>> [indiscernible] >> money pours into credit suisse. assets at a high, but the job is not over. from a stronger dollar to widening credit spread. and caterpillar's warning shakes equities. -- fangtocks lose stocks lose. david: welcome. i'm david westin. >> i will explain all of this for you. where's the equity rout? twitter comes in with some killer earnings, popping 13% in premarket. daily active users up to 10%, monthly active users up 3%, revenue and earnings in the estimate for their second quarter also raised above

estimates. moments ago the stock was up 13% coming out by just about 5%. meaning -- in the out.ime we have smithkline they beat estimates there as well. the revenue also is a little short on a $7.22 billion. that is glaxosmithkline coming out as we speak. caroline: amazing numbers. the high watermark on the call completely rolled over the equity market. andd: caterpillar came out their stock went way up. then we went off the air, and they had that one comment come a maybe it doesn't get any better than this, and they tanked. david: you loser --caroline: you

are losing earnings, visibility, too. the question is, why are the markets so sensitive right now? is it because interest rates are going up? is it because tax cuts only last a certain amount of time? caroline: we are relying on earnings to get the next catalyst. we are joined by bloomberg's romaine bostick. our first story is what happened to the equity market yesterday. come inside the bloomberg to look at the equity swing. dow on the biggest losing streak since 2017, last march. walk me through your interpretation of what happened yesterday and the weakness we are continuing to see today. >> it is all about the future and future earnings growth. i liked the caterpillar seen for a couple of reasons. a, it wasn't that bad.

it has really been playing out in the market over the last couple of weeks of earnings. expectations have been so high and companies are saying that growth just might not be there to that extent going forward. the cap comments really illustrated that. reallycat comment illustrated that. just dial it back a little bit. growth is still going to be there, just not to the extent some people thought it would be. caroline: that really fed into the fang stocks as well. you can see how they lead the market lower yesterday. the blue line is the s&p, and the white line are those fang stocks. part of that is also google. this smells a lot like a late cycle story, selling tech and going into things like consumer cyclicals. >> basically we have a changed narrative.

perhaps this is as good as it gets. if this is as good as it gets, there are a lot of stocks that are overvalued, tech being first among them. certainly on one hand it feels dissonant when you get results like twitter that just came out, that are so positive and show them adding all of these users. on the other hand we will get facebook earnings, and we will have to see if there is increasing regulatory concern. a lot definitely going on. the scene right now is this may be as good as it gets. if that is the case, stocks have to get some air taken out of them. caroline: is that a movie with jack nicholson? who is who in this market? [laughter] david: we are going to make a turn from jack nicholson around to the pre-percent yield on 10 years. it maybe offers -- the 3% yield on 10 years.

it may be offers an explanation for what we are seeing. i guess one of my questions, is there a relationship between the story and the story we were talking about? to what extent are the markets untethered hooks that's on tenterhooks -- on tenterhooks? >> i wish i could draw that analogy. [laughter] that definitely plays into it on the margins. if you do have as good as it gets in earnings going forward and then rising borrowing costs, that certainly doesn't help anything. that said, this seems to be more correlated to oil. right now if you look at the correlation between inflation expectations and crude and 10 year treasury yields, they are moving in tandem. this is fascinating because rising oil prices does feed into higher nondiscretionary costs. does this mean good inflation?

does this mean the economy is growing at an accelerated clip? not necessarily. definitely something to keep an eye on, and that pressures a lot of companies. alix: --david: let me take my simplistic explanation and incorporate leases stance -- lisa's stance. if it is because we have to pay more for oil, that is not such a good thing. romaine: i think it is a little of both. think about the low yields we had for the past few years, and the about how much that lifted equity valuations. now you are talking about a situation with yields rising. you have to sort of recalculate how you look at capital spending, how you look at equity valuation, how you look at venture capital. tore are so many elements this market that you now have to reprice or revalue in some way.

whether it is about metals or oil come a why does it matter how? -- or oil, why does it matter at all? alix: the bottom panel here is the correlation between 10 year yields and the index. , lisa, ine rhetoric terms of the dollar? could this be a sustained move if we hold 3%? >> it could especially be a sustained move because of how many bearish traders there are on the dollar. should there be a material turn in this and a surprise strengthening and the dollar? that could up in a -- strengthening in the dollar, that could of been a lot of trick -- that could upend a lot

of trade. we are talking about twitter earnings. let's talk about credit suisse's earnings. that helps to francine lacqua about profit and wealth management. >> we are turning the global market into a machine to support wealth management. and haved this venture launched three new products during the first quarter. finally being able to turn a wholesale capacity through a growing market to serve the kind of retail market. that is just very powerful. alix: the problem is that sticky r.o.e. romaine: i think he deserves a little bit of a golf clap for what he is able to do.

he's still got a little more work to do. i think what you saw on the wealth management side was definitely encouraging. you see how those core businesses are making up a huge share of their profits right now. it is great if you are wealth management. i think it is your time to shine . given the market environment you are in, it means you could see some greater profits through the rest of the year. david: doesn't that it was where the banks are going overall? they are getting out of investment backing and the riskiest part -- investment banking and the riskiest part in going to the safest part. lisa: this raises a lot of questions about deutsche bank and ubs. how much is this going to be a wealth management business? they have made real strides into asia, a real source of wealth and assets. he is certainly getting more than a golf clap in markets

today. alix: if you take a look at p/e ratios, all the european banks well below what we have seen with the u.s. there's definitely some crafts here. we saw with results the other day you are seeing these banks try to find some footing in this new environment. and lisa, they are doing it. it is going to take some time for this all to work out, but they are doing it. you have to have some confidence in the leadership. , but wesome confidence are getting there. lisa: i would just argue that perhaps this is the new bottle and this isn't the end of .estructuring comcast came out with

earnings. they beat earnings with a good numbers report and made their first formal bid for sky in london. they beat the fox bid by a good , 12.50 pounds. is saying, you like us better than you like them? we will get through the regulators in a way fox will not. it really puts a lot of pressure on disney and bob iger. david: exactly alix: -- alix: exactly. moneyball is in your court. earnings out before the bell a moment ago. avoid on some of those gains of 6% in premarket. this is bloomberg -- holding on to some of those gains of 6% in premarket. this is bloomberg. ♪

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alix: the dollar trading at a three-month high. traders also eyeing the milestone move for months now and the effects could be widespread. here is what some market participants had to say about that push above three. >> people are desperate for yields even though the 10 year has now broken through the 3% barrier. people are still searching for yields, and they risks people would not invest in before will now take the costs. market slowly but surely is coming to that expectation. if it is a measured, reasonable ise, and if the reasoning

because of growth, it doesn't mean a debacle. >> we expect more volatility as rates have risen and stocks have gotten more sensitive to that. people want to invest to get the yield, but if you are invested you don't have the power to try. >> at the risk of sounding like a broken record, i think the big story here is something of a secular change in the rate environment. i think investors are slowly waking up to this. financial conditions are simply tightening. alix: joining us now is jim steele, hsbc chief commodities rileyt, and art hogan, bf managing director. any change to your asset allocation in a 3% 10 year? >> >> there really isn't. i think we like to look around numbers and take ourselves in a corner. i think we are much more concerned about the shape of the than we are about the

rate. i don't think that is at all a detriment equity investing. i do think if we see any more tightening in the twos and tends or fives and 30's, that becomes a concern because these latter that you'll curve gets, the less likely banks will be to loan money. i don't think 3% is going to be a benchmark we talk about much longer now that we've put it behind us. david: is the answer to the question basically up to the fed? are they going to back off on some of the rate hikes given what is going on in the economy. the fed has been pretty straightforward and stuck to their narrative that they want to normalize rates. when they control is the front end of the curve. what is really happening at the belly of the curve in the 10 year is that the new issue with has been focused -- the new issuance has been focused on the front of the curve.

well be theay treasury department that looks at the flattening yield curve in thes we need to issue long end of the curve to broaden that out. you would certainly see a steepening of the yield curve. i think part of the problem has , and there istion going to be plenty this year in the front end of the curve. we've heard from the fed over the last week or so that they are paying close attention to the flatness, and that may slow them down. right now it is pretty clear they want to go three times this year. alix: you have that the basis points what have made ukip the scales. scales --u skip the made you tip the scales. real yields have been moving higher, about 80 basis points. give me a call. >> we are looking for moderately higher prices from here and in

the longer term. right now there is no doubt that higher rates are the enemy of gold. the reason why we don't think it will provoke a significant decline --icant significant decline. that is when gold prices were significantly lower. i don't know anybody that hasn't been expecting this. if you look at the way gold reacted a few years ago in quantitative easing began to end , a lot of this is already cooked into the price. we don't see it as we getting gold as we see it preventing headwinds. that will be the key thing for gold, that it will be the main obstacle to rallies. geopolitical risk comes and goes. very often they are binary events. things often happen or they don't.

what we've got in the background is this atmosphere of rising rates and a reasonably firm dollar. this is presenting a negative. alix: we have seen the dollar get positively correlated with the 10 year yield, was we haven't seen so far this year. if dollar gains stay muted, what does that do to support gold? >> gold is very sensitive and adversity -- and inversely related to the dollar. toohe dollar doesn't go up much because of this, that will keep gold in a reasonable range. david: arts, where are you on the dollar? >> it is interesting. just over the last week or so, we have seen a pickup in the dollar. a real conundrum

because we've seen rising rates ,nd certainly heard of the fed apparently taking until about a week ago to firm up, and that has a lot more to do with the amount of debt we are issuing this year and the fact that we are going to $1 trillion in the deficit. we may well see that the dollar piece intermittently. alix: is the absolute level of yields or the velocity of which we move? bloomberg caught up with charles schwab ceo william bettinger earlier. peers what he had to say. >> do you think we will see a stampede of fixed income? >> it all depends on the pace at which rates go up and how far they go up. if they got is -- if they eke up

as they are now, you may not see it as they do -- see it. if they do love they did just in a few days, you will see panic among investors. alix: how do you want to hedge any kind of volatility? >> one of the things we haven't seen to that point this year, and all the volatility we have and what is not happening is a flight for safety into things like gold. you see more of that in the dollar, the 10 year, the japanese yen. i think in terms of hedging volatility, the best way we have -- of cash.f ga say the best hedge in

volatile markets is to have some level of cash in the balance market. what i would mention quickly is watch trade. alonggh trade is bumping if it were to retreat, that would be a positive sign for gold. alix: thanks so much. twitters turnaround is also gaining steam. wangng us now is selina -- david.sure it's twitter is now finally stabilizing and actually growing.

it posted its strongest revenue growth in two years. it has been improving is at product, and a bunch of advertisers are starting to think they got a higher return on investment on this platform. a lot of the benefits can be attributed to growth in user engagement. ofre is finally a study product improvements that are causing people to come back to the platform more and more. twitter is really starting to saturate in the u.s.. sales are driven by international growth at a whopping 53% versus only to bring the u.s. david: you follow the stock closely. how much of this success is because they just improve their core product by making a better feed, and how much of it is bringing in the live video, things like nfl? things combined

and making a big difference. i think the big problem twitter faced maybe a couple of years ago when jack came back into the company was they did not really have a focus of who they were and where they stood in the landscape of social media companies. have redefined and reestablish their position as the place to go to for live event what is happening now type of information. i think that focus has given them a place in the marketplace more secure, and obviously more recently the introduction of some of those products has really made difference in their revenue growth. david: how high is the sky? how big can they get? fourth quarter they grew modestly, now we are seeing 20 plus percent revenue growth. when you look at how they are -- theyng, the company

do need to continue to accelerate user growth. that eventually does drive the real revenue growth in the longer term. david: one of the things we seen in recent days with the regulation. how vulnerable is twitter to something like that? there expectation is that will be increasing regulatory scrutiny on the company over dating usage and privacy. them gearing up for the european privacy law. lawmakers are trusting dorsey to testify for congress about data privacy and more regulatory overhang. facebook's troubles with cambridge analytica really have an impact on twitter?

the numbers really don't show that that has been happening. from the fourth quarter two the first quarter of a very small increase in users. it doesn't seem to have a measurable impact. alix: do you own twitter for a takeout target? >> it is absolutely a potential appeal. when you initially bought it, that was one of our investments theses.stment at this point is really tough to predict. it may be a little more difficult for a lot of the prospects. thanks very much. this is bloomberg.

♪ --x: this is "bloomberg marke s .bloomberg daybreak."

thanks stocks led the markets lower -- fang stocks led the markets lower. fullow down almost by two percentage points as weakness spreads throughout the world. switch of the boards and you can see what i am top me about. three-year yields 3.01. euro-dollar on the back foot come a 121 as the dollar gained some steam from 3% yields. i should point out the two-year yield topping 2.5% today for the first time since 2008, leading to that flatter curve. softer, but crude holding of amazingly well despite the fact that trump talked about iran yesterday and we have a stronger dollar. david: we want to get an update on what is going on outside the business world with taylor riggs. taylor: it is a showdown over the limits of the president's power to control who can enter

the u.s.. supreme court hears arguments today on trump's travel ban to restrict people from entry from seven countries that are muslim majority. president trump's choice to head the veterans' affairs department is not giving up. the nomination from congress after being accused of misconduct. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries.

i'm taylor riggs. this is bloomberg. >> bowling earnings -- boeing earnings, revenues up somewhat. they also took guidance going forward up as well. like 1.8% in .remarket right now alix: i think the call for boeing is going to be really areresting as investors more tentative going into the call at they weren't with caterpillar. maybe the boeing ceo is

saying to skip the call this time. it will be interesting to see how the market reacts to these numbers. we turn now to washington, where there's been a lot of talk about president macron and president trump. conference, the president of france said there was "no unbalanced trade between the two countries," but president trump continued to press for fair and reciprocal trade relations. we welcome now to lonnie -- the senior professional -- the atior professor of commerce harvard. we have angela merkel coming on friday ramy:. how do our -- on friday. how do our trading partners perceive the u.s. right now? >> that the u.s. is a somewhat unreliable and untrustworthy

traded partner because agreements are being reconsidered, and that could lead to uncertainty that affects businesses. these are relationships that are very important in standing together against countries like china when there are common interests among the european union, the u.s., and so on. having conflicts with one's traditional allies certainly makes that fraud as well. see with our allies some sympathy the basic argument that they were formed a long time ago with the u.s. was much more dominant. that is the irony of this. there are so many common interests at you would think these relationships are getting stronger other than being

threatened right now. if you think about the common interests against china, the logical approach would have been perhaps to take china to the woodshed because there are many .ssues it was difficult to bring disputes against china when those came up. alix: there seems to be disagreements last potential agreement when it comes to -- disagreement/potential agreement it comes to iran. this is what president macron had to say yesterday. pres. macron: we want to fix this problem. france andthis help

germany and the u.s. when it comes to trade, or heard it? -- or hurt it? >> clearly there are common interests in dealing with countries like iran, but the approach of the trump administration certainly much more hin europeans seem to be comfortable with right now ramy: -- right now. this doesn't help on that front. it doesn't help the u.s. economy either. it seems like mr. trump has taken the view that a very hardline approach works with north korea and china. >> president trump said that steve mnuchin come the treasury secretary, would be going to china to try and pass things up on trade. where is the path forward for the united states in china? >> there is a potential meeting

a littleon issues like property. -- intellectual property. the difference is the chinese want to do it in their own way at their own pace . they don't want to do these negotiations with the overhang of trade threats. that they have reacted negatively against. how will we get over -- how we will get over the trade deficit issue remains the sticking point. we also have the 10 year going up over 3% now, the equity markets seeming very skittish. is there a connection between those two things. >> they could become much more

closely related. the economy seems fundamentally quite sound. in u.s. is certainly engaged a perilous experiment right now with the economy doing well, andy biggs fisk is coming in to is on top of that the trade tensions start creating some disruption, that sets a very negative tone in terms of markets because you have a rising deficit and potentially at least a modest disruption to growth. bond markets and equity markets are very fragile and little events can have big effects. alix: on the one hand, consumer confidence is an 18 year high.

on the other hand, the consumers are net bearish on stocks. number likee a yesterday that they said might be the high watermark, what do .ou attribute to that is that just a cycle story or is it a potential risk story? the company's still in global economic recovery seem to be doing well. it seems to have been losing a little bit of momentum, what is happening with the fiscal position and trade. theof that starts getting opinions of people even more because this idea of creating a leveling off of momentum or decline and momentum, there is a lot less space to work with, especially in terms of fiscal policy. that means the ability of governments to respond will be much more constrained.

i think those concerns are what we are seeing in the markets. david: what does this tell you if you are a central banker? we have ecb numbers coming up. have you take the destruction of trade, the fiscal deficit looming. what do you do or not do? >> there is an interesting issue about how i will move some inflation. uptick -- to see an --you were to see an update, if you were to see an uptick, with the new fed chair and board members, i think they have a thing to maintain credibility and show they have inflation of the control. the ecb thinks it is a different set of issues. i think the ecb betrayed because they could be surrounded by

strong, weird euro views. alix: if the conversation is going to become how much ammunition the central banks have, the ecb has to move even if inflation isn't moving the way they wanted to because they really don't have a munition. -- any ammunition. for actionnot room to support growth and monetary policy. certainly that is going to be one of the factors that leads ecb to start thinking about normalization. ago. three or four months it certainly suggests a slowing of ambition on their balance sheet. david: great to have you here today. alix: we heard from caterpillar.

earnings coming out very solid, but the question is about the call. is blowing past estimates, shaking off any trade .ar issues, beating estimates general dynamics also seeing some good news, saying they are very confident in their outlook. their backlog hitting over $62 billion. operating margins this month, and their earnings from continuing operations bode the last seconds. oil earnings, big kickoff. they had a loss, but much less than the three expected of about $.49 per share. the question, can these big oil companies make as much money as

they did in 2014 when oil was at 00, and do they stay disciplined? david: this is pretty exciting, i've got to give it to you. does -- it is as good as it gets. next, our wall street beat. you can turn on the radio and listen to our colleagues tom keene and jon ferro. "bloomberg surveillance" can be heard in new york, boston, that the area, washington, d.c. -- the bay area, washington, bc, and-- washington, d.c., around the country on sirius xm.

♪

--taylor: this is "bloomberg daybreak." hourg up in the next comfortable global investors' -- principal global investors' ceo. alix: first up, charles schwab every dealloomberg they make is in the client' best interest. that cicada closes the deal. finally, the cftc expresses concern over the market as drama continues to play out. atjoining us is bloomberg's hammond, and earlier we heard the ceo about mergers and

acquisitions. >> try strategically at every opportunity that comes up and make a decision come on whether it is not just something that creates shareholder benefit, but does it have a strategic fit. usually they passed. most of the deals we seen really where what we would call a consolidation deal. what it means is i acquire you, fire 70% of your employees, and get part of the benefit. where is the clients benefit in additional to possible benefit from the shareholder standpoint? if it is truly for the benefit of the shareholder, i don't know if that is necessarily our criteria. >> that is a very polite way of saying synergy. it makes sense not to do a deal that would be bad for their clients. obviously clients come first, shareholders immediately second.

they can't just be about driving shareholder concerns. is it something that is good for our customer base, that is good for all of our stakeholders? particularly in this environment where premiums are so high, there is no cheap him in a opportunity, if you're going to do it it has to be very good reasons, not as the single reason of driving shareholder returns. becomes, ifsue their offer is 56% when it comes to equity, but equity keeps falling as investors don't cheer this idea, necessarily, and the money that is going to go into it. done about 20% in the nine months, shareholders don't like this deal. they think it is too much of a data for to cana -- tech

-- four tech da -- for takeda. >> that really points to the central question. they think it is too big. they worry, doesn't have the jacadaonal -- tech data -- takeda has a lot of borrowing. alix: it is like a lose-lose. david: it is devoting a lot of money to research that they don't know it will pay off. you need a strong balance sheet to be up to do that. >> right. shareholdersing

definitely do not want, is to hold in a japanese company that does not have a strong balance sheet. overnight from we arenancial times," going to take a look at that. they have said they are worried that this could severely damage the integrity of the cds market. it is a fascinating point in time. david: what cftc was saying in part is that there are certain assumptions you will try to pay off if you can. if you are gaming the system, than the prices are probably all off. that to all apply insurance markets. alix: and of course, the

background here, basically blackstone has said we will give you a loan and bill you out if you triggered your -- bail you out if you triggered your credit default swaps. at all been a big between blackstone and goldman sachs, in particular, where you have the ceos meeting. .hat is the background in it >> it is also about where the line is. you have blackstone on one side saying we place close to the line, but it was smart and we made money on it. david: as i understand, from both blackstone and goldman of view, these are not big deal for them. it is just the principle of the thing. >> it is the principle. they are saying yes, while it is

it legal, you should do because integrity is not an issue. f is its it up --david: affecting the price of cds? >> they have said they are looking at measures to regulate against this kind of thing. if they can't you potentially see a change in the cds prices. david: thank you for being here. the game is afoot. by that i am talking about comcast. alix: can you do an accident with a pipe and a hat? you can do it. >> the game is afoot. alix: that wasn't bad. david: comcast has made its bid for sky official. the pressure is on fox, but also on disney. alix: and check out tv on the bloomberg terminal to interact with us directly.

go straight to tv on your terminal. this is bloomberg. ♪

♪ david: this is what i'm watching. comcast, fox, and disney all fighting over sky. just before we came on the air we got word that comcast has made an official bid for the sky shares. it is a little bit obligated because fox owns 40% of sky and london. the rest is publicly traded. fox has made an offer for the other 60%, because they have -- but they have regulatory problems. comcast has now bid. pounds.bid $10 75 comcast has come in at 12.50 pounds ramy:. -- 10.75 pounds.

comcast has come in at 12.50 pounds. alix: how much would disney what fox without sky? david: we are going to find out. they certainly won't those assets, particularly the movie studio and things. they will he to bulk up for over the top. -- but donger eiger has said he really wants it. that is what disney said he wants. alix: interesting. coming up in the next hour, we talked to principal global ceo.tors' co -- investors' this is bloomberg. ♪ welcome to the xfinity store.

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alix: money poured into credit suisse. the ceo's job is not over. 3% fallout, dissecting the ripple effect from a stronger dollar to widening credit spreads. and caterpillar's high watermark morning, shaking equities. twitter beats. facebook on deck. david: welcome to bloomberg daybreak. i'm david westin we will find out if it is as good as it gets for boeing, twitter. did well,ral dynamic boeing crushed estimates as well, and so did caterpillar, after that morning. david: they did not get much credit for it. alix: the dow is off by triple digits, s&p by eight points. .3%, so pairing some of those losses.

yields at the highest level since 2011, meaning a stronger dollar. a three handle on the 10-year means a stronger dollar. crude surprising. mr. macron talking about the iranian deal and a new deal with president trump, stronger dollar, and you still have crude at $57. interesting that some commodities are hanging in there. david: you have a program on commodities tomorrow. alix: do you want to know everything about commodities for the week? david: at 10:30 this morning, we will hear from emmanuel macron again, addressing a joint session of congress. at 1:45, president trump will be meeting with tim cook for a closed-door meeting, probably about china and trade. and then this afternoon, facebook releases its 2018 first-quarter earnings. alix: the yield on the 10-year

the past 3%, and investors have been watching that for months. >> people are desperate for yield, even though the 10-year has broken past the 3% barrier, people are still searching for yield. the risks that people will not -- would not invest before, are now buying. >> the market slowly but surely is coming to the expectation as well. it is a measured, reasonable pace, and the reasoning is because of growth, it does not mean a debacle. >> we expect more volatility, stocks have become more sensitive to that. investors are expecting more from earnings. invested, when the liquidity crunch comes, you don't have the powder dry. >> i really think the big story here is something of a secular change in the rate environment.

i think investors are slowly waking up to this. financial conditions are simply tightening. alix: joining us now from iowa, as well as luke kawa. luke, you are the market reporter. what was the selloff in equities really about? >> in a sense, it seems to be the classic everything cyclical getting hit. , you seeok at a ratio a big move down. cyclicals are especially getting hit. derivative second inflection selloff. as soon as we hear high watermark for growth we go from peak growth to know growth, how equity market may have interpreted it. potential he a bad time ahead for cyclical stocks. industrials, tech. the 10-year does not break meaningfully above three.

alix: jim, what do you do? do you want to buy cash, tow the line? >> i think you are still buying the debt because i don't think growthseeing 2% to 3% going forward for the next year or two. i think you're still buying the dips, but doing so a little more tentatively than last year. the higher rate environment makes it more difficult for stocks to make progress. the higher rate environment, because it makes this earnings out in the future less valuable, plays against growth stocks. that is one of the main reasons why technology stocks were hit yesterday. those distant earnings are less valuable in a hiring environment. with: is it high rate respect to the environment or rather some powerful points about each one of those stocks?

they will keep investing. you have data questions about facebook. saying maybe we will not introduce as many iphones. a seems to be there is problem from each of the stocks apart from the interest being charged. >> i think the main problem with facebook, the hearings last week with mr. zuckerberg at congress, those set the feeling that congress is circulating at some point to do some pretty heavy regulating of social media, or even if you years out a breakup of facebook. at&t inhat deal of the 1984 feel about it. risk is that idiosyncratic but i don't think it's across the board. you should not have been to surprise on the commentary from apple yesterday. they are a whole ecosystem rather than one device. some of that news has been overplayed.

one of the reasons the market was so volatile yesterday was procyclical strategies in the equity market. a lot of investors are forced sellers on the dip and i think that is creating an efficiency that is exacerbating the volatility. technical inside the market, but there is also the fundamentals, which brings me to earnings. the white line is s&p estimates for this year, blue line next year, yellow, 2020. next year ron grover just a touch but still holding up ok this year. is this divergence started to get bigger and the market is worrying about? luke: that is the perfect chart to show. warned boeing not to say high watermark on the call.

a bespoke investing group put out one great note. one of the other hallmarks of this earnings season has been this ridiculous head fake, they report, they go up a half percent on average, but then when the move is done, the move from top to bottom is nearly a full percent. twitterseeing this in this morning. in terms of looking at the fundamentals, showing that they still remain solid -- capital one reported this morning, morgan stanley says credit trends look strong. in autos, i'll be looking to see if the u.s. consumer is holding up, how much of a hangover from the holiday season? david: coming back to earnings, is in the level of earnings or the slope of the curve? we have had a nice ramp up because of tax cuts.

we are not expecting another round of tax cuts next year. is the market being smart and saying, what have you done for me lately? jim: i think there is an element of that. even in slower growth, you can overplay the second derivative point. even in slower growth in earnings are making progress over the next two years, you will see a pretty solid undertone to the equity markets. albeit not the best of the cycle but it may be getting into the late innings of the recovery. but i do think, unless we see an acceleration of the next recession, unless we see that brought forward, we are still in a by the dip in u.s. equities. alix: what sectors have not yet priced in the earnings optimism? jim: i think they mostly have. if they have already priced in that earnings momentum, why would you buy the dip?

the first quarter earnings momentum, you buy the debt unless you see a recession to 24 in the next 18 months. that is what i don't see right now. i think there is maybe a 20% to 30% probability of that, which is why i'm more tentative buying than 6012 months ago. but the answer to that uncertainty is some diversification. international, real estate, high-quality bonds. a diversified portfolio is essential when you are getting toward the end of a recovery like this. david: luke kawa, thank you for being with us. jim mccaughan, stay with us. high yield maintains its cool even as treasury yields rise and equity markets get rattled. more on that next. this is bloomberg. ♪

taylor: this is bloomberg daybreak. in decade of pharmaceuticals has replaced limoneira agreement to buy shire for about $64 billion. if the deal closes, the company will have a foothold into one of the drug industry's most coveted sector. forda would gain a pipeline an assistant for rear diseases. murdoch must decide whether to raise his bid.

murdoch wants to sell a sky to disney as part of their $52 billion and ounce deal in december. trade tensions don't a few to have heard the largest exporter in the u.s. boeing posted first-quarter revenue and profits that were better than expected. the company also raised its forecast for the entire year. engine makers and other suppliers are struggling to keep pace with a record production tempo for the boeing 737. the 10-year treasury yield hitting 3% for the first time in four years. 3.03 was the high of the morning so far. what does it mean for other asset classes? some say it's a turning point and not just for fixed income. jump 200 ore rates 300 basis points in the course of 90 days, you are going to have a bit of panic among some investors. alix: joining me now is brad

rogoff, and still with us in jim mccaughan. brad, i want to start with you. the widening we saw in credit sense yesterday, does it continue? i will not go quite there but if you get fast moves, even if it is 25 to 50, you could see some widening in credit spreads. if you look over a longer time tighten credit spreads due to the economy. we are at extreme levels, so if you have a 200 basis point move, they cannot tighten. what is interesting, if you look at the bloomberg, looking at the s&p earnings yield versus junk bond yield, they are trading at the same level in some capacity. what does that wind up meeting if you are a high-yield holder? brad: the upside is in equities.

you cannot for yourself into thinking there is a lot of upside in high-yield at 6%. backrday brought us to closer to flat. slightlyear we had positive returns on a year, which look to good versus other equity assets. david: why are high-yield spreads soequity modest? we hear it again, how so much money is being led, increased spending worldwide, more risky loans being made. why aren't the spreads adjusting to that? a good point, david. the reason the spreads are not adjusting is there is not yet a sense that there is going to be systemic default in the market. it is true spreads in investment grade and high-yield are

relatively narrow compared with narrowistory but not compared with the likely losses and recoveries. if you look at the likely losses , they are fundamental value -- and their fundamental value in credit is still there. there are many investors that are not looking at the return over the next three months. then committing to credit at this point remains a positive idea for their businesses. i'm thinking of insurance companies and some of the banks. for them, credit remains a useful thing to have, even though relative to its history may be expensive. david: comment on the specifics of this. orks, $500 million, a junk category bond, by a company that is exciting and growing, but loses ever money every year.

it is also making long-term real estate investments with short-term revenue. why is that not reflected in the credit markets? brad: obviously, individual deals aside -- the yield of 5.8%. netflix losing a lot of money, to your point, but it has -- the highest market cap of any company. when you are a high-yield investor, you would say what is the leverage, what is my equity cushion? i think that helps get people comfortable with credit in general. to further jim's on why this is not getting reflected, maybe there is an argument that it should not be. when i look at the markets that ,e look at, high-yield, loans

those which are most prominent, high-yield, the leveraged trend is the best, i would say. leverage is generically a little bit below average than high-yield. interest coverage is good. we have had low rates for so long. when you look at the bloomberg barclays indices, the ccc portion of the market is the lowest it's been in a decade. alix: and they have been the outperform or. not as much out there to buy. alix: what about leveraged loans? issuance rising but the covenants is nonexistent. and there are more risky players, what you see for that? brad: four leveraged loans over the two to three-your time horizon, you are worried you are seeing leverage their for new issue amongst the highs, similar to the credit crisis.

for the short term, that as a class will perform well. alix: with a 2.5% 2-year? brad: you're to date, leveraged loans are close to 2%. that feels like a pretty good return. there are large term trends, though, that he have to worry about in loans. david: earlier, you were saying you don't see recession on the immediate horizon. as you look at the credit markets, what are the indicators you are looking at in terms of default that would start to give you pause? is if ratesst one and backed up 200 or 300 basis points, which i don't think they did, thatt if they would kill the housing sector debt and provoke a recession. i don't think the u.s. housing market could take much more than a 3.5% 10-year yield and continue functioning well. so there is a risk of recession impacts of. one of the reasons that is the case right now is something we

,alked about before on the show the deflationary impact of technology that makes the clearing rate of interest lower. if wed be quite alarmed saw a 4% 10-year yield. i think that would bring forward recession. you would have to see water credit spreads. your example of weworks was a good one. what it illustrates is you don't buy beta in high-yield. index funds in high-yield are a bad idea and have not done well against managed portfolios. this is a sector where active management has paid because it is not such a liquid sector as large-cap equities. the weworks example you give is a good example of why you have to be active in your selection. rogoff.hank you, brad jim mccaughan will be staying with us. up, tech earnings. twitter beat across the board

and facebook will be on with their results after the bell today. we will speak when dan morgan of sino this trust. this is bloomberg. ♪ his is bloomberg. ♪

with earnings at this morning with first-quarter revenue and earnings per share beating estimates. also coming in stronger was monthly active users. joining us from atlanta is dan morgan of synovus trust. twitter and facebook are names that he owns. give us your take on the twitter numbers. we went over them when they came out. how did you react? .an: obviously, good numbers a lot of good things happening at twitter right now with regard to things they are doing to

increase their monthly average user. that was stagnant growth for about a year. -- projection going into 2018 is 243 million. they have to get that growth back and also have to do some things with advertisers in terms of educating them with new tools, lowering costs in terms of adding units, just trying to increase the overall usage of video. sounds to me like twitter is time to get back on track in terms of growth. they were stagnant a year ago, stuck in a hole. david: have they added of units without cluttering the stream? dan: i think they have a lot of room to go in terms of adding new users. the other thing that is important is engagement time. averaging about 15 minutes. facebook, itt averages about one hour in terms of engagement time.

some things with sports events, things were people will spend more time on twitter, rather than checking something and getting off. that is a big part of their equation in regaining the growth momentum. david: talk about facebook. what are you looking for? dan: it will be interesting, the first time we get to hear from them, other than congressional testimony, all the negative news flying around. to this quartern is any change is about the amount of time people are using it, announcements with regard to advertisers dropping out. i think the only company of note that has come out is pep boys. then how are we go along with new subscriber growth? is it coming from the u.s., domestically, or asia-pacific, where we have a 6-1 ratio of growth in terms of new subscribers? alix: we had significant

weakness in facebook the last few weeks. do you buy the dip? dan: it is a little early. we own facebook, it has been on our buy list for a long time. you have some more negative headline news coming out, whether it is a push for regulation -- you have covered this, so we don't need to go into the details. you still have the black cloud over the stock. i'm still optimistic they will come in with a good quarter. the stock is cheap when you look at valuations. do you wait another quarter to wait for this cloud to pull away? alix: not there yet. thank you, dan morgan. this is bloomberg. ♪

alix: this is "bloomberg daybreak." i'm alix steel. a bit of a turnaround in the markets for u.s. equities. the dow jones into positive territory by 23 points. .&p futures paring losses

same story in europe. the dac still off by one present but off the lows of the session. ubs saying the market misinterpreted caterpillar's high water mark comment, saying it was not bearish, we are not at the peak of the cycle, perhaps the first quarter will be the strongest of earnings in 2018. in other asset classes, more strength in equity markets. you have the selloff in the bond market continuing. the 10-year on now at 3.03. we get a supply coming on in the fog i got later today. to taket for the market down the 2-year auction yesterday. euro on offer, dollar stronger against all g10 currencies, getting a boost from higher yields in the u.s. crude still holding in but around the lows of the session. david: to get a sense of what is

happening outside the business world, we go to taylor riggs. taylor: it is a showdown over the limits of a president's power to control can enter the u.s. the supreme court hears arguments today on president trump travel ban. a latest version restrict entry by people from seven countries come up five of them are dominantly muslim. critics say the policy is driven by anti-muslim bias. choice to head's the veteran affairs department is not giving up. according to people familiar with the matter, white house position ronny jackson plans to seek senate confirmation despite allegations of improper behavior and management. president trump says he suggested to jackson that he withdraw. president emmanuel macron goes to capitol hill today. he will likely tell congress climate change cooperation between the u.s. and france is taking place on some level even though president trump pulled out of the international treaty. global news 24 hours a day

powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. david: the credit suisse ceo says he is pleased with how his bank is performing, saying that is pivot to wealth management is paying off and added that management. earlier he sat down with francine lacqua. >> we took credit suisse as it was, we said this is the part that we love and we want to grow . this is the part that we don't want. it.aid we would get rid of that is what we have done. what is left is the credit suisse that we love. we will continue to drive forward the credit suisse that we want to have. >> what does that mean? increased jobs? >> the wealth management

machine has given us a lot of growth. i have said in the past, i am a person who grows business. end, humanin the organizations need growth to thrive, like oxygen. i hope that we can create jobs over time and become much more profitable and successful than we are now and really serve our customers while. >> grow all of your units, will they be equal? we have been able to grow in switzerland. we have market performance in switzerland, we beat everybody else. growth is very significant. iwm, same thing. 45% profit year-over-year. the opportunities connected to

those businesses to grow are huge. absolutely we hope to grow pti. >> do you see bank consolidating in certain parts of the world were maybe there is over banking? >> that is always a tough question. i think in segments of the market there is overcapacity. nothould be eliminated experiments in banking take a long time. consolidation is hard to see. reasons,orts of regulatory, memories from the last financial crisis, people's notions thinking that big is bad. >> even in europe, you don't think that is changing? >> i see signs of the changing but the complexities, regulatory and political, sociological of any cross-border transaction today, benefits.

for us, we are happy, we have plenty of organic growth and continued to keep driving it. alix: that was francine lacqua speaking with tidjane thiam. here in the u.s. still with us is jim mccaughan. he favors u.s. over european equities. i wonder if this is part of why? the surprise is economic index for the eurozone, the white line is euro-dollar. have we factor this into the market yet? i don't think entirely. there will be a stronger tone to the dollar because of a differential in interest rates. you will not see much of a move on interest rates by the ecb. they are not ready to get away from the very accommodative monetary policy. is partency therefore

of this. i don't totally trust the european recovery for two reasons. one is the european banks which are not well enough capitalized to create credit, like the u.s. banks can. wasought tidjane thiam pretty impressive in that interview. he was taking credit suisse back to its roots. they can be one of the world's best world -- wealth managers. basically the subtext was they will stop trying to be goldman sachs. i think that is a wise thing to do culturally but nevertheless european banks will suffer from a lack of ability to create credit. .he other issue is politics the italian election to me was as much a negative to me this year as the french election was a positive last year. david: when you talk about credit creation, to what extent does europe continue to rely on banks for credit going to corporations as opposed to capital markets? in the u.s. we have deeper capital markets.

is that catching up in europe? jim: it is catching up, david, but is a bit slow. you see this in example in real estate debt. coverage, the of pricing of the debt in the u.s. is much keener, more competition among the nonbank lenders than in europe. kind of slows down the economy there is not a free flow of nonbank credit. europe is building its capital markets but brexit does not make that easier because the wholesale center is london. i think there are various impediments that are slowing down credit creation in europe, which is one of the reasons why i'm a bit on a sell for european equities whereas i am a buy the dip on the u.s. the u.s. is a bit more precarious in terms of what happened next for the economy. alix: when we talk about the fallout from 3% yields in the u.s., my question about how it

river rates -- remember rates through europe. in ratesee the change of bonds. 61 basis points so far this year. the white line is the german bund, 21 basis points, oat, the french, only seven basis points. can that decoupling continue, how will that affect your view of other asset classes? jim: i think it can continue. becausekely to continue we have a more sustainable recovery here in the united states. though, whicht, is in the u.s. 10-year the yield gets into the high 3's, that is when it will act as a drug of the economy and bring forward and eventual recession. that is my main fear about higher rates. is both ahink that symptom and a cause of the fact that u.s. markets should be a little bit more healthy.

the other thing i would say is rising rates in the u.s. -- the world's cost of capital is the u.s. 10-year yield. when you talk to people in emerging markets, even in china, they get quite apprehensive about the tightening of financial conditions in the dollar. that is a bit of a break on the growth in other countries because dollar financing is still quite a big deal for them. mccaughan, thank you for giving us so much of your time today. coming up, amazon's move into health care. our amazonhree of primer week ahead of earnings. how it is reshaping health care. today, listene in jonathan ferro and tom keene. bloomberg radio can be heard all across the u.s. on sirius xm radio. live from new york, this is this is bloomberg. ♪

up in the next hour, julie menu will, ctig chief equity and derivative strategist. david: general electric is holding its annual shareholder meeting today. it has come under pressure to fire its auditor at kpmg after over a century. brooks sutherland joins us now from the shareholder meeting in pennsylvania.

we talk about ge a lot, has not been very good news. are they expecting some good news today? if we will get a lot of news but we will get a chance to see how shareholders feel. the big thing to watch is what will happen with the auditor kpmg. it was recommended that ge fire kpmg and get a different auditor. it will be interesting to see how shall her north vote on that. the other big proposal is whether ge should consider having an independent chairman. right now john flannery is also chairman of the board. some think it may not hurt to have a fresh set of eyes in their especially with the problems we have seen ng over the past several. it is understandable they can question the auditor because they keep getting their books wrong and revising it. it turns out kpmg is not only also wellsfor ge but fargo.

is there a problem with kpmg here? there is an open question. kpmg has had some legal issues of its own in the past, in terms of the interaction with companies in audits. ge has worked with kpmg for a very long time, so there is a legacy relationship there. like i said, it may be time for some fresh eyes on the books, especially after the charge to ge capital, a $15 billion reserve shortfall. that should raise a lot of eyebrows and bank some serious questions about how much due diligence was done about what was on the books, how much of a deep dive did they do here? david: thank you, brooks sutherland. we will be checking in later on today to see what happens with ge. it is day three of our amazon primer week, our series looking into the e-commerce giants businesses. today we focus on their moving to health care. jeff bezos alluded to their a vanityre plans at

fair summit in san francisco. >> i think health care will be one of those industries that is elevated and made better by machine learning and artificial intelligence. i think echo and alexa have a role to play in that. we have people at amazon thinking about that but it we going to party say that we have worked out a vision. but we are working on having a vision in that arena because i do think it would be very helpful. it can be hopeful in a lot of ways, including in the home, or things like medication compliance, things like that. saying theybezos have a vision that we are not sure what it will be. we are putting on what we do know, which is limited. potential to disrupt a three chilean dollar sector. they have shelved plans to sell prescription drugs to hospitals. the big news, partnering with

j.p. morgan and berkshire hathaway. there were reports that they were about to name a ceo in the next 60 days. iny launched basic airline 2016. with us now is catherine baker as well as nirad jain. let's go out to chicago. you really understand the cost structure for health care. does amazon have the potential to bend the cost of health care industry? harness thee to data that amazon has on its employees and health care use offers the opportunity to tailor health insurance benefits to patients health needs and to steer patients to the right side of care and where you go to get your care matters a lot for how much you pay for it. how they will realize that potential is up in the air. if you look at what they did for whole foods prices, bloomberg track 25 prices in an

austin store. $113 pre-acquisition, now $102. and they were to pen the cost curve similarly, how would they do that? >> first of all, it is not a surprise that they want to bend the cost curve. is profit pool in the u.s. $400 billion. if you think about from the customer experience perspective, anyone who has consumed health care will say that there are opportunities to improve that experience. amazon's idea of applying the a largeywheel, provide selection of products and services, bring the cost down as you get scale, and then bring customer service. you can see that apply within health care. what i will say is health care is a complicated space. jeff bezos is commenting on that as well in the clip that you showed from 2016. jpmorgan, berkshire

announcement can hold a lot of promise. the biggest asset they have there is they have a million combined employees. three quarters of those are u.s. employees. that is a loyal base that may be tolerant of experimentation on how they are covered, services they are provided. point,kathryn's delivering services in a more efficient way. we will have to see how this plays out. will takeld say is it longer than many people realize to really been the cost curve. david: when we talk about inefficiencies, money is coming out of somebody's pocket. amazon went into retailing, it came out of a lot of brick-and-mortar stores. if this works and there is substantial inefficiencies in the health care system, whose pockets without becoming out of? >> a great point that a lot of people think of the health care sector as a major jobs engine and think any reform that reduces the number of people

employed is a bad thing but i don't think that's the right way to think about it. if we want our system to basis -- to be financially sustainable, you needed to be delivered as low-cost as possible to get as much help as you can for every dollar you spend. that may mean fewer people employed in the health care sector and they would need to be gainfully employed in a sector providing higher value. it also means a different mix of people employed in the health care sector. things that could be delivered by nurse practitioners instead of doctors. things delivered by generalists instead of specialists. if we can get patients to high-quality care that cost less him a that is good for everyone, except for the people that need to be retrained in other professions. alix: drilling down into one area of disruption, a.i. we are showing cost-saving opportunities using ai by 2026 and the most reduction we see is in robot assisted surgery. if amazon plays a part in ai,

how do they do that? will that be through a partnership with an i.t. company, partnering with a hospital, dealing solely with drug distribution? think the answer is yes, yes, yes and we don't know what order it will come in. alix: what order should it come in? >> we are in a very developed and mature health care ecosystem. that means change is difficult here. but you can go to emerging markets, look at what alibaba and tencent are doing there. they are supporting payments to providers. there is experimentation being done by alibaba on how to make diagnostics more efficient. -- i't know where it will don't know where it will happen. amazon does not know. it will require a lot of experimentation across the value chain. the things that are simpler will obviously come first. it doesn't have to be advanced

applications of ai, it can be simple things on the patient experience that our embrace on the front line before more complicated things like robotic surgery on the backend. david: catherine, you have spent your career studying health care. we are at 70% gdp devoted to health care in this country, in success, whether next year or 10 years from now, what with that number be? successld not measure based on what share of gdp we spend on health care, i would measure it on whether we are getting value out of the system. how much health are we getting out of every dollar spent and is there something better we could be doing with that money? upthere is a system to line the patient incentive, provider payments to promote quality instead of quantity, that would change what we spend on health care. i don't have a strong view about whether that would be higher or lower. we all hope that it would be lower, but if it were higher

because we were living at 50 years with a healthy life, that would be a pretty good way to spend the money. i would focus on the value we are getting rather than a share of gdp it ends up being. david: to push you a little bit -- don't take the percentage of .dp if you take our results, longevity, quality of life, they are substantially below any other developed country even though we have a higher percentage. so where would we rank in the world in quality of life? >> that is a great way of looking at it here we are not getting a lot of our system when you look at how much we spend compared to how long we live and the disease burden, we could clearly do a lot better. we ought to be ranking at the top of the world live in a technology developed in the u.s., the resources available to us. there is no reason we should not be topping all those charts in longevity, infant mortality, maternal mortality, lowering disease burden. that would be our marker of success. alix: great to see you both.

thank you. coming up, i am taking a look at all things earnings and s&p forwarde revision earnings. general dynamic rolling over. you can also check us out on the bloomberg terminal. interact with us directly. go to tv on your terminal. this is bloomberg. ♪

alix: here's what i'm watching. earnings, per usual. single-handedly helping the dow flip into positive territory this morning. was down 128 points. boeing up by 1%. other industrial companies, goodyear, northrop grumman also doing well on earnings. general dynamics now rolling over in the premarket. so who will end up winning? are we in a situation like

caterpillar where you get some good results and then you have the conference call waiting on equities. david: it is clear investors are looking closely at these reports. they are really looking for problems. alix: a different problem for caterpillar. just,gh water mark was the first quarter earnings just may be the best we will see in 2018 does that mean we should be rolling over. a different interpretation. will the markets by it? david: two years ago, caterpillar saying that we would not keep on having them. alix: jim care discussing 3% yields and julian emmanuelle, his take on earnings beat and mrs.. that wraps it up for "bloomberg daybreak." this is bloomberg. ♪

>> i'm jonathan ferro, 30 minutes until the start of the -- the countdown to the open.

jonathan: coming up, positive company earnings collide with pessimism about what comes next. investors asking, is this as good as it gets? -- helping to fuel a bid into the dollar and projecting uncertainty into emerging markets. president macron pushing the limits of diplomacy in a last ditch effort to -- the iran nuclear deal. futures off the low, still negative. -- everythingis in g10 once again, the euro-dollar moving along 4/10 of 1%. in the treasury market, they start to bleed again appeared yield up .2 points. the equity market stops operating at a lukewarm -- wall street begins to wonder about the econom