bonds buying. u.s. producer price index on deck. nafta in limbo. canada and the u.s. prepare for a showdown. here's the lesson from the market we learned in the last 24 hours. -- buytill by the depth the dip. that was the z-mapp the strong -- that wasond the theme after the strong 10 year bond. david: there are no dips. time for the morning brief. -- at 8:30, they release the producer price index data.

$12 billion in 30 year bonds. let's get an update on with making headlines outside the business world. ma: president trump next there will be no war with north korea. -- president trump says there will be no war with north korea. insting oil and gas drilling florida'sters -- republican governor opposed the drilling plan. he's expected to run for the senate in november. in paris, armed robbers made up of millions of dollars in jewels. three suspects have been arrested. two others got away.

the stolen merchandise could be worth as much as $5.4 million. nothing has been recovered so far. 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: time now for our daybreak first take. bond markets reacting against news out of china. second, oil is up, inventories are down. a big month for u.s. trade policy with crucial negotiations on nafta and deadlines for actions on china. alix: joining us now, and hammond and gina martin adams. over the last two days, this was the move. 11 basis points in two days. then you get the 10 year option, solidly bid. now, it's all about buying the dip. market, ithe bond

was a lot more exciting within the equity market. we definitely saw financials move on account of what was happening with the bond market. net-net, stocks are pretty flat over the last two days. not a lot of action on the top line. a lot of volatility beneath the top line. david: china came out overnight and said don't go so fast. --on't want to read too much is there a chance that china is having its cake and eating it, too? >> it's interesting. what exactly are they calling fake news? the report said this is something they are considering. it is a strange claim. i'm sure that's something they are considering whether or not they go forward with it.

they are trying to call out a story that is saying they may pull back from treasury buying. it would be the end of a three decade long bull market. alix: if you have less capital flight out of china, do they need to buy less u.s. assets in general? that is the conversation that seems to be evolving. >> there are legitimate worries about that bull market in equities. we have incredibly high valuations at the moment. there are number of existential pressures on that. that. the chinese issuance is one of the biggest out there in terms of something that could eventually bring this bull market that has gone on and on -- the reason it will drop off, it hasn't. this could be one of the things that eventually pushes it over the edge. alix: what about inflation?

crude prices versus five-year crude has had that monster run and breakevens seem to be tracking it. >> with respect to the equity market, a bit of inflation is a good thing. with five-year breakevens struggling to surpass the 2.2% level, just like the 10 year treasuries, both of those levels are the tops of this sideways trending market for inflation and rates which is a constraint on the potential for equities. if we break higher inflation past the 2.2% level. that is a positive sign. it normally would come with some sort of acceleration in growth. the equity market is already telling you something is going to happen. the 20% gain over the last year is telling you we are likely to .ee an acceleration

we are getting an acceleration in earnings growth. it becomes much more durable and maybe extends into 2019, which would be a good thing for stocks. david: i was just in washington and the business community talking to congress down there truly believe there will be a significant uptick because of the tax cuts. >> there's this expectation that now we have clarity around the tax issue, you will see these companies move forward with things they've been saying for 3-6 months. that could create huge interest in the equity market. see them, we will announced -- jpmorgan announces tomorrow. the rest announcing this weekend. the tax is expected to be the primary issue there. what it will mean for commercial and industrial lending. companies will be much more

willing to take on borrowing to do these more aggressive, expansive things. david: the taxes are baked in. trade is our third story. we will put up a full screen of the various events this month coming up on trade. a decision on steel and aluminum affecting china, nafta, a solar panel decision and an ip decision on china. are we going to see more volatility because of the trade uncertainty? >> the nafta story is the latest thing that trump is doing. he wants to fire someone. he wants to fire up the canadians. we have this january 23 next round. is this just trump waiting to see who will bid first? or is this something more fundamental? will he stop the six-month clock?

america pulling up would be devastating. you saw the reaction in the market from the stocks that would be more exposed to this. news.anked on this general motors is a huge part of this full agreement. at the moment, it still remains to be seen. is this trump posturing or is this more likely to result in him walking out of nafta? alix: i was struck when you mentioned demand and global growth -- china looking at 6.9% growth. are those numbers enough to offset isolated trade risks? >> it depends. for the last year, we been talking about trade being a potential major risk. i think you have to have a change in policy because before it becomes a real event -- given the reaction we've had over the last year, you have to assume

the market is going to ignore this news until we clearly see an event. at the stock level, you could isolate individual stocks. they were starting to react to nafta news last summer. we started to see some movement at the stock level. dollaro or the canadian -- these stocks were closely correlated to the peso or the canadian dollar. then we will all be shocked and we will have to price it in. david: many thanks to david ed hammond and gina martin adams. we will be speaking with michael bless, the ceo of century aluminum. this is bloomberg. ♪

emma: this is "bloomberg daybreak." the italian maker of new tele-is on the verge of buying nestle's chocolate business. they would pay $2.8 billion for the business. the nestle brand includes baby ruth and butterfinger candy bars. could be charged hundreds of millions of dollars in damages -- no word how much bp will pay. bp says the claims were entirely without merit. trying to defuse concerns that chip security problems walk slow down computers -- will slow down computers. pcs will not be affected more than 10%. that is the bloomberg business flash. david: partners to nafta are

gathering for a sixth round of negotiations. canada was preparing for the real possibility the u.s. might pull out of nafta altogether. when we talked to the u.s. chamber of commerce head, he wasn't so sure. what is the risk the united states will pull out of nafta? >> much less than six months ago. david: why? >> the people involved are getting more educated. >> i'm very concerned, even if it were a small percentage of suggested, heust lowered his risk evaluation, the downside problem that would be created is so huge that i'm still frightened. david: joining us now, michael mckee. you have followed nafta carefully. low risk but high danger. why isn't we are hearing right now that canada might be considering he was pulling out

-- the u.s. pulling out? mike: this is a negotiating ploy to a certain extent and a message to united states is an extent. case at the a wto about the way the u.s. duties on trading partners. -- they in just attack opened it up to the world to allow other countries to join a massive attack. it's been described as a diplomatic hand grenade as we go into the stocks and perhaps the opening salvo in a trade war. no one is sure why they didn't it given the sensitivity of the nafta negotiations. david: and sort of like canada and the rest of the free trading world is taking on the united states. mike: this is an attack on the

united states, not just the trump administration. even if nafta goes away, it won't be a recession causing event for the united states or mexico or canada, but this could lead to a broader trump administration attack on the wto itself. this trade filing a survey opens the possibility even wider. of thethere are members trump administration who said they are not happy with the wto. mike: canada and to ignore been trying to lobby the united which, lobbying congress, would have to approve any pull out of nafta, to make the case that this would hurt the u.s. farmers would be hurt badly. there's a feeling that perhaps they are building a case from the bottom up trying to convince the president not to go ahead with this. david: mike mckee, thank you for

being with us. alix: over the next two weeks, the commerce department must decide whether to impose a tariff on aluminum imports from canada. >> the american aluminum industry has been severely damaged by unfair foreign trade. foreign imports have flooded into the market, destroying thousands of great american jobs. jobs that are no longer. alix: joining me now, mike bless , century aluminum ceo. the own facilities in kentucky and west virginia -- he owns facilities in kentucky and west virginia. great to see you. what is your level of confidence? mike: we are highly confident the report will go to the president and it will be a positive one. alix: what is your level of confidence he will act on it? mike: we believe that the

experts and the white house. we are really confident in what the data is going to show. david: what is the overall worldwide capacity aluminum? can this take care of that problem? mike: absolutely. the world is long aluminum. state actors support their aluminum industries and create excess production and export u.s. -- export to the u.s. we think a 20% tariff on all primary aluminum imports into the u.s. is what is required to take care of the problem. to encourage u.s. production to restart and to encourage state owned entities to stop the illegal subsidization. alix: who would be excluded? mike: you have to look at allies, countries that have sort supply -- short supply chains

and regions that don't support from a state perspective their aluminum industry. alix: canada. mike: fill in the blank. alix: the u.s. doesn't import that much aluminum from china. mike: it's coming in in a lot of various forms. china is exporting 5 billion tons of aluminum per year. it is traded on the metal exchange. china's problem gets exported to the rest of the world. david: take us to the macrolevel. in the u.s., what is the capacity utilization? mike: this country uses just shy of 6 million tons of primary aluminum per year. we are down to 750,000 tons -- 15%. onehe terrorism limited,

million tons in the u.s. is ready to restart. we are ready to restart s&s the release comes -- as soon as the release comes. there's room for millions of tons of imports. we need them. alix: is aluminum trading at 2194? what is the price you need to restart? mike: it would have to be much higher than it is today. we have an amazing cost push in this industry. the costs are up even more. we've given back every dollar plus more of that price increase in terms of cost. it has to go up -- it's hard to tell. it depends on the cost increases. david: how concerned are you that this is a good game of whack-a-mole? it comes up with retaliation some place else. mike: back when the steel order was done in the

last decade, the itc did a study and found worst-case, one 1000 of a gdp point of detrimental impact. we are not talking about a major impact on the overall economy. alix: let's pretend you get that tara. -- that tariff. ship their products to vietnam and then vietnam will ship that product to the u.s. mike: that's why we need the broadened comprehensive relief. we think the relief has to be all up and down. primary down to downstream. alix: if it doesn't happen, what happens to your business? mike: it's hard to tell. you know what a volatile commodity this is. 15, we came into the year

producing 2.2 million -- september, 100% of the industry was slated for closure. thousands of jobs lost. a couple months and industry is dead. hub inh purity -- our kentucky is the only one that makes high purity aluminum. that will come from dubai and russia. you know how precipitous the price can be in an industry like this. alix: that goes into humvees, jet fighters -- mike: all that. david: coming up, bank earnings. jpmorgan wells fargo ready to pick up the season with their earnings tomorrow. this is bloomberg. ♪

alix: some of movers in the premarket. here's some of the big names we are watching. --ks & spencer and tesco

tesco down the most since june. missing,food results comp sales rising, just under 2%. marks & spencer beat sales estimates, but unchanged guidance. xerox said to be in talks for a major deal with fujifilm. it could be a complete change in control over a xerox. this comes after that resurgence in kodak. kodak now has been going. -- bitcoin. david: i'm cynical about this. they missed out on digital, so now, they are jumping on bitcoin. alix: fourth-quarter earnings revenue higher than analysts guidance. net new orders rose by 2%. a strong number for kb home. tomorrow, we get the

all-important jpmorgan at 61 45, wells fargo at eight -- jpmorgan at 6:45, wells fargo at 8:00. david: it's going to affect their estimates going forward. we've already seen a lot of bank earnings take a right down. alix: they will look through the noise. what are they going to do with the money they will make from tax reform? are they going to fight deposit data? are they going to pass that consumers to get more business? are they going to use it for more investment? david: there's the direct affect on them as a business and customers. what are the anticipating for their customers? will there be a lot more loan activity? the customers will be borrowing more. alix: are we going to not talk about trading revenue? david: what fun would it be

without trading revenue? alix: there could be a big surprise to the upside there. more on what this means for central banks. in the market, by thuy the dip. 1.19.ollar down we get a 30 year bond auction today. 2-10 spreads a bit flatter. crude is up by .6%. what it means for inflation. this is bloomberg. ♪

alix: this is "bloomberg daybreak." buy the dip. that was the theme over the last 24 hours. that continues to be so in the markets. futures up 44 points. five.tures up

he didn't have as much of is selloff over in the bond market as you did the last few days. 2.54.r yields, that's how we trade, down by one basis point. readily that's relatively stronger dollar against the euro -- relatively stronger dollar against the euro. watch the long end of the curve and how well that is absorbed. crude higher, up .6%. now, we have the ecb account of their monetary meeting coming out. the ecb could consider gradual shift in guidance from early 2018. they did see some comfort in wage dynamics, but inflation still a concern. they did agree that communication must change if reflation continues. david: this is fascinating. it's like the battleship and they are starting to gently turn

it. we are changing our communication, changing her guidance a bit as we get into 2018. a lot of communication has been in september the you not extend the bond buying. that opens the door to rate hikes. maybe even december of this year you could see the first rate hike. the more that conversation continues, the more the hot conversations will have some legs. hawklk -- the conversations will have some legs. david: they said before it's not going to be right away. how long are they going to wait? alix: take a look at euro-dollar intraday. you can really see the movement, euro-dollar up .2%. take a look at what's happening in the bond market over in europe, still seeing some

buying, but a little less so. flat on the day. david: let's turn back to u.s. banks. u.s. bank earnings and start coming out tomorrow, led by jpmorgan and wells fargo. they may be difficult to parse because the tax overhaul will affect the first quarter of 2018 now, allison williams from princeton. we talked about this earlier. this will be tricky to parse these because we have these tax overhaul which could affect the first quarter and guidance going forward. >> that is the key question for investors. how much tax overhaul is already placed into estimates and the stock. and how much more we could have to go. the other part of it is what are some of the risks, what are the

negative effects of tax overhaul for the banks. there's a lot of optimism out there. for investors, you want to look at the risks that might be overlooked. you mentioned earlier deposit beta, which refers to how much of the rate increases are being passed along in terms of higher deposit -- that is something we are watching this quarter regardless because they've already had several hikes. that pricing pressure starts to kick in. we will be looking at interest margins and that pressure in the quarter. and bigger question is how much goese tax reform benefit to things like that, goes to more aggressive pricing. that's not something you will hear companies say on the quarter. you will hear it over the next couple of quarters. that's probably not a strategy they will employ but may be something they have to react to. david: the banks have been

pretty open with this and told us what's coming up. citibank has gone out about this deferred assets -- shows what they've said already. has the market already priced that in? >> the market has priced that in. the second day after the election, citigroup was the only red stock on my screen. peopleows you early on understood that tax reform was going to mean a big write-down. the important thing for citigroup, they may take a $20 million charge, which is huge, but the key thing for citigroup that 130-135%urn, rate they will achieve over the next couple of years. that 20 billion dollar charges will only hit regulatory capital because theyn

weren't able to include that in their capital anyway. for investors, capital return is the story for the stock. the positive about tax reform is that, as we get a lift earnings and we passed the tipping point last year of companies being able to pay out 100% of their earnings, that should translate to more capital returns. alisonood stuff, williams. oil trading at its highest level in three years. the uae minister comes out today and says we want to continue the extension of the opec cut. why? why is oil still above $63? >> the answer to the first

question, this is all about inventory levels. they repeatedly said they are not targeting a price. they said that when prices were lagging well behind what people thought they were targeting. they are still saying it now. this is about managing supply and managing inventories. they want to keep a handle on their production levels. they don't want to give up what they have gained so far in terms of working together and working with russia and other non-opec countries. in terms of oil prices, we've seen a number of things happening. clearly, the market structure has changed quite dramatically. we've now got the strongest backwardation we've seen since the oil price crash began back in 2014. that makes it profitable to go long on oil. we have a broadly strong economic environment, broadly strong commodity environment.

this isn't just an oil story. everything is moving together. we have a relatively weak dollar, which feeds through into higher oil prices. all of that is playing into this. plus, you've had this strengthening trend that has been running really since the opec meeting in the middle of 2017 when saudi arabia very explicitly said they were going to start targeting exports and stop targeting u.s. inventory levels. alix: a two-pronged question. in your estimate, is it supply or demand leading the price? >> obviously, the prices in relation to the two of them. demand is very strong, it was very strong in 2017. it looks like being strong again in 2018, that seems to be the forecast. demand is having a big impact on this. opec and its partners have taken

1.8 million barrels a day out of supply. that is having an impact. it is having an impact more slowly than they originally envisioned. the fact that they have stuck to their guns means it's starting to happen appreciable dust have -- starting to have an appreciable impact. alix: you see oil prices versus five-year breakevens -- they track each other nicely in 2017. the five-year breakevens have risen along with the oil price. you expect to see a pass through? julian: i think the oil price is going to pass through. it always does. more so in some places than in others. this has to be a worry going forward. with the oil price rising, we see that pass through, we see inflation rising with it. perhaps to have a

dampening impact on economic growth and on the strength going forward. alix: thank you so much, julian lee. the latest accounts of ecb meeting have particular importance this month. there was growing speculation that the central bank may want to end kiwi altogether in the qe altogether in the fall. think you look at the market reaction. you are seeing a higher euro-dollar. also the bond buying has paired itself a little bit. walk us through the biggest take away from the account. the most important thing from the account is that we see that more and more ecb governing council members are starting to sign an agreement that they need to change or they might need to

change their communication starting early this year if the economy keeps improving as it does. at the moment, you have an ecb guidance that is very accommodative. some of members of the ecb may not agree that that reflects economic reality anymore. as we go forth in the coming weeks and months, they will be watching the economy very closely and watching inflation trends and wage developments very closely. as the chief economist has noted before, we could see a shift in the communication that focuses more on interest rates and the combination that comes from that part of the ecb policy rather than on the qe. alix: what does that actually mean, the communication part? what would they say? the ecbe moment, what does is they say that kiwi will continue until september -- qe

will continue until september. and will continue until they see a sustained adjustment in inflation. what might change about that is that they will focus on other parts of the guidance if they need to start preparing for an exit from qe. several governing council members have already spoken about the need to end qe. we the german central bank and several others -- even more influential members have spoken about the fact that there's a reasonable chance that qe might have seen its last extension in october. the key will be that they will be very careful in adjusting their communication. they won't want to tighten financial conditions more than warranted. alix: is there any word in terms

of the bond buying program, in terms of corporates? it seems the ecb had to sell some of those bonds. any particular as we know about how this will affect the corporate market? >> on first glance, there's not much i can see about that. mario draghi did mention the corporate program in the last press conference as well. at the moment, we don't know their promise means that they will continue buying sizable amounts of corporate bonds. that is the promise they've made. we will see perhaps this month what that means an action. -- in action. alix: take you look the market, look at euro-dollar intraday. you can see the reaction -- there you go. that spike up. we are still at 1.1988.

the idea that this hawkish rhetoric is seeping through, definitely permeating the market. david: they got enough of a hint to say ok. alix: there was going to be some resizing there. brexodus hitting london. that is next in our wall street beat. fromin to hear tom keene 7:00 to 9:00. pimm fox will join tom from 9:00 to 10:00. york, this is bloomberg. ♪

emma: this is "bloomberg daybreak." coming up in the next hour, senator john kennedy from louisiana. this is bloomberg. now, your bloomberg business flash. talks the company is in with fujifilm. xerox and fujifilm already have a joint venture. they are discussing various possibilities. a full takeover of xerox is not one of them. in the u.k., investors disappointed by christmas sales. tesco sales rose less than expected. home and clothing sales were down 3% at marks & spencer. sentiment described as fragile

and volatile. rent fell last month in manhattan for the most in four years. median rent down 2.7%. landlords have been making price cuts in markets that are oversupplied. alix: we turn to the wall street beat. first up, brexodus its london. a seismic drop, a sign of exit impact. uber has a secret panic button. slides as there appears to be a crackdown on south korean trading. david: number one and number two are the same story. jason kelly is with us. this is pretty dramatic. this amazing drop off in job

postings in the city of london. >> brexit is one of these stories that keeps going on and on. we've been trying to figure out what the impact is going to be. we hear from banks here and there. we hear from everyday people. now, we are starting to get these numbers because fewer jobs are being posted in london. this line chart does drop off very dramatically. david: there it is. for decembernting and holidays and things like that, this is not a good picture. so many said brexit clobbered the city's workforce in 2017. anyone sticking around for 2018 is in for the long haul. alix: if you move jobs, you don't get the salary boost. >> a great point.

the rise was 14%, which is not a lot for people trading up, especially in the world of finance. alix: in frankfurt, you can pay a bit more. uber, we know a lot of companies have panic buttons -- burn the files, make sure they can't ask anything. >> who are you hanging out with? alix: companies are going to have failsafes. i'm going to log out of my computer so you can't come in. david: i would advise you not to do that. >> one thing that jumps out at me, they have this great story -- most tech companies don't expect police to regularly raid er is offices, but ub

in a regular company that isn't a regular company -- uber isn't a regular company. everybody knows and uses uber. it is a really well-known brand. uber is such a representative of this new disruptive economy. it's always worth remembering that some of the world's biggest investors are in this company and it is such a bellwether. these -- thisg news of questionable behavior. alix: let me defend myself against david. the article says other companies have shut off computers during police raids. that's what i mean. david: not to destroy the evidence. uber, it was regularly

used two dozen times. >> they revealed that the name was reipley. this is the sigourney weaver character in alien. he says blowup the base. we want to make sure all the aliens are gone. that is dark. david: finally, mudslides. o, bitcoin. wrong segment. david: it's been a long day. bitcoin and south korea. >> bitcoin is falling, south korea is cracking down on this. the interview that jamie dimon gave yesterday, he talked about

, thepicture jamie dimon parent calling jamie dimon to apologize eating to -- you need to apologize. a lot of people appear to be in bitcoin. yet, there's all this turbulence in the price. it's interesting to see the ebbs and flows of all of this. we are seeing the futures. alix: when you have south korea you can try to- arb that. is that hard to do? is there a trade to be made as these regional hubs wind up dealing -- david: there is such speculation. >> it is a major market.

that is driving the global price down. you see demand being pared back in a market that has been so enthusiastic on the mom-and-pop level and institutional level. david: coming up, california mudslides. massiveve led to disruption. alix: check out tv . click on our charts and graphics and interact with us directly. this is bloomberg. ♪

david: this is what i'm watching today. i came home from washington and turn on the news and saw these mudslides in california. torrential rain over a short period of time. 17 people have died. it's just terrible. alix: i came home and was

watching nbc news the whole time. do these guys have insurance? can you get insurance for mudslides? flow --udslides and mud mudslides when it comes down the mountain. there's no flood insurance for that/ . if it is much flow, that is covered by a federal policy. it depends. alix: unbelievable footage. in the markets, coming up, we will be speaking with drew matus . this is bloomberg. ♪

alix: this is not the pair bond market you are looking for.

morgan stanley takes on bill gross. oil surge. prices at a three-year high. what it means for inflation. nafta in limbo. canada prepared for the u.s. to pull out of the deal. here's where we stack up half an hour before the cpi data comes up for the u.s.. buy the dip. that is the theme. s&p futures up -- the dollar reversing its gains from earlier in the morning. the ecb coming up with an with a more hawkish hint. 2.56 is how we print. david: walmart is breaking right now. walmart will be paying early on that tax overhaul. they will get a bonus of up to $1000 to people -- they will also be raising wages, paying the benefits.

walmart, that is taking effect in february. its employees will benefit right away, just as some people in washington had predicted. it's both salaries and a bonus. alix: that is the good part. we've seen other companies wind up giving extra money to their employees as well. the worry was it would be more buybacks and dividends. walmart two or three years ago made a statement they would increase the amount that they paid above the minimum wage to their employees. they are being out front on this. emma: in southern california, rescue crews and searching for survivors from devastating mudslides earlier this week. 17 people were killed. another 17 are still missing. merkel'sy, angela

second attempt to form a government is up against a self-imposed deadline today. it's been three months since merkel won and inconclusive national vote. merkel wants to avoid new elections to begin her fourth term, 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. alix: in the treasury markets, bondageddon came and went after news china would scale back its purchase -- china said it spake news. -- it is fake news. all of this comes as investors and say the bull market is over. here's what our guests had to say. >> the bond market has been in a 30 year bull trend. yields keep going down and

returns are good. >> the issue is interest rates have been far below where fundamental nominal gdp has been telling them where they should be for a very long time. >> the bear market i'm talking about is a mild one. it includes negative prices for high-yield bonds. >> it's about the rate of change. you go from 240 to 275 over six months, that is a lot of time for the market to digest. to 275 in two 240 weeks, that is a different story. alix: the yield and returns will be near zero in 2018. joining us now, drew matus. are you in the bill gross camp or morgan stanley camp? drew: more the gross camp. we are expecting yields to move higher at a slow pace.

-- rvs a huge difference was going from 250 last year to about 3% this year. that is a much more acceptable movement then would be going from 250 to 3% over the next few days. david: how much will that be reflected in the u.s. economy? drew: most of it is the u.s. economy. what we saw yesterday was the bond move tells us people are wondering why yields are not higher. they are looking for excuses to move rates higher. look for big demand for u.s. treasuries, we have the fed sitting there letting $12 million a month rolloff. that has to be refunded somehow. it's been refunded in the bill market. it has to be refunded in longer

dated securities. you don't have to look overseas for the bull in the china shop. look at the fed. alix: does that mean you don't expect a strong auction today for the 30 year? drew: i think yields are moving higher overtime. iday's auction, to be honest, haven't thought about the 30 year. alix: you have a lot of supply coming on. will it be buy the dip because it is so attractive? when does that conversation starter change? drew: we didn't see that buy the dip mentality with yesterday's tenure option. -- 10 year auction. david: what are you looking for gdp growth in the u.s.? drew: we put out a forecast at 2.5%. we haven't worked out the tax cut impact. david: how much more would you give it? drew: mike: another 25 basis

points. that is pretty much consensus. the fed took their numbers up as well in terms of their forecasts . there will be a positive impact. it's just a matter of how much of a positive impact. alix: how much is priced into the market in terms of the fed? what is the 2.54% telling you about the fed? drew: it's not telling us much about the fed. look at the fed futures and stuff, the markets. they would go three times. the 10 year yield won't move that much higher. if you want to see the fed hike more than twice, our 10 year yield forecast has to be wrong. david: drew matus of metlife will be staying with us. walmart will be increasing the

starting wage for their base employee played $11 an hour because of the tax overall and give bonuses of $1000 to their employees as well. this is raising the basic hourly wage. alix: is this it? is this the start of the wage rally we've been waiting to see? drew: you have an unemployment rate that is close to being as low as it can get. all it took was one firm to announce this -- we do second, -- wait a second, we are competing with that firm for employees. drew: how would you rank it -- alix: how would you rank it? how do you think tax reform will play out? drew: workers will benefit from this. there will be a mix of all three.

it depends on the situation the firm is an. whether the firm is competing for labor resources or expanding or contracting. there will be more capex. low interest rates have been restraining that kind of activity. as rates move higher, you will see more. david: computing for the workforce -- it's as they are doing this to catch up with target. employers having to compete for wages, thatn w is a real turnaround. drew: everything takes time. nobody is paying attention when the first couple of people walk out the door. it's only when enough people walk out the door that someone in hr goes, my goodness, we have this issue. it usually boils down to wages. alix: what is the pass through

to the consumer? drew: maybe if they pay people they productivity goes up, can afford to pay people more and raise prices. if you are attracting the talent you want to attract and providing the services you want to attract and getting the services out of your employees that you want, you can get higher levels of productivity from those employees. that can offset higher wages. higher wages don't have to be inflationary. david: we talked to the ceo when they did this last time -- they will buy our products, so we can sell our stuff to our employees. walmart is increasing its base rate for it starting employees up to $11 an hour and will give bonuses of $1000 to their employees.

it will cost $400 million for the bonuses. walmart is increasing in response to the tax overhaul. byx: walmart up in premarket .6%. on a buy the dip kind of day. this is bloomberg. ♪

emma: this is "bloomberg daybreak." wal-mart capitalizing on the tax overhaul to stay competitive in a tight labor market. the world's largest retailer is boosting its starting hourly wage to $11 an hour and giving out a one-time $1000 bonus. delta forecasting higher airfares this year.

revenues will rise 4.5% in the first quarter. that would be the biggest gain in almost four years. the italian maker of chocolate utella is on the verge of buying nestle's chocolate business. the brain includes they be ruth and butterfinger candy bars -- the brand includes baby ruth and butterfinger candy bars. david: these earnings will be hard to sort through because of the tax overhaul legislation, theh will likely affect fourth quarter of 2017 and estimates of 2018. next week, we have citibank and morga goldman sachs and morgan stanley. give us a sense of where banks are given the old curve now -- the yield curve now.

drew: there are a couple of considerations. they are paying a couple of basis points for deposits. it's not the worst thing for them. one of the key things to watch is loan demand and lending. their, the story is a bit more interesting. core loans that support the economy, that growth has been tapering off over time. it doesn't seem to have affected banks yet. david: with us now, steve rattner, the chairman of willett advisors. we're talking about bank earnings. are the banks healthy, not healthy, growing? very healthy in terms of recapitalization. a great tailwind from interest

rates as the fed begins to raise interest rates, mixed results on the operating side. loan growth has been quite week, trading has been quite weak. david: is the tax break going to help them on that loan growth? as been on the less positive side of that argument. companies make a decision on whether they can earn a return on investment. the tax break will help, but it's not a game changer. demand has been only so-so for a long time. alix: loan demand is not awful. is that a function of the economy or companies going to different types of areas to get loans? drew: i think it is a mix. it is commercial industrial lending slowing, mortgage lending slowing, consumer lending is slowing. they've all been slowing.

they are still posting positive year-over-year numbers but also in the data. consumers aren't skipping out on mortgages. they are still getting access to credit cards. companies still have demand for cini. some of that is shifting out of direct loans into the credit market. david: the banks reflect the economy -- what about as a business? is big banking a good business today? a tought has been business because of the capital requirements. it gets so much harder to make money. supply costs have been huge. the cut in the tax rate will help the banks. the trump administration has promised a lot of deregulation. that will help the banks. is an ok business. david: brian moynihan says we will save a lot of money on technology, so we can get our margins up. steve: technology helps anybody

in a business like that, shirt. -- sure. there's an interesting dynamic orthe asset management private wealth management side because you will start to see automated advisors. people will become machines for some of these smaller customers. alix: we heard that on an upgrade of morgan stanley. david: drew matus and steve rattner will be staying with us. coming up, we will be speaking with sender -- senator john kennedy of louisiana. this is bloomberg. ♪

david: with tax overhaul legislation behind them, those in congress have a lot of things on their agenda for 2018.

we are pleased to welcome republican senator john kennedy, republican of louisiana. welcome to the program, senator. sen. kennedy: thank you. good morning. david: are we going to have a government operating in 10 days? there's a lot of talk about a shutdown and tying it to the dreamer situation on immigration. what is your best guess about where we are 10 days from now? sen. kennedy: don't know yet. i think most people, at least on the senate side, don't want to shut down the government. i certainly don't. toing said that, i will vote do it or not vote as the case to swallow'm asked something that i think is bad for the american people or bad for the people of louisiana. our friends on the democratic wantof the senate say they

to tie immigration to the continuing resolution, the budget. there may be a few people ieiting -- they want to tr amnesty, the so-called docket issue, to the budget. i won't vote for it. if they persist, we will have problems. david: immigration reform is a big ticket item. what about the 800,000 people brought here as children by the parents? is there a way to carve them out and give them some reassurance and some status and then deal with the larger immigration issues in a different way? sen. kennedy: we need to address immigration holistically. we are here at this juncture

because there's been a 15 year bipartisan refusal to look at the problem in the eye and solve it. would keep doing things piecemeal. jour for ouru democratic friends is amnesty. dacaine talking about the issues, but i would like to talk about border security and chain imigration and the program learned about last week where some of our friends from central america are allowed to come to our country and state. i want to talk about the diversity visa program, i want to talk about e-verify. i want to talk about the problem. i don't think that has anything to do with the embarrassing fact that everybody in america has a budget except the united states government. david: let's talk about that budget.

time's a wasting on the budget as well. is there room for a negotiated settlement with the democrats? is there room to figure out a way to come up with a budget that can make you ok if not happy? sen. kennedy: sure, there is. a help will achieve it -- i hope we will achieve it. if the democrats insist on throwing in these extraneous issues, it won't happen. everybody in the senate knows that we need additional money for our military. we cannot talk publicly about it because some of the information is classified. i guess you will have to trust us. i know that is a dangerous concept, but we need more money for military. we need to have a discussion about that. if somebody wants to talk about we need to spend more money on

domestic spending, fine, i'm willing to consider that, but they need to make their case. i'm not going to agree to spend money on something else because someone wants it whether we need it or not. taking care of our generation is lobbyinges not require the next generation. david: i want to ask about intel. they've had some trouble with the way they designed their chip. it appears the ceo may have sold some stock. sen. kennedy: it is pretty simple. intel makes chips. some of the chips are faulty. they are pervasive, they are everywhere. after the company found out about it, before they disclosed their problems to the public, the ceo sold $20 million worth of stock. there may be a perfectly innocent explanation for that.

the ceo says it was an automatic trading program. fine. the sec needs to take a look. i trust my poker, friends, but i always cut the cards. alix: still with us, steve rattner of willett advisors. government shutdown thoughts? steve: less than 50-50. i think they are making a lot of progress. the deal is pretty simple. democrats agree to something on border security. in drop in the bucket for the federal government. aca problemsir d all and hopefully their chip dacaem that -- their problem solved and hopefully their chip problem solved.

alix: the unraveling of nafta, what is your prediction? steve: having somebody like trump who says do what i say or i will do so does provide a certain focusing of minds for .oth sides alix: we are moments away from the inflation numbers. we will bring you those numbers and the market reaction. while marketing employee pay and handing out bonuses on the back of tax overhaul. $11 an hour for the starting hourly wage. this is bloomberg. ♪ 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. alix: this is bloomberg daybreak. i'm alec deal. 30 seconds before the -- alix steel. 30 seconds before the ppi trading, european stocks taking

a leg lower, the euro taking the late higher, in part because the ecb account was a touch more hawkish been the market was expecting. a little bit of a selloff happening over in europe, the two tens strengthened just a touch. the data dropping right now, the consumer -- producer price index for december coming in at 2.6% -- missing estimates of 3% and lowered sequentially. november was 3.1%. on a month by month basis, if you backup crude, energy, and .rade 1/10 of 1% overall, weaker inflation pictures on the producer levels. on the jobless claims, they are moving a touch higher, 200 61,004 last week, higher than estimated and the week before, of a betterure labor market continues. the 10 year yield is getting a touch lower, a bit of a bind

coming in -- a bit of buying coming in, and now some selling their. the dollar index, that is lower, hitting the market, hitting the intraday low on 3/10 of 1% as the euro also want up gaining steam. this is a euro story, an ecb story, but now it is also a bit of a weaker inflation picture in the u.s. as well. s&p futures still holding it up by about four points in the futures market. to reiterate, the producer price , back out-over-year food, energy, rising just .2 .3% -- just 2.3%. david: and still with us is steve ratner. michael, taking a look at this, it went down in the month of december. this was a surprise to everybody. does this tell us anything about where we are going with inflation and growth? michael: this is the second week

inflation number we have got this year -- this week, i am sorry, but i think what matters is the number we get tomorrow, number.get the cpi this is a disconnect between the ppi and the cpi. this is a weak number after a iuple of strong ppi's, but think will be the strongest will be the number we get tomorrow morning. david: i know you do not look the noise of month-to-month sort of numbers, but on the longer trend, you must get that. where are we in the combination of inflation and growth for the u.s. economy? michael: the economy has been growing stronger than most of us would have thought, the 3% rate. most of us do not think it is sustainable because of the productivity situation, but one of the mysteries is that inflation has remained so muted in this company. walmart is raising wages, labor markets are getting tight, and you do not see it in the cpi or

ppi, so i think this is basically good news. ofx: taking a look at some the details, i want to give you some superlative seer. ppi saw the first drop since 2016. look, it came in the services sector. that saw the biggest drop. in particular, retail margins for things like fuel and lubricants fell over 2%. airline passenger services were down 4%, the most since february 2009. weaker wagesy the and services, but the labor market is stronger in services. what does that mean to you? michael: we have not seen much inflation. that is a good thing. eventually we will, and people that will be disappointed that we have not been inflation will be sorry what they wished for. growth has been solid. we do expect overtime to see wages gradually move higher. numberlook at the broad of metrics of wage measurement,

they have been moving higher, albeit slower than most people had hoped for. but with the labor market continuing to chug along, we think it is a matter of time before we see the wage pressures built up. toould not want to get alarmed by one ppi reading in particular, because this can be quite volatile month-to-month. there are a number of categories in there that, as you pointed out, can be quite volatile. we need to step back, recognize growth is coming along quite nicely, the labor market is moving along, and eventually we will see price pressures start to build. big difference here is the tax-cut package. what do you think that will do to gdp growth and cpi? michael: we think that as about 3/10 of a percentage point to growth this year. consumers will see their tax bill get reduced by $150 billion this year. we think maybe two thirds of that gets spent. we also expect to see higher business capital spending this year as well. we do think that it gives a bit of a push to growth, which, in

turn, should support the labor market and the inflation picture, but probably not enough to move the needle on inflation in a big way. we do think it helps, we do not think it is a game changer when it comes to the inflation outlook. david: michael, thank you for joining us today. alix: we are seeing the weaker data, but also the ecb play out in the dollar. take a look the intraday across here. the euro spiking at the highs of the session as the dollar index it the low of the session. it is two-pronged. on one hand, you had the inflation miss in the u.s., and on the other hand, you had the account from the ecb, and the central bank noted there is a chance for a gradual shift in guidance. the view was widely shared among members that the governing council of the communication would need to a ball gradually without a change in sequencing. if the economy continued to expand and inflation converged closer to the governing council stances could be

revisited in early 2018. richard, is this a hawkish tent to the ecb world we are seeing? richard: i think it is further baby steps of the qa exit door on the way to policy normalization. i think what is interesting is that the ecb has said the messaging may change in 2018, because we have already seen some of that happening. have had some members of the ecb coming out and sounding more hawkish than they have in the past, so it means that this is concerted. it is something the ecb is preparing the market for, and it will be a slow and steady process, but we have been moving towards the policy normalization. i think a rate hike in 2018 is too much to expect, but 2019 is definitely in play. deal we are making a big over the miss in ppi, and what that winds up meeting, but inflation is better here than in europe.

but we are talking about hawkish rhetoric out of the ecb? >> i think the key will be whether wages can get some upward traction. i know we are seeing some of that in the u.s., and the feeling here is that we should be getting some of that in the -- area. but if we do not, it is not back to square one, but it does challenge the narrative. as long as the wage growth comes through, and i think the ecb is confident that it will, it should continue to pace the normalization in europe. [indiscernible] the one wordously, we hear again and again from the fed and the ecb is gradual. as long as you do it gradually, it will not cause a problem. is that right tackle we do not have to worry about the fact they are coming off of the external time for stimulation? >> i think a boiling frogs a more pleasurable way.

but the frog still ends up dead. >> but he dies a happier death. [laughter] all the monetary policy over the past few years, it is generally a positive. more transparency, communication, fewer surprises for the market, and a gradual shift in policy. when you have a gradual shift in the underlying economic state of affairs, that is highly appropriate. if you had massive changes in economic conditions, maybe then you would need some more dramatic reaction from the fed or ecb, but we have good world economies, the european economies, the u.s. chugging along, maybe at less growth than we would like, but certainly going. bear and if you are a bond in europe, you are doing a happy dance, but if you are in the u.s., not so much. so you want to be buying treasuries and shorting bunds?

beve: there is something to said for the yield pickup. we have seen buyers at those levels before when we reach those levels, and i think we are seeing it again. it does make a lot of sense, and with the european economy doing as well as it is, maybe bond make a littlepe bit less sense. i think there is something to be said in that, and we could he that coming through into the currency markets as well, where the euro outperforms the dollar based on that flight shift. alix: and the dollar index, 92 with how we trade as the session moves higher. david: thank you steve ratner for being with us, and also thank you to bloomberg's richard jones. coming up, what is china buying? yesterday's bonds selloff comes to a halt after china calls reports of its possible plans fake news. and you cannot watch the television anymore, so listen to the radio.

tune into our colleague from 7:00 to 9:00, and then we join them from 9:00 to 10:00. we can be heard across the united states on sirius xm. live from new york, this is bloomberg.

♪ bloombergs is daybreak. i'm emma chandra. coming up on bloomberg markets, the open. a chief investment strategist. this is bloomberg. alix: bomb scare. a report yesterday said china is considering scaling back its purchasing of u.s. treasuries. said todayicials

that may be fake news. but the report is reminiscent of that proved to be relatively hollow. but if they are scaling back on u.s. debt, where are they going and what is the strategy? joining me now is eaton vance and ted truman. ted, we want to start with you. walk me through the reality of what could be happening in china? ted: i think it is -- every bank hisrve holder examines what strategy is continuously, and they may be largely adjusting their investment strategy, but i do not think the notion that they are dramatically changing things and are prepared to announce the big change -- it does not make any sense. the market would move against them and they would be shooting themselves in the foot. take us into their mind

if you can. they have a substantial surplus and their trade deficit. >> where with a put the money if they do not put it into u.s. treasury's? ted: in a small way in the past year, they have been increasing holdings of u.s. treasuries, even as the reserves themselves have been unchanged. the reserve issuance of china has been under some pressure because of some capital flight. that is why they have been running a surplus. alix: kathleen, part of the issue that came out yesterday with this was perhaps a signal or a warning shot that anyone buying at that ten-year auction, and now you have yields back at two point or 5 -- 92.54. 2.54.ean i think there is a

signal there for the markets that is the path of least is now to go up. i agree with ted that the news out of china was more political posturing. if we look at the market action toward the end of the year and what we are seeing early on in 2018, it is really the decisions of the ecb and the boj that are influencing the rate market. has this happened before in history? you are familiar with this. we have always heard ruminations about, for example, the chinese over have some leverage the united states politically because they are holding their reserves. has the central bank ever sent out a message, even if they did not interact on it? ted: it is a rare event. the event everybody remembers is 1990, when the japanese in a speech threatened or mentioned -- the treasuries.

was a large holder of treasuries at the time, and they immediately had to -- that was a formal age. in that case, they had to walk it back. the big problem is you are not going to -- even if you are going to do this, you do not announce it in advance, because the market moves against you and you take big losses on your existing holdings. alix: nonetheless, it does bring out what happened if capital flight out of china is stand, and they do not need to buy as much u.s. assets. where do we see that reflected in the curve the most, kathleen? see it inyou breakevens, you see the five year breakeven rate move up from to just over 2%. i think there is a pickup in inflation expectations, and that is part of what is driving the market higher in terms of eels. -- yield. alix: let's say we see china

actively reinvesting or not selling or buying more, we will see this more on the front end or the back end? >> they do not own long --asuries, sewed it would be so it would be closer to the front end. but have reduce their buying over the last six or seven years. there has not really been a dramatic change in the last couple of weeks. again, i think much of what we were hearing was political posturing, and it is less about what is going on in china. they do need to maintain their reserves, and they want to manage their currency as well. i think for the treasury market, it is far more important what the actions are coming out of europe and japan. japan recently mentioned that they are producing their ¥270 billion to ¥250 billion.

that has had a bigger impact on the market going into year and, and early on this year. with: ted, where are we the status of the u.s. dollar as the federal reserve currency? it isa strong euro us dollar -- it a strong u.s. dollar as it was 10 years ago? ted: the role of the dollar as a reserve currency has gone unchanged over the past 10 years. even with the rmb, was expected when the r&b was included, that those were holdings that would increase. they have increased, but they are really a tiny share of international reserves, something like 1% of total international reserves. gothey have a long way to before they are challenged -- if before they challenge --

if you want to use that word -- the dollar. alix: kathleen, you outlined what is going on in the bond market. quick and simple, what is your trade right now? to not own treasuries, and to expect further dollar weakness and look for better opportunities away from the u.s. , particularly in emerging markets. fundamentally, we are seeing good economic prospects. alix: gentlemen and ladies, thank you so much. kathleen gaffney at eaton vance and ted, thank you so much. david: walmart is announcing it is boosting starting wages from $11 an hour and paying bonuses up to 1000 dollars. america's largest private employer is crediting tax cuts that are causing the pay increases. that stern to matt boyle of bloomberg news, who is joining us. a big announcement, because that is a big employer. gave aonald trump just

bunch of walmart employees a pay raise here. as they move, other retailers will move. you recall three years ago, walmart did another pay hike, moving to nine dollars an hour and $10 an hour for most hourly workers. many other retails followed in their wake. what is different is when 5.7%rt lasted this, it was unemployment, now it is 4.1. david: and targeting amazon on the other. matt: cosco, tj maxx, there are tons of competitors that are going up against walmart. but it certainly does position them better against target. target just which to $11 an hour in october, and said they will go to $15 an hour by 2020. was responding to walmart. so now this has become a wage war with volleys going back and forth here. alix: what about unit labor costs? matt: they said they will be spending an incremental $300

million on this, $400 million -- i'm sorry, $300 million for the bonus that they will also pay out. last time, they were criticized by their older employers for the pay hike being a little bit unfair. now they give a one-time bonus of up to $1000, depending on seniority. this will raise the labor costs, but their effective tax rate is going way down. david: and you mean the thing about margins. how does this affect their margins? amazon does not seem to worry at all. have been a margins big concern. their traffic has done well over the past two years, but margins have not moved up. walmart is -- while they are doing this, they are cutting expenses a right, and center, so do not be surprised to hear expense and belt-tightening after this. spoke withchandra walmart moments ago, and they are now changing their maternity

leave and paternal leave policy. they are now offering 10 weeks of paid maternal leave and six weeks of paternal leave. wages are not going up as quickly as you might think because you are being compensated in other ways. so it is interesting that walmart boosted those as well. matt: one thing to remember the is it is onlyhis for full-time hourly associates, not all hourly associates. a lot of walmart workers are part-time. matt, thank you for bringing that story to us. coming up, for the first time in decades, the u.s. is exporting more natural gas than it is importing. we will have more on what i am watching this morning and those natural gas inventory numbers. this is bloomberg.

alix: here is what i am watching today. for the first time in decades, the u.s. has become a net exporter of natural gas. naturalot oil? alix: gas first. the white line is natural gas exports, the blue line, imports. the official data will be coming out at 10:30 today. david: this is lng largely? terminals is the first able to export on the gulf coast. it is also about the massive overproduction in the u.s. and needing to get it out where. -- this has the publications big implications for things like the trade deficit. david: isn't this wildly expensive? alix: this is an interesting business model change. typically, if you are going to build and lng export facility, you have to get long-term commitments from buyers or those using your terminal. but the model is changing and people want more spot access, so they are changing business the f idhich changes

and changes when they end up getting billed. it is a shift in the industry, especially as we are dealing with global oversupply. david: and that is with the -- alix: so this company has auctioning off parts of your pipeline, so you can own it or sell it. david: fascinating. alix: it will be market moving, guys. and coming up next, jason treader, plus, julianna man u well is back. emmanuelle is back.

jonathan: i'm jonathan ferro. this is the countdown to the open. ♪

jonathan: coming up, walmart reacts to the tax bill, boosting its starting hourly wage and delivering bonuses to employees. the global monde market -- bond market stabilizing after a solid 10 year option, and oil climbs to levels not seen in over three years. u.s. crude dwindles for an eighth straight week. openinges way from the bell, and futures are firm, a buyout about 1/10 the 1% as we witnessed the first down day for 2018 years of the our. stability returns, 2.56 is your yield on the u.s. 10-year. and breathe in a sigh of relief today. with the are stabling highest level since 2014, leaving many asking this could be the start of a bear market? market has been in a 30 year bold trend,