix steel will interview david solomon, the president of goldman in washington, d.c.. from a winter he new york city, this is rumor. -- 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. jon: president trump says the vision is very close --

economists single out j powell as the front runner. eurozone manufacturing output outperformed. the economy maintained the momentum going into draghi's next move. caterpillarts from -- a big rally at the open. good morning. this is "bloomberg daybreak." alix steel is on assignment. we are 30 minutes away from the opening bell. dow futures up big time. s&p up .2%. the euro advances ahead of that president draghi decision along with the governing council of the ecb on thursday. treasuries back to 2.40. futures positive. let's get some earnings. abigail: lots of earnings movers

this morning. gm of 3% on a big third-quarter earnings am nevend revenue beat. 18%, $39 billion in revenue. it's the first time all the company segments were profitable since the fourth quarter of 2014. strength being driven by suv's. the company is successfully selling itself as a technology company. caterpillar set to open at an all-time high. shares soaring -- they put up a ceobeat, the fourth or the best for the ceo -- the fourth beat for the ceo. it looks like the gains will continue. all of this being driven by strong demand from china. whirlpool plunging 11%.

they missed third-quarter earnings estimates. they slashed the forecast by 9% in the full-year, well below consensus. they were dropped by sears due to a pricing dispute. aluminum and other industrial metals soaring. the stock was downgraded by ubs and rbc. these shares are really taking a hit this morning. jon: what a run for caterpillar. they will be a bit more disciplined. it has turned. david: they had such a long foul period. now, it is turning around medically. jon: the federal reserve horserace is nearing its end as president trump is expected to announce his decision for the fed chair at any given moment. joining us from d.c., kevin cirilli. have impaired 2018

vision -- they don't know what's happening with the tax plan. your job is to try to give us some clarity. kevin: i'm trying the best i can. most folks anticipate president trump will announce the fed chair before the boards air force one for his asia trip. the investor community anticipating it would be some type of combination between a j powell and a john taylor. it will be interesting to see how that plays out. president trump telling jennifer jacobs yesterday in the oval soon" that he's "very going to be announcing his fed chair pick. it,erms of the politics of a john taylor would abuse the more conservative faction of the republican party, people like jeb hensarling and mike pence.

more establishment republicans might be a bit more accepting of aj powell this fight some of them voting against his nomination just the other year -- despite some of them voting against his nomination just the other year. of all the folks on the senate banking committee, all of them on the republican side are very much likely to move the nomination through without any political hiccups regardless of who the president selects. david: how does the president find any time to name a new fed chair when he so busy fighting over twitter with republicans? this morning, senator bob corker corker goes on the today show and says let's leave tax reform up to the congress. the president says corker couldn't get elected as dogcatcher. and says sameack

untruths from an utterly untruthful president. this is like a sandlot. kevin: political feud alert. this is quite jarring especially. in the conversations i have with aids to these senators, they are very frustrated whenever this political sideshow does a rough because they feel it does take away from a compassing what they want to talk about. some hoping they do get tax reform done by the end of the year. if we are tracking the timetable on this, the house is likely going to take this up for debate tomorrow night with a vote expected on thursday. that technically puts them on track for the timetable that they want to be on. have been reporting for several weeks, how they will pay for it is really the risk right now .

how they want to pay for it is where it republicans -- where republicans are divided. jon: we've been asking for years for politicians to be honest, haven't we? this is it. brutally honest about how they feel about each other. awaiting the next head of the federal reserve, investors gearing up for the impact on the treasury market. wall street seems to agree on a flattening of the yield curve, particularly spreads will narrow past decade low levels. the yields on the u.s. 10 year treasury climbed above 2.4%, the highest level since may. bill gross said signals the beginning of a bear market -- >> i think there is a chance that this long-term bull market in bonds is broken and bond

investors should be on the defensive. jon: joining us now, gina martin adams. i've heard it a couple of times this year that they had a different number before. i imagine there's some book talking going on somewhere. how critical is 2.40? gina: is the latest critical level. all these numbers come out as we find resistance throughout different levels -- it's critical for establishing this next leg of a potential uptrend. the bond has been range bound between two and 2.32. anything about 2.4 would be something we haven't seen in a substantial amount of time, which causes nervousness. the bond market seems nervous about the fed chair, but the equity market seems so sanguine. everything is upside down this

point. maybe it is he's now the. -- maybe it is seasonality. jon: two competing things going on. yields are pushing higher. great. at the same time, you have a whole host of strategists out there calling for flatter you curves. that yield curves -- flatter yield curves. gina: there's a difference between price action and earnings action -- what we have seen over the last couple of years is the prices are more closely correlated with movement in the tenure -- 10 year treasury. earnings are more closely correlated with movements in the yield curve. difference there. ultimately, you have to make a call as to whether those two things come together.

and is still ok for financial sector earnings. it's when the yield curve becomes inverted that it's really problematic. that's why to equity market is pretty optimistic right now. there's not a likely inversion in the yield curve in the next 12 months. the can trade on that generally as a signal of inflation pressures and potentially better growth going forward. when the yield curve inverts come is a different story. david: why aren't the equity markets more concerned about a flat yield curve in the sense that they do want that growth and the fact that the long end of the curve is not moving up -- part i worried about that? gina: we become conditioned to be used to it. cycle, the 1990's yield curve flattened. the last cycle from 2005 to the recession, the yield curve flattened. curve used to the yield

generally flattening. it's not necessarily indicative of any extreme slowdown in growth. it really is until the yield curve inverts not a terribly worrisome signal. jon: gina martin adams will be sticking with us. coming up next, alex deal sitting down with -- alix steel sitting down with david solomon. from new york, 20 minutes away -- futuresening bell and solid, up .6%. from new york, this is bloomberg. ♪

jon: 18 minutes away from the cash open. positive .2% on the s&p 500. nasdaq futures up .25%. dow, earnings delivering big-time. caterpillar up 6%, boosting the outlook. 3m performing well, up 3.56%. mcdonald's up 1.23%. easterbrook delivering some solid numbers. it's the customer traffic that continues to improve. that's a positive story. the years of argument that stock up 34% through 2017. david: now, we turn to alix

steel in washington. she's there with a special guest. alix: i'm here with david solomon, copresident and co-ceo of goldman sachs. a real pleasure. in the markets right now, 2.1 on the 10 year. bill gross says we will be in a bear market. david: markets are reacting well at the moment. we have pretty good economic growth all over the world. you step back and think about 12 months ago come the expectations as growth were not as strong the u.s. is doing well, europe is doing well, japan is doing better. the economy is helping to propel markets. people are continuing to shift money into markets. alix: there are some concerns.

clients keep asking him all the time, when will the rally run out of steam? what do your clients ask you about that? david: one of the things to remember when you think about markets, no question, it's been quite a rally. a back and look at 1997 -- lot of the sentiment that people had about markets than is similar to sentiment about the markets today and the market ran . it's an interesting time because you have this base of solid economic growth but no question the cycle has been running for a long time. you have to invest cautiously. alix: a client comes to you and says i want to do this deal, but this worries me what you tell them -- worries me.

what the you tell them? david: if you are talking to my client is looking to do ,omething strategically strategic transactions that are transformative or significant for companies are made with a long-term view, those are generally not affected by --rter market activity. short-term market activity. raising, youital are a company in need of capital and you have refinancing needs, get it done. the markets are quite receptive. get that stuff done. you don't know whether the markets will continue to be receptive. alix: will we be in a higher rate environment? david: get that done means you have a very inviting market right now for financing activity. there's a variety of things that

can make the environment less inviting. the interestto rate environment going forward, there's no question that if you in anorward we will be environment where this monetary policy that's been in place will unwind. over time, there will be a bias toward higher rate. how that happens and how it unfolds as yet to be seen. -- is yet to be seen. alix: we play it like the lottery. david: there's certainly a lot of interest in who the next fed chair will be. a big decision for the president to make. there's a lot of qualified candidates being considered. ans fed chair will play important leadership role in helping the markets deal with the unwind of monetary policy. i don't have a view -- alix: you do. you just won't tell me. clearly, someone

who will be in a leadership position to affect this unwind of monetary policy overtime. clients are asking about that, but they are also focused on tax reform and what's going on with economic growth around the world and regulation. it's part of the discussion, but then again, it's one of a number of topics. we will watch to see how that plays out. alix: we will get to the clients in a second. i want to pivot on the fed for a minute, talk about your valued of decibel unitive risk -- you are valuative risk. it seems like goldman is positioning for a turn in the markets. may be taking risk off the table. that: one of the things our team does, they are talking

to clients and responding to the market environment that is given to them. what do clients want to do? why it's lowasons is the opportunities are not as robust. alix: morgan stanley's isn't. david: i think our bar is a revelation of the activity and interactions we are having with our clients. i cannot comment on morgan stanley. we are responding to our client needs and client activity. that drives what is on our balance sheet. alix: are you more tilted to safety or risk? david: we are tilted towards interacting with our clients and in a mediating -- inter-mediating for them. it's a reflection of what our clients want to do with us. alix: in september, you had a

presentation and you said you had lateral hires and you emphasized europe. what opportunities do you see in europe? david: europe is interesting at the moment. the economic growth and economic activity there has surprised to the upside. that is leading to more market activity and more investing activity and more corporate activity. as those businesses in europe are feeling stronger and a little more confident. where we seeces opportunities to invest a bit more to be better positioned to serve our clients. alix: specifically where? you kept making the case that you would get more client brokerage accounts. they are struggling in that area. i'm assuming you gained market share there. is that sustainable? david: there are places where you can add market share. a portion of our growth

initiative is focused on places where we see market share equitiesty in fic and whereby adding resources and focusing more on certain clients, we can take market share. we have strong market share across europe and all of our businesses, we have good market share on our banking business and sales and trading in equity business. there are places where we can invest and improve our market share and improve our position. we are very focused on making those investments and making sure we are creating growth opportunities. one of the things in banking that we've looked at, we have broad market share and a broad footprint, but there are places where we can grow that footprint. there are more companies that might have been under the radar screen that are suddenly billion we continuenies -- to invest in the management business in the private wealth

business. alix: any specific regions in europe? david: broadly across europe. alix: you unveiled of this plan, you seem like you are focused on that. analysts are looking forward to how they judge it. it i'm a market participant, what do i look at? david: there are different things you can look at as you step back and think about our lending business. lending is a broad term. it touches a number of activities we engage in with our clients. we made a significant push over the last few years to broaden our debt capital markets capability. we significantly improved in market share. our nine months debt capital markets underwriting activity is a record. that comes with focus over eight a period of time. they're are looking to purchase companies with remarkable

capital lending into them. alix: that means revenue. david: revenue is a metric. one of the things you are aware of, we started over the course of the last year a consumer platform, which is a new area of expansion for us. wheres a business customers who have credit card debt can manage that credit card debt more effectively with a fixed rate, no fee loan. we've been growing that product out. we are in the early stage. on track to have $2 billion of loans not business this year. that's a business we think could be a nice contributor to the firm. there will be more information available as the business progresses. alix: i want to ask you about capital ratios. 5-6% in the u.s.

3%? that roll back to david: are base case is we are operating with the regulatory environment that we have today. we have to operate in the environment we have today. one of the things that is interesting about the environment we are in, you have all this regulation that came in to promote soundness and safety in the system and one of the resulting impacts of that, a whole bunch of rules were put in place, it's ok to look back and say what were the unintended consequences. how is this changing capital allocation in ways that don't benefit the system? people are starting to think about ways that the overall process can be improved. that is a positive or healthy thing. alix: that is a yes. david: we are watching that like everybody else. alix: are you planning on spending more time in frank for? david: roy was in germany last week.

we have a lot of good clients throughout germany. i like spending time in germany and france and italy and london, which will continue to be a hugely important center for us. we have an enormous investment in london and that will continue. we have people in frankfurt, we will have more people in frank furt. they are great places to visit. alix: a real pleasure. thank you so much. david solomon, president and co-ceo oh of goldman sachs best oo of goldman sachs. david: he liked italy. jon: still looking for a bank that wants to move to london to frankfurt.

i don't know of anybody below lloyds. gina: that is very consistent across the industry. they are hesitant to move out of london because they are well ingrained and the city is one of the financial capitals of the world. you have a job in frankfurt. jon: the opening bell is up next. futures are solid. up .2% on the s&p 500. the dow is where the outperformance is. results from adults, 3m and caterpillar delivering. that's results from mcdonald's, 3m and caterpillar delivering. ♪ is this a phone?

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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. jon: the sixt day winning streak ended yesterday. it looks like we are set to get back on track. performance from caterpillar,

mcdonald's -- outperformance from caterpillar, mcdonald's, 3m. up four points. nasdaqe 17 points on futures. a bit of a selloff emerges and treasuries. up four basis points for the first time since may of this year. the dollar cannot catch a bid. that's the cross asset picture going into the opening bell. can we get another record high? abigail: the bulls are back. the dow trading at an all-time high come on pace for another record closing high. yesterday's pullback the worst since september.

it's all about earnings. lots of earnings strength, especially from the dow. we're looking at years of caterpillar, 3m and mcdonald's. caterpillar and 3m at all-time highs. strength from retail machine sales, the best growth since 2012. the company is talking about strong demand for construction out of china. 3m boosted on electronics and currency gains. mcdonald's matched estimates. same-store sales beat estimates, of 4.1% -- up 4.1%. traffic is increasing once again, suggesting the turnaround for mcdonald's remains in place. the overall economy is doing well today. the internet stocks also doing

well, but more recently, not so much. this is the merrill lynch saying index. to the upside, that represent a daily gain -- to the downside, a decline. five days of declines for the stocks ahead of any of those companies reporting earnings for the third quarter. bit of selling pressure. the worst streak since november of last year. season tech earnings kicks off soon. jon: another record high on the record. 54th closing we have john stoltzfus from oppenheimer & co inc. still with us, gina martin adams

. i want to talk about this old economy versus new economy story. tech results come out later this week. caterpillar is delivering in a big way. john: a lot of people have given caterpillar up for dead if years ago -- a few years ago. the chairman was giving dismal guidance looking ahead. they are benefiting from a global economic recovery and stateside poised for some kind of infrastructure spend starting in 2018. what we are seeing here in terms of technology, tech has had a tremendous run this year. you of profit, skepticism ahead earnings results. if we get surprising upside, fasten your seatbelts. jon: do i want to play the old

economy story or stick with the new economy tech players, even with political storm? john: we want to place our chips across the board. materials, industrials, technology that benefits all sectors, health care, consumer discretionary. we are looking for cyclical exposure. we will take old economy, new economy. of expansioniod that will be extended much farther than anybody believes. there's no recession insight at this point. gm, youn the case of saw them growing in china and latin america in north america. be based on the earnings today that there's a synchronized global growth.

gina: is playing out in the stock market as well. it's benefiting companies to have exposure overseas this year. where weselves back to were a year ago, we were in the midst of a pretty big earnings recession driven by declining commodities prices. that hurt emerging-market economies a lot more than the domestic economy. they are having a much bigger snapback, much bigger rally as a result of where we were a year ago. that's playing out in the equity market today. jon: that he goes on. i want to talk about capitulation and how much juice there is to squeeze out of any bear down there. we've got to think that we've begun to see this year and genuine capitulation among extreme skeptics about what has

been going on in the recovery process of the global economic recovery that is in place as asl as the u.s. expansion well as this turnaround that's happened over the last four quarters in revenues and earnings for u.s. companies on a more competitive dollar. that combined with the fact that the expectations are that we've that isdministration business friendly and is looking to make some kind of a deal in washington and we think a deal cut andmade, a tax behind that infrastructure will show up, you have midterm elections, a great incentive, it puts the fire under the seat of politicians on both sides of the aisle to do something and not just stand there. that's positive for the markets and the economy. david: equity markets are really

happy. what about the wealth effect? are we seeing that in-house and spending or corporate spending? gina: we are not seeing it show up as much in household spending like.would household are saving more and participating in the equity market gains. they are to me letting wealth, which shelters us from the next essential downturn. this interesting data points to share -- if you look at the capitale spending pace, spending as a share of sales, we are back to the peak of the last cycle if you exclude the energy sector. we had amazing technological advances in drilling, which created a slow in spending in the energy space. it is still quite low.

the rest of the sectors are spending at the same pace they did in the last cycle. companies are spending any relatively decent clip. their spending as much as they did in the last cycle. jon: $100 a share from jpmorgan this morning. where's the value across the s&p 500 right now, given that we are ?t a record high in the banks what is left to do here? john: there's still more to go within technology because there's a huge demand cycle. the demand cycle is almost constant in that it comes from both business and consumers with technology deeply embedded in the lives of business and the consumer. consumer discretionary has been

overlooked for a good deal because of the fear of what's going to happen with the bricks and mortar the internet sales world. as we move forward, there's more room in consumer discretionary than many expect. health care keeps benefiting from demographics globally in terms of the boomer generation and demographic changes in terms of the way people approach medicine are brought that's a broad -- medicine abroad. jon: do you want jpmorgan at $100 a share? john: we been recommending it for a much longer time. jamie dimon does a good job in managing. he's not paying a lot on deposits. he probably has further to go. i would turn that over to our bank analyst. jon: thank you very much. gina: yes, i do.

jon: another record high on the up .75%. caterpillar responsible for 45 points. 3m responsible for 62 of them. market, treasuries up four basis points. bumping up a little bit. this is bloomberg. ♪

emma: this is "bloomberg daybreak." hurt --p later, will congressman will hurd. david: shares of caterpillar trading at a new record high this morning after third-quarter earnings beat estimates. now, they are on track to see the first annual sales gains and 2012 -- since 2012. running us now, michael mckee .nd karen ubelhart i want to put up a chart that illustrates part of what's going on. the white line is the caterpillar stock price, which went way down. the blue bar is retail sales.

is dealer sales. david: they are really humming. was going on? karen: it is a broad-based global recovery. mining is coming back and construction is coming back. energy was positive. the market is improving, steelers are scrambling -- dealers are scrambling to gain inventory. they have to get inventory. david: is there some irony with what's going on with general electric? they are taking off at the same time ge was trying to become a tech company. focused --was more cap was more -- cat was more focused. they have a new ceo, and a program to cut costs.

we are in the early phases of a recovery. jon: has this company changed? it was at the mercy of the commodity recession fueled by china back in 2015? has it changed? way thatll writing the ridingthey still wave? >> construction was the first division they did. the leverage their has been remarkable. they usually do 12% operating margins. they've done 18%. david: how much of this is the global reflation? it's not just caterpillar today. let's separate profit

from sales and revenue. sales, 25% gain over the same quarter a year ago. ride being the wave -- riding the wave. what happens in 2018? they raised their forecast for 2017, but a lot of people are thinking chinese growth has been propped up a little bit because of the party in congress and they will slow. that falls to maybe 6% next year. can they keep that up? cat is dependent on their asian business, which is driven primarily by china. jon: some of these chinese copies were said to have been told not to report bad earnings while the congress is going on. cut you get any sort of vision as to what's going to happen through 2018 with china? karen: china's always had these

huge swings. and nowthrough a bubble we have this infrastructure spending. cat's share has more than doubled in china. when the market went down, this is their pattern, they go in and try to gain share while the market is weak. they don't need the market to return to the levels of the boom. they have 12% share now. 6%. used to have 5% or michael: would a tax deal help cat? the have enormous free cash flow. $1.2 billion, basically. do they need taxes to be cut to expand or are they doing what

they can already? karen: cash was tight in the last year or so. now that the volumes have turned from the cash flow will not be a concern at all. they have a 30% tax rate. they won't get 20%, but if they get 25%, they will get help. david: we know who will be running the country. how much reassurance does that give the world? much in try is very again he has a 5, 10, 30 year plan. michael: there's a feeling that there will be a steady as she goes situation. the question with china is always timing. their moving towards integrating the economy with the outside world, particularly the monetary system. do they speed that up now that he's in charge? , after they open up to outside investment just how much do they

open up to outside investment? target, here's the data point. michael: we will be watching what happens with the u.s. economy, the u.k. with brexit. a lot of uncertainty about what the global forecast is for 2018 -2019. if there's a recession, 2019. i don't know if cap looks out strongr, but there's riding the way while you can. jon: we are higher on the dow, .6%. solid earnings from caterpillar, 3m and mcdonald's taking a site. -- taking us higher. over in europe, pretty much

unchanged on the dax. in the bond market, it's all about treasuries. yields higher by three basis points. if you have a bloomberg terminal, you can check out tv you can watch is online, click on charts and graphics and interact with us directly. from new york, this is bloomberg. ♪

david: this is bloomberg. alix steel has been live from ,he meeting in washington the seat -- in washington, d.c. earlier, she sat down with david solomon. david: they are focused on tax reform, they are focused on what's going on with economic growth around the world, they are focused on regulation. it's part of the discussion with client, but one of a number of topics we will watch to see how it plays out in the coming weeks. david: recorded wilbur ross, goldman sachs and the rest of the u.s. may be getting an answer soon. >> we are hopeful to have this voted in by the end of this calendar year. the budget resolutions that have been going through are a precursor to that.

in order to get the text program through, we will need to avail ourselves of reconciliation. david: still with us, michael mckee. give us a sense of the degree of difficulty here. they are convinced they will get something this year. is it possible? michael: probably not. this is extra nearly difficult. -- extraordinarily difficult. 1986 proved that. butybody wants to go ahead, no one wants to die. we haven't even gotten and we should get from kevin brady some kind of chart that shows the tax breaks they want to eliminate. that's when the guys from k street start earning their pay. they will be in every representative's office saying don't tax them, don't tax me,

tax that guy behind the tree. the only possibility is that they just win four straight tax cuts -- went for straight tax cuts, but that will take time. in december, we run into the government shutdown issue. david: what would that do to the markets if they said we will put it on the credit card and run up the deficit? michael: it pushes up interest rates, which pushes against what they are going to do. they can only lose a couple of votes. rand paul is not a certainty. after this morning, you have to wonder what bob corker -- corker told cnn he could never support trump again. taxes? a no vote on jon: he's a no unless you sort

out revenue neutrality. michael: this will be a nail biter, even for just tax cuts. jon: coverage continues right here with "bloomberg markets" in just a moment. anotherarly parts, record high across the board with the dow up .7%. earnings have really delivered today on the dow from 3m, caterpillar and mcdonald's. jpmorgan, $100 a share now. an all-time high for jpmorgan stocks. this is bloomberg. ♪ retail.

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near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. >> from new york, i am julie hyman. market: welcome to bloomberg -- markets.

julie: these the top stories. the dow hit a new high fuel by earnings. we get the latest on how to invest around earnings and the fed search with david kelly. this major trump backer and the president is on the right track when it comes to tax reform in the way he is running his illustration? -- administration? saudi arabia speaks to exclusivein an interview. he plans to add billions more in assets under management. we are 30 minutes into the trading day. abigail is with us.