quarter are spectacular. it is the most powerful platform in the world. alix: you have alphabet, amazon, all on deck. the fed hits a slightly more hawkish tone in janet yellen's last meeting as fed chair. $80 oil. goldman sachs boosting its price forecast by a third. david: welcome to bloomberg daybreak. back with an excited alix steel because of oil. alix: it is a good day for me. welcome back, david. 2.5 hours to the cash open in the u.s.. futures are modestly higher. it has been a wishy washy morning. a broadly mixed dollar on the whole. euro-dollar 1.24. the selloff picking up steam as we head into that open.

yield backing up about four basis points. we are now 25 basis points away from a bill gross who is now saying we could desk could be a -- could be a game changer. david: a big day for earnings. billion and18.8 67 --gs-per-share, dollar $1.67. this be a pattern of earnings with 80% of companies. alix: revenue and sales on that. energy leading the way. conoco out with their earnings. a $2.5ws come in billion, earning be as wells. -- as well. we saw the same thing happen with shell. the production missing a little bit. up, 5.5 billion so far this year. cash flows at 2.5 billion.

what are they going to do with the cash flow? how sustainable is the higher cash flow? david: we have someone joining us who will tell us. dicker is looking at that. alibaba announce their earnings and they beat as well. per share.yuan total79.8 billion yuan revenue. 30% on theire back payment system. -- 33% on their payment system. myx: so i will put it in right pocket and left pocket and that is how we rounded out. david: they had a be on revenue and earnings yet right now they are down 2.6%. alix: blackstone, earnings coming in.

their assets under management also grew as well. that looks very solid for blackstone. the assets under management really struck me because they were estimated 414 billion and they came in at 434. alix: a slew of earnings out later today. you have apple, amazon, alphabet and visa. i am really pumped for apple. david: everybody is. now we want to get to our first take on the top three stories of the day. the number one is facebook. number two, a somewhat hawkish fed. finally, to the big call on oil. the majort up is focus on the tech companies. here is what happened in after hours. leg lower ones earnings came in. we climbed slightly higher

during the fall and now we are pretty much in line. the big one is the daily active users. you can really see the decline more than 50and million hours less a day. david: the fact that there are 50 million hours a day is staggering. alix: joining us now is paul sweeny and gina martin adams. put into perspective that number for us? >> it is about 5% lower engagement in the quarter. this is something the company telegraphs when they talk about changing their news feed to reduce the amount of third-party data that comes in to a newsfeed and maybe try to promote user interaction with their friends to try and improve the experience. the goal is to improve the user experience. the cost is potential lower engagement, that is not good for

advertising. we saw lowering gauge meant and that is what the market was concerned. david: it comes a point it's not just the user experience, but also the advertisers experience. paul: when the management team got on the call last night, they basically said this will be a short-term issue, we don't think it will be long-term. longer-term we think this will be positive for the advertiser experience and net revenue outlook from advertisers. the advertiser they mentioned are really embracing those changes. alix: did we learn anything about facebook for the rest of tech in terms of stock outputs? gina: most of the tech sector is going to face this problem, the victim of its own success. last year was a phenomenal year for tech earnings. the first three quarters of the year averaged 30% on year earnings growth.

what we are expecting is a persistent deceleration on the top and bottom line. that is really tough for the sector to overcome. this is a sector that does not trade on valuation multiples. it trades on possibility. ,e expect them to be profitable but when you see it a decelerated earnings stream with largely accelerating earnings, it is tougher the sector to overcome that. alix: amazon added $168 billion in market cap in january. let's keep that in mind when they report. david: now they have to figure out how to handle all that size. now to the number two story, the fed decision. one thing they said is the committee expects an economic decision that will warn further gradual increases. as mildlyaken hawkish. gina: yesterday was interesting.

there are some he conflicts in the data. it is very clear the market was holding up well and it plummeted. a pretty big selloff in the s&p 500 once the fed news came out. there wasn't anything substantially difference in the fed news. maybe incrementally hawkish tone. sectoru look at the rotation, it did not reflect change at all. health care stock selling off dramatically, utility stocks rising. there is something else that seems to be driving below and it seems to be company specific. maybe the fed came out a little bit more hawkish and that made them pay attention again to the fact that monetary policy will tighten. alix: it's going to happen. it is not gradual, it is further. we are doing this. david: the question always is will this affect the equity markets.

the problem with this year is we can have our cake and eat it too. you get tax policy and a big boost to earnings growth, the reality is monetary policy makers are going to take some of that away through rising rates. alix: do you know what's going to help those inflation expectations? $80 oil. i love this upgrade from goldman sachs. the six-month brand call is now $82.50 they see stronger demand growth. that weply response have been waiting for from shale, they see that pushed out to 2019-2020. at some point when goldman sachs throws in the towel short-term, i have to wonder. gina: this week has been a pretty rough week for oil.

most people were suggesting we will go back to lowe's 60, trade back in our range and this is really against consensus in my view. if this comes true, this will be a big change for the market. the energy sector as a whole has been a big laggard. it is picked up a bit of that pace in the early part of this year. it is still a tremendous laggard relative to the second. there's a lot of room to the upside should we get that from oil. alix: how long do oil companies need to see these higher oil prices to be confident they can release more spending into their projects? i don't think anyone has a good read on that. david: one of the big questions is the use of capital. where are you going to take it. you are getting more cash, how do you allocate those -- that capital? one of the things that strikes me is there was a day not long

ago when whatever happened to the price of oil drove the entire market price. it drove inflation, uncertainty. is it still as important when you step outside energy? paul: i don't think it is. i spoke to our energy analyst this morning, they are taking a more conservative view of the overall oil outlook. i think they are more cautious on the supply and demand because they continue to be very bullish about the output of shale and they are more cautious on the demand, particularly from the growing economy. we will have to see how this plays out. thank you so much for being here. coming up, we will talk with kathleen gaffney of eaton vance and where there still may be opportunities in fixed income. this is bloomberg. ♪

♪ this is bloomberg daybreak. china's alibaba has raised its annual forecast. they now expect revenue into the next 12 months ending in march will rise as much as 56%. growth margins dropped in the latest quarter in the company its -- fromrom alibaba pictures. a major blow to paypal. ebay will shift its payment business from his longtime partner. a dutch company will take over processing of payment. paypal was spun off from ebay in 2015, but the companies remain intertwined with an agreement that expires in 2020. microsoft has gotten interest in

-- services. microsoft posted a net loss after an almost $14 billion charge related to taxes ozone overseas cash. that is your bloomberg business flash. david: january was a rough month for treasuries. the worst january in eight years. the fed did not do that much to help relieve the short-term when it said "the committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate." we are joined by kathleen gaffney of eaton vance. approved -- with 11% return. give us the sense of where the bond market is now now that we have heard from the fed. kathleen: the bond market is clearly in transition and yesterday's fed meeting made

that transition a relatively smooth one, but the path of least resistance from now on is for interest rates to move higher. want tohave a chart i share with you that shows what the market is thinking about when it comes to rates moving higher. the white line represents what the market is looking at up to 2019. we are looking at 64 basis point hike this year, but really only leaves us with 30 more next year which is one and change. what is it going to take for the market to rerate? starting the market is to move but you bring up a good point that it is not looking too far out in the future. when you think about what is going on, unemployment is at an all-time low for where we are. we just had a big tax cut. that is going to take some time to work its way into the system

and when it does, i think we will get a better chance at how strong the pickup in demand could be. it is an interesting time to be raising rates and loosening the fiscal's get. -- fiscal spigot. we can be seeing more hikes down the road. david: where are the opportunities now for bond investors? where are things priced attractively? kathleen: that is a really good question. the fundamental backdrop is fairly positive. that is why the fed is starting to tighten and say there is further to go. normally when the economy is doing well, you look to take additional risk in credit for a higher return. relative tos there tragedy -- treasuries are high. i think the best opportunities are in looking away from the u.s.. either in local sovereign debt

or corporate emerging market. particularly latin america. alix: there is concern about bubbles whether you are in bonds are equities. the question being how does that play out? alan greenspan spoke about that. >> we have a stock market bubble and a by market bubble -- bond market bubble. the bond market bubble will be the critical issue. for the short-term, it is not too bad. alix: that brings up the emerging markets as a great call when it comes to weaker dollar when you want to find value. at one point you have to price in risk? kathleen: you are likely to see a lot more volatility and holding a bit of cash will probably make sense so that you can take advantage when the market gets more volatile. interesting because

greenspan brings up a good point, that there is going to be unwind on fixed income as investors realize that bonds may not be a safe haven and everybody looks to death looks ahead for the exit doors. so much money has flown in -- looks ahead for the exit doors. i would buckle up and be ready for some volatility. but know that there will be better opportunities and there are good places to put your money today away from the u.s.. david: coming back to the fed, what is the greater risk that they move too fast or slow? at 99% likelihood of an increase in march. what are the chances looking at alan greenspan there that we are

moving too slowly? kathleen: investors are complacent about inflation. if the fed gets behind the curve , that could create some volatility. on the other side of it, if they move too quickly, that could also alarm investors. i think they're in a tight spot. for now, they are doing what they need to do which is calling for a smooth, gradual transition. i would not expect that smooth process to last all year. alix: kathleen gaffney, great to see you. oil jumping after goldman boosting its forecast. six months, $82. we break down the opportunities. this is bloomberg. ♪

♪ offil earnings kicking shell's profit to a three-year high. conical out earlier with their production a little bit light. cash flow coming in at $2.5 billion. goldman getting the news. thirde forecast up by a saying markets are probably rebalance. .oining us now is dan dicker i have known for about a decade. you are on you were saying higher oil prices. shale producers are going to come back, their hedging like praying -- crazy. why do you think it is so sticky? daniel: this is really going to be an interesting earnings season because we want to see what the oil companies are going to do. this is all first -- this is the

first time we've seen themselves -- seen oil prices sustain themselves above $50. there is some cash flow so we have to figure out what is going to go on. what all the analysts are counting on and why they are not coming to me and where goldman is now starting to see they are coming is because they imagine the oil companies will make the same mistakes they made in 2013. that is take all that free cash flow and put it into cap acts -- capx. toon't think that is going happen. i also don't think they will take all their money and put it into share buybacks. i think they will finally do some smart things, keep production at a steady growth rate, but nothing that blasts out. continue to deleverage as they have been doing over the last three years and try to make of this oil process, this new renaissance of oil, the

long-term gains they expected them to be prior to the bust in 2014. they have waited a long time and i am of the opinion they will not blow it this year and i think all the other analysts think they will. david: the oil industry i think has had a history of boom and bust, but they have always made the wrong decision. they are not alone. it's with the airline industry as well. why do they see the light this time? dan: we will have to wait and see. this will be another several quarters before we figure out where they are putting cash in. period washree-year the worst in their history. the negative revenues really hurt them and many of their smaller brethren went broke. i really think they have seen the light in some ways in terms of the ability to increase

production above and beyond what the market will allow and the ramifications of that. 2010ember going back to when we ran a surplus every day in the oil market and it did not matter for price. i think they realize it does matter for price and they will be sensitive to it. they know shale is the key production level. all the majors are going deeper into shale as opposed to offshore. that is where they've will focus -- they will do the right thing. alix: triple digits for me? dan: not this year, next. alix: where is the opportunity? you can see the underperformance of energy stocks. the oil prices the blue line. the white line is the ratio versus e&p versus the entire energy sector. dan: the first part of the bloom cycle goes to the e&p players.

tom october of last year about a week ago where the market got a little too long and heavy over there. the next stage in the cycle i think will benefit the oil services company's even more because they have had a tougher time. not only had to slash the ability to get work, but the fees they have had to charge to get that work. i think the oil services companies are going to represent the finest opportunity over the course of this next stage of the oil bloomberg -- oil bloom. alix: great to see you, thank you very much. facebook revenue rises. this is bloomberg. ♪ we use our phones and computers the same way these days.

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and now, get a $200 prepaid card when you buy an iphone. it's a new kind of network designed to save you money. call, visit, or go to xfnitymobile.com. alix: this is bloomberg daybreak. i'm alix steel. an equity market that is a little slow she. thisutures off by one,

after the best january for the s&p since 1997. u.s. stocks added $1.7 trillion in market cap. in other asset classes, it is all about the selloff in treasuries. sincethe highest level 2014, deals moving up by four basis points. the euro on the strong foot after manufacturing on a record pace of growth. the spread between five and 30-year treasury yields, 41 basis points, continuing to flatten. crude, the upgrade from goldman, potentially a $2.50. david: remind me what bill gross said? now let's get an update on what's happening outside the business world. good morning, kaylee. another twist in the

story of that controversial memo of how the fbi investigated russian meddling in the presidential election. democrats turned the republicans secretly altered the memo but never told them. the white house is revealed the document to determine if it will be released. in virginia, federal safety investigators say they will spend several days at the site of a crash between a truck and a train carrying dozens of republican congressman. one person in the truck was killed, minnesota congressman jason lewis was briefly hospitalized for a concussion. india has hit apple and other mobile phone makers with higher tariffs. 's ability to apple compete in the world fastest-growing smart market. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am kailey leinz.

this is bloomberg. facebook reporting another record quarter of revenue, but this is what happened to the stock yesterday. we put higher throughout the call but now we're treading water. the company says that after changes to the news feed, users are spending 50 million hours less per day on the site. mark zuckerberg had this to say on the call. we are focused on making sure that facebook is not just fun to use but good for society. feinseth, now is ivan tigress financial cio. paul sweeney is with us as well. is this the case that investors will believe when facebook says something will happen? they have been indicating their trends to investors for a long time, the stock has performed because continues to optimize the user experience.

it's about a reduction in time but an increase in the quality of time where advertisers are getting better traction with the users. tell, as far as we can are they concerned about the user and their experience or the government? is it a coincidence that it is on the heels of revelations about what happened in the last election? ivan: they are trying to get rid of what was called fake news and better optimize the newsfeed to deliver the users believable content. they are also concerned about advertiser experience. sheryl sandberg said specifically a problem that i identified, discrimination advertising, and ohat they are doing to d to combat that. >> in addition to rolling out the as transparency tool in canada that mark mentioned, we

have disabled the option that lets advertisers exclude people insert multicultural affinity segments until we can develop better safeguards against discrimination. david: i had not thought about this, that there could be redlining and advertising where you discriminate against certain groups. this is a problem for them. it could be. facebook in general is making all the right moves. they know the biggest risk to their global model is regulation. they are trying to get out in front of this. for five months, they were behind the curve, mark zuckerberg not getting the full appreciation of the content going on facebook and the regulatory attention that was drawn. has beenheryl sandberg on a charm offensive, making investments to improve the user experience. while that may have a short-term impact on revenue, ultimately, it should provide a better

experience not only for users but advertisers that should translate into good revenue. david: maybe people are spending less time on the site but they are making more money. there is a growing criticism of the amount of time people spend on social media. the positive trends to bring that down, the positive trend in revenue is good for the company. alix: instagram, scott galloway talked about facebook earnings yesterday. here is what he had to say about that platform. e driven,very imagers , wealthy, 18 to 30 which everyone wants in their franchise. it is a triple threat in terms of advertising platform. ivan: professor gallowayhe is talking about.

they see revenue levers in instagram, messenger, and whatsapp. they have not even started to modernize -- monetize these things and they have other things coming in. whatsapptagram and will turn out to be the biggest drivers for revenue and profit going forward. when they bought, made the acquisitions, they were criticized. they have turned out to be the most brilliant acquisitions of any tech company. alix: let's move to one of the biggies after the bell, apple. they got a couple of downgrades after the earnings, worried about the iphone cycle. deutsche bank saying there is no super cycle. bank of america shares say stocks look attractive on a technical basis. analysts, they are still constructive on the stock. >> we are a little nervous, some of the estimates out there may

be a little bit aggressive on the iphone x. it's a company that over the past couple of years has been more of a follower than innovator. >> i know apple is changing its complexion is accompanied. outhink the killer apps there are in health care using artificial intelligence. they are integrating into a lot of health care systems around the world, and also augmented reality. >> you have a company the size growing topline double digits with that type of market profile and the additional tailwind of tax cuts that can help earnings as well as share repurchase, this is a stock that should be much higher at the end of the year. >> apple will be around for a long time, but the story of 2018 will be the passing of the mental from the most viable company of the world, apple, to amazon. we are now switching from the most important device, the iphone, to the next most

important device over the next 10 years, the amazon echo. alix: that is a big call, is that what we are slowly going to be talking about this year? is up 24% year to date, so investors like that story. paul: investors see a lot of levers for growth here. cant of places that bezos go into, most recently, grocery. apple, still 60% of the revenue is the phone. alix: they have services. about 14% of revenue, they want to get that up to 20%, but you cannot point to certain products that will get there. a little bit less visibility for some investors versus amazon, and that is what is driving the market today. david: to overstate it, has apple lost out on the internet of things, a way to get back into the business? ivan: apple was delayed in announcing their speaker.

interface to the internet of things will be a powerful gateway and amazon is ahead, but it is not mutually exclusive. i like both. i have also never seen the level of pessimism we see right now around apple. the biggest problem is that expectations were too optimistic. alix: is there a super cycle or not? ivan: i believe there is a super cycle upgrade. iphones will continue to grow and apple will be a leader in that area. the total user installed base, the android phone, is bigger, so that is also why i like google. the three companies are focusing on key areas. area, care is a big monitoring, fitness monitoring, all kinds of connected devices will connect to voice interface and a mobile phone device. alix: what do you expect about

amazon, jpmorgan, berkshire hathaway, what will come out of that? said,as president trump the biggest thing is the cost of prescriptions, improve the efficiency of health care delivery. i think that will be adjourned by technology. -- driven by technology. you have apple, amazon, and google focusing on that. it is a huge amount of the total economic spend. there is an opportunity to create better efficiency and reduce cost. david: is alexa going to be our dr.? i ask her about conversions all the time in baking and she never knows the answer. converting grams in two teaspoons or cups, it is really frustrating. david: they may be watching. conversions are actually pretty tricky. thank you both for being with us. coming up, rick reader of black

rock is featured in this month's bloomberg magazine, and it turns out he is a maniac come in a good way. and if you cannot watch us on television, watch us on the radio. that is on bloomberg surveillance, all across the united states on sirius xm radio. live from new york, this is bloomberg. ♪

the nextoming up in hour, susan story, ceo of the american water works.

and now to your bloomberg business flash. fourth-quarter earnings that missed estimates due to rising costs at mercedes-benz. the company warned higher expenses looking to need to get profit growth. mercedes is investing in a of of electric vehicles. lenovo is still struggling with its mobile phone business. the world's second-largest maker of mobile phone computers hosted a surprising loss last year. the company took a $400 million charge due to u.s. tax reforms. some of america's top economists

want cities to call a truce in the fight to get amazon second headquarters. they must attends to ban together and quit offering multimillion dollar incentives such as tax breaks. the economist called that anticompetitive. among the cities to make the first cut, atlanta, los angeles, boston, and in new york. turn now to wall street beats, where we cover three things wall street will become talking about this morning. black street group tops estimates on a buyout, managing. .oldman reportedly unhappy see me what had with bitcoin futures. featured inis bloomberg markets this month, calling himself maniacal, something black rock ceo larry fink agrees with. and finally, tesla. alix: jason kelly is with us.

let's start with blackstone. over $400 billion acid under management. are they a private equity shop anymore? >> getting closer to that, had actually market, would be the rest of their kind. they are not a private equity firm. that is one of the things they do. if you look at what driving the business over the past year, real estate. it is the number one business in terms of revenue, contributing performance fees, management fees is what public investors care about. it basically goes in order, real estate, private equity, credit, hedge funds. four distinct businesses, all managing money for big institutions around the world. that diversification has helped blackstone outpaced its competitors. alix: so what do you do after that, when you are that big, do you need more retail money

coming in, do you take on more risk? getting ahead of ourselves, but it raises the questions about succession. certainly thes person everyone is denying. alix: where do they go after this? feels like the retail thing is the holy grail for all of these guys, finding a way to manage more money for the everyday investor, the so-called everyday investor. they can go to the biggest institutions in the world, sovereign wealth funds, pensions, endowments, and say, give us more of your money because we can spread it across lots of businesses. one of the interesting relatively new opportunities that they have at blackstone is this fund led by david blitzer. give us money and we will decide

how to parse it out over all of these different strategies. that is one way. alix: will bitcoin be one of them? goldman not happy with the cme and cbot. remember when i spoke to lloyd blankfein and asked, what are you going to do about bitcoin? this is the exchange we had. said what are you going to do about bitcoin? what if i want to get into bitcoin? i will call a guy. you are exactly right, i remember here in the newsroom, we were building up quickly this idea, did you say monday you are going to start putting up futures? people were working the phones, typing at what it means. it has proven out in january. it has not been a smooth ride for bitcoin, the price of

bitcoin, but it is where all the action is right now. that is what it feels like. story on the bloomberg as we speak is about this shift from traditional trading to crypto. particularly when traditional is not doing all that well for a lot of people. going from blackstone to black rock. . great fees and bloomberg he says i am maniacal. larry fink says, yes, you are. one thing i like, he has this cause of charter schools in newark. rick has devoted so much time to this. he is just tenacious about helping these young kids over in newark. >> you love the stories. he really got inside of rick's head and talked to a lot of people around him. in, tutor jones weighing

lee cooperman, larry fink. you get this portrait of a guy who is very focused on charter schools but also this area that has been such a massive engine, putting blackrock to the top of the charts in terms of acid under management. alix: he doesn't go to movies because he believes they are a waste of time. he doesn't go to concerts apparently. he sitsrday every month and reads market research. i am really nerdy, but a whole day? >> that seemed like a bridge too far for me as well. alix: he loves his tesla, by the way. david: speaking of. this story i love, too. investors are putting in orders for as much as 14 times with the carmaker intends to sell

asset-backed securities. >> these are tesla bonds. the funny thing about this, it is an asset-backed security, but in this case, the acid is -- is, people are joking, maybe i will get a tesla out of this. alix: if you look at their cash flow, billions in capex, negative cash flow continuing. david: if you give them money, it is going right out the door. it is not coming back. >> we talk a lot about personalities. this is an option on elon musk in some ways. alix: monday i first came out with the first one, i remember talking to investors saying, i have to buy it. if i don't, somebody else will. even if you know the fundamentals, you have to.

david: that is how market sometimes don't turn out so good in the end. not because you believe in it, but somebody else will buy it for more. blackrock owns everything. i am sure there are a few floating around. thank you so much to jason kelly, bloomberg's new york. chief. fbi is pushing back against a republican effort to release a secret memo. and if you have a bloomberg terminal, check us out on tv . this is bloomberg. ♪

david: this is one i'm watching today. i just came from washington and i was reminded how complicated that place is. we know there is the investigation into the present with russia but we have not focus on the fact that they're investigating on the investigators. republicans will look into whether the fbi is prejudiced in their investigation. democrats say they are not. republicans have concluded there is reason for bias and there is a secret memo we will dive old. they have sent it to the president. the democrats say it is dangerous to reveal the secret stuff. who weighs in, the head of the fbi. they said if you release this

memo, it is a disaster. he is lobbying with his boss the president. it is a mess. alix: and the version that made it to the president desk is edited. democrats say the republicans change the memo without even seeing it, and it is a mess. a real mess is you have the president against the fbi which is not a healthy situation. and does not understand why there is less oversight. coming up, we will talk to michael pachter on apple and facebook. this is bloomberg. ♪

>> i saw this as an incredible beat.

the financials of this quarter are spectacular. >> i believe instagram is the most powerful platform in the world. alix: facebook says user growth slows. alphabet, amazon all on debt. the fed hits the more hawkish note in janet yellen's last known as fed chair, so what lies ahead? $80 oil? goldman sachs boosting its price target by a third. david: welcome to bloomberg daybreak. i'm david westin. alix: it is earnings bonanza today. dow futures softer, s&p futures up by two points. the start to the year since 1997. the dollar is a little next. 1.24 on the euro. the action continues in the bond level since 2014 as the selloff continues. crude getting a boost from the goldman upgrade, up .8%.

david: time warner on first blush, a big beat. earnings-per-share reporting $2.66, it was $1.44 according to bloomberg. we have to check that it was apples to apples. revenue,ice beat on 8.6 billion compared to 8.4 billion was the estimate. shares up in pre-trading by .1%. alix: mastercard out as well. earnings coming in at $.21 a share. it will be interesting on the call to see what their outlook is in terms of the consumer branch, what they see for fees and taxes. adjusted earnings coming in at $1.14, which beat estimates. the stock down 2% in the pre-markets. an update onget what's making headlines outside the business world. kailey leinz is here. in the another twist

story of a controversial congressional memo about how the fbi investigated russian meddling in the presidential election. democrats charge house republicans secretly alter the memo but never told them. the white house is review the document to determine if it will be released. the fbi has said the memo is inaccurate. in virginia, federal safety investigators will spend several days at the site of a crash between a truck and a train carrying dozens of members of congress. one person in the truck was killed. minnesota congressman jason lewis was briefly hospitalized for a concussion. a sign of a major shift in global oil markets. for the first time in four decades, oil production in the u.s. has gone about 10 million barrels a day. new techniques of production have opened that billions of barrels of oil in shale production. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries.

i am kailey leinz. this is bloomberg. alix: david, you have an update on earnings? david: time warner, it is a big beat, but there is a ex-tax benefit. adjusting, $1.12. it was not apples to apples. alix: effective tax rate, 21%. theary was a rough month in treasury market, the worst since november 2016, the worst january in eight years. the fed added some fuel to the fire. is the main thing that popped out in their statement. economic conditions will involve in a manner that will more gradual increases in the fed funds rate. joining us now is bryce doty. also with us is michael mckee. the rhetoric out of that was that they went from using only

gradual to just gradual, to further gradual, and that meant they are reinforcing expectations of a hike. true? michael: essentially. this is. janet yellen, she is fed chair today, but her term ends saturday. what they mean by further increases is going to be up to jay powell and the new signals they send. that tells us something we did not already know, they are great forecast three rate increases. a little bit hawkish but probably more of the inflation stuff. they are more convinced inflation will rise. do jay powell a bit of a favor, giving some optionality, so that if they continue to raise rates, no one will be surprised, but she also did not lock him in. bryce: definitely. with the change in inflation expectations, they had to set him up for a rate rise at the next meeting.

it will make it easier for him. it makes sense, too. since tax reform, this is the first meeting we have had where they have been able to give us their economic outlook based on what tax reform is doing. we see a significant jump in inflation expectations. i thought they would talk more about that, they talk about their own view of inflation going up but it is the market expectations going up about 2%. that sets up jay powell for a rate increase in march. alix: let's talk about market expectations for fed funds futures. the yellow line is what we expect in 2019, the white line is what the market expect in 2018. 63 basis points. 95 basis points by the end of 2019. still only about 1.5 next year. how much more re-rating do we need to see in the treasury markets to catch up to what the fed will do? ofce: if you look at surveys

portfolio managers, people like ourselves, we generally think there will be more rate increases than the fed futures indicates. if it jumps right away to indicating a four rate increases here, which we think we will see, that would distort the near-term p would earn too much interest. fed funds futures can sometimes lag what the market will be youg from the standpoint, need to see the rate increased to be able to justify the current yield on the short end. the fact that there is such a forecast out there, the odds for a rate increase in june have jumped over 60%. i think that bodes well for their being multiple increases. mechanically, just how they are going to do rate increases, they like to do it at the times they have a pressure release. that puts them at four in 2018. alix: looking at 40 is basis

point in the spread between 5 and 3. what is the level that scares you? two and five-year yield will rise rapidly. any time people start to get afraid of inflation, which will spike the 30-year yield, you immediately see an increase in expectation for how aggressive the fed will move. that kind of brings the 30 year yield back down but propels to an five-year yields higher, especially when you have the balance sheet reduction on top of it, and we just had a treasury department yesterday come out and state how many more billions of dollars will be issued of 2, 3, and five year treasuries. that is the part of the curve that makes me nervous. let's talk about monetary policy and currencies. pimco has an interesting blog that says cold wars are not

.opped out in open war currency basically, there is a currency cold were going on already with u.s. monetary and fiscal policy going on with the talk happening in the white house. we can put up a chart to show what the u.s. dollar has done during the regime of donald j. trump. is there really a currency war going on, in the sense that we have not formally declared war? everyone wants their currency to be low. i don't know if that is a long-term strategy in play but it is definitely helping, interesting to see what the manufacturing numbers show, import, export data. as a result, you should see europe react to that, try to push their currency down relative to ours. i think there is a low level cold war currency war going on, yes.

draghi reacting a little unhappily to questions about every dollar being in the best interest of the u.s. i'm not sure if it's a deliberate strategy. when you talk to currency market people, why is the dollar going down even though interest rates are going up, nobody mentions it is a deliberate effort to manipulate it. they're all seems to be market reasons. alix: there is a risk that you could be lashed out with protectionism from the u.s. if you want of trying to fight it, so you should let the dollar lower. michael: we went through this a few years ago. people were saying, the problem is you're doing what is in the best interest of your country, but that affects me. it is our dollar but your problem. so then i have to react. breakingncy market war out because people reacting to what was happening. that is that we have not seen so howand that is why you see

mario draghi will react because it is hurting their country, even if not a deliberate effort by the u.s. alix: great to see you as well. --ing up, oil and jumps well, moves higher after goldman sachs moves higher. this is bloomberg. ♪

kailey: this is bloomberg daybreak. china's alibaba has raised its annual forecast. they expect revenue in the 12 months ending in march will rise as much as 56%. gross margin dropped in the latest quarter and the company booked a $2.8 billion impairment from its movie unit alibaba

picture. they are also taking a 33% stake in its financial arm. the company created by the world's largest chemical merger has boosted its cost savings it plans to achieve. down two point will also split up into three companies. it will be completed by june 1, 2019. that is three months earlier than forecast. and it's a major blow to paypal. ebay will ship its payment business of away from its longtime partner. dutch company agent will take over payments. paypal was spun off of ebay in 2015 but the companies remained intertwined through an agreement that expires in 2020. that is your bloomberg business flash. alix: health posting its best profit since 2014, making as much money with oil in 60 when it was at 100 but cash flow the weaker since 2016. the shell ceo says that will all

change. >> i am very confident that we can meet the commitments, promises that we made for the 25 of the decade, which is to $30 billion free cash flow organically. this morning as well, boosting capex, dividend, buybacks. do we have a sense on what big oil will do with all of this money they are getting from $60, $50 oil? >> the focus is very much on buybacks and dividends. we saw the news from conoco this morning. chevron said it would raise it dividend for the first time in two years. that is what investors are looking forward to, why they were disappointed with shell's cash flow numbers. numbersught that those made it less likely that they would return more money to shareholders through buybacks.

people will also start spending again. exxon reports tomorrow. it is interesting that they are starting to invest more in oil production, a plan to spend billions in the permian. investors will be looking for that balance between return in cash and funding opportunity. oil production over $10 million -- barrels per day. then you have goldman subgrade. $82.50 because supply response will be pushed back. what did you make of that? >> that was a big call, the jungle more than $10 jolted the market. it illustrates a couple of things. there is more oil coming out of texas and other u.s. places. that demand isns absorbed,it is being the global economy is caring along, finding room for the oil. opec, we haveme,

seen some discipline, and some collapse in the production from members like venezuela. david: there is also a fourth alternative of paying down debt. tell us about the gearing for these companies. is there anybody leading the charge one to get the balance sheet in a stronger position? >> shell is the only company spent $53 billion on buying bg. the fruit of that deal is in the fact that it is making the same money at 60 than it did in 100, but it really balked up its balance sheet. investors showed they are getting on top of that debt bulge. debt to equity fell below 25%. with the exception of bp, which

is working through them a condo the balance sheets look pretty solid. alix: in your experience, how much of the rally we see in oil translation, how much will be limited, how much is sticky? >> it is pretty sticky, i think. oil companies live in a dollar economy. most of that uplift in oil prices will feed straight through to the bottom line. will have some affects on the margins, especially for the european majors, but it will be marginal higher oil prices at the end of the day good for all companies. alix: thank you, will kennedy. what was interesting about this upgrade from goldman, they usually saw brent anchored at 55, because of shale response coming in, but they have raised that to 60. they have raised the marginal

cost because of higher inflationary pressures, a longer-term impact. you need higher prices to incentivized production. david: i don't quite understand why shale will not play the governing force. them are hedged through 2018 and missed the move. you wonder how cautious they will need to be for 2019. and prices are lower further out. if they have the opportunity at selling at 70, why do you want to hedge at 55? david: now let's talk cars. coming up, daimler downshifts. why the car could be taking away from its profits this year. live from new york, this is bloomberg. ♪

it wouldimler forecast make less in the coming year because of a big ramp-up in investment in electric and autonomous vehicles.

this is their investment spending. the stock was down on the news as investors appeared to be disappointed and analysts surprised. why this appeared to surprise analysts investors, from berlin, we have our bloomberg managing editor. .elcome to why are we surprised? it might be a surprise because they are coming on such a strong year, record earnings, sold more cars than ever, and maybe people thought this would continue, but the news today was that the money they are pouring into these autonomous driving vehicles, that money has to come from somewhere, and we have to take it from the money we are learning now. they will have broadly flat earnings this year, and that compares to a pretty nice ramp-up last year in terms of profitability. the money printing machine we have seen over the years is starting to stutter, pouring the

money into new technologies, and that is what people are probably a little disappointed. david: we had something similar at four, -- ford. any sense from daimler about when this will be a moneymaker for them, rather than investment? >> that is the big question. everyone to some degree is betting the farm on a technology that is not yet proven. in europe, the uptake on electric vehicles is not that great, but they all know they cannot stand still. it's a conundrum for the industry. you have to be a participant but you don't want to invest everything. you want to keep one foot in the door of the old technology which is really remain the same for a century. obviously more comfortable than the cars that we knew 50 years ago but the technological underpinnings are the same. that is where we are in terms of the sea change in the industry.

daimler was to play a role in have 10 newant to electric vehicles by 2022. the question really is will people take them up on it? so far, people like the big suvs, gas cussler's. , and we have ev's av's then the flying car. we have a bloomberg special on the hyperdrive, a new venture that we are launching, focusing on the inside stories of technology revolutionizing the industry of travel. joining us now also is shira ovide. when we look at flying cars, we can look at back to the future, but in reality, this feature looks at one company that is doing something between a thrown in a small plane. walk us through the actual reality that we could see. the actual technology, is not

quite clear how that will go. there was an interview in davos ceo who said flying cars would be here in a couple of years, smaller vehicles. the technology exists. there will be roaders attached to it. i agree, it all sounds a little bit back to the future. we all thought we would be on hoverboard by now. whether by the middle of next decade we will have these flying cars, difficult to say. if i were a betting man, i would say probably not. exists,the technology drones are getting more powerful, but the regulations underneath all of this is another question. david: how realistic is this? i come from the jetsons generation, so -- alix: we all love the jetsons. saying that drones could be delivering things to

our houses. does the advancement in technology mean that we were really have these things in our lifetime? shira: i'm skeptical. i think these things are harder than people are making them out to be. the regulations are also really thorny. we have seen it already with these package delivery drones, which the u.s. has been very nervous about, other countries less so. we're not talking about package delivery drones, we are talking about cars that fly that will carry occupants. the regulators will be interested in that. we don't have a solution on either the technology or regulatory piece. jetblue is an investor in this one company, looking at drones and small planes. it's also invested in another company building electric jets. intel has a stake in a taxi start of. we have to look at the reality of what eventually this space will look like. shira: there is clearly a lot of

deep-pocketed and smart investors and companies that are devoting resources to electric cars, driverless cars, flying mobility machines. kindcertainly means this of investment is not going away and the future of transportation is really interesting, up in the air right now. alix: thank you for your insight. for more on the bloomberg hyperdrive, the inside story on batteries, flying cars, rockets, revolutionizing the future of transport. visit bloomberg.com/hyperdrive. earnings on deck. this is bloomberg. ♪

alix: this is "bloomberg markets." i'm alix steel. equity futures heading for a negative open after the s&p had its best january since 1997. futures close to being off triple digits in the premarket.

european stocks also taking lower. it is still about the selloff in the bond market. 2.74 on the 10-year. moments away from economic data. will it have the power to push yields higher? out we have the data coming . initial jobless claims coming in bang in line with estimates, 230,000 individuals applied for jobless claims. unit labor cost, preliminary for the fourth quarter, 2%. the estimate was for 0.9%. productivity declining, which makes sense, down .1%. unit labor cost is an interesting number. that will be through to the jobs number tomorrow, what kind of wages will receive from employers. david: slight revision to last month. now they say it is only .1%.

you wonder if there is wage pressure showing up finally. of course, ahead of the jobs number tomorrow were the estimate is for unemployment to stay at 4.1%. part of a pretty, as you mentioned -- productivity, as you mentioned, down .1%. per compensation hours rose 0.1%. real compensation was down 1.8 percent in the fourth quarter. is that inflation story? nonetheless, unit labor cost in the fourth quarter coming up 2%. thed: a slight uptick in dollar. the bond market, it is steady as she goes. where wehe 10-year is have been through the morning, equities holding on their lows of the session. i should rephrase that.

the dow jones them moving into negative territory by triple digits. definitely seeing a reaction in the equity market. you brought up the dollar and what we are seeing. reiner run where it's been, but the futures taking a dive on that news. see higher unit labor costs and they cannot pass it along to customers, what are we looking at? david: maybe that drives consumer spending. drawn downhave been their household savings, the lowest since 2005. are they going to use that to replenish their savings rather than passive -- spend it? david: i would come back to your oil story. the consumer got a lot of savings as gas prices went down. a lot of that went into savings. that seems to be reversing now some. alix: s&p futures seeing some selling pressure now.

you wonder what is weighing on the indices. to recap what we are looking at, initial jobless claims are in line with estimates, the same idea with the continued strong labor market. the number getting the attention is the unit labor cost coming in at 2%, a big beat, huge jump sequentially, as productivity was down .1%. the dollar hanging on, treasury yields hanging out where they were before. equity markets taking a leg lower. are we going to talk more about peak margins? the dow jones losing triple digits as we head into the open. david: it will be fascinating to see if it up next profit margins at companies. let's see what's happening outside of business world with kailey leinz. kailey: president trump is calling on democrats over daca. in a tweet today, the president said democrats resist, blame,

complain, obstruct, and do nothing. he has given congress until march 5 to two something about daca. --ia has hit mobile mode mobilephone makers with higher tariffs. this may hurt apple's ability to compete in the world's fastest-growing smartphone market. in europe, manufacturing group and one of the fastest paces on record. the firm ihs market is seeing more inflationary pressure. selling pricesd by the most in almost 75 years due to higher energy costs. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. alix: a big day for tech earnings. triple digit declines in dow futures. amazon, apple, alphabet all set to report.

things offcked yesterday, they beat estimates, but it was a question of daily active users. joining us from california is michael pachter who hasn't outperform rating on facebook and amazon. we still have shira ovide with us here in new york. stop,g at facebook looking at an open where it is up by 1.5%, erasing any loss that we saw after those numbers broke. what was your overall take? >> first of all, everything i know about facebook, i learn from shira. she is great on twitter. i read her real-time on earnings. nothing can go up forever. clearly, you are getting to a saturation point on vau's. some of the news feed changes clearly were intended to make engagement higher quality and require people to be there less time. averageinted out, the

decline was two minutes per day, which is not significant. the average person apparently is spending about 40 minutes a day. revenues were up, engagement down during the quarter. that means engagement is higher quality, facebook is able to , soer target advertisers they are happy with what they are getting. i think the wall street journal conclusion today that there is a risk advertisers will get frustrated is completely misguided. a a prozac at can target depressed person, that is good. it's a viagra at can target an old guy like me, that is good. they don't want to waste their ad dollars on the wrong market. if facebook can deliver the right market, at rates keep going up. onid: i always hear that retail, you make it up in volume.

as an old broadcaster, we just added more ads, the value went down. is it possible facebook go the other way? shira: i think that's what they are doing, focusing on quality over quantity, both in their user numbers, the number of people that use facebook, and on the advertising side. michael alluded to this, but the story about the revenue growth is not about shoving more and more adds into the newsfeed were getting more users on board so they can show a higher number of ads. it is all about ad prices. the fourth quarter in a row where you saw this huge jump in the effective cost of each ad. that shows advertiser demand is still there, for now. that is a good story for facebook. demandf advertiser starts to wane and facebook is less volume of advertisements, that could be a problem. is facebook a unique

position to take advantage of this strategy, if it works, or could it work with others? there have been questions about how cluttered things could get. is facebook a special breed of character? facebook and google, they really own their audience. they are not complementary to one another. not competitive. i am on twitter because i want has to say. shira i am not friends with her on facebook, so i don't see pictures of her family. nothing personal, i'm not interested in that. i am interested in her views on tech. facebook is really go to engage with our friends, and that is one zuckerberg articulated yesterday. twitter is where we go to hear about interesting people and topics and we don't need to be friends with them. google is where we go with information. advertiser, where are you going to advertise?

google owns the search market. facebook owns the true aspects of social media, where we are socializing with friends. that audience has no alternative. perhaps my kids will stay on snapchat as they age, but i actually think once they move out of the house, they will end up moving away from their friends, have to reengage, and will join facebook as well. facebook is something advertisers understand because they all use it. they don't really understand twitter and that cap. -- snapchat. facebook will be where advertisers put their dollars. this isow much of business, how much of it is politics? they want to appeal to advertisers to say it is a better experience. on the other hand, it comes at a time when facebook got into a fair amount of trouble with the election, fake news, not

attractive people getting access to facebook. how much is a savvy political move? shira: the ship we have seen has been remarkable. can you think of another company in the world that has said as facebook, our product may be harmful or users help and may be harmful for democracy in certain circumstances. given those revelations, you have really seen facebook take some serious steps to change its product here is some of that is coming from mark zuckerberg facebookealized that has been misused in ways that are really harmful to the world, and some of it is to your point, this exterior pressure from regulators, politicians, and others who say you have to clean this place up because it's become a cesspool. regulatory pressure, amazon reporting after the bell. michael, what are you looking for? they had a pretty big corner, clearly. michael: holiday demand was up

5%, 11% of online. the thing i think probably was surprising to people tonight, they maintain pricing, they kept pricing high. they are not the lowest price place to go for most products. they jack prices of immediately after cyber monday, and cap m there. that tells you they are confident and that sales will happen and will capture more margin. i have a $2.20 estimate. consensus is $1.88. i think they will crush numbers. the question is what the guide to, will we be disappointed by that. the open question is what will tax reform mean for them. it is not clear that they pay that much in tax. i am thinking they can boost earnings by $.75 to one dollar a year -- this year. we could see an ok first quarter guide. should be great revenue

guidance. david: i want to squeeze in one last question. it comes from a viewer. it is a terrific question that asks, how do you both target demographics and avoid discrimination? this is something sheryl sandberg targeted yesterday. you can really curtail your what if you but say, i don't want to appeal to african-americans, hispanics, women? shira: it is clear the advertising model is maybe the best in the history of the internet on the one hand, but in other cases, and indefensible business because it relies on highly targeted advertising that can target you buy political affiliation, race, these other highly sensitive areas. michael pachter and shira ovide, thank you. apparently, you have to follow shira on twitter. shira: i did not pay him to say

that. alix: in the markets, unit labor costs are up 2% in the fourth quarter as productivity declines by .1%. yields up the highs of the session but the story is and equity markets. dow jones futures down by triple digits. the s&p also run the lows of the session. more on that next. this is bloomberg. ♪

kailey: mrs. bloomberg daybreak. coming up later today on bloomberg markets, the ups cepheid -- cfo. alix: the move in the market

this morning, dow jones futures off by 147 points after we had unit labor costs jumping by 2% as productivity goes lower. joining us now from princeton is irish jersey. what did we just learned the last 15 minutes? ira: productivity has not been picking up, and that is a worry. the thing that's been missing out of inflation, a lot of this recovery is wage growth. you'll again unit labor cost jumping at 2% in the fourth quarter. that is a positive sign for inflation. not great for ron yields, probably means the federal reserve will maybe be be more hawkish than it was yesterday in its statement. alix: what about margins for equities? costs, labor is the largest input to a lot of businesses. it is theere this is, overall nonfinancial sector that is seeing the largest increases.

manufacturing not as much interestingly. it is in the servicing sector that you see a lot of this wage pressure move higher. alix: thank you very much. outd: president trump laid his hopes and dreams for infrastructure two nights ago in his speech. i'm calling for congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment that our country so desperately needs. on to the president went say that in addition to roads and bridges, we need to address water infrastructure in the country which applies turkey to story, ceoest, susan of american water works. thank you for being here. good to have you. susan: great to be here. david: we may not have thought about water and infrastructure as part of this larger infrastructure goal the president set out. much money do we need to be investing in the u.s. right now

in water infrastructure? susan: the american association of civil engineers have said infrastructure in this country gets a d overall. water infrastructure, the epa has estimated we need $700 billion just to keep the infrastructure in the situation it is now. to improve it would take more. the american water works association has put that number at $1 trillion. by 2020, 40 4% of water infrastructure in the u.s. will be classified as poor, very poor, or beyond. david: that is just to tread water. where is that money going to come from? susan: that is the big question. in the 1970's there were a lot of pools of free federal money. what you see in the water industry, unlike electric and gas, is that 84% of all water is present -- provided by

governmental entities. 98% of wastewater. companies like american water only provide 16 and 2% respectively. we believe private industry is part of the answer, which is consistent with what the president's plan is. david: wide range of possible projects. some of them cannot pay for themselves. can't water pay for itself? i have to be user fees. can't you just raise rates and pay for the pit with the money? they do string thing with water, people believe it should be free. they don't think about the fact that it is to be treated, it is there when they need it. water is the cheapest utility bill that most families will have. but there is also the need of water quality in things like flint, michigan, or where you have it on jubilant blum's in lake erie, lake okeechobee. there are also lots of emerging contaminants that we are concerned about. this issue of water quality

relates to water infrastructure but also relates to quality. david: went, michigan is my hometown, so i'm sensitive to this. are we going to have more flint, michigan's across the country? susan: lead is one of the most basic things that you can test for. the next issue will be another contaminant. for example, we are seeing a 400 fold increase in a legionnaires disease over the past 10 years. cryptosporidium. for us it's about making sure there is not another event that is another contaminant. let's move on to other areas, tax or form. what does that mean for your effective tax rate, what will you do with the money? susan: the interesting thing for a regulated utility, when you look at how rates are set, our a win and costs are a pass through, if they are prudently incurred. every penny of the tax reduction for american water goes to our customers.

why that's important relates back to david's question, the need for infrastructure. we are replacing water infrastructure at an equivalent rate of every 250 years. at american water, we are twice that good, but that is everyone hundred 20 years. we have decades of needs of infrastructure. we have purposefully ratcheted that back so that we don't impact the customer bill. what this will allow us to do, for every dollar that we save because of regulatory accounting , we can put a dollars of capital in the ground with no impact on customers. every penny goes to the customers. alix: we showed unit labor costs up 2%. what are yours like? susan: labor costs are increasing about 3% per year with benefits and labor but we have an effort where our goal is to hold our own and costs flat. we are utilizing technology,

utilizing increase productivity. every one of our 7000 employees are focused on how we can do our jobs more efficiently. because of our size, weakened by pipe more cheaply than cities and municipalities can. new technology plan to allow an amazon experience for our utility customers within three years. david: we don't think about technology for transforming water when you come from a nuclear background. how is a change in your business? is it changing your workforce, the people that work for you? susan: it absolutely is. itn there is a main break, is very upsetting economically. when the subway floods in new york city. what we are doing with technology, we are looking at smart pipe that has threads running through it that can warn us before it fails. we are able to monitor pressures so that at night when people use less water, when you have more

breaks emma we can dynamically change the pressure in pipes. what was once a low technology think technology can transform and ensure we have safe, reliable, and affordable water fourth generations to come. david: smart pipes. susan, a real pleasure to get your perspective, thank you for joining us. american water works ceo. coming up, ge's days on the dalles could be numbered. this is bloomberg. ♪

alix: what i'm watching today is ge. how would you feel about a day without ge in it? here is the way the index tends to be structured. you incur no more than a very the share0:1 between price from highest to lowest. currently sitting at 20:1.

if you look at the chart, you can see how that has blown out this year. do you have to kick ge out? what do you wind up putting in? david: ironic in boeing kicks out ge, because they buy ge engines. alix: potentially facebook could come in. nothing more fundamental than seeing the shift in the economy of ge going out and facebook coming in. pick up thege, latest issue of bloomberg businessweek. it is this week's cover story. markets, on bloomberg we are all over the market decline. this is bloomberg. ♪

jonathan: i'm jonathan ferro. 30 minutes until the start of trading. this is the countdown to the open. jonathan: big tex dominated

and investors wait to find out if orders for the iphone 10 are true. sheehan over to jay powell. the macro bank drop. optimism on the continent. openinges away from the despite that strong macro banks are up. we'll roll over by about eight or nine points on the s&p, down about 131%. the euro is big off the back of solid pmi data on the continent. on -- your 10 year yields up to 2.73%.