selloff but rethink their prelude -- there playbook. deutsche bank could make big cuts to its u.s. equities business. what business does the german bank want to be in? aogle spending soars without solid payoff. david: i'm david westin with alix steel. in washington the president of france is visiting president trump. yesterday we had a really big event. alix: they planted a tree. thank goodness they planted that treat. jobd: they do a very good with those shovels. if you watch it long enough afterwards they try to pose for photos and the president realizes the tree is between him and the camera. alix: they should have their marks and where they are supposed to stand. they need you. you are a theater director. elania is not in a

good spot. do you think they gave them shoveling lessons? david: today there's going to be a news conference in the rose garden. alix: you are seeing some kind of relief rally. futures up by about 15 points. euro-dollar is range bound. german data signaling that the soft patch may continue. 10 year yields now unchanged. to break up there and sustain it. ramifications across all different equity markets. crude oil during a nice bump. downll be breaking that for the next couple of hours. new home will have

sales for march as well as consumer confidence data for the month of april. auction.that big all day long senior trade officials will be meeting in washington where they are trying to get a solution to the nafta situation. alix: not planting trees. yield is not just here in the u.s. the white line is the generic 10 year and the total bloomberg .arclays value of global bonds the point is that 10-year gilts are moving global bond yields higher as well that not has ramifications for all other kind of asset classes. should.ey the u.s. 10 year is the benchmark. global yields should be having this effect across asset landscape. thursday august point in terms of what rising bond yields will do.

give you a better return on safer assets. push people down the spectrum. the reverse of what she we did. how much a towards self-regulating system these rising yields can be. we had this kicked off with metals and crude oil. that's right even inflation rates rising. more recently by real yield inflation adjusted yields rising. the most recent stretch has dragged up the dollar. if it keeps going up how can commodities keep going up as much. i'm wondering if that takes out the other leg of the trade and regular -- alix: which asset is most honorable? -- vulnerable? where's the most risk? >> i think you usually have to say high-yield just given how tight spreads are and how much a lot of that rally has been on the composition level.

how yield very much composed of energy companies and the idea that energy companies are benefiting disproportionately from this rise in crude and that the reversal in the cannot only hit high-yield spreads it also the energy complex more broadly. david: breaking news. deutsche bank has named a new chief operating officer who has been a member of the supervisory board. after the new ceo came in the coo left pretty abruptly. now we've got him coming in. alix: how does he feel about the u.s. equity business? david: that's a good question. alix: reports indicate they could be paring back there equity business here in the u.s. and if they do that what kind of companies does it actually want to keep? >> that's a good question because without revenue you

don't have profit. when you start getting out of all of these businesses what is left over? as we saw from jpmorgan and goldman sachs earnings equities is a good business for the big wall street banks. deutsche bank can't cut it here. they are looking to cut costs. you have to wonder where are you going to get this future profit generation if not from businesses that have been wall street mainstays? alix: and who benefits if they pare back? >> exactly. you have to think that other bigwigs are able to pick up even more slack in the space. this is an accompanying so many things we talk about in markets. .he shift to passive europe being a full step behind the u.s. this cycle. david: behind the u.s. in some respects. europe has always been behind.

they may well be catching up and distortion bank really want to dial back now? look at theyave to have been trying to play catch-up for so long here and it's not a very profitable business for them. it's not a great dynamic and it's just not sustainable. alix: yes. it's not. david: alphabet, google. a different story. everybody on the upside. reporting 24% increase in revenues and big increase in profit margins. the stock is up. for is quite a happy story google. think it is. they are trying to take a page out of amazon's playbook and say we are growing really fast to

keep up this growth and find new avenues for us to continue to expand we have to spend a little bit of money. dot dotnd that's the dot. >> they have spent a lot of money on things in the past that a result.ielded i think they have trust in the brought in as the disciplinarian to control google's spending habits and make it more streamlined and focused on areas that are going to deliver results. david: brought in as the in that sentence there is a fair amount of irony. she comes in and says let's spend a lot more money. corrects not all spending -- >> not all spending is created equal. this capex is going to be in cloud computing. there is a question in google's ability to play catch-up with apple and amazon in those arenas

that they are going to try and investors seem to be giving them a chance. at how much look they are going to be spending on it's more thes next on. it's more than apple. the whole point is double the amount of exxon is really staggering. david: as a percentage of their revenues it is not as tagger in. we have this chart that shows there capex stepping up quite a bit. yet, we we're not done have to keep investing in the cloud and we are not shy about real estate either. they bought chelsea market for a ton of money. >> that's what's amazing to me. hours.ction in after it seems like when amazon spends money nobody cares. they are entrenching their primacy. right now the narrative was

google is spending to play catch-up and that's not a good thing. the best kind of snap reaction i had from deutsche bank cutting their price target on this news basically said we think it's seeer for investors to gravity hit margins rather than operating leverage kind of pickup and that expands. i think there is fear that this thex will not generate necessary leverage to boost returns going forward so people don't have the same faith in them that they do jeff bezos. alix: offering margins could end up falling 22%. -- operating margins could end up falling 22%. thank you both very much. coming up, u.s. treasury investors hit pause on the selloff in u.s. bonds. we will take a closer look at how 3% yields couldn't -- could the investing landscape.

this is bloomberg. ♪ ♪

>> this is bloomberg daybreak. lily posted first-quarter earnings that beat estimates. guidance was more than 2% higher than the average analyst estimate. european discount airline ryanair has finalized in order to buy 25 boeing 737 jets. ryanair will get the first of the planes next spring.

japan's pharmaceutical is near a preliminary agreement to buy shire. an offer of made more than $60 billion. it would launch them into the ranks of the world's top struck maker -- top drugmakers. alix: the yield on the 10 year continues to floor with 3% level as it climbs to levels unseen since 2014. the spike is prompting investors to dust off those playbooks for how to trade in relatively higher rates. >> when we look at the decomposed nature of the 10 year move over the last couple of weeks we see it is mostly a rise in inflation rates. i would chalk that up to inflation risk premium coming back into the yield curve. >> the threshold is enough to get peoples attention. i don't think it's necessarily a bad sign. >> the 10 year yield at 295 seems mispriced.

a 35 year trend change in bonds. we think it has just begun. you may have a market looking at this fed and saying how much are they willing to let inflation run above target. maybe we need to have a steeper term structure. joining us now is wells fargo investment institute president. good to see you. 3% tenure. what do you do? >> i think you stay the course. i don't think it changes the narrative. you're getting some inflation for -- inflation pressure. up to this point has not been believing the federal reserve. if the fed says there owing to raise at least two more times the tenure treasury would not 280, 290, 3 percent that they're pricing that in.

i think the short side of the curve is the big story. chart sees s&p earnings yield is just about 4.7%. the gap is slowly eroding. the ball panel -- bottom panel shows at some point bonds will become more attractive. what to stay the course mean? >> you have to have materially higher rates than today. a 4% tenure before it really starts to erode equities and equity positions. with 20% earnings growth you are no close to having that become problematic and the market would benefit from real yields coming territory.ositive we would love to see 1%, maybe even 2% real yields overtime. david: how much is your game gec?affected

is it a different investor response? >> it is a different investor response. term premiums are going up and some inflation pressure from commodities. it's not on the expectation of higher growth at this point. first-quarter gdp growth has been solved. we need to see the second quarter pick back up to confirm or reform higher treasury rates. david: do you have a little within the air? >> we have about 2.9% gdp growth. the first quarter is going to be soft we will get a resurgence in q2. inflation is still somewhat anemic. we are just now getting to the feds 2%. is you hadnk the key the two-year double in rates in the last seven months.

125 to 248 this morning. that's huge move. 120 basis points on the two-year. 80 basis points on the 10 year. you are still getting that flattening. alix: the dollar just broke above its channel yesterday and it's above the 100 day moving average. do you see a breakout from the dollar? >> no. we still think the dollar weakens from here. when you look at the dollar the amount of short positions on the dollar today are the of any g10 currencies out there. alix: that would argue for a short-term short covering rally. >> intermediate to longer term you still have the dual deficits. fiscal spending expanding. to us the dollar still looks like it's going to weaken from here.

david: on the fundamentals the dollar will continue to weaken. there may be some technical glitches along the way. a vote by the world on the strength of the u.s. economy. how troubling is that because the rest of the world is starting to slow down a little bit. >> it has in the first quarter but on a relative basis the rest of the world's growth relative to where the u.s. has been is still stronger and that's why you have seen the dollar continued to weaken and europe japan emerging markets all strengthen. equities? leads in >> we still think cyclical's. we still have to be in places that can drive topline revenue growth. there's two or three things to me that really stand out. you've got to look at revenue growth. equities? >>you've got to look at forward guidance so what is management tell you. they got a little bit of a punch in the john the tariffs trade concerns in the first quarter. you have to look at those companies that have consumer

spending. consumer spending decelerate from 5% in q4 to 1% in q1. want to watch companies that have consumer spending and is that really coming through in the narrative. david: are they vulnerable to tariff and trade? >> some are. industrials, materials. frankly small caps are one of the best places to be to protect yourself against tariff and trade. will be staying with us. coming up, google says have faith. why the tech giant says it spending shouldn't be worrying its investors. that's coming up next. this is bloomberg. ♪

david: alphabet reported second-quarter earnings yesterday with revenues up 24%

and operating margins of 22%. all of which beat expectations. the stock is trading up in the premarket. we welcome paul sweeney of bloomberg intelligence. they exceeded expectations. stock went up quite a bit and then sort of settled down again. they peeled back the onion on the results saw a surge in spending. operating expenses up over 30% and the operating income margin declined from 27% to 22% and a second source of spending was capital spending. it became clear as we listened to the conference call last night the cfo said get used to this spending level. david: there was surprising because she was brought in to get her arms around the spending. rein in thenues to spending on some of the moon shots this company has been known for in the past. where they are spending the money today in the bullish case

is it's good spending. it's on the cloud. it's on some of their devices. businesses that investors generally are ok with increased spending. the question is really what does that mean for operating income margins and what does that mean for free cash flow's. alix: i was struck by if you take out the chelsea market they capex wasir total like $7 billion. exxon was like half of that. intel. percentage of sales. overall the nominal spending is well above the kind of companies you expect to spend because the capital-intensive business like oil. >> we are seeing an arms race. it's to chase some of these high-growth areas such as the cloud. take a look at the capex from amazon, facebook, apple. increases inig

spending. we have seen that for years from amazon as they continue to open fulfillment centers around the country. a lot of these tech companies have gotten a pass from investors that you can spend money if we believe we are going to get a return longer-term. david: i don't think of tech companies being particularly capital-intensive. theme parks, very capital-intensive. i think of it more like cash business. that got to invest a lot in capital. >> absolutely. that is a misnomer in the industry that they don't spend big money on capex. it's ironic we are having conversations about them spending money on capex and could that be a good thing or bad thing. that's exactly what we have wanted this entire cycle. we have been screaming for more capex and now you couple that with the treasure trove of cash the company has along with the

repatriated dollars coming over and then you throw in the tax benefit of being able to deduct all of those capex spend a to us that's just a perfect storm. david: the government is paying for some of these capital -- but then the question is invest all of this in the cloud. is that going to show up in productivity? >> it probably won't. it goes into the cloud what you need to drive productivity is wage growth. i'm not sure spending on cloud is a direct correlation back to wage growth. how: you have to rethink you are going to value and appreciate this capex spending? we see rising expenditures on the operating income line and obviously on the capex side. what are the return on these capex dollars and for the likes of google a little bit less for

facebook and certainly for amazon a lot of the expenditures are on cloud computing. amazon is the clearly are. google is a little bit of a catch-up mode. cloud productsof is very competitive in the marketplace so i think if you are google and you take a look at the large projections it's money well spent. alix: paul sweeney, thank you. verizon earnings just out. stock up over 1% in premarket. revenue beat estimates. basically those that stopped using the carrier throughout the quarter. lots more earnings coming up. caterpillar on deck. 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. relief at not hitting 3% yield percolating in the markets. also having a slew of earnings. that is part of the story as

verizon is coming out, beating united technologies. 1%.dax also up by 2/10 of in other asset classes, the dollar wanted to be stronger, but did not quite make it. the euro, how responsive will it be to negative data out of europe? moving a little bit lower, 2.9% is how we print. more earnings coming out. tesla front and center. , coming inon revenue at $12.9 billion. the company also raising its all your forecast by a decent amount. -- high-end is now they are ever going to

do well, this is the time to do well. servicebusinesses they are on the uptick. it will be interesting to see what tariffs might do to them. alix: karen ubelhart with bloomberg intelligence is with us. karen: that surprised me by a line. everybody knew they would beat. i was worried what if they don't eat enough because the expectations were quite high. for them to raise that much in the first quarter signals extreme optimism. alix: one about the tariffs and the macro negatives -- what about the tariffs and the macro negatives? ,aren: a lot of these companies cap is not a big exporter nor importer. they produce in china for china. so far, it does not seem real. david: can tariffs actually

benefit by driving up the cost of some commodities so people need to buy more of their equipment? i think the difficulty will be that they have to actually put prices through because this is the best pricing environment they have had for a while. this is a business or you get 2% pricing and you are happy. alix: what is responsible for caterpillar doing so well? karen: global recovery. you are coming off of very depressed levels. construction equipment market was down for two years. now they have synchronous global recovery and every region is growing over 25%. very unusual. david: what other companies could we look at that would identify with those factors? karen: there are other construction companies. volvo did very well today in

construction. the one area of industrials that is not going to do as well is agriculture. farmers are not in great shape. there is a big threat of tariffs on soybean. soybeans. 45% of our the truck market is exploding because when the economy is strong, freight moves. most of the heavy equipment markets are doing very well. david: karen ubelhart of bloomberg intelligence, thank you for being here. let's turn to will kennedy, bloomberg's editing manager for energy and commodity. are.us a sense of where we will: the biggest story remains aluminum. the u.s. imposed sanctions on russia's biggest alumina maker,

the biggest supplier in the world outside of china. prices rose 25%. raw materials were running out. yesterday, the u.s. treasury softened its stance on some of those sanctions. place,hey remain in treasury secretary steve mnuchin gave three things that made aluminum traders feel a little better. he said there will be a longer grace period for people to work through their existing transactions. he said that would be extended for five months. he also said sanctions may be lifted on the company, especially if the ceo gives of control. there is a roadmap to resolve this crisis -- gives up control. there is a roadmap to resolve this crises. -- crisis.

dramatic change in the situation. david: not out of the woods yet, but it looks better than it did. when you take away that geopolitical risk, and the -- will: they are pretty strong. mining talk to big companies, they report economic growth across the board remains strong enough that they are seeing a good demand side. the chinese economy is in a much better place than it was in 2016 and the american economy and the european economy are all adding to metals. there was a story about how china is putting electric buses on the road every single week. alix: i want to add some color from caterpillar's earnings release, saying the company -- the favorable commodity price

will drive miners to increase. they said they will also see an increase led by strong demand for engines and gas compression applications in america. what is interesting is caterpillar is implying we are going to see a pickup in cap ask but the story for the oil guys is we are going to be restrained. the miners already had all their big projects here. what do you see in terms of who wins in this conversation? >> the capital stock is getting very aged at this point. what gets missed in this conversation is what used to be when oil prices went up, $75 brent was a headwind to u.s. consumers and businesses. now because the u.s. is the largest producer of oil in the world, there is a positive correlation to prices going up -- going up and cap

ask -- capex. alix: you can see the blue line is the bloomberg metal index. the aligned is oil futures and the white line is the 10 year yellow line ise oil futures and the white line is the 10 year breakeven. >> it is absolutely a risk and the slack is gone and the manufacturing sector, conditions are tight right now. historically, the biggest correlation for industrials that cause problems is wage growth. if we see a big tick up and wage growth, that is where you have to watch for flashing red lights on the industrial sector. we still really like industrials. we have been overweight industrials for quite some time.

we still think they have a tail to run for quite some time on ex's debt --on cap spending. david: would specter -- which sectors are particularly -- particularly vulnerable? up, soeeded to pick back if conditions tightening, you have to worry about consumers spending money on mortgage sales that was not there in q1. david: we want to say thank you to will kennedy and darrell cronk from wells fargo. coming up, a possible u.s. retreat. would you make moves forward with restructuring, including a new cll -- deutsche bank moves

forward with restructuring, including a new coo. you can tune into bloomberg surveillance on the radio. bloomberg surveillance can be heard in new york, boston, the bay area and across the united states on sirius xm satellite radio. ♪

taylor: this is bloomberg daybreak. coming up, dave ricks, eli lilly ceo.

david: we turn now to wall street beat where we cover three things wall street is covering. deutsche bank decides, the german letter considers cuts to its u.s. cash equity business as part of its restructuring and now some managing changes with the new coo. eda reaches aei deal to buy the shire. joining us now is bloomberg's ed hammond. we want to join -- we want to start with deutsche bank. ed it was quite predictable they would do this. they were once the powerhouse, the biggest most successful european bank and they kind of pulled back because it has not

worked out the way they wanted to. not going to be real scale, it does not make sense for them to be there at all. arm cost five dollars for every four dollars of revenue it brought in, last year. david: that is not good business. ed: it is not sustainable. david: in the meantime, they have a new coo. he is really more of a person that can build the infrastructure but also risk management. ed: they need that. david: definitely. ed: they have this thing that is ongoing, project colombo. they are analyzing all of the different businesses. goingch -- they are through it with a fine toothed comb. they have decided it is not going to be in the u.s.. david: the big u.s. banks want to be in investment banking.

are there any european banks left who want to be in? ed: barclays. they are big here. staynk those are here to and everybody else is kind of an ongoing question. david: then we want to move on to takeda. after we have heard about this for so long. ed: at least they are set at the table. they are now in discussions that takeda -- pfizer has tried to buy elegant and astrazeneca. -- and astrazeneca. to bustdge funds trying

of the party and take a look at their equity trading. conference, he wants to go along oil and gas and he wants to short facebook. this is the quintessential problem in the markets because if you want to change leadership, that is what you have to do. you have to sell faang. david: that is your dream call. ed: that did not sound objective to me. david: it really was kind of personal about zuckerberg. he was under impressed by the testimony in front of congress. ed: the interesting one for me was larry robbins. he said he was long the likes of cbs. he thinks amazon will not get into the pharmacy -- pharmaceuticals. david: these are real

businesses. bitcoin. saying mr. pfeffer bitcoin is going to go to $700,000. alix: how do you even do the modeling for that? ed: it is going to replace gold. it is the only long-term serious replacement for gold, he said. alix: that we did not even know we were looking for. what is interesting is how well these guys perform. they make these calls, but if you walk it forward, a lot of these calls have not moved forward for these guys. they did not pan out, we see that a lot with the activists. a lot of these calls are obviously smart. grubhub has had a knockout you're already and there seems to be this trend of more people using that kind of online service. david: i'm sure some of those calls are right. thanks to ed hammond. reported, eli lilly

first-quarter earnings beating on revenue and earnings per share. ceo, live with eli lilly's dave ricks. alix: a lot of down numbers coming out with numbers -- a lot of dow members coming out with numbers. lockheed boosting estimates. united technology beat estimates and boosted its earnings forecast. do we get the theme of essentially industrials beating their forecast and raising? this is bloomberg. ♪

lilly reported first-quarter earnings just over an hour ago, showing's -- showing revenue and earnings reporting above forecast. for all that, the shares are actually trading down right now. to explain it all to us, we

welcome ceo dave ricks, from their headquarters in indianapolis. dave: good morning. david: you took your guidance up, you beat everybody on earnings, on revenue and yet you are not getting the credit in the marketplace. why is that? dave: i don't determine the stock price. we are pretty pre--- pretty pleased with the first quarter of the year. we are driven by our newest products which make up 30% of the revenue which is a long and durable revenue stream for the company. we launched nine brands in the last three years. the company is in a new phase of growth. david: just to break it down a little bit. what are the leaders in those new products? our talking about diabetes, arthritis, cancer? dave: three main categories and one more to come.

diabetes, our most important set of new products create options repaired -- patients suffering from various forms of diabetes. our insulin business continues to do well, including a new basic insulin. we have oral products as well for type 2 diabetes. in cancer, a new indication approved in q1 for a first-line metastatic breast cancer as well as products for other forms of cancer. finally, what we call autoimmune conditions like arthritis. 40 countries launched, not yet in the u.s. we are pleased with their

support of the two milligrams lower dose but they had concerns about the higher dose. we will work with the fda to get that approved and launched in the u.s. david: thank you for taking us there. you got approval for the two milligrams, not the four milligram. how big a setback is that? committeeadvisory does not determine the approval. they support the efficacy of both doses, strongly and they support it overall, a risk-benefit but not before -- not the four. we do not agree with that decision and neither do 40 other countries where we are seeing patients achieve very great success.

we think both should be available and practitioners should decide. the fda has to deliver rate on those inputs -- has to deliberate on those inputs. david: how confident are you that you will prevail on the fda on that? is that part of the reason why you may not be getting all the credit in the equity markets? dave: i'm sure that weighs on investors' minds. we are confident it will come to the u.s. market and be one of many successful products for us. we hope to launch six more. the final category we hope to launch in is pain. we have some migraine products next year. non-opioid medicine for chronic pain, which is a huge problem in this country. david: news breaking this morning about takeda and shire.

we just had a red headline across the bloomberg saying that now shire is saying they are considering the offer. talk more broadly about consolidation in your industry. does this make sense and what does it mean for lilly? dave: post-tax reform, there has been commentary about potential consolidation. we are focused on putting our capital to work to build our pipeline, adding companies with compounds or directly partnering on new molecules that can advance our interest in our core therapeutic areas. that is where we are focused on deploying capital. focuses, rolling of big businesses and combining with synergy. we have to believe those kinds of rationale do not create new innovation and this is a business driven by revenue growth and innovation, not cost-cutting. we are not very focused on that right now and we are not interested in china -- in shire

although takeda may be. i also want to talk about bending the cost curve and how you have been outspoken on the question and how the big pharmaceutical benefit manufacturers arm -- are benefiting. pharmaceuticals is the one part of the u.s. health care system where patients pay list price. when you go to get an mri or doctor services, news you -- usually you are paying the negotiated rate that your insurance company negotiated for you. we think this should change and the pharmaceutical company -- the pharmaceutical system should look more like a health care system. that is the pain point as high

deductible plans are becoming so prominent. patients need a break at the pharmacy counter. an ideaare putting forward called value-based pricing where actors would index the price point of a particular medication to its actual value delivered. that is a more advanced concept and something we think would help leave consumer pocket out of cost -- out-of-pocket cost. david: thank you for being with us, dave ricks, eli lilly ceo. alix: we want to take a look at what is happening with shire. that stock moving higher in premarket as they are considering that deal that takeda offered. more coming up on earnings and economy. ♪

♪ alix: scared of 3%, investors

back away from a bond selloff. directionless deutsche bank. deutsche bank could make big cuts to its u.s. equity business, raising the question, what businesses does the german bank want to be in. david: welcomes a bloomberg daybreak. welcome toto 2 -- bloomberg daybreak. there is a state dinner, the first ever. we now have the menu. they are going to serve french food. they say it comes from new orleans and is kind of cajun style but has a lot of french words in it. i am told it is based on new orleans. alix: i did make my first creme brulee this weekend.

it was not very good necessarily. i had my own little blowtorch. david: something else happening before the state dinner, a joint news conference for the presidents of france and the united states at 11:45 this morning. alix: two things moving the equity markets. killer earnings out of the industrials and you wind up having 10 year yields backing up off of that 10% level. the dollar a little bit softer on the day. a german read, a little weaker as well. the euro seems to be responding to those rollovers in european data. levels, still the level to watch and crude up 3/10 of 1%. of crude,ff continuing to climb higher. david: i'm not sure how good it is when it is getting driven by

commodities. alix: have you filled up your gas tank recently? david: time for your morning brief. we are going to be getting new home sales and consumer confidence data for the month of april. -- u.s. treasury will sell senior trade officials in the united states, canada and mexico are going to meet in washington where they are trying to hash out a deal on nafta. let's get an idea on what is making headlines outside the business world. taylor riggs is here with "first word news." trump's pickdent for secretary of state is one step closer. senator rand paul reversed his earlier opposition under pressure from fellow republicans. toronto say there appears to be no national security connection in one of the country's worst mass killings.

they are not ruling out anything yet. at least 10 people were killed when a van rammed into pedestrians on a sidewalk. another 15 were injured. the suspect was arrested after a standoff with the police officer. former president george h.w. bush is being treated for a blood infection. mr. bush was hospitalized in houston just after attending the role of his wife, barbara. he is 93 and has a form of parkinson's disease. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. alix: the yield on the 10 year continues to flirt with that 3%. how are market participants viewing those moves? >> when we look at the decomposed nature of the 10 year, we see it is mostly a rise in breakeven inflation rates. i would chalk that up to be inflation risk premium coming

back into the yield curve. >> i think the 3% threshold is enough to get people to tension but by itself it is not a bad sign. >> we see nominal growth upwards of 5%. here,ou look at the turn it has been underway for the last two years, this is a 35 year trend change in bonds. >> at the end of the day, you may have a market look at the fed and saying how much are they willing to let inflation run above target? maybe we need to have a little more of a steeper turn structure. the bond market up to this point has not been believing the federal reserve. if the fed says they're going to raise two more times, the 10 year treasury will not tell you 90. the short side of the curve is the story here. now, joining us bloomberg's -- chief equity

strategist and megan greene, manulife asset management managing director. megan: i don't think 3% is a magic number. years later, we are down 1.36%. if we see yields get above 3.25%, maybe we can freak out. question,the equity come inside the bloomberg. the earning yield for the s&p versus the 10 year. at what point does the 10 year freak you out from an equity standpoint? >> it depends on what is happening with the underlying economy and the earnings stream. as the 10 year yield rises, what does it mean for valuation?

as the yield curve becomes more upward sloping, it may suggest the market is anticipating a breakout. the market is losing control of the inflation scenario, that is not good for stocks. if the yield curve is stable or flattening, it is historically pretty great for stocks. there are a lot of contingencies that investors may be paying more attention to shareholder yield. if you can buy the dividend yield with buyback yields in the s&p 500, it is about -- if you combine the dividend yield with the buyback yield and the s&p 500, it is about 3.1%. that may be the more consequential number in the short run. where earnings are going is what matters for stocks and as long as earnings are accelerating at a rapid pace, they should be sort of a side story. david: how important is it why the yield curve is going up?

, onould be things cost more the other hand, it could be real economic growth. don't those things lead to different conclusions? megan: absolutely and there is the term premium. inflation expectations are going up off the back of commodity prices. it is partly off the back of your on your comparisons. we have been expecting that for about a year now. will be sustained, but i think it could be a reflection of a repricing of the term premium based on uncertainty. that could be trade policy, a more hawkish fomc, russian sanctions, the iran nuclear deal. that could -- that might be creeping in as well. the charthat point, we have up is the good versus bad inflation. average hourly earnings are

moving slowly higher but it feels like this is the commodity story. that the fedforget looks through big fluctuations in commodity prices. it is marginal, relative to how much overall inflation is rising. david: i want to come back to tax cuts and what effects they may be having on the equity markets. that is a level of uncertainty. we know we have tax cuts and that is increasing earnings right now. what does it been next year? >> this is a key question for the equity market. happening is phenomenal beats on first-quarter earnings but a lukewarm response on the part of the equity markets. the reason is when you look into 2019, the index faces -- you got , whichreat growth rates -- weected to decelerate

are seeing beats but no follow-through. nor are we seeing adjustments to the top line generally suggest we are going to see an easier cliff and that is what we need to see from the earnings season. going forward, estimates need to start to increase to justify better optimism and you've got to see that topline improvement. we have just not seen that followthrough yet. we saw a really solid -- we saw a really solid beats and really only caterpillar which expectations were raised and they crashed those as well. gina: this is the big key, this earnings season. we are only a quarter of the way through earnings. over the next recorders quarters, can we see company start to suggest maybe the outlook is improving. maybe the outlook for core earnings growth is improving.

we have to see that going forward for the environment to improve in terms of risk tolerance. david: right now, it seems like the tale of a couple different sectors. industrials today beat and they are getting a lot of credit. is there a underlying reason for that -- is there an underlying reason for that? it is worth considering that if you look at the s&p 500, half of their sales are outside the u.s.. a weak dollar has helped them a lot. another thing that probably will not be sustained, going forward in addition to tax cuts. david: tina martin adams of bloomberg intelligence, thank you for joining us. megan greene of manulife will be sticking with us. changes at deutsche bank as they name a new coo. this is bloomberg. ♪

taylor: this is bloomberg daybreak. cast a vote of confidence in the world economy. it has raised its earnings forecast, a sign a caterpillar expects a wide range of industries to shrug off trade tensions. coca-cola is focused on healthier drinks. it is paying off. first quarter sales and profits beat estimates. a growing portfolio of products that go beyond soda. pharmaceutical

has created a pulmonary agreement to buy shire. shire's board says they are considering the proposal. buying shire would launch takeda into the ranks of the world's top drug -- drugmakers. david: the shakeup continues at deutsche bank. the company naming frank kuhnke as coo and reports also that the bank may be considering extensive cuts to its cash equity business in the united states as part of a wider restructuring. joining us from frankfurt is bloomberg's german banks reporter. let's talk about this change in the coo and tell us what we now because he looks like an admin kind of guy. steve: that is absolutely right. he is the coo. he is not a sales guy.

what is striking about this guy is that he has been with the company for 32 years and joined in 1986, so he has been there even longer than the new coo -- cfo. they are both german. now kuhnke is replacing an american. definitely a term towards -- turn towards germany in leadership. once, a coo job might have been the back operation but now controlling risk, managing risk, it is now key. steven: that's true. i think regulatory requirements are a key aspect of banking today and it is upon the coo who

is in charge of i.t. to make sure that the i.t. can comply with all those requirements. o2 bank has run into criticism from regulators for not being able to report liquidity in a timely fashion. it is really the i.t. that needs to be able to do that. they hope is now that kuhnke will do -- the hope is now that kuhnke will be able to do that. had --n the meantime, we we have german data coming out and you can see what winds up happening to economic data. you come inside the bloomberg. this is the economic surprise index, rolling into negative territory. still with us is megan greene of manulife asset management. how do you understand the rollover in data? megan: a piece of it is

weather-related. the u.s. is a huge country. germany,s called in all of germany is called. there is some credence in that argument. i think it would be a natural for europe not to be rolling over a little bit. it grew almost a percentage point above potential gdp last year. none should expect that to continue. -- none of us should expect that to continue. days, wer the last few have heard mr. draghi coming out and saying the growth cycle may have peaked but the german economy is still booming and does not see a turning point. which is it? megan: i think germany is seeing a turning point. a lot of a soft and hard data showing german growth has peaked. it is probably closer to what mr. draghi is saying. that does not mean the recovery is over, it is just not as

robust as last year. david: what about france? are we starting to see any dividend from mr. macron's reforms that he set about? megan: the jury is still out. it takes a couple years for that to really pay off and start supporting growth. in the short term, you often get a rise in unemployment. france has seen unemployment fall, so that is positive that he is pushing these labor market reforms through without the usual negative affect. france has strikes going on right now. he is turning to face more resistance. the jury is out on how much he will be able to push through. alix: does this make mario draghi's job on thursday easier or harder? megan: neither. i don't think he was going to announce anything on thursday. they will wait until june. alix: a few months ago, the

conversation would have been about bifurcation and inflation. you have the peripheral inflation and having to deal with that and different growth dynamics. is that changing? megan: you are not seeing anybody hit inflation target across the eurozone. inflation,going by they should keep conditions easy for a long time. theyroblem for the ecb is know a downturn is coming at some point in the future. they still got negative rates. if they shut down qe, it is going to be hard for them to restart it. all they really have is rate cuts and they are nowhere near having the room to cut rates. david: they also have a substantial trade surplus. how sensitive are they to donald trump in the white house, particularly as we see president macron there, today and angela merkel .

-- and angela merkel next month. pivoted towards asia pretty significantly over the past 10 years. they are perplexed about what to do in terms of trade circuit -- trade skirmishes between the u.s. and china. they do not want to bandwagon with the u.s. because they are worried about trade tariffs in china. megan greene of manulife will be staying with us. coming up, could he can see no operator rocked by allegations of sexual harassment be at a turning point? one shareholder think so. we will speak with him next. ♪

resorts has been working to restore its rotation after that recent scandal surrounding founder steve wynn.

shares have been picking up since his resignation and now the majority shareholder is focused on revamping the board. joining us now is trip mueller -- trip miller, managing partner at gullane capital. gullane is working to read or the -- redo the board. her name is on the brand is one of the founders of the company. we are pleased she is taking an interest in the company. the company has announced three female members of the board, potential members which we think -- which we like. we think the board needs to diversify in the wake of her husband's past transact -- transgressions. before she split with steve, she was very active in the operation of the wynn company. do you expect her to be again? megan: we would welcome -- trip:

we would welcome her back. she is trying to have an influence as a outside passive shareholder. we believe it gives her some optionality as well if things do not go her way. share -- potentially sell her shares. david: cleaning up the board is one thing, what about more generally? there are some reports that may have to sell the massachusetts country club. trip: they've got a replaceable real estate assets in the u.s. and specifically in boston, there have been rumors about them being forced to sell. those are more state-level gaming commission issues. we think that storm will pass and we would rather see wynn be acquired as a whole rather than

selling off an asset that could be worth hundreds of billions of dollars. david: do those actions maintained by wynn and others clean it up enough? trip: the gaming concessions in macau -- we think that is very important for them to not only get past this but continue to prepare for that. as annk potentially wynn position target would be attractive to an asian gaming company or a domestic gaming company. alix: you also own apple, so i wanted to give -- get your take because we have got a lot of downgrades this quarter. why du feel confident? . trip: similar to wynn, it is a great brand. we believe there is a tremendous opportunity for them to return capital to shareholders. the biggest risk is dependence

on the iphone. we would love to see more diversification. we will be watching closely to see if revenue increases this quarter and gets back on track. alix: how much patience are you going to have? trip: we are a long-term investor. we don't throw them out. we stick around for a while. even if it is rough this month, we will stick with it. alix: trip miller of gullane capital, good to see you. google playing catch-up. to going on a spending spree chase rivals apple and amazon. ♪

♪ is "bloomberg daybreak." . a sigh of relief that we didn't mark.he

united tech and caterpillar upsting, helping the doubt 150 points. s&p futures of .6%. equities flat in europe. the data in germany rolled over a little bit. not a lot of optimism. classes, 2.98% on a 10 year. yields moving higher by one basis point. it see what the dollar does. yesterday a boost, today, softer. thek in that heading into ecb meeting. curve, a flatter yield 30 basis point between the five and 30 year. it feels like the action will be in that market looking at the spread in the 10 year. other commodities grinding higher like copper. it raises the question is the 3% about commodities. david: the tenure keeps teasing you. alix: i have been waiting for

its -- the 10 year keeps teasing you. alix: i have been waiting for it. let's get a check of what is making headlines outside the business world. taylor: president trump and emmanuel macron meet today. the first day of his visit was devoted to ceremony. they had dinner at george washington's home in mount vernon. today, macron will try to convince the u.s. to stay in the iran agreement. you also talk trade. in tennessee, the suspect in the murder of four people at a waffle house restaurant is not talking. they arrested him a mile away from the shooting site. authorities say he has shown signs of mental instability and has had extensive run-ins with the law. house democrats a whistleblower who used to work at the british firm hired by the trump campaign. last month, they revealed that cambridge analytica had acquired

tens of millions of profiles to harvest data. they renewed the warning that malicious -- they used the warning that malicious people are using social media. global news 24 hours a day, online and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm taylor riggs. this is bloomberg. alix: google goes on a spending spree. shares are softer. the best sales growth animals for years. they kept talking about how spending will not be done. it will continue to spend. they have $11 billion ready for funding. if you look at spending overall, it is double that. , --ing us is brian weitz brian white, from monness, crespi, hardt. how do you reconcile the we are seeing?

google is working on a lot of things. that is why it is called the conglomerate of the tech world. they are investing in the cloud is this which hit $4 billion revenue run rate. they are working on ai. they have youtube. google is doing it all. include a lot of and r&d. that is what we saw. alix: are you getting visibility to prove it is worth it or will it be, trust me? google does not give a lot of visibility into financials forward-looking. alix: this is a $7 billion trust me. david: in a quarter. brian: i think you saw it in the results last night. sales up 26% year over year, advertising revenue up 24%. inblew through the estimates

the street on a revenue. a phenomenal quarter. david: there was a time when google being a conglomerate made investors nervous. brought it in and are investing in things. i'm going to put up a chart. as a percentage of sales, and it was up and it came down and is going up again. why as an investor should we be more confident? brian: we had a one-time item in whichof in the quarter, was over to been dollars invested. that is not part of recurring capex going forward. it is for all of the reasons that i talked about, not to mention what they are doing in terms of expenses on driverless cars. david: on the revenue side, earnings up. one of the subjects that comes up is regulation, particularly in europe at the gdp are, --

gdpr. yesterday, it was not addressed what it might do to revenue because of the inability to target. how concerned are you about that? brian: in terms of europe, all companies have worked on this for 18 months. europe is not the issue. it is what happens outside of europe. it is clear there will be some type of regulation. analystat a big data conference and one thought we might see some at the state level rather than federal. brian: why in europe? we have not seen regulation take affect. if it allows people to keep their data and not let google use it, couldn't you see them reduce revenues because they cannot target as much? does similar regulation allow you i don't want to to use my data?

brian: the companies have a way with allowing data to be used. they asked people in a way that makes it easy. think about smaller organizations that will be impacted more. think the big companies like facebook or google will actually end up benefiting from this. david: thank you so much, brian for being here. brian white of monness, crespi, hardt. trade and it shipping is another area disrupted by technology as movement of goods involves movement of digits. we welcome jett mccandless. he is founder of project44. transit avows visibility to global trade networks. i will ask what it means. i said the words. i knew what the words meant, but put it together. what do you do and what does your company do? we are a technology

company for the transportation industry. we are digitalized in the movement of goods globally. david: what do you do that is different from what was done before? how does it change shipping and getting goods from one place to another? jett: i am glad you asked question for shipping has been around for thousands of years, obviously. chairs and desk and close you have on, all that got or a boat. train, for so long, it has been done manually. apire modernizing it with -type technology where machines can talk to each other in a synchronous way. david: that some spastic, is it cheaper? is less -- it expensive, but to move the goods become expense -- less expensive

. from a ceo point of view, less inventory that companies have to keep and provides a better customer experience which leads to lower cap and higher customer retention. yes, absolutely it is cheaper. david: i would love to know what success looks like, what does it do to employment? it sounds like a lot of people won't have jobs anymore. jett: what we found is that many of our customers redeployed folks internally. usually it is a manual, redundant position that will -- most folks aren't that important to do. many progressive companies use it to retrain employees and offer database classes. maintend to have the knowledge and understand the flow of goods. it is a big opportunity to add value in the organization and supply chain. isie: is at a value -- alix:

at a value add? megan: it is great if you are reskilling people. it is hard to push paper pushers into a high-level tech. since theyd say that brought on robotics they have increased their labor force by 300,000 jobs. they may have added that many people, but how are they getting paid? they are probably not high wage, high tech sectors. it probably is deflationary. while some jobs are moved around , do we have more jobs? it is unclear. we cannot conceive of the jobs that will come around from this stuff. we assume people that are made redundant will find a new rules. -- roles. david: what is our economy look like? all have to work less.

in silicon valley, that will say that it is great and we are free and enjoy our time. i think in reality, housing and agriculture are already automated. we still have to pay for those here you need some kind of income. ultimately, i think we end up with a universal basis income. it is probably unavoidable. david: take us into this new world. if you succeed, what does the world look like, and how does it change the way we do business? jett: at roger 44, we're looking at ubiquity. we want technology to be -- at atject44, we are looking ubiquity. we want technology to be everywhere. we are training folks to be supply chain experts. the day, software will solve these challenges and

optimize every potential order out there. we will move to a liquid inventory situation. you will see inventories reduced stateside and globally. the end consumer will get the product much less expensive and much more quickly. alix: thank you so much megan green. thank you for also jett mccandless. coming up, technology and amazon's india push is day to. indiaffort to win big in and what the struggles are for growth there. in to our can tune colleagues on the radio, time keen -- tom keene and jonathan ferro. bloomberg surveillance can be heard in new york, boston, the bay area, and washington and all , across the united states on sirius xm radio. live from new york, this is bloomberg. ♪

♪ taylor: coming up in the next hour, john chiang, from california. david: it is day two for amazon. we look into the businesses. we are digging into the expansion into india. amazon india is the fastest-growing marketplace in the country. jeff bezos allocating a total of $5 billion in investments to the country. amazon not the only country gaining traction. walmart may be close to in theing a deal

e-commerce platform, which it be a key move in its battle for amazon market growth. is sachin dev duggal. he is from engineer ai. he is one of the top brokers of amazon web service. start in washington. explain the situation in india. thank you. india has become one of the top destinations for american companies because of its massive market across virtually every sector you can think of. india has a large growth market and the largest in the world.

you have a government that has taken steps to try to make it easier for companies to do business there. there have been improvement on goods and services, which has created a unified tax structure which is particularly important to retailers like amazon and walmart. then you have the economy which seems to be going at a strong clip of about 7% to 7.5%, with room to grow into a higher growth rate in becoming years. -- in the coming years. when you think about it, you are seeing a direct decrease in foreign investment. you are seeing many more companies look at the indian market as a major priority in the years to come. david: you suggested that historically there has been a sense that india is a bit hostile, frankly to foreign companies. is that entirely reversed, and

do u.s. companies believe it is reversed? there is certainly more work to be done. as we work into elections next year in india, you are seeing movements and effort to try to address the needs of the constituencies that starts to look a little protectionist. by and large, i would say the government has taken bold steps to try to attract more investment in more foreign investment. i think they recognize the economy is not going to grow the way it needs to without foreign investment. alix: that is one of the hurdles when it comes to retail the what is the hurdle to entry for cloud services in india for amazon. sachin: amazon was the first leader. when we entered, we became a good customer and eventually a

partner. i feel like the entry into cloud the matter where you are is a critical mass of customers. india andon entered it haslly mumbai, exploded in terms of utilization and more and more small to large companies moving. it is a combination of achieving critical mass because you need to build unit price which the cloud promises. alix: when it comes to infrastructure for retail, there are issues, for example help you might attain goods. online having diversification in different regions and what is it like for a cloud? what are logistical hurdles you are having with brokering amazon cloud? service and where second largest growing in

the world is and what we are doing is being able to drive it -- by the cloud. oneave two products in takes a view of all the capacity customers are using and repackages it. think of it like little lego bricks that we are combining and cutting and putting together and buying forward capacity. cloud inthink about india, one of the critical issues is conductivity. the second is whether it is payment for retail or cloud, is payment. seen happen is conductivity has improved considerably. thet comes more reliable, wireless and fixed lines have a much better use of a cloud sittingit is ultimately

outside of the office space. the second is payment. one solution we brought was a prepaid wallet because emerging markets like india are more sitting outside of the office space. conscious about the bills being higher than what they thought it was going to be. we have seen this in other countries also. allowing there to be a wrap allowswallet that customers to have controlled expenditure is critical. the payment infrastructure in india has improved amazingly over the past 12 months with the introduction of upi and private players. david: i would like to move from business to this is an from cloud to talk about e-commerce in india. the projections are put up and they have projected astronomically. where does amazon sit in that picture? will be one ofce the fastest growing sectors in india. they are expecting a massive growth probably in the next five

to six years. amazon is in a good position. euis not the largest retailer in india, but it is right up there. e-commerce retailer in india, but it is right up there. competition will be strong. at mobile users and internet users in india going that have 400 million access to the internet right now to about 900 million in the next the paymentu see architecture starting to take shape with mobile banking and the scheme, you can see the eu space space -- e-retail will be growing. david: if you are a u.s. company or western country looking to move into e-commerce in india,

are you better off trying to go in and create yourself or look for some in to buy? sachin: it depends on what you are operating in. cartu see walmart and flip ipkart, the by option seems so much smarter. the logistics in india is extremely difficult to goes people see it as one country but it is really not one but it is several massive states. working with logistics is quite wide and varied. if you are coming in with a in forif you're coming glasses or maybe wear or specific areas, then it would make sense to do a build and operate model. some of the niche spaces have not justified it. thank you both very much

for being with us. alix: what i am watching is wells fargo holding its shareholders meeting. they will also be critics as they face scandals they're trying to put behind them. joining us is a laura keller of bloomberg news. the latest is the $1 billion payment that they will make to consumer financial protection bureau. what is on the docket today. laura: that was a few days ago. that will be quite on the minds of investors here. behind us are investors starting to check in. are expectinge protesters coming when the meeting starts in a few hours. atx: last year's meeting was a fancy golf resort. this is at a hotel. talk to me about the protests we might see and the visibility and

pr that needs to come out for investors to feel better. that theyreported actually try to avoid any kind of hotel or property for this year's meeting that had the words golf or result because they got criticism last year. you did not see a lot of protesters because there wasn't a place for them to assemble. here you have the downtown area where you will see the protesters. right across the street from us is wells fargo's headquarters in des moines. protestwhere they will and come over to the meeting as well. it is something wells fargo will be more open for protesters to come in and be open to criticism. what we areeeting, expecting is to hear from betsy duke, the new incoming chairwoman. this will be the first time she leads a meeting as a shareholder.

we expect her to turn a page from the scandals. time, the wallme street journal had a report that they are trying to push back on some plans to overhaul transactions. push back the deadline where they will be doing that. it will be hard to put things behind them like that. these things keep coming out. this was reported from the whole spell -- wholesale bank. criticism for folks who will be here today and they will choose to address it. banks trying to put some things on the back burner. alix: thank you so much, bloombergs laura keller from to mourn, iowa -- des moines, iowa. caterpillar saw a nice move higher after forecasted.

can it hold that level? david: adjusters react thing to positive -- investors reacting to positive boosting. alix: are we looking to far into the future that it might not be able to sustain itself? david: going to the commodities. alix: that wraps it up for "bloomberg daybreak." be ang jonathan ferro will 3% yield watch. earnings help propel the dow and s&p futures higher. this is bloomberg. ♪

♪ jonathan: from new york city and our viewers worldwide, the jonathan. this is the countdown to the -- me jonathan. -- i'm jonathan ferro. become a down to -- this is the

countdown to the open. ♪ jonathan: coming up president macron arriving in washington hoping to keep the united states in the iran nuclear deal. treasury offering 32 billion into your notes. data.economic german business confidence extending. 30 minutes away from the opening . futures look like this. up a half of 1%. markets with strength over the previous five days. euro-dollar going nowhere. treasury on a hunt for 3%. 2.99 is where we trade right now, up by a single basis point. that is the story in the bond market. 10-year treasury holding investors, keeping a close eye and preparing for higher rates. >>