blame on leaders for allowing integral. goldman turning around sales. the biggest share of this year's promotions. at&t has a message for the justice department, we want time warner and where not willing to sell cnn to seal the deal. good morning. this is "bloomberg daybreak." i am jonathan ferro alongside david westin. and alix steel. all-time high close yesterday. futures down a third of a percent. fx showing broad-based weakness for the dollar, up by 4/10 of 1%. commission of eu forecast in the best growth in a decade. treasury yields coming in by a single basis point on a u.s. 10 year. that curve has been flat for some many days. just a little bit steeper in today's action. let's get you remains. alix: i think we're waiting.

we are waiting for macy's earnings to go across, and we look at you updated when they go across. talking about a weaker dollar. done 5/10 of a percent. over all, you are looking at a nikkei that got wiped out. really confused traders and market participants. yen shooting up after that. i am taking a look at the contents, -- q 10's, flatter. copper is an interesting options move. 10,000 copper by december of next year, started trading at $4.5 million in on my trade. jonathan: i just assumed you have a bloomberg inside your head and you saw the earnings coming through. coal, positive 0.1%. and totalter sales

coming and up $4.32 billion. estimate was $4.3 billion. in-line if you are looking at sales. here is the picture. down 7/10 of a percent. a lot of retail coming through. macy's as well. keep it right here. david: earnings-per-share must a little bit. $.72, couldsed to be part of the reason ecb red number. that part of the reason you that part of the reason you might see red up there. first word news. emma: republicans releasing their tax plan today, but it will only be a concept. the text of the bill would not be written until the finance committee finishes their proposal. according to people familiar with the matter it would keep the number of brackets at 7, the house plan reduces it to four. the wealthiest people in saudi arabia trying to protect their

fortunes from an asset freeze. this is in the midst of an anticorruption drive. the saudis have arrested dozens of former officials and business leaders and have frozen their bank accounts. president trump says the u.s. trade to visit with china is out of control, but he puts the blame on his predecessors, not china. the president spoke in beijing alongside xi jinping. he said he is committed to opening of the chinese economy. and they announced a quarter billion dollars in trade deals, although many of them are tentative. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. david: the president says he has good chemistry with e.g. jumping, and when he appeared with the president he was out of his way to make it clear he did not blame the chinese for the trade problems we have. president trump: it is a very

one-sided and unfair one, but i do not blame china. who can blame a country for being able to take advantage of another country for the benefit of its citizens? i give china great credit. i do blame past administrations for allowing this out of control trade deficit to take place and to grow. tom mackenzieome reporting today on the telephone from beijing. the president has been talking about trade to visit with china. does anything he is doing over there put a dent into the trade deficit? tom: we have had a string of deals, $250 billion number that the u.s. side has been telling us. on some of details those committee $37 billion deal involving about 300 aircraft, $43 billion deal with an energy company here, in terms of infrastructure in alaska for

example. and another deal with about $12 billion with smartphone providers, but there is a caveat, many of these are nonbinding and many are in the works already. boeing, a lot of the orders, they are all holders. in terms of the overall picture and deficit has been key for trump, he will hope some of these deals will pull the deficit down or push it in the right direction. in terms of what the executives you speak with here, the u.s. executives, we have not had any concrete moves with the chinese. financial services, nothing yet in concrete terms. nothing new from the chinese on north korea. david: you referred to u.s. ceos, i think 30 different ceos are with the president. are they disappointed in this? we heard a lot of there would be a lot of progress in opening up chinese markets, are the u.s.

executives disappointed? tom: some of them have been working hard on these deals and we were there when ford announced a partnership, producing electric vehicles in china, and they were disappointed in the outcome. but we have heard from some executives at these are tales that were lined up already and have been crowbar into the event. you talk about the summit in marijuana go, the personal -a-lago,ship -- in mir and the personal relationship between the presidents, so yes we have big dollar ticket deals but we have not got what executives really want, which is attempting to lower the trade barriers in some of the key sectors, particularly with financial sectors. we have not had in this visit, but it could come. in technology, there are big companies trying to grow their footprint in china and is

something that they come under pressure from from chinese authorities when they are trying to send -- set up ventures in china. david: tom, thank you. jonathan: for more on the impact of the president's trip, we are joined by russ. let's go back 12 months in forecast what this might have looked like. i imagine it would have looked like this. >> 12 months ago people were worried about trade war's, all sorts of friction, and what people have focused on over the last told months has been the positive. people are much less concerned and focused on the trade issue, then with the case pre-election. jonathan: asian markets, bring up the chart. we are searching on the msci. down at the bottom of the screen, anybody that follows any kind of rsi, it is quite something. trading at almost 84. what is the story?

russ: a couple of things. very field them have to do with donald trump. go back and think about parts of the world that are still cheap after the bull market, most of them are in asia, whether you're talking about japan, emerging markets like south korea, a lot there.world bargains are particularly for those that are shooting up, remember we saw the dollar rally and that puts pressure on emerging markets. for most of the year the dollar has been soft and it has created an atmosphere for this market that most did not expect. alix: talk about tech. russ: that is part of it. when you look at the rallying em, it is not very dissimilar from the u.s. you have make it cap tech companies beating and do have a similar dynamic in asia with internet companies, alibaba doing phenomenally well. jonathan: great to have you with

us. coming up, we take a look at the tax markup. and a member of the senate finance committee will be joining us exclusively to discuss the senate version of the bill. that is later. a lot of retail earnings coming through. we are looking at the midpoint missing estimates, stock down over six percentage points. we were looking at sales, pretty much in line. earnings missing estimates. we are down by almost 6% in the premarket. from new york city, counting down to the market opened in new york just over two hours away, osing all-time highs clsin yesterday, now almost down 10 points. this is bloomberg. ♪

♪ david: this is bloomberg. i'm david westin. today is the day for tax reform with the white house, i am psychomotor house of representatives set to complete the market of their bill, and of the senate giving us the first look at their approach. we welcome our chief welcome -- we will much of correspondent, kevin. tickets to the house. will we get a final markup today? kevin: this is the marathon markup, and it is expected to end later today and it means all attention will go into next week on whether or not the will be voted on on the floor of representatives. if they pass the bill, the senate must pass something. we anticipate the finance committee today will reduce only the framework of their version of the tax bill, so no complete bill or version, but taking the first step again to keep them on pace to get something done by the end of the year. david: just an underline under

that, we will not get legislation language today, just an outline. kevin: there will not be the big thing, it is just a skeleton. it is getting folks frustrated, but it is a strategy to continue to move forward with this version, with their strategy of getting an idea for the end of the european. we have seen potential for there to be divisive things, such as mortgage reduction, such as a host of other things, local taxes that section as well. it is unclear whether or not we will have definitive answers on the senate including those. david: thank you. yesterday, treasury secretary steve mnuchin sat down in an interview with michael mckee. he said although he is open to delaying a corporate tax cut, his preference is to make it effective right away. our preference is that the

corporate tax rate starts next year, the longer we wait the worse it will be for the economy and making companies competitive and we look forward to working with the senate. learn mike, what did you from the secretary about the white house approach to tax reform? michael: they will be flexible, because on the senate side they are in a situation where they need to meet the target under the rules of $1.5 trillion. less like himover estimated about $1.7 trillion, so it cannot fly in the senate. they are trying to figure out how to put the pieces together in one way to do that is by delaying the corporate tax effective date, that will make the out years less expensive and it could get them closer to the solution. they have to be flexible, they have to not rule anything out. david: 28 have a sense that the white house is cheating on the senate side, with reports that president trump dialed in from asia last night for a meeting,

with democratic senators to say you will like the senate version? michael: two calculations, one is that the house being overwhelmingly republican is desperate for some kind of victory with the election losses on tuesday, and they will vote for just about anything. therefore with a newroom margin in the senate, they want to make it the vehicle. they want both of them to pass. basically use the senate bill as the vehicle to get a tax bill out of conference, that is the goal. alix: here is how the market feels. we are looking at high tax rate versus small cap and the normalized the basis over the last three months. slow and steady to the upside. you have a high tax rate starting to roll over. russ, what do you make of that? russ: i think the market is lukewarm. you have seen it not just within the equity market, but with

rates. some of it with relief over powell getting the chairmanship, but there is pullback because of concerns about the tax deal. you have seen it also with the dollar. you look at the assets that surged last december and optimism about tax reform, they have pulled back. alix: on the flipside, bank of america had a good survey, taking a look at private wealth clients and bad -- they are at the lowest cash level. there is hesitation, but it seems maybe like they are buying stocks in some ways. russ: it has much more to do with the low rate environment. you still have an environment where people are desperate for yield, stocks may be expensive but they are cheaper than bonds, and it is driving the movement to equities much more than excitement over the tax plan. jonathan: what is the problem, execution risk or that it is on the table? russ: both. it is not a done deal. there is uncertainty on whether or not you can pass it. and how much of it will give a

boost to the economy. we know the cuts will boost earnings in 2018, but beyond that how much do you put in the increase for gdp for example. jonathan: i we moving away from 20% upfront to possibly seeing this thing phase over several years? michael: that is one possibility, there are a lot of moving parts. one thing we can say is the postcard is gone. you look at the past three regulations and you will not find taxes on a postcard. alix: oh man. michael: i know. but there is no saying where this will end up. one thing we here in washington, and i would love to get russ's view, it does not matter what is in the bill so much as there is one. if it does not pass it shows the republicans cannot govern because health care failed as well and of the stock market sells off tremendously. russ: that is the difference between a wall street

perspective and a washington perspective, i get that if you are a congressman thinking about reelection, but thinking about the market is -- it is not obvious that it will create the tailwind we would've thought about a year ago. are there ways it could hurt? will you see pullback if you take out the deductions? i do not think enthusiasm is there, at least the way the packet is been described. david: is it will not create the tailwind, what changed? did they learn something different, is it a different plan? russ: a couple things, the magnitude. we are talking about a much more modest deal them perhaps people thought. it is not be wholesale, simplification of the tax code that people envisioned in 2016. it is hard to say this is reminiscent of the 1986 tax reform, at least on the individual side. david: michael mckee, thank you for being here. russ will stay with us.

regulatory questions on at&t's plan for a takeover of time warner. the ceo randall stephenson challenging the antitrust division. we will take a look at what it means for the deal. from new york, this is bloomberg. ♪

>> this is bloomberg daybreak. this is your bloomberg business flash. investors are not convinced by barberi's new strategy. they have plunged after sketchy details were presented of a plan that includes sharpening the luxury image of the brand. morgan stanley said the plan a yearut earnings by 15% in 2019 and 2020. and fannie mae helps american borrowers purchase houses, and soon it could help fill them. the giant is considering pilot programs to address the lack of affordable housing. the plans could make it cheaper and simpler for progress and -- for homebuyers to get loans to

build homes. the battle over at&t's proposed takeover of time warner is escalating. at&t's ceo says he will not sell a cnn as a condition of getting the deal approved by antitrust regulations. according to people familiar with the matter, regulators and companies have addressed the assets, including the news network. the justice department may seek to block the deal. david: at&t will have to take more time to get the deal done with time warner. they said they would be done this year, but now the ceo of at&t says they are not sure because of the antitrust relations. we are going to paul sweeney, welcome. what is going on? because initially we heard this was not a horizontal merger, this is a vertical merger and normally those are not big problems. what is taking so long? paul: we saw stock decline 6%

yesterday, so we were definitely surprised by the news. this is a transaction that was expected to be readily approved by regulators. it is a large transaction, $85 billion, but it is critical and it is vertical. and we have had a recent transaction where comcast acquired universal, very similar to this transaction and that was approved with minor modifications com. this was a real surprise. investors are wondering what is behind the doj seeking a different view of this. are there political undertones that could be emboldening the department of justice may be taking a tougher line, but it remains to be seen. david: something is new. and we have two new sheriffs. one is the president and one is the assistant general for antitrust. is this policy is different

application of policy, or is it larger at the white house? antitrust policy, typically the question is what consumer will have to pay more money? what is the argument? is not clear and i think that is why at&t is taking a hard stance. they were very clear they think that this transaction should go through and they are prepared, and are preparing, their lawyers to get ready to take this to court and challenge the doj. it feels like it is a private. we have spoken with antitrust attorneys, those that cover us here at bloomberg intelligence, saying it is very unusual for antitrust. and suggests that this is not as much a legal argument, but maybe political. david: among other things, i do not remember the last time we had a statement issued about the negotiations while they are ongoing. they came out and said it is at&t who said they want to get rid of cnn, and immediately responded to with at&t saying we never said that.

i do not remember that happening. paul: certain protocols are being violated and it is unusual that we see the doj litigating and public. at&t probably feels like they have no recourse but to respond and to the ceo randall stephenson will be speaking publicly today at a conference and will have more to talk about that. i think if you're at&t, some of the remedies the department of justice is suggesting potentially, or have been reported, such as selling turner networks, it is a nonstarter because the turner networks, including cnn and other cable networks, represent the majority of the value of time warner. that is off the table. even if directv is off of the table, both of those would be a nonstarter for at&t. david: at&t says they will take it to court. is that realistic? it could take years. paul: i think it is. it happens rarely, but it does happen. frankly, the doj generally has a

stronger hand in those situations, but i think at&t feels so comfortable that the president is on their side, that they would feel comfortable, or at least confident about going forward. david: thank you so much. jonathan? jonathan: coming up, exclusive interview with the citigroup ceo on tax reform and how it could affect his business. this morning, here is the picture. up aslast night, ugly, much as 2%, down as much as 1.7%, and things looking softer for the united states. futures off by -- and the earnings from retailer not great. the sentiment starting to crack. this is bloomberg. ♪ who knew that phones would start doing everything?

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see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ jonathan: we are shaking up for an interesting session. we will go through things quickly. record high yesterday in the united states, but now features looking softer down by 4/10 of a percent, and basic resources oil

and gas leading the source. hyg, the high-yield story, blackrock runs -- a lot of people follow it and it has been breaking down. cracks appearing in credit. and is it starting to bite into equity. that is what we are following. futures are at a low. fighter yield curve in the bond market, and we are stabilizing on 530. and at the moment -- on the u.s. tenure. what you see in the fx is the dollar weightless against everything. euro-dollar, 11634. and looking at eurozone growth and the japanese yen that is outperforming today. the stronger by about a half percent. and let us give you a feel of the market. early day headlines with emma chandra. emma: president trump accuses china of -- trade practices, but

in beijing he was shifting the blame away from the chinese president, saying the u.s. trade deficit with china is the fault of prior administrations. xi says china will increase imports of agricultural products. it will amount to a quarter trillion dollars in trade deals, many of them still tentative. federal investigators have subpoenaed carl icahn over his efforts to change policy while he was an advisor to president trump. helpingiven the job of to shape the regulatory agendas. he was criticized for pushing a change with renewable fuel that would benefit one of his investments. and brexit talks resuming today in brussels. there is no sign a breakthrough is near. both sides hoping for an agreement by the end of the year, still european union envoys sounding cautious. they want to get a deal quickly said they can move on to negotiations with trade.

global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. david: thank you so much. i got to sit down with the ceo of citigroup yesterday and one thing we talked about was tax reform, what he expected and what he hoped. he goes around the country visiting with clients and companies he talks with say that they will ramp up production and employment of tax reform came through. we spoke about how the tax reform could increase activity in the economy and therefore help citigroup. >> if you look at what is going on, what tax reform in many ways is about is trying to spur incremental growth. we have an economy this year probably slated to come into the low 2's, maybe two point 2% growth -- 2.2% growth, lower than where we want the economy to be. what can tax reform do: u.s. companies are among the highest taxpayers in the world,

so if we get a reduction maybe that is the catalyst that will change at some of the psychology. maybe that as opposed to eking out topline growth, expense discipline, being stingy in ofms of cap x, we see some that coming back into the companies and we can get more jobs and growth. again, i think from the perspective that what is being proposed, we have to see the mass, it is not done -- math, it is not done yet, but it is making u.s. companies competitive in that we are nearing somewhere near the global average. u.s. companies today are paying above the tax rate for foreign competitors, so it creates competitiveness. on the consumer side, we have a consumer that is in relatively if we look att unemployment, 4.1%, we could argue the storm effects. and if we look at credit and

savings and we look at spending, what is it that can act as a catalyst? from a u.s. perspective, two thirds of the u.s. economy is driven by the consumer. if we can get more engagement out of the consumer, we can't shake the investment from the corporate side of things, and maybe we have a chance of pushing the economy near 3% growth. david: that was michael corbat of citigroup. russ is still with us. he said if we get the 3% it will help citigroup as a derivative matter, not directly with how much they will save, but the fact is their clients will have more business, and they will get more activity -- do you buy it? russ: yes. from a basic, economic standpoint that sound sensible. i guess the question is how much of the longer-term growth rate is going to change based on tax reform? alix: doesn't matter as long as the yield curve continues to plunge? russ: it is flattening for many reasons, but the bond market is saying this may not boost the

economy the way that some are selling it. jonathan: goldman sachs is doubling down. the most red was a press release from goldman sachs, just a list of names of who got promotions. i wonder how much was just goldman sachs employees, who got a promotion versus who didn't. you can throw all the panic you want at, you are at the mercy of the environment. it is like the weather to some extent. can you really change the story? are we going to break out of this? russ: we were talking about credit. there are a couple reasons for this.the macro environment is little volatility. growth is not inspiring, but 2.2% -- we know when market the marketis low, -- volatility is low in credit conditions are very benign. tight spreads, soft dollar -- what we had for 2017.

if we see cracks in the credit market, that is arguably the most likely catalyst for changing the low regime, if the credit market conditions deteriorate in a meaningful way. jonathan: we will spend more time to talk about credit, but specifically for the banks, things are not looking good right now both of the treasury market story, what has happened with credit over the last couple days. europe's has seen an overweight that has not delivered for any people at all. will it change: ? russ: europe is struggling with their own issues, short rates are still negative. but in the u.s., the banks are doing ok. they probably want to focus on regulatory relief, one reason you saw the rally in the fall. part of the underlining reasons for banks going up, the yield curve was going to get steeper and we are not there yet. alix: last question. how do you like buying banks? russ: it depends on which bank. we are modestly underweight with

the financials in the u.s., but there are banks we like. you need banks that can thrive in a low rate environment. i do not think you will build it on the notion that the yield curve will be steepening 100 basis points. alix: ok. you will stick with us. coming up on bloomberg television, a call to caution. find out why howard marks says the stocks and bonds are raising red flags. intos you commute in, to our colleagues over on the radio. bloomberg surveillance can be heard in boston, washington and all across the u.s. on sirius xm. this is bloomberg. ♪

♪ russ: this is bloomberg daybreak. hour,coming up the next

the republican from ohio and senate finance committee member, rob portman. this is bloomberg. ♪ guest: now to your bloomberg business flash. emma: it is clear by rupert murdoch's toy for century fox wants to stay in the sports business. a number quarter of double-digit growth. it is japan by the popularity of fox news. news and sports not on the table when they discussed selling assets to disney recently. square showing it is more than a payment service. the company posted third-quarter earnings that beat estimates and raised the forecast. larger more chance -- merchants are turning to square is a

simpler way to manage their business. and the investment firm backed by the ryman family is expanding their food empire in the u.s. the narrow bread has agreed to buy a bakery chain. terms were not disclosed. it gives them about 200 cafes in the u.s. and another 100 overseas. jonathan: in the market, as equities hit all-time highs, debt markets sending a different signal. credit is showing cracks. high-yield are rolling over and in the treasury market the difference between short and long-term rates is getting narrower. earlier we caught up with howard marks for his take. >> the interesting question is whether the market is acting as if economic growth is in the stock market, is acting as if the economic growth will be lackluster. if the bond market is right that it will be in the stock market is ignoring it, then that is one more factor, in my opinion, calling for some caution at this juncture. jonathan: still with us is russ. let's get to the chart. the breakdown in high yields in

the united states over the last couple days, that is the white line. the equity market, the blue line, charging on. is that break down, is it real, something to pay attention to at the moment? russ: yes. it is short-lived. but these cannot divert for some length of time. the end of the day, the equity market is not going to be different. the question is, is this a couple of isolated cases, or the start of something broader? it seems more isolated. jonathan: credit is starting to soften. on a day like today when you see -- up five basis points, something has been changing and it is worth paying attention to. russ: it is interesting, you do not see the safe haven. i would watch gold and the yen to see if other safe havens are getting the bid. there are a couple places to go. if none are reacting, something stranger is going on. jonathan: for a long time,

europe and compensated for the risk you assume and credit. but now there is no alternative. at some point that stops. with the breakdown and high-yield, does it make you worry? russ: it makes it less attractive. we have been pulling back on u.s. credit exposure not because we think there is an imminent disaster, but because the risk reward is no longer attractive. the key is you start to see the rise in default and a restructuring, to tell you this is not just not attractive, but something is going on. the 800 pound gorilla which we all have to question, is whether or not the build up in corporate leverage, which we have seen over the past three years, is it sustainable or does it lead to something less benign? jonathan: what are your thoughts? russ: i were not panic at this point, but if it continues to question the equity rally more than i am. jonathan: do you think the supply story is starting to

bite? we have this in a massive way, more specifically on the investment side of things, is it coming through? russ: at some point i do not know if we are there yet. the thing i am hearing is the insatiable thirst for yield. you think about the bond market today, the number of fixed income securities that yield more than 4% is less than one in five. the number used to be 100%. if you are looking for a reasonable mid single-digit yield, there are not many places to go. jonathan: get back to the chart. you are a multi-asset strategist and i imagine clients will say, credit is breaking down and what do i do? do i hang in? how do i behave and what is the best approach? russ: you keep watching the credit market. right now you are at a point where you can only really get to this valuation if you believe we are in an environment where the rates stay low and credit market that is the nine.

if the credit market breaks down modestly, i do not think volatility will remain low, which means valuations need to come in a bit. it does not mean a bear market, but risk has gone up for correction. buy the did day? russ: you see crowded trades, it does not mean it is a 10% correction, but it means we have a long time with a low volatility. for example, the bond market volatility, you are not close to a record low. that is normally the case where you are less inclined to buy the dip. jonathan: how do you put the treasury yield curve into this? russ: the flat curve is a couple things, we have a low yield overseas. they are relatively low to the u.s. there is skepticism about the ability of tax reform or tax cuts to accelerate the economy.

and i think it reflects the fact that despite all of the tight labor market, there is still very little evidence of accelerated inflation. jonathan: is it evidence the fed is moving too quickly or too fast, when you have the front end selling off and the long and stays -- end stays anchored into get this, more specifically over the last couple weeks, is it a message for the fed? russ: their attention. is less data this dependent, but we cannot explain why inflation is so low. the more you go with another month and inflation does not react the way it is expected to, the more the market will call the fed into question. jonathan: great to have you with us. worth paying attention to. alix: coming up, we speak with ed morse, the citigroup head of commodities research and why he thinks oil could be in for disappointment. and if you have a bloomberg

terminal, check out tv . interact with us directly. this seems to be the chart of the morning. click on it and save it to your desktop. this is bloomberg. ♪

♪ oil coming out in stride after a week of shakeups in saudi arabia, crude surging on the week and analysts are coming out to update the target. take a look at the median estimate for the fourth quarter with the orange bar, $52. $58 is the average price for this quarter. is it sustainable? joining us is ed morse from citigroup, always good to see you. ed: likewise. alix: are we set up for disappointment in the market? ed: i think we are. there is a lot geopolitical risk. it is now in the price and we are looking at technicals of

that have been responsible for a lot of the momentum. i think the market is really believing that when opec meets and they will be extending their production cuts until the end of 2018. i think that is not likely to be the case. do not extend and they may have a meeting in january or february and reassess the situation, or whether they do another quarter of agreement on the cuts through the first half of the year, i think the market will be disappointed and i think they are up for a selloff. as they have been in recent years. alix: you have a deep understanding of what is happening and saudi arabia. the rhetoric versus the agreement, if the rhetoric keeps up, what does it mean for opec agreement? ed: nothing. the iranians are any position where they want to keep the cuts in place, the saudis want to keep the cuts. they have not been in the same position they have been in the past when they have used to spare capacity to bring the prices down. as an instrument of foreign

policy. they want the prices up, so i think the market will be more fragile because of the tightening of geopolitical tensions, but i do not think it has anything to do with oil price.. alix: what is your face case -- case for the 30th? ed: we think the most likely scenario is they will be pushing back the decision until sometime in the middle of q1. we think there could be pressure on the russian side to get the extension into the second quarter of the year, because putin's election will be at the end of q1 and he will want stability for the oil market. but the market really thinks that the rebound, particularly now of the higher prices, shale production will be stronger the longer that we have the higher price. alix: what is the downside for oil? ed: a lot more production in the u.s.

you get to a $65 price and it is a lot of new hedging. already, a typical u.s. independent can head out the market with a full year, 2019, the calendar year strip above $50. the more that they grab onto that certainty in terms of revenue, the more likely we will see more production growth. alix: take a look at the curve. we have seen a stronger move with this. bring up the terminal, showing a contract for june 2018-2019 spread. the higher it goes, the higher 2018 prices are relative to relative -- to 2019. it is a monster move. ed: it is. there was feeling in the market they were not going to be getting to the head to build number.-- hedgable it will affect the north sea too and they are hedging. and the outlook for north sea

production is much better this year. alix: we had opec coming out and saying their outlook is that u.s. shale will grow by 2021, do you agree? ed: i think it is for short. the issue is whether it comes in 2019 and i think the market price for it now could indicate that. look at where we have been. our forecast was 58 for the end of the year. we were looking ridiculous in the eyes of others, come last june when we were sticking to the higher price for the end of the year. with a selloff we could get close to that market if we do not adjust upwards. the projection we have based tag, is, an older price the growth on the u.s. shale side would be about 850,000 barrels a day. now we think will be about one

million or two money and barrels a day. there will be more rigs in the market and there is a lag when you start hedging, they start in september and that they continue to hedge in a robust manner there will probably be a form of like a between that and contracted for the rigs. so i think we will have a spike in rig utilization by the time of the early weeks of 2018 and it will actually set a bearish tone. alix: they are not going to be they will not be wooed by $55 oil. will that go away? ed: it means less capital going into a negative cash flow environment. at $60, you can return to the shareholders, you will get momentum in the underlying equity value, and at the same time you will have more free cash flow to invest on the capital side.

the higher price, the more that is available to the shareholder and capital spending. alix: what we see in the market today, oil not participating. we see a lot of selling in europe. we have rollover in u.s. equities. is oil going to stay team in to the equity markets -- immune to the equity markets? ed: there will be something tying it, but they are running on different railroads. the tracks on the oil side are looking at market tightness in the short run, the more that there is seasonal market tightness, the more there will be geopolitical risk factored into that and of the higher the price, so that will accelerate the short cycle supply. the oil market has become a short cycle market. the u.s. is a marginal player in that market, a bigger player minute used to be, but on the margin that is where it counts. if u.s. production grows as much as we think it will, if canadian

production growth like we think it will, same with brazil, opec and russia are in a position where the most oil they could be adding to the market is about 120,000 barrels a day. alix: what is your forecast? ed: we think they will average about the same, $54 or $55. market weakness by the end of next year. alix: thank you. ed morse of citigroup, good to see you. join me for a special tonight on shale, the next shale revolution air in at 9:00 p.m. eastern. this is bloomberg. ♪ is this a phone?

or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. ♪ jonathan: president trump hitting at unfair trade with

china, putting the blame of order leaders for allowing the deficit to growth. goldman doubling down on efforts to turn around trading, receiving their biggest share of promotions. the stock market hitting fresh all-time highs, with a cracking credit and the yield curve sending a different signal about the health -of the economy. good morning. this is "bloomberg daybreak." i am jonathan ferro alongside david westin and alix steel .david westin. we are getting you up to speed. yesterday, a record high close. futures are softer. a vicious session in japan on the nikkei. broad-based dollar weakness and euro strength, given what has happened on either side of the atlantic, we are getting in the nation. treasury yields going nowhere, and taking a look at retail sales earnings that we need to get to, kohl is not pretty and macy's is dropping. alix: net sales for the third

quarter actually netting the average estimate, $5.82 billion for the third quarter. earnings coming in at $.23 a share. salese the fact that com were down, that was worse than estimated, that was the licensed com sales. went a littlegin higher, just under 40%. it will be a mixed retail picture today. kohl's is getting hammered. macy's lower. it was not bad though. jonathan: i went into a maces this quarter. alix: you did not. jonathan: i went into one. the big one. alix: to use the bathroom? jonathan: over at times square. i do not think you should be throwing any shade about my visit. david: santa is coming. jonathan: that is what i was doing. david: president trump is in

beijing and he is meeting with the chinese president on trade, emphasizing the trade deficit, even as he announces new deals. here is our chief washington correspondent, kevin cirilli. overseasesident trump in beijing and announcing a series of business deals, not all of them have been concrete to say the least. it comes as the president is trying to do two things. dealing with nuclear north korea, and secondly the issue of bilateral trade. there have been some hiccups and criticism, the president not taking questions during a joint appearance, as has been the previous tradition under democratic and republican traditions. the president looking to conclude this portion of the trip on a strong note by doubling down on the business deals. david: how much of it is, and the circumstance, what is really coming out of this?

kevin: i think a lot of analysts are saying this is small gains, not significant gains in regard to china, but it is only his first year. the one-year anniversary was yesterday. no major announcements made it during this portion of the trip. perhaps as much as some had hoped. david: he was dialing into a meeting to deal with tax reform while he was on his trip. where are we with tax reform today? kevin: in addition to president trump, folks like gary cohn and others have been reaching out to centrist democrats. the democrat from west virginia with a top reelection fight in 2018, organize the meeting earlier this week with senior white house officials, to discuss tax reform. it is unclear whether or not they will be able to get any centrist democrat support, but

they would like it, especially if people like senator ted cruz, or to some extent rand paul, get off board for the plan by the end of the year. i i will be frank -- and i will be frank, the virginia race, many people looking at that blue wave from earlier this week and is suggesting it could have implications on whether the centrist democrats get on board with the tax plan. david: kevin, thank you. rob portman of ohio is a member of the finance committee. we welcome senator portman from capitol hill. good to have you. >> good to be on with you. david: explain exactly what kevin was talking about, to what extent from your point of view, is tax reform different today than it was two days ago? >> it is different and i think the difference is there should be more focused on getting things done. that is what people want to see the republican majority do and

that is what they want to see the democrats do as well, including cutting the middle tax , and i think it should help us get this done. today, how will this differ from what we have seen on the house side and why is very different approach from the senate? >> it will be unusually close, we have worked with the house and white house to make sure the structure is the same. everybody has agreed on the middle class tax cuts, and ensuring that we make companies more competitive because it comes down to the workers. everybody has agreed we need to lower rates on small businesses, these are the pass-through companies, the partnerships and so proprietors, so i think the structure will be the same. but you'll see differences in the senate bill reflecting the fact we are two different bodies and we of different input. through the process, you will see that the house and senate bill eventually come together and work things out and go to the president for his signature. david: one of the issues that

has come up is how we will pay for it. as the house has gone through the markup already, they have gone over the $1.5 trillion, it is a question on how you get back inside that. you know how the budget works. address the state and local taxes, where will the senate come out on that? is the essential to make it paid for? >> on the $1.5 trillion, that will be the senate bill, we want to go over that amount. there is $44 trillion in revenue coming in in the next 10 years, so we're talking about a small part of that. and about 500 billion of that is a trivial -- is attributable to the fact that we cannot extend current tax relief in place right now, including the extenders like the bonus depreciation, which we always extend. i do not think it is $1.5

trillion, i think it will be closer to $1 trillion, and it is based on a growth of 1.9%. we feel good about it. david: what about state and local taxes? the senate is likely to take a position we have been talking about, we have talked about this, the federal government and taxpayers should not be subsidizing the state that want higher taxes. and second, i think if you look at state and local taxes it is something that is relatively -- over 50% of the benefit goes to those making over $200,000 a year, so it is part in ensuring what this tax plan will be, that it is fair to everybody through the brackets, but the wealthy will not pay less than they are paying now. david: would you do the same thing on the corporate side? when you eliminate tax the deductions?ax >> there is about 5.5 trillion dollars of tax relief in the

legislation and about $4 trillion paid for on the corporate side. this is what most economists would agree that this is the right thing to do, broaden the base by getting rid of some of the preferences in the tax code, the underbrush that has grown up where thousands of pages have been added to the code, and you lower the rate to make it more fair. that is part of the package and this is why it has a good growth component to it. david: you only have two votes to lose of the 52 vote majority. as you look forward over the next weeks, what is the one thing you are most concerned about taking care of, making sure that you get those votes? >> what the senators are looking for, they want to be making sure that there are middle-class tax cuts. there will be and we will be able to say it in terms of what will come out. people can plug in their own situation into a cap collator online that will be available. second, making sure small businesses are taken care of.

you will see some changes in the senate proposal versus the house proposal, same structure and idea, but i think we will be able to make sure that small businesses are taken care of, because that is aware of the growth occurs. third, there should be a filled --ne playing field globally. we need to get the corporate rate down from the highest in the world among industrialized countries to something that is more reasonable, hopefully below the average, which is what you'll see in the senate, and ensuring that the money overseas is coming back into the country to invest in people and companies, helping in terms of better wages and more jobs. those are the three things people will judge this by. i think we will end up getting democrats because of that. david: thank you very much. senator rob portman of ohio. alix: thank you. the retail earnings coming out today, it is ugly for kohl's down by 10%.

it was the weather, hurricanes and the weather offsetting a strong back-to-school season. from macy's, it was confusing. down earlier, then up, flat, now up to 1%. worse thenm estimates, but they have crushed it on earnings. much more over the next two hours. jonathan: things are looking shaky across asset. markettes away from the we want to get this up quickly. futures a little bit softer. we are weaker by a 10th of a percent. 10 points on the s&p 500. this is bloomberg. ♪

♪ alix: a little bit of risk off tone developing in the markets. a selloff in bonds in europe spreading to the u.s., and the dollar is weak are paid at what is leading the decline? take a look at some of the stocks that are sensitive to tax reform. the white line is the high tax rates. yellow line is the s&p and you can see the small caps and companies rolling over and we have weakness in the transport stocks, as well as s&p momentum index. what does that mean? and markaul richards mccormack. paul, how do understand what is happening? paul: i read something that we need a pinch of salt. i think that is what needs to be delivered. the investors work up to the tax deal, and they say hold on, we

get a 20% corporate tax rate but you are making me pay for it? now i know that this is just an element, but i think at the end of the day the market does not like the deal. they know that the senate needs to make revisions and the clock is ticking. so from my perspective, the market had to correct and the currency has done overnight. you see the dollar coming off and people are going back to europe. the reason we are concerned about the nikkei, the market is saying you better delivered to the senate, and the clock is ticking because if we do not have anything done by thanksgiving you going to december and you have an ugly situation. there is risk in this environment that the market woke up to. has said, i've been telling you guys. mark, do you agree, particularly with the dollar? mark: the tax deal has been priced in at this point, so what

i think investors have been looking for is what are the other macro drivers happening behind the scenes. one thing i would add is i think what the market has been pivoting on is if we are moving away from the global inflation trade, which has been priced out over the last couple months, or are we moving back to the u.s. exceptionalism divergence trade, which is the u.s. economy looking better and equities are outperforming the rest of the indicators, but at the same time we have a strong u.s. dollar environment. what i think we see is based on the valuations and those drivers, i think where we are at is a pivot point and are longer-term view is we are going back toward reflation trade. this was really just the market getting excited about tax reform and delivering a hike in december and the fact that the u.s. data was outperforming for the past month, but we are still at a turning point where momentum and data tends to revert. jonathan: we caught up with

steve mnuchin and talk about the corporate tax rate. take a listen. >> are strong preference is -- our strong preference is that the corporate tax rate start next year. the longer we wait the worse it will be for the economy and making companies competitive and we look forward to working with the senate as details come out. jonathan: what is your best case? see if phased in over several years. if you have that instead of 20% upfront, will the market take it as a negative? paul: i heard the ocd average is 20.5% over corporate tax. it was said maybe below the average, there was a real hint there. maybe 22% just below the average, still starting in january. i think the market would not like it. we needed something going by january. jonathan: you are sticking with us.

coming up, find out why howard marks says the stocks and bonds could be raising red flags. from new york, this is bloomberg. ♪

♪ emma: this is bloomberg daybreak. and your bloomberg business flash. shares of kohl's fallen, missing estimates. hurricanes and other template weather hurt the results from the middle the quarter. an otherwise strong back-to-school season. the british government trying to -- to lift chairs in london for the world's largest ipo. the u.k. has agreed to give the energy giant a $2 billion loan guarantee. the u.s. and japan also want the ipo for their exchanges. fannie mae helps american borrowers purchase houses and it could help build them. the giant has considered pilot programs to address the lack of

affordable housing. the plans could make it cheaper and simpler for perspective homebuyers -- prospective homebuyers ticket loans to build houses. that is your business flash. jonathan: big story, just as equities hit all-time highs,. the debt market is sending a different signal credit beginning to show some cracks. u.s. high-yield debt starting to roll over, while the equity market hangs in. and of the difference between short-term and long-term rate getting narrower. we have seen it flattened over the last couple weeks, where the short end sells off and the longer and -- end stays anchored. take a listen to howard marks. >> the question is whether the market is acting as if economic growth, i mean the stock market is acting as if economic growth will be lackluster. and if the bond market is right that it will be ended the stock

market is ignoring it, then that is one more factor in my opinion, calling for some caution at this juncture. jonathan: still with us, mark and paul. bring up the chart again. it is high-yield in the united states rolling over and the equity market hanging in. will credit bite and candidate stabilize? >> what you say is as my favorite high-yield guy told me, perfection has been priced. this correction is like the dollar, tax reform has to happen. if it does not, it will get ugly and the stock market will get ugly and everything will get ugly fast, and you have to get your money out of here and into europe. but i do not think it will happen. jonathan: the euro is stronger in part of it is because of the bond market. it is different, because it is risk off and bond yields are higher. supporting the euro. i wonder what you make of the dynamic today?

mark: i think it is a drawdown on the u.s. dollar, the dollar has been driving -- if you look at it with macro drivers, it is trading about 2% rich. it is pricing in the good news. and when we look at hedge funds, it shows the market is basically squeezing out its entire populated short position on the dollar, now moving toward a modest long position. are we pivoting back toward the global re-inflation environment, which favors a euro and canadian dollar, which favors pretty much every major currency beside to the u.s. dollar, or are we pivoting back to divergence? when you go back to the credit markets it is interesting, because one thing really driving part of the local reflation prade is you have this loo where global credit has been easing, but what you are getting and central banks are continuing to expand their balance sheets globally, even though the u.s. is pulling back a little bit.

global growth is continuing to be reinforced through loose global find it -- global conditions and it is reinforcing the narrative that growth is still etc. and -- and still accelerating outside of the u.s. where it is a question we are artificially narrowing the gap between the dollar and the euro. you look at purchase power, it is not justified. is this artificially keeping the dollar up, all the talk in washington? when you talk about how donald trump was both the benefit the dollar, saying that the euro would go to 1.20, i think what is happening now is you have a cause because of uncertainty around tax reform and we cannot forget that the euro is still the euro. the average over its lifetime is 1.20. look at monetary conditions

promoting growth right now and with the market is missing and why the euro is getting a base again, general optimism around the impending brexit they'll. all -- deal. all the negativity will be fading as we get into december and we have one year to go before the brexit exit. i think what will we will see is the euro find a base, even on dollar strength related to tax reform. 1.15 could be the new base. jonathan: looking at the credit situation, it is starting to break and crack. it is very subtle. i wonder how much you are looking at that every morning? paul: i look at it from a perspective of everybody is long. given my trading background, i think they are all the same way. i think there are cracks. i think it is bleeding. i think what prospectively happens is it is getting a break because you have the 10 year at 2.33, but what if the market sells to real optimism around

the tax deal and it goes to 2.60, that could be interesting. and that is where i think the bleed could be more systemic. jonathan: this is important and counterintuitive, we have a situation in europe where we have a credit market that has gone before the economy has recovered, very tight before we have decent improvement. are you saying you could get in improvement in the economy that could be counterintuitive, when you expect it to rally it will not? paul: in the u.s.. they are unsafe or ground in europe because there is more -- they are on safer ground in merkel and theof president of france. jonathan: fascinating to catch up with you. mark you are sticking with us. joins us on energy

and he will tell us why technology is the key to the future of fracking. it is another copy of eastern time? alix: i have heard that. you should watch it. jonathan: posted by alix steel in a hard hat. alix: you can also watch it through the link on the weekend. david: over the weekend? alix: watch it over the weekend. jonathan: i will watch it a week late. let's get you up to speed on the price action. we are -14 points on the s&p 500. fx market using the risk off aory with the yen that found 11334. from new york, this is bloomberg.

jonathan: from new york city, just minutes away from the opening bell. the cash open about an hour away. about 95 on the dow.

a little bit of weakness and a lot more in europe. exacerbated by what is happening in the fx markets. euro-dollar on the front foot by about a third of one percent. broad-based dollar weakness. dollar strength as well. yang just -- yen strength. the data drops in the united states, treasuries stable and yields going nowhere. 230 two was the estimate, the previous number was 229, so a slight tick higher, but still stuck in this deep range, low from where we were, decades ago. us, mark mccormick of td bank and paul richards of medley global advisors. we expect it to be noisy for

quite some time. at 220, and we don't seem to be breaking out or doing anything spectacular. mark: it shows you have a strong labor market, but that is not the general reaction function, the fed knows that the labor market is strong. we have had noisy data, especially with the distortions coming from the weather. will the labor market see an uptick in wage growth? the conflict people are having internally or with clients is where does the phillips curve line -- lie? we know the u.s. labor market is holding up well. the economy continues to add jobs that pay above the breakeven level. until it generates significant domestic price pressure, the fed is essentially stuck in a two-year hike rate environment. jonathan: we talk a lot about volatility.

there is no volatility in the data, never mind in the markets. what is your take on that? what are your thoughts? think you have an economy that has recovered very well, a central bank that knew what they were doing. you also have a central-bank chair that knows about the labor market. when people look back on yellen's tenure, that will be something they give her credit for. the stability is confessed -- consistent with the fact that the fed things -- that the fed got things right. get used to the stability, it is going to be hard to take this under 200,000, but we were worried about it going up through the hundred thousand, two years ago. jonathan: goldman sachs is trying to double down. naming 509 to the second highest

that is up from 425 in 2015, but a lot of them were in sales and trading. some big promotions. you can throw talent at the situation, but is the lowball -- the low vol regime here to stay? paul: know it is not. next year, there is way too much risk in the market to consider the volatility will stay and you will have to get used to a new fed chair, the italian election, the mueller investigation outcome. plus, you will have the midterm. i am not going to question goldman sachs' business rationale. is the regime here to stay, mark mccormick? paul richards says no. mark: i have to agree with that.

what environment are we in, in terms of the macro space? we looking at where fx should be in terms of global macros, where inflation expectations are, we should be in a low environmentvol -- low vol environment. the central banks, while they are talking about exiting, and talking about take -- tapering, central banks are still expanding their balance sheet. it starts to change, next year so as we move into 2019, the story is going to be is the vix moving lower because central banks have been expanding their balance sheet and as that processors to reverse and of a look at global financial conditions, does this inject more macro volatility which would be the trigger for rates to pick back up? you talk aboutn

volatility picking up, can we talk about that? what does that mean in this age? paul: i think you are going to see more in foreign exchange, but i think the market looks at volatility in terms of vix and when you see vix around nine, it is a little overpriced. -- the market is possibly mispricing the european economy and without regard, the ecb could be called to question very quickly. simply too cheap. jonathan: the european commission forecasting some of the strongest growth in the eurozone in a decade. day, at the end of the draghi has a clever deal. he is not have to do anything, but the market can move. if you see a brexit deal start to go through, just look at merkel's body language. the economicis

data picks up in the market says we are not waiting until the end of tapering, we are moving rates now, that is when that bond curve gets killed. jonathan: you have to be the most optimistic man i've ever heard on brexit. paul: i had a meeting of my own with the los angeles times and they said everything you care about is brexit and i said not here, it is trump. the u.k. needs to get over itself and realize a deal needs to be done. i am optimistic because europe gets that to and we knew that the clock was going to be taking until march and this is the start of a negotiation. maybe we should send president trump to get it done. jonathan: paul, your thoughts pretty quickly. i understand why people are positive on the situation with the european economy. are you positive on the political situation? if you look at the economy, the potential growth is -- i think the

trades you are thinking about the ecb is how much can the euro strengthened and how much does that offset financial conditions and global growth. as long as the euro strengthens, it does a lot of the work for the ecb. ands see a decent activity the ecb does not have to do as much work on the rate side so they can start to pull back on qe, and how strong the economy is. i agree that the european economy is still where a lot of the growth is and as you mentioned before, talking about fair value. euro is undervalued, cable is still undervalued and yen is still undervalued. global re-freeze -- global reflation trade is more based in the global economy, doing well. commodity prices are improving. areging-market currencies performing well and this is an environment that the dollar does not fare well in, especially if we think about the midterm elections, the upsets we saw for

democrats earlier, this week and the potential for tax reform to go the way of health care. this creates a lot of downside risk for the dollar as we move into 2018. jonathan: it is nice to get to talking about stock. mark mccormick of td bank, good to have you with us. paul richards of medley global advisors, thank you very much. emma chandra is here with some "first word news." emma: president trump is accusing china of predatory trade practices but in beijing, he tried to shift the blame away from the president. he said the trade deficit with china is the fault of prior administrations. is interested in increasing imports from you -- from the u.s.

some of the wealthiest people in saudi arabia are trying to protect their fortunes from an asset freeze. according to people familiar with the matter, then want to move assets from saudi arabia and other gulf states in the midst of a anstey correct -- anticorruption drive. the euro area economy will grow at its fastest rate in a decade, according to the european commission which raised its four-year growth forecast to 2.2%. the commission cut this year's forecast for the u.k. and says british growth will cool to just 1.1% in 2019. global news, 24 hours a day, powered by more than 2700 journalists and analysts in one of 120 countries. this is bloomberg. david: as you commute in, you can tune in to our colleagues tom keene and david gura on bloomberg radio. bloomberg surveillance can be heard in new york, boston and in the bay area.

this is bloomberg. ♪

emma: this is bloomberg daybreak. --ing up in the next hour, discussing at&t. this is bloomberg. now to your bloomberg business flash. shares of macy's are lower, today. .etailer posted comparable store sales they beat estimates and the company reaffirmed its guidance. investors are not convinced by -- shares in the fashion

industry plunged after a deal that includes sharpening the brand's luxury image. the battle over at&t did he proposed takeover of time warner is escalating. -- at&t's ceo says he will not sell cnn as a condition antitrust regulations. . that is your bloomberg business flash. alix: a softer day in the market, but not for oil. the vti still holding on to its 5% gain, this week. i spoke with the ceo, one of the first to prioritize shareholder return overproduction growth to get his take on $60 oil. and $70 oil,$60

will we see another cycle come back and the business as u.s. unconventional starts to grow, as the middle east starts to produce more oil after they go through their reduction. we will hold some cash to be able to manage through that. alix: joining me now is then s -- ben shattuck. wood mackenzie's principal analyst. what do you think would happen to shale production at $60? off to the races in terms of shale production. it would certainly see an count, and the rate you would see a lot of growth are we would say 800,000 barrel growth, this year. but is on a $52 forecast, so a bit more than that.

longer-term, i think you would -- you would find that there are some risks to the production, particularly as you get to that part of the next decade. be a big draw and big ultimately, we think that maybe there is some risk geologically as we tried to grow to 10 million barrels a day. it could begin to show their faces in the next couple of years. alix: i have a chart. the bottom panel is the rig count and it is actually rolling over. you are able to drill less and get more oil. that is the good news. what are the three things we have to watch out for in the geological world that we have to -- that will prevent that from happening in the future? the geologic risk cannot be

understated. the big thing that we look at his parents versus child well. years,e past couple of there have been increases on the productivity side, and that is allowing title to stay at the forefront of the industry. this is been a function of drilling the best locations and drilling early in the game. as we go from the rig count as it is that it has potentially doubled more than two and a half times, you have to go back and drill next to these wells you have already drilled. the well you drill first is the parent and the second is the child. our analysis indicates that as you drill next to those, it is like putting more straws into a milkshake. that second and third and fourth well you drill could be less productive, as much as 30%. there will have to be a response to that. in the short-term, operators have time to craft some type of typical -- technical response

because you want to that effect take place until the early part of the next decade -- you won't see that effect take place until the early part of the next decade. when the rig count was low, operators went to the best parts of the place they were active in, so that means they would drill the best well that they could and as they drilled outside of that and as they stepped outside of that, they could sometimes be in the magnitude of 10% to 30% less productive. alix: higher cost reduction is going to be needed, so what kind of oil price would be needed to offset those geological and operational issues? ben: in the short term, you are not looking at much of a difference from a geologic perspective. 2020, 2021,out to the cost of supply of a well that is 30% less productive is anywhere from five dollars to $10 per barrel higher.

you can do the math, that your marginal cost of production is higher than what you expected it to be. alix: great to get your perspective, ben shattuck of wood mackenzie. coming up tonight, join me for an hour-long special on the rise of shale. the question, how they can shale production get in the u.s. and abroad? that is tonight at 9:00 p.m. eastern. if you have a bloomberg terminal, check out tv . check out our charts and graphics. toalso use tv watch my show special. this is bloomberg. . ♪

jonathan: three areas of the market we are keeping a close eye on. disney on the agenda this afternoon and in the world the

retail, kohl's, macy's, kohl's the big looser -- loser. joining us now from bloomberg intelligence, we've got paul sweeney, director of north american research, plus bloomberg retail reporter matt townsend. came outmbers that this morning, how bad is it when you look at the data, the facts, the numbers? kohl's, two big department stores. they had some impact from the hurricanes. sales were down at macy's. overall, the economy is healthy, consumer sentiment is high. jobs are going up and there are a lot of big legacy retailers still struggling. jonathan: you put out a fantastic piece that looked at the redemptions coming up, the nextebt wars that will be

year and the year after and the year after, and you used toys "r" us as an example. this is not about store closures and cutting cost, this is about drowning in debt. matt: we talked about amazon. if you look at what is going to cause a shakeout in retail, it is this mountain of debt, starting next year for high-yield debt. speculative debt with retailers that are sort of struggling, aming in a time when there is trillion dollars of debt coming to halt -- to all industries. the negative sentiment on retail, they are going to struggle to refinance their debt. that is what is going to drive companies out of business. debt was the problem for sports authority, not amazon necessarily. fox, i just looked at those numbers. fox tradingcentury

down, because they beat expectations. paul: decent numbers coming out of fox, but the reality is the malays over the media space remains very strong. secular concerns about cord cutting weighing on all the stocks. good news out of fox last night, but it does not offset the fact that all media companies are facing the issue of cord cutting. what that means for advertising fees, affiliate fees and the growth of their business, it is a bit of a challenge all of these companies. david: fox may have thought it had an answer in possibly merging with disney. that does not seem to be happening. what about at&t merging with time warner? why is this such a big deal? nbc did this with comcast. jennifer: that has taken everybody by surprise because it truly is -- it is correct that the doj is pushing for some correction. it is a departure for this deal.

what the doj has done, to remedy a very similar deal, not just nbc and comcast, but others that raised similar alarms for the last 15 years or more. it is very surprising and it looks a little bit like overkill. alix: will could wind up being the end result of this? -- what could end up being the end result of this? jennifer: what i see is the doj is insisting something be sold and the parties are not willing to do that. close,parties want to they will have to go to court because the doj cannot stop them from closing the deal. the doj needs a court order from a judge and i think in this case, that the year jay has an uphill climb and the parties have a good argument. david: paul, that could take it while. is there anybody else out there who might be interested in trying to buy time warner? paul: a lot of people talking to a lot of people in the media space. work -- we never thought we

would would look at rupert murdoch selling any of the pieces. as it relates at&t and time warner, marketplace is to let this one play out in the courts. jonathan: i want to touch on this again and it is the issue of size. his companies and their needs to get bigger and bigger, but the murdochs are doing it differently and i wonder why. paul: very surprising to the marketplace. longtime media investors that we would never see rupert sell. the murdochs are seeing the top of the market, they're looking the next -- they're looking for the next five to 10 years and saying this is a much tougher business and we are a salt time warner pulled the plug on selling at the top. maybe the murdochs are doing something different. they are saying if we were to sell some of these networks and leave us with what rupert loves which is the news organizations, broadcast networks, perhaps he

would be comfortable with that. a similar company like cbs trading well. jonathan: great to cap -- catch up with you. matt tauzin, paul sweeney and jennifer read -- to wnsend, paul sweeney and jennifer reid. a little bit of weakness emerging, 34 minutes away. futures are a whole lot softer in the united states, both on the dow and the s&p 500. deep in the red, in frankfurt, germany. a weaker dollar, the end it's a bit as well. a risk off field. this is bloomberg. ♪ who knew that phones would start doing everything?

entertaining us, getting us back on track, and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited. no one else lets you do that.

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. or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. jonathan: just the stock market hit all-time highs, yield curve

sending a very different signal. the retail sent -- the retail sector take center stage. macy's jumps i optimistic holiday outlook. kohl's plunges. from new york city, good morning, this is bloomberg daybreak. i am alongside david westin and alix steel. we begin by counting you down to the opening bell, just 30 minutes away with futures a whole lot softer on the session. we are down by about 12 points. we are set to retreat once again from another record high. a 116.o just on treasury yields up a single basis point at 2.34 after experiencing a bit of a selloff in the european bond market. that is the situation across assets. a lot of earnings to work

through. alix: we look at the have and have-nots of retail. kohl's off by over 7% in the premarket. midpointyear view missed. on the good side, you had comp sales up by 1%. the issue was also margins. margins slipped lower which means they had discounts to get more product out of the stores. kohl's is trying to partner with amazon in some way. a rough day for kohl's. a different day for macy's, probably because john just admitted he shops there. macy's up by almost 3%. the last two quarters have been terrible and this one was not as bad. comp sales falling by 4%, but third-quarter earnings beat estimates. it also reaffirmed its 2017 guidance and also saw e-commerce and its loyalty program really helping to offset the weaker mall traffic which is what all

the retailers are trying to move into. they are still under pressure to sell herald square, their big footprint after lauren terrill -- lord and taylor selznick landmark headquarters as well. -- cells its landmark ed: -- sells its landmark headquarters as well. -- they are thinking about joining up with a retail brick-and-mortar partner. that is the other downside of the amazon affect. this time wanted to go into more physical stores. third-quarter loss was three cents per share. jonathan: thank you very much. in the market, just as equities hit fresh all-time highs, debt markets beginning to send a different signal. credit beginning to show some cracks. while theng over equity market is holding up and

the difference between short and long-term rates is getting narrower and narrower. we picked up howard marks -- we met up with howard marks for his take. howard: the interesting thing is if the market is acting as if economic growth does not mean the stock market, acting as if the economic growth will be lackluster. if the bond market is right, that it will be and the stock market is ignoring it, then that is one more factor in my opinion, calling for some caution at this juncture. jonathan: joining us around the table, dubravko lakos-bujas jpmorgan head of u.s. equity strategy and global quantitative research. let's get back to that chart. what are your thoughts on that? market and the bond market are sending signals. equity markets have been doing quite well and a lot of that is driven by a fundamental backdrop, not just in the u.s. but globally.

on the bond side, i think the flattening in the yield curve is a little bit of a concern. it is not a clear picture because there could be several synthetic factors at play. you are looking at a u.s. that is moving faster along the curve as far as central bank policy is concerned. flattening of the yield curve has been one of the more powerful predictors of a potential cycle and recession, -- cycle end recession. jonathan: on credit, specifically, can we get a convergence versus equity or do you see stabilization? dubravko: you could get some dislocation between credit spreads, high-yield spreads and equities, but it would be temporary. historically, we have seen not let the virgins where one side or the other would give in.

sting -- things look relatively supportive is fun -- as far as fundamentals are concerned. jonathan: michael mckee, the technical jargon is the bear and the login stand -- the long and stays anchored. what is your view on that from the economic signal side of things because there is a debate taking place at the moment. michael: you go to look at why you look at the yield curve. the short end is rising faster and the fed is overreacting to inflation and they raise rates too high and you go into recession. nobody thinks they are raising rates too high, yet because they are at such a low level and they are doing it so slowly. we are really flattening at the long end, rather than rising at the short end, as we have in the past. david: one of the quandaries central banks are facing is inflation. why is inflation going up faster

even though we have synchronized growth, so steady. if there is a real change in that paradigm, how does that affect the long end of the curve? you do not have inflation expectations, what does that do? michael: an interesting question that would have to be played out over time because it is going to depend in part on why inflation is rising. if it is rising to around 2% at a slow pace because we are seeing a fundamental increase in prices across the board, the market may be more sanguine with that. if we get a tax cut that send people out to buy a lot of stuff quickly and you get some consumer price inflation, they are going to worry about that, and then it becomes a function of how the central banks react. do they move quickly and how does the market judge that, are they going overboard, are they getting a calibrated just right? it is a complicated question because you have these traits going on at the long end. alix: there are other indicators in the market as well.

s&p dollar index is rolling lower. transports are rolling over. you put them all together, why isn't that cause for concern? dubravko: i would say most of this cycle, not just the last year, we are -- where leadership has been narrow, if you look at the last 80 years, leadership has been pretty narrow. most of the leadership has come from a different -- a number of secular growth streets. also from these so-called low volatility stocks that have been a key beneficiary. i don't think it is of particular concern, given how you need -- given how the entire backdrop has been. i do think at some point in the coming months, we definitely could see a potentially outside rotation. broader participation of stocks and rotation from your low vol quality and a cyclical valley

trade. if you look today, it is interesting. the growth trade relative to the value trade and they stand at the opposite side of each other. the valuation spread is at cycle highs. valuation is not a good timing indicator, but it is raising a red flag that we could get a rotation. alix: i feel like we have been talking about the value of trade rotations for years and it has still not played out. you can make an argument that financials already rotation trade, but level that offer me. dubravko: you need a catalyst. one could be if we get more prompt -- progress done on tax. let's see what the senate comes up with. if you do see tax starting get -- starting to get priced in, you could get a relatively outsized rotation and i would not be surprised to see yields moving higher. another thing that could happen

is if tax does not go through, the market takes it as a slightly bigger negative. the fed is already priced in, for perfection. if markets are going to get pressured, you could see some of those expectations get the rated -- de-rated and that could drive the value trade. mike, what would be the indicators that there is a bigger problem because of this expansion? it is a blip, but it is noticeable. what will be an indicator that this is a bigger problem? michael: we would look to orders and see if companies are pulling back because they are not getting the credit they want. it is hard to determine whether they want the credit. the latest senior loan officer survey from the fed said banks have made their conditions easier, demand has slipped and we are seeing that reflected in c and i loans.

maybe people are just waiting to see what happens with tax. if you are going to invest for the end of the year, some of the provisions of the house bill are retroactive to the beginning of november, so why would you spend money now? , do you see aavko situation where people are sitting on their hands? dubravko: most of the capital has been largely put to use. equity vol levels are pretty low. on the back of that, leverage levels are pretty high. could you see people putting more capital to use and sort of stretching further? you could, but i think you need a clear catalyst. that could be -- we continue to -- i think that is tougher to believe given how high we have gotten already. i think if -- it is somewhat more plausible the catalyst

could be if you get tax. a reread of earnings expectations and thus more upside in prices. jonathan: dubravko lakos-bujas of jpmorgan is sticking with us. michael mckee, thank you very much. coming up next, buying the bubble may have been the best way to beat the crowd, this year. we are 19 minutes away from the opening bell. we are set to fall back from an all-time high with futures deep in the red. ♪

jonathan: the best way to beat the market in 2017, buy the bubble. if you bought assets people could not keep going up, you

beat fund managers by a mile. allegedlyth overinflated assets would have jumped 120% this year, crushing the s&p 500. joining us now is dubravko lakos-bujas of jpmorgan. luke, i have joked with you because you have been following this portfolio through 2017. talk to me about what you have put in and what it has delivered. luke: this was inspired by joe and a fellow on twitter, a portfolio manager. they put together this list of crazy assets. netflix, tesla, xiv. jonathan: a bit of bitcoin? luke: of course. debt, everyone thought can never keep going up. alan greenspan said it could never go up. japanese widow maker.

andargentinian century bond then as a macro chinese real estate bubble play, sue neck. jonathan: what have we learned? luke: a couple things. it is a heck of a lot easier to invest with hindsight, but also a kind of shows how much these markets have been momentum driven. it is a challenge for investors in a air of low interest rates and we have seen growth broaden and expand. theoretically, that should be a great time. even in that backdrop, that has not happened. jonathan: dubravko, a great theory. you buy something that is overvalued. and theread of money is no alternative and you are going into overvalued sectors? sort of: these are dislocations that take place and this is not the first time we have seen this happen. is definitely

clear is that things get stretched before they actually reverse. the momentum they are you mentioned, i fully agree with and even when you think about a current backdrop where assets have steadily been flowing from your active value-based mandates into more passive momentum-based autopilot mandates. jonathan: dubravko, people would say this is central banks that money into the system where it has nowhere else to go. is something else happening? dubravko: this is behavior that is not different than what we have seen, historically. given the aggressive central -- someome statistic specific parts of equities have benefited. leadership has been a bit more narrow than what is typical, but i think a lot of it is in line with what we are used to seeing. jonathan: for a long time, it has been a bubble in bubbles. about the bitcoin

2011 bubble all the way up to 2017. this has been going on for a while. luke: yes, and that is one of the things that has helped this portfolio. it is the reason why it has been able to give a positive return. if you keep calling every thing a bubble and you get these long-term sovereign bonds in a bubble and these volatile equities, it is a volatile portfolio. jonathan: dubravko if bitcoin is in a bubble and it bursts, it would not bleed into the rest of the market. you would not think it would. do you think it would? dubravko: i don't think it would. i would say no. i don't think it would create a systemic shock. it would be more of a specific, more of a isolated impact. jonathan: some of the other assets in this portfolio would cause a lot of damage. if you look at the bund curve. that is the new widow maker for many people. if you look at real estate in china, he said one of those portfolios is in the bubble. what is your biggest concern?

dubravko: other traits that are bubble-ish. you were mentioning xiv. explode, you would definitely see a decent amount of deleveraging and selling pressure in the marketplace because a lot of strategy tends to manage exposure. -- if the faang complex us to revert, that could have recompression -- repercussions. jonathan: is there any reason we are going to break out of this low vol regime anytime soon? dubravko: i would say probably not in the immediate run, the next three to six months but if you look further out, second half of 18, global central bank balance sheets are expected to come down for the first time, this cycle. if you start getting a somewhat weaker fundamental data point or labor data point, there is

definitely cause for concern. jonathan: dubravko lakos-bujas of jpmorgan and luke kawa. that you for joining us. alix: coming up, the bank said in one of the best performers under president trump, that is that rally coming to an end as the tax reform hits another roadblock? we will discuss. this is bloomberg. ♪

david: the democrats victories in tuesday elections is taking a toll on the banks as the question the viability of the gop tax when. i spoke to citigroup ceo mike mccormick and asked what this could mean for citigroup. mike: our business is a function of our customers and clients. we really are a bank of fortune 500 companies and more.

when we look at u.s. companies as part get tax relief of this and a make those investments and they choose to grow, we are going to be there, supporting them. we will be doing capital markets, all kinds of things and that manifests itself in activity for us. in that activity, we have the ability to earn a bit of money and turn a profit on that. it will be the derivative effect of what our customers and clients do. david: still with us is dubravko lakos-bujas. right?ael corbat something like what we are seeing right now will substantially help banks? or is it a flatter yield curve? dubravko: i would agree with his comments, fully. i do believe if you get more progress on the tech side, that several things are in play. most of the banks are domestic banks and they pay relatively

high tax, currently so they would definitely get some relief that would flow down into earnings and eventually the shareholders to see the benefits from higher prices. down the road, that could stimulate more economic activity that the banks within benefit from. on top of that, a text deal could drive re-rating of expectations. higheruld drive yields and that -- and perhaps steepening of the yield curve in which banks should stand to benefit. the flipside of that, if text is not go through, then i think you have some cause concern, given that the banks have had a decent run, recently and given that fed expectations are already priced for perfection. we have the street pricing in four to five hikes over the next 14, 15 months. david: as you suggest, financials had a pretty nice run

up for a while. if tax reform does not go through, it is not as profound as people have said. what about things like -- can keep some of the -- can that keep some of the momentum? dubravko: i think those are nice tailwinds that likely continue to provide some support. that is why i would not expect any sort of second case scenario, describing the negative, having fundamentals reach a little further. alix: let's say we do get some weakness in the banks. i wonder what the probability of financials' ability to drag on the s&p 500. if the underperformance continues, what is the reverberation effect? dubravko: if it continues, it could basically dragged down the broader index. you have to ask yourself, will money -- money managers be rotating their capital from the financial sector into other parts? and that kind of situation,

don't be surprised to see the growth trade even higher. we have seen that before. david: the other question we have is which is the chicken and which is the egg? is that because financials are not doing that well or are they not doing well because other things in the economy is holding them back? dubravko: i would argue more of the latter. there are other things in the economy holding them back. that is why you are seeing them trade at structural discounts. catalysts right now are moving them around, up or down. alix: what is the other tax reform rotation play? dubravko: tax reform play would multinational into more domestic exposures, from growth into more value, from large into more small mid. financials, you have areas that are very domestic such as retail.

retail has been a disappointing trade through much of this year. you could certainly see an outside squeeze take place, there. the part that is hard to judge is pricing power for some of these deep value areas like retail. likely a lot of the benefit does not flow through to stakeholders, but they lower prices to regain competitiveness. you get a boost higher, but i would not overstay your welcome. jonathan: dubravko lakos-bujas, great to have you with us on the program. the opening bell coming up on bloomberg daybreak. the story as follows. futures softer by about 87 points. down 14 on the s&p 500. we are off session lows as we approach the opening bell. retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. jonathan: the opening bell 26 seconds away here in new york city. a record high close yesterday, but futures looking themselves -- down point 5%, down as much

as 100 points earlier on dow futures. some broad-based weakness for equities, not just in the united states, but europe as well. as you hear the opening bell, it was a story of dollar weakness earlier. coming back a bit. treasury yields were up about one basis point the last time i looked. 2.34.o unchanged at it is the shape of the yield curve that has a lot of attention. it has looked a lot flatter over the last few years and over the last few weeks. records yesterday. the retreat in the cards today. here is alix steel. alix: weakness setting in. -100-plusly had two losses in the dow since labor day and the s&p off by .5%. all indices closed at record highs yesterday, the 27th time so far this year, but nonetheless this is weakness that started in europe and is

continuing to spread in the u.s.. retail is kind of helping an card -- kind of hurting the indices. macy's on the upside. optimism over the christmas holiday season. that her earnings for the last quarter by seven cents despite the fact revenue fell, that comparable sales were like and the outlook was reaffirmed for 2017. , a different story -- they put some blame on hurricanes. coty up by 14%. results came in better than feared. they are the cosmetics company that bought the arm from png. they expect that to pay off acn opportunity on amazon to have sales really ramp up. let's take a deeper dive. we talked about debt. this chart tells an interesting story. this is a normalized chart as every end of last year.

the retailing indexes the blue line. amazon, the yellow line. the purple is the s&p. obviously amazon outperform the retail index, but over the last few weeks, the retail index has outperformed the s&p. so much for the death of retail conversation. for most of the year you have seen retail outperform the s&p or trade in line with the s&p. four does that mean about white -- where you should be putting money in that space? by sarah we are joined from bloomberg guest five. what did you make of the retail earnings? sarah: they are companies that are structurally challenged. kohl's is getting hit harder, but that is an expectation game. macy's comp sales were down 4% and it shows the challenge connecting with consumers. it is not just consumers.

jonathan: no single names in this conversation between you and i, but we have seen this movie in various sectors --at some point the ceo's, out and throw the in the kitchen sink out. have we have that story in u.s. retail yet. -- retail yet? >> we are seeing bits and pieces. generally what you see in the retail space is the higher end and the lower end of retail has held up relatively. the lower part has really gotten squeezed over the recent quarters. i think there is more room for the straight to persist in this direction. you could get a pair trade. you were mentioning amazon versus retail. you could get a pair trade in the coming weeks or months, but i think you need a catalyst. that catalyst could be a tax cut. david: sarah, what about the

end, of high-end and low is anyone making a go of it, and does size matter? sarah: that is an astute point. macy's distributed that her earlier. up, and they -- macy's courts a more affluent consumer. the middle space is a hard space to be. one thing you can say for macy's is they have been more aggressive on a percentage basis in terms of clothing stores. that is what they may have done right and it should help them going forward. david: do these earnings tell us anything about the state of the consumer, or is his individual, company by company? sarah: i think it is company by company. we will see more retail earnings over the coming days and i expect we will see is what we see for several quarters -- home depot and lowe's having strong results with people spending on big-ticket items and other be keller's like gap and urban

outfitters struggling to connect with consumers. alix: there was an interesting note about capital spending in the service sector in part in retail because that is where you will see potential growth. do you agree with something like that -- is that what we will see the capital investment comes in the next cycle? dubravko: i'm a little bit skittish on it, but i think you are seeing some positive development there. consumer confidence is another thing that has been at high levels. all of that is a positive. alix: thanks so much, guys. dubravko lakos, thank you. walter, b tigby analyst. layout what we just learned. walter: it was a lot. we are going through a process

that was very long and everyone was waiting for the confirmation. it was a lengthy process. he had to meet with senator warren to get through this. there were no expectations of s from the state of video g, which have been unchanged. all of a sudden, he comes on the scene, they are asking for major structural changes, divestitures. it is a dramatic change. jonathan: the easy article is this has echoes of what the president would like, cnn to be sold off -- and this is a political effort, not a business one. what is the business rationale to say you need to get rid of cnn. walter: it is a good question. i'm it should to see what the doj's case is against at&t. if they say you need to make the structural changes mother has been no indication of that -- changes when there has been no indication of that to at&t for

weeks and months, they can rightfully say why should we digest -- divest anything, and they can probably start the give ao say they have to response in 30 days, and if they don't, they will see them in court. onathan: let's say you are the other side of the trade and you had to tell them they had to sell cnn. what could you tell them that would make sense? i cap -- walter: i cannot come up with anything. in the last four years, has them in a vertical lawsuit. thed: you know what argument is -- the same argument with nbc and comcast -- you're going to be a powerful gatekeeper, and you will disadvantage competitors to cnn in getting access to consumers. i am not saying it is a winning argument, but that is the argument that has been made in the past. there is an argument, that is the argument you make. walter: which area of what time warner has is most of concern to people who have access to it? visit cnn? probably not. it is hbo.

if that is the issue, maybe they ask them to divest hbo, which is what people care about. more: cnn is much ubiquitous, distributed, and the fact that it is essential to cable operators to present their panoply of channels. you cannot be a cable operator and not have cnn. walter: that is true, but i don't think at&t would have an issue with divesting cnn. biggerask is something and it is all of turner -- that is another issue. turner represents about 50% of the free cash flow of the company. they don't need this deal like i think they needed directv to fund the dividend growth, but you take out turner and the free cash flow it generates, that is a harder transaction. what will you sell turner for in the open market? david: i am not making the argument, saying it is a good antitrust argument, but that is the argument that has been made. walter: i think at&t would look

forward to defending against the argument if it got to that point. we are now at a game of chicken between at&t and the doj, and we will see what happens in 30 days. does he think he has a good enough case that when 30 days pas he will moves for, because at&t would welcome that challenge. jonathan: what is the message in the stop price action and does this get done? walter: we had a lot of investors playing in this, hearing all longer was not an issue from the existing staff. that obviously is going to create significant volatility in the market. everyone is, kind of, perplexed as to what the case of the. doj is actually going to be. . . the pressure has been stiff in the near term. let's look at the at&t standpoint. a 6% dividend yield, one of the highest in the s&p 500. if the deal does not happen, you have a higher mix of the wireless company which is doing ok. if you again verizon relative to at&t, what has been hurting at&t is the pay tv business, not a

higher mix of the wireless business. it is not the end of the world for at&t is this deal does not happen, yet it is what the ceo wants to do and wants to use moving forward as far as the position of the company. they will come in my opinion, not concede in these disasters. jonathan: that the end of the world for at&t, the what about time warner? walter: time warner -- that is a rich greenfield question. it is hard to know who is the potential buyer for that going forward. is fox a potential buyer of time warner if this thing gets pushed out, and what role did fox play, yet any -- if any -- david: they tried before. jonathan: they -- ander: they tried before -- what role did fox play in how the selection of the doj was made. jonathan: walter --walter piecyk with a contentious point at the end.

10 minutes into the session. up 110 of the doubt. a selloff after closing at a record high yesterday. this is what we look like at the moment -- treasury yields unchanged at 2.33 of the 10-year, but the japanese yen capturing that. to 113.50.up again this is bloomberg. ♪

ema: this is bloomberg daybreak. coming up on bloomberg markets, columbia professor and nobel prize-winning economist, edmund phelps. this is bloomberg.

reportedst century fox quarterly earnings results yesterday, beating analyst estimates, and disney reports earnings after the bell today. this comes just days after news the companies have broken off talks for disney to buy a good part of fox. for a look at the future of the media industry, we are joined by paul sweeney and tuna amobi, cfra analyst. to $32a target raised from $30 earlier this week. tonight, let's start with you -- -- tuna, let's start with you. did you find the earnings increase -- encouraging --is that why you raise your target price? amobi: i think the earnings were encouraging, german by fees, that is the main catalyst, but the recommendation has to do

with the way the media landscape has been evolving, and most recently, as you alluded to the potential interest by disney in fox's entertainment asset. that news did not make sense to us in the beginning, but the more we thought about it, the more weight, kind of, began to rationalize a case for fox to news assetsn the and sports, whereas disney will, kind of, you know, i get more scale on the entertainment -- get more scale of the entertainment side coming at a time when they are ready to launch their own direct to consumer offering. disney is getting ready to bulk up on content. both companies are well-positioned. i think the idea there could be more scale for disney while allowing fox to monetize some businesses, which by the way, are a very small portion of the overall business financials. i think it might make sense, and investors were hoping for some type of catalyst for the media

sector, which has really underperformed this year. david: so, paul, whether this deal gets done in the end or not -- as we said, the talks were broken off between disney and fox -- does fox have to do something? tuna refer to- direct to consumer. does fox have to get a lot bigger, a lot smaller, or even sell? so. sweeney: i don't think i think fox is well-positioned in an environment that is under secular challenges, as to not mentioned. fox's well-positioned with its europe.iness in they are hoping to get control of sky. they are well-positioned from an asset perspective. they have excellent assets competently fox news here in the u.s.. from disney's perspective, there

are assets fox owns that disney would like to have. disney wants to be an aggressive, direct to consumer purveyor of sports and entertainment content. david: we saw fox early take a run at time warner and it did not work out. now we hear reports they were talking to sell. you have a sense that fox, five years from now, it will not be what it is now -- it will get bigger, merging something else, or actually sell out? tuna: i think the company has taken great lengths to disavow the idea that they are looking to get significantly bigger. for theirr surprise intent financially to sell the entertainment asset, as you alluded to, was coming off of that bid for time warner. you have to balance with the strategic rationale is, and ultimately when you dig deeper, you get a sense it is all about monetizing effectively, the assets that you have. i think fox, argument, is

well-position best in the news and sports arena, where disney -- there is a lot to be said about adding another layer of content to what they already have. in this landscape -- where everyone is rushing to get bigger, i think the relatively smaller players are going to get marginalized? that is how you can --marginalized. you can get an want to look at their portfolio and focus on their core competence. over the next several years, i do believe fox will go through some type of rationalization of its portfolio, especially, as paul said, this deal out there guyb -- bskyb. david: disney earnings come out after the bell. what will you be looking at? paul: i need to the company , due toet on the bones

know what will be in direct offerings and what they will be priced at so investors can get a sense of what might be successful. david: paul sweeney of bloomberg intelligence, given much. tuna amobi, good to have you on from cfra. alix: take a look at shares of snap. days. day of the last two that may take the intraday. morgan stanley -- let me take the intraday. they were an underwriter of the ipo. they say the disappointing third -quarter results speak to growing challenges based on monetization potential and user opportunities. no kidding. this is what the snap shares have done over the last two days. you had a little bit of a rally when tencent bought a 10% stake in the company, but nonetheless, it is hard to escape the negative order and outlook from the ceo as to what company he really wants snap to be.

if you have a bloomberg terminal, check out tv . you can watch us online, click on charts and graphics, and indirect directly. a great place to watch my shell special tonight at 9:00 p.m. this is bloomberg. ♪

david: it is a big day in washington for tax reform with a house expected to complete its markup of its bill, and the senate giving us the first look at its version. kevin cirilli joins us now. welcome back. first question on the house -- is there anything left to be surprised? we are three days into a four-day markup. do we know what this bill is when you look like? kevin: we do. later this morning we will get the outline from the senate, but in the last hour i got a statement from steve bannon with headlights crossing the terminal as we speak, and he is putting

his support behind the house version of the carried interest loophole. you will remember there is the three-year minimum they are requiring the house version of the tax bill to qualify for capital gains. previously, mr. bannon had called for a closing of that. i am told by a source close to steve bannon that they are putting their support behind the carried interest -- three-year limit of that in the house version two pressure senate majority leader mitch mcconnell. we know about the tensions between steve bannon mitch mcconnell to get that in the senate version, which we are only an hour or two from getting an outline of. david: how come the senate gets to decide, essentially? as i understand, the house can do what it wants to do, but the senate will get to decide? kevin: there is always the awkward tension about the senate taking forever. to house is on pace to get this bill voted on in the tax package

voted on by next week, putting them on pace to get it done by the end of the year. it is a bit more of a conservative bill than the senate is likely to take up. that is why steve bannon and is outside political army could make this interesting. they view this as a populist approach with carried interest loophole. on the flipside, the white house people on board with the tax bill, but this is where the politics influence the policy. case in point what happened with virginia just the other day. democrats looking at that, the political tea leaves, same we have to reassess if we can get on board with this tax package or not. what effect will they have? kevin: it makes it interesting and that the centrist democrats are in a tug-of-war between the left, people like elizabeth warren, as well as folks within the republican party who are saying there is a strong basis of support for republicans and president trump in particular in your state.

look no further than someone like senator joe manchin. i think as that continues to evolve, we saw democrats were able to stop reform to health care in the health care battle, but tax reform is a different plan. people at the end of the day like to see their taxes cut. david: we have nothing much bipartisanship on capitol hill for quite some time -- not just in the trump administration. is there serious prospect for bipartisan support for something out of the senate side? kevin: i don't see it. i think you will see folks trying to get there, but from my reporting i don't see any democrats getting on board with the republican tax plan. david: great portrait you want. alix: coming up tonight, join me, an hour-long special on the new york rise of shale, how it is change the u.s. and the world. aside from being in a hard hat, i will finally stop promoting it to market which will make you guys happy. jonathan: can we take a moment

to take in the pictures of the beautiful, long, blue hat, the white hardhat, the protection goggles. alix: using the goggles, the overalls, the boots, and gloves. jonathan: how did you move what you are sitting in? sawd: i do not know if they anyone like alix steel at those oil fields. shell.his is when we saw jonathan: are they skechers or boots? alix: they are boots. jonathan: looking rough out there -- down about .6% on the s&p 500. -1% on the nasdaq. this is bloomberg. ♪

vonnie: it's 10:00 a.m. in new york, 3:00 p.m. in london, and 11:00 p.m. in hong kong. i am vonnie quinn. i am nejraom london,

cehic. you are watching bloomberg markets. vonnie: here are other top stories we're covering from the bloomberg and around the world. u.s. stocks are falling hard today relatively speaking with tax reform in the spotlight. the senate could release details of its bill this hour. then, the u.s. jobs market remains on solid ground. why is inflation not picking up? nobel prize-winning economist edmund phelps is here to discuss why we have entered what he calls terror incognito and what can be done about it. and all day, bloomberg tv will be at the headquarters of the internet conglomerate iac. ceo joey levin coming up at the bottom of the hour. let's get to the market. 30 minutes into ad