days on the tariffs on steel and aluminum. that house of health care. turning to medicine today as pfizer reported earnings higher than expected. the fed and the economy. days and inflation trending up. secretary treasury mnuchin says there is no reason to worry. ."lcome to "bloomberg daybreak it is labor day. i am at work hard glad to be here. ftse 100 up. nasdaq futures down. .hey have recovered a little the dollar continuing , since january.

british pound losing dollar -- value against the dollar after u.k. manufacturing data. david: we are joined by michael mckee and rachel evans. michael, i was going to start with the delay of tariff and -- on steel and aluminum. he has just tweeted that the delegation is headed to china for the talks. very much like north korea, this should have been fixed before and not now. great potential for usa. this is given steve mnuchin a wind in his stills. michael: a little pat on the back. most at -- experts think they want get a deal on this talk. impose theposed to

sanctions in may that he initially threatened. the chinese may be willing to buy more products but have said they want negotiate a specific number in the trade deficit. they have said they will not back off from the made in china plan that they would have global leadership in the future. it is not clear what the parameters are. this came across late, but you can made between now. lisa: so far a hard line has been taken from china. what do you make of the hardline and what is your optimism that there will be something accomplished? michael: they are now in a position to challenge the united states. xi jinping has the political power and the chinese feel the economy is in good shape that

they don't have to give in. they are saying will follow wto rules. and the european union is also are going the u.s. is not following the wto rules. they think they can win on that basis. david: it says you also cannot impose quotas and the u.s. is doing like a quota. we put up a map of moment ago about the countries in europe most affected by steel. germany is number one. what is the significance of putting this off. is there something more strategic? rachel: it is interesting to look at the countries they have deals with. not had any details about what that will entail. framework forde a

you, with bigger boys, canada, mexico. that is where you want to see deals and concessions and a coming together. we have not gotten any sign that that will come through. we've had negotiations with nafta it in canada and mexico. there is a big incentive that has come to a deal with the u.s. will be looking at the details of the deals in theory and see if there is an inkling of what that might entail for everybody else. the other thing people are watching is earnings. we have gotten earnings out this morning. market shares up. pfizer is down. this is a fascinating to me because pfizer be on most measures -- beat on most measures. as a result, people sold shares. we have seen this throughout the season.

there was a small miss on the revenue side but be on the profit -- beat on the profit. are is what responders responding to. what has been the broad sentiment with respect to earnings, not with respect to the backward look but the forward look. if you look at how we are doing this year, it is a best earning season we have ever had. we have no conviction when it comes into the stock market that this will continue. back in february, that was volatility and there was a big question mark. the fundamentals are there, but we are not seeing that translate to the stock market. the key will be listening to the earnings quarter. theirhas been putting

eggs in one basket. it will be interesting to see if they diversified or buckle down and push forward. with pfizer, they have m&a potential. they have a lot of money they are trying to put to work in buying other businesses. david: wildcard for merck and pfizer. president trump said they are going to make a statement. the better that somebody pharmaceuticals do, the better they have a target on their back. david: apple earnings are out. everyone focused on the iphone x. people think it might be disappointing. lisa: with a sony coming out and showing smartphone demand. not sold a lote of iphone x's according to the information people are getting.

the question is -- how do they jazz it up going forward? we talk a lot about tech earnings, but if you look at hardware earners, they have lagged and the software earners have also. it'll be interesting to see if the stock prices get up. the expectation is they will announce a larger than usual dividend or stock buyback. is the fed lagging? the fomc is starting meetings. the political branch normally stays out of it. but yesterday the secretary treasury said that i'm not worried about tightening of the job market. is that a subtle message? michael: they have been arguing to bring more people into the labor market and the tax cut the that. the fed is not sure. they expect inflation to rise,

the question is how fast? that is what people will be looking for in the statement. they have to change their assessment of inflation because it is now at the 2% level they have been targeting. they are saying it could go beyond that and that justifies the rate increase. are increasinge bets that there are going to be for hikes this year. it has been creeping higher. the average is now 3.2 rate hikes if there could be such a thing. thatl, one other thing secretary treasury mnuchin said is that he is not concerned about treasury issuance we have seen with a record in the first quarter. do traders agree? and also that some i -- supply and demand our meeting. rachel: there's a great question.

i recommend everybody check out an article about the treasury and the bond markets. if you look at the rates of return on treasury, you have been seeing treasury slipping as far back as 2014. when you have supply coming into the market as well, as a traitor, you have to look at how it is going to look things at this point. i think the answer is good. david: michael mckee and rachel adams thank you for being with us. coming up, bp trading at its highest after beating first-quarter results. we will dig deep into the cash flow and the health of the second or overall with heaven pulled from invesco. live from new york, this is bloomberg. ♪

-- with kevin holt from invesco.

♪ lisa: this is "bloomberg this is -- kailey: bloomberg de." k alex gets 90% from aircraft parts. says he willrman serve another year. he has been there for three years. he indicated berkeley shareholders that a search for a successor is underway. who said the light at the end of the tunnel gets brighter. fund firm aat hedge bridge capital.

it is dropping plans to be a child by a china group. they figured getting u.s. approval would take too long. anthonyridge co-founder scaramucci is returning. he spent 10 days as white house communications director. that is "bloomberg business flash." bp shares trading at the highest price since 2010 after the company beat estimates in quarter results. cash flow was lower because of payments related to the spill in told bloomberg news they are through the worst of it now. >> that cash goes out and we reached the peak of quarterly payments and that is why the debt rose. you will start to see that come down as the year progresses quarter on quarter.

david: we welcome tracie mcmillion. from houston is kevin holt, portfolionior manager. sector, werethe you pleased with the announcement. kevin: it was exactly what we wanted. production growth was up 5% for the first quarter. bp starting to ramp the new products. week, was although good because they were more frontloaded. free cash flow should improve as we move throughout the year and cash flow realizations were very strong.

bp was theentiated downstream business very robust with good differentials. very impressive quarter. get a sense of how much good news has been priced in to the energy sector. it was the only sector that increased expected earnings over the year and into next year of among major industrials in the s&p 500. they're the best performing group since earnings began. how much further can this rally go and do still see opportunity in the sector? kevin: i am a deep value investor. i am a student of history. there have been major energy cycles over the last 80 years. these are very cyclical businesses. people have a habit of looking at current earnings, but when you study past cycles, the relative price cells at about a

50% discount with a due to the s&p 500. i would argue the earnings power will be understated for these companies and that their typical return on capital is 7% or 8% is dictating they will have another 30% to 40% over the next couple of years, and those stocks, given that they are returns and cash flow, is something that will be very attractive to shareholders moving forward and what can be a tough environment. david: historically, it has not been as attractive as the tens to be apattern -- tends pattern. are you concerned as an investor? would you rather have them have new development or returning more to shareholders? kevin: we are in an interesting

time. history would say you want companies returning cast touche -- cash to shareholders. think with the per liberation of electric vehicles, that raises another question -- proliferation of electric vehicles, that raises another question. -- cash their dividends and buybacks is important. butcan grow production, don't have to do it the way companies were years ago. they were losing money. david: is this another broader discussion? both befizer and merck on earnings this morning. larger pattern here that i am curious about. areanies overwhelmingly beating on top line and earnings and they are not getting a lot of credit. look at this chart.

72% of sales and 82% be on sales. 1/10 of a percent good why is that? tracie: we are seeing the bottom line important this burning season. the top line seems more important. -- earning season. the top line seems more important. it is a little confusing that we are not seeing more increase in stock market pricing given the very strong earnings. that tells us that markets were anticipating a strong earnings season. they are looking forward and is saying -- is earnings level continue? i think what people are thinking is that this is peak earnings growth. that does not mean earnings , butt continue to rise this growth rate is strong and we are extrapolating out a couple of quarters and what

happens in a couple of quarters? -- dokevin, do you degree you agree and are you getting i think theevin: question with the pharmaceuticals is that there has been a lot of talk about pricing. the one thing we will continue competition.e the pharmaceutical companies are good at cutting costs, but you have to beat out revenue. that is what you saw with pfizer, they did not be on revenue. headwind inot of the industry. if you are buying pharmaceuticals, you are buying for low growth and dividends. when we get into a cyclical upturn, we're talking about financial stocks doing well as the economy grows. i think from a singles gets right in a tough spot

now. they are more defensive and i am not sure people are looking for defensive topline concerns. of invesco andt tracie mcmillion of invesco. -- are sticking with us -- we take a look at investments next. this is bloomberg. ♪

♪ fortocks in a bull market the last nine years and approaching the longest ever bowl market on record. with the return of volatility, new risks have emerged. we sat down at a conference in los angeles for their take on the stock market. >> we are down the road in the cycle and there are certainly places where people are further along the greed it there -- sector.

there is no question people have been reaching for yield. in terms of sustainability, it has run out and has been remarkable it lasted this long. in market ran out of steam february. >> it is a time to be cognitive of the fat that we have had -- fact that we have had a cycle that has run and the economy is changing. >> growth feels correlated at the moment. there are certainly things that could be disrupted. i think people need to be nimble , but you have to participate as an investor. lisa: running out of steam and excessive risk taking. still with us is tracie mcmillion with wells fargo. do you agree that the current bull market is running out of steam and when do we know it is

over? if we make it all the way to august without a 20% correction, this will be the longest bull market ever. they don't die of old age necessarily, but there are things that tie in with the end of the market. six bear market, five of them were accompanied by a recession. we have our eyes on those things that tell us a recession might be in the works. we are looking for credit widening out. we have not seen that yet here we are cautious in the bond markets because we think that could happen. we are looking for interest rates to rise and flatten the curve and potentially invert the curve. that is a classic signal for a recession. lisa: a lot of people are saying it is time to be cautious. tracie: we are actually not

cautious on equity. do you just basically put your foot on the gas and go as long as you possibly can until you see the whites of the eyes of recession? looking for we are is classic signals that a recession might be in the works. then we will pull back. we are not seeing those yet. we are still targeting equities and advising investors to stand out on equity. years. are up 14% three when you're out there up 24%. david: this is from her note. where are you, late? tracie: we are moving from mid to late. this cycle will be different than most typical cycles because we think cyclical's will outperform. we think health care is actually and interesting place to be.

financials, which are typically early. lisa: i am blown away. a lot of people are saying they are going to keep going and there is a question of how quickly the market can turn. tracie: the one time when there was not a recession associated with the bear market was 1987, and that certainly was a quick downturn but a quick recovery. david: thank you very much tracie mcmillion from wells fargo. she will stay with us. coming up, steven mnuchin heads to china. more on what he is expecting when he gets there. live from new york, this is bloomberg. ♪

♪ lisa: this is "bloomberg daybreak." alix steel is off today. the tone across the board, firm. green across the screen ahead of the u.s. open. europe a little into the green.

let's look at the boards and get a sense of what is going on across markets. 10-year yield down. weakening.u.s. euro we extract the strengthening -- expect the strengthening dollar. david: i like that a lot. lisa: i tried. what: let's get a look at is happening. kailey leinz is here with "first word news." hardline --orary retreat from president trump's hardline tariffs. he's trying to work out deals. the administration says agreement in principle have been argentina, and brazil. benjamin netanyahu said it lied

about iran's -- said it ran it lied about its -- said iran lied about its nuclear program. manufacturing in the u.k. slowed up more than expected in april to a 17 month low. the british economies poor performance could persist in figures raising speculation that the bank of england rate hike is more unlikely. 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 kailey leinz. this is bloomberg. david: steve mnuchin is heading to china this week to discuss trade. he spoke with the bloomberg executive editor about the team wants to calm push. >> i am looking forward to very

frank discussions on trade issues and to continue the discussions and see if we can reach a solution. the good news is that president trump and has been talking about trade. beendent xi jinping has talking about a relationship. the presidents both have a good relationship. i'm going over with a large economic team to see what i could get. was the chinese and i listened to the senior described , what are the different things coming out? >> larry kudlow and secretary ross. >> should i be listening to you the a conversations our peter navarro? >> you should be listening to all of us. i would say we have a trick it -- terrific economic team.

we meet daily and with the president regularly. it is good to have a diverse opinion. we go, will have one voice. >> what we happen when you come back? >> you will know when you see it. on the upcoming trade talks in china and negotiations over nafta and steel tariffs, we welcome antonio, the senior vice president at albright. he spent eight years as head of economic affairs. and tracie mcmillion is still with us. into whatme insight is likely to happen with the delegation happening. well the chinese be welcome here? antonio: they can be formally welcoming, but i don't know if there is a potential mismatch of

expectations. the u.s. is doubling down on trade balance issues. those things can get out of control with unintended consequences. i am concerned that so far it has been all bark and no bite. we are not out of the woods. said yesterday, it was that this impression the president trump has given office part of the reason why beijing is taking a harder line at this point because they realize they can push more and get something. is that your take? easy to it will not be reach a mutually satisfactory agreement. i am concerned there might be too much of an expectation on the u.s. side. this could be very complicated. it could generate uncertainty for global trade.

this is not just a bilateral issue. david: you have been involved in trade negotiations are due china and the u.s. a great about what is on the table? there is a report in the new york times that says china doesn't want to talk about two major things. antonio: this is a, located negotiation. i would say that as some markets for add markets are already markets are ag already reflecting this. it can affect markets even though there is no agreement or tit-for-tat. pick up on that. my understanding is that companies have to pay the tariffs even though they are delaying a decision. they have to pay it and then hoping the u.s. government will pay them back. is that correct?

antonio: that is the usual procedure when they started trade investigation, but not all countries will favor caving, and that is the word i come up with. domestic politics and so do a lot of other countries. lisa: everybody here talks about trade wars are bad, except for president trump says we can win one. is the threat of a possible trade war priced in, or would something more substantial calls a germanic impact in the markets? tracie: trade wars are bad for everyone because they raise prices. that is definitely not a good theme going into the meetings. thing that is really interesting is we think some of

the uncertainty priced into negotiationsd falter or should this turn into more of a war rather than a skirmish, then certainly we would see downside in market. david: antonio, we still have nafta. we were hoping to get that resolved before the secretary left for beijing. where does that stand at this point? david, i would say there are two considerations. first, the u.s. wants to wrap up fairly soon and it is not showing as much flexibility as it needs to show to wrap up soon . i see two solutions -- either the u.s. is more taxable and it willrap up soon, or talks take much longer than the u.s. wants them to take on. david: what is at stake for u.s. companies here? thatll put up a chart

shows the deficit with mexico is far greater and it is with canada. u.s.is at stake for companies and the supply chains? economy.e are a global it could certainly hurts our national companies more than doller cap companies that more domestic work. one interesting thing about trade tariffs is there are 8500 trade tariffs on goods and services coming into the united states. some are much larger than what we are talking about. for tobacco, 350% tariff there. companies are used to dealing with it, but if it starts to broaden into interest years where we have such a global impact from supply chains where things could get dicier. complicatedio, how

is it for the united states to take on traditional allies, whereas where'd it -- where it is canada and where sometimes things could be described as a rival? i would say the basic challenge for the u.s. is china. i might say other companies like mexico including unfair trade actresses and the european union. for the u.s., the main thing should be to foster closer cooperation with allies, europe, canada, and mexico to deal with china and not skirmish with allies. whetherhave to wonder we are kicking ourselves in the foot by alienating allies while trying to negotiating with china. should we have done that as opposed to the other way around? lisa: if there is a greater export system to the rest of the world, this is something people

have raised that we have an issue with respect to canals, ridges and tunnels. you see that as a threat? of the certainly, one things the president has put forth in the plan is to improve our infrastructure. that is part of the process. we would have to build more infrastructure and more factories. we are just not equipped because we have relied on the rest of the world to apply -- to supply that chain. and aluminum tariffs extended to june 1 by the president yesterday. is it europe unified in the approach at this point? you hear different things coming from a germany who is talking about free trade. they have the most at stake. yet seen that in nafta and also with france. are we seeing some cracks in the european countries in response to european trade -- u.s. trade?

the end of the day, the eu will show a single decision. we know they are steadfastly exposed to voluntary restraints that have nothing about voluntary components. i expect the european union to present a united front negotiating with the u.s.. much: thank you so very and the same to tracie mcmillion from wells fargo. thank you to both of you for being here. coming up, anthony scaramucci returns to sky bridge. next.n sky bridge "bloomberg surveillance" can be heard in new york, boston, the bay area, washington, d.c., and all across the united states on sirius xm radio. live from new york, this is bloomberg. ♪

♪ >> this is "bloomberg daybreak." i'm kailey leinz. in the next hour, automation ceo. ♪ now to "bloomberg business flash." shares of under armour rising

today. another step toward regaining investor confidence after a two-year slump. the stock is way off its all-time high in 2015. this marks the second three attractedompany has investors. a federal judge announces whether he will approve at&t's takeover of time warner. lawyers have made their final arguments in washington. a lawyer says the deal will lead to consumers picking up the bill. an attorney says the government failed to make its case. starbucks goes before california's highest court today to fight a worker over tiny amounts of unpaid labor. extraanded to be pay for time it takes them to turn off lights and lock up at night. toobucks thinks the time is small to consider it. there is your "bloomberg business flash." lisa: three things wall street

is talking about this morning. skybridge to nowhere. dropped plans to acquire skybridge over government concerns. morgan stanley boosts pay while goldman sees one equity go from 500 to three. will bargain. what are the best quarters in years after discounting. , who wouldounting think. when you talk about here on a deal, there has been hear from beginning. lisa: he being anthony scaramucci. beginning. dennis: he has been talking for a long time. is, was hequestion

not as invested in the deal? or the influence he could bring them. i think it would've looked at something like this anyway because they are tough on any chinese deal. this probably would have gotten a review. were hna going to pay a higher multiple than previously? what would they be getting in exchange. what was interesting is anthony scaramucci going back here there is a question of whether his whole escapade in hurt his house reputation. it raises questions on that front. david: they were keeping the management team together. the face of it. he is terrific at it. lisa: yes, he is.

david: we are talking about his tax situation. when he went in, you did a tax break. it was not clear he was there long enough to get it. there is a question of whether they want to be involved. whatever comes in next, the price is hard-pressed. 20% to 25%rice is higher at morgan stanley for junior traders. morgan stanley trying to entice junior bankers to come and stay by offering more perks. this highlights the changing face of wall street. there is an increasing number of people in themore workforce and shifting more to engineers and competing with silicon valley.

is that what we are seeing here? is that what we are seeing here? add: it is fast -- ed: it is fascinating about how they recruit and a tract young talent . it is not just about money these days it we need to give them play rooms and more time off. what money talks. morgan stanley is recognizing that if it wants to keep its keep them from going elsewhere, they have to pay them more. that is what they are doing. they are bumping up pay to 25% increases in hopes they will stay. others did this with pay raises and they branded themselves. lisa: i will say they work hard. goldman sachs -- we should get into what we have heard. he said "equity trading 15 to 20

years ago had 500 people making markets and stocks. today we have three." is this the death as we know it r transformation? ed: we are seeing this in our own industry. it is not necessarily the death. the information is what is important. it is far less important than having capital. it is being able to access information faster than the next person. the fact that they're using more robots is not surprising. perhaps the shift from 500 to three is a sign. david: it will be interesting how the recruiting gets done. lisa: goldman sachs has said they are recruiting from other schools other than the top business schools and ivy league schools. people,hen you talk to

you say, yes, other people like consumer facing as well as computer people will pay more for them and we will have more. it may be a shift. and banks the firms have an ecosystem. people leave, but they go look inplaces that bring business. a lot of them are loyal to the firms when they started careers. when you're financing your first deal, you'll go back to your first place. david: that is what mckinsey has done. a huge luxury tower in new york. over $100 million. there's a story in the "bloomberg markets about discounting and selling out because they need to discount to

sell out. ed: there is a lot being built. you see that depreciate every year. new buildings come in every year. they have had their best quarter on record. david: there was one for $73 million. lisa: i wonder how much it is overseas or domestic. david: a lot of those apartments are not occupied. lisa: i could occupy them. david: many thanks to add for -- ed for being with us. watching,at i am

next. if you have a bloomberg terminal, check out tv . live from new york, this is bloomberg. ♪

♪ david: i am one to surprise you. i'm talking about whatsapp. you may not know what that is. lisa: pay. david: a ton of money -- lisa: hey. david: a ton of money was made by selling it. but there has been talk of privacy of data and encryption. i do not know if it is true, but this is not good news for facebook. lisa: he earned $10.4 billion for being there and it is not the news for facebook. i am wondering what is exactly

going on behind the scenes. we have not seen high-profile turmoil from facebook at a long time. about theirestions forward-looking model, especially european guidelines about privacy that kick up. david: if you are a senior executive who watch mark zuckerberg in front of congress, you don't want to be that guy. lisa: we have a story that his. bash his stock -- his stock might bust. i'm not worried. david: coming up, mike jackson. we'll talk about the state of auto loans. live from new york, this is bloomberg. ♪ mr. elliot, what's your wifi password?

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>> who that fact. trump gives canada and mexico 30 more days. but is he putting off the inevitable? earnings day turns to medical day as pfizer produces results better than expected. -- and the fed and the economy. the fomc begins two days of commentary today. secretary mnuchin says there is no need to worry about a type jobs market. lisadavid westin with abramowicz. alix steel is off today. shifted toneave a a little bit with nasdaq dipping into the red. markets in europe are

closed today with the british pound weakening after disappointing u.k. menu that certain data. david: at 10:00 this morning we have i.s. some manufacturing numbers or the month of april. mark zuckerberg will deliver the keynote speech at facebook developers conference and after the bell we do get apples second-quarter earnings. lisa: let's get an update on what makes headlines outside the business world. trump is making a temporary retreat from the hard-line trade policy. the white house says they will delay imposing steel and aluminum tariffs while they try to work out deals. the administration says that agreements in principle have an isched with argentina and ill robert mueller has given a list of four dozen questions to trump's lawyer.

about twoom questions indications he had. trump calls the report disgraceful. aboutan is denying claims its nuclear program. says this shows he is 100% right in denouncing the iran nuclear deal. he will decide this month whether to stay in it. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. david: trade extension. the u.s. said they would delay on import tariffs for the eq, mexico and canada until june 1. but trade issues are far from resolved. john mickelthwait discussed this with a ceo yesterday in an

exclusive interview. one issue with china and another issue with have to. and we hope that those will be resolved. are you more optimistic about? is a lot ofafta work. some of nafta needed to be rewritten anyway at the trade war with china will hopefully move us in the right direction. secretary mnuchin -- >> do you think trump is fair on china? >> that is a consultative question. i think china has -- the thing about china, they have taken 300 million people in the last 20 years out of poverty. the reality is that the growth

in china and india has been good for a lot of people. >> but the problem is that it doesn't feel so good for people in america, california, newport each. >> but it is global competition and global competition is such that you cannot always win. and i think one thing that makes sense is that you can make policy. have policies of training so that people who love their job have the ability to learn something different. expectancy rises, government will have to do this because you worry about china but you may be much more worried about automation and what it will do. >> in the american context, the trade war where issue but what else worries you?

what should you be worried about? are an investor, you should be worried about the fact that there is more automation that using think there is. the phillips curve is the relation of inflation. >> do you think that still works? >> i think there is a lot of careful handling, it does work. we have endless discussion with ben bernanke about the phillips curve. we think inflation will pop up because of the labor market. but over the long run it isn't a sustainable problem. death was the head of pimco. and joining us now is the head of portfolio strategy with michael mckee. you heard at the beginning of there is aid that

better chance to get the nafta .eal done can you hit it cap it at this point? michael: there are tough issues. autos.es of origin on they haven't even gotten to some of the tougher things. it isn't clear that they can get a deal but they seem to be making progress. china is a wildcard. we are sending a delegation over there. we don't know what will come out of this but we know that the impact would be bad if both sides can't come to an agreement. lisa: what i'm trying to understand is what is being priced into the market and what has happened? michael: you have a better idea on that than me. it looks like we priced into the markets but the markets seem to believe that there will be deals reached. the consequence of not reaching a deal is so bad for the

american economy and global economy that they will come up with something and they look at trump and say that he has history as a dealmaker and he will concede something and get a deal at the end and maybe it won't be a big deal after all? david: assuming we get a deal done with nafta, we will put up a chart right now and it shows the deficit going down. deal, will this affect those numbers? dennis: no, as far as deficits are concerned, the ship has sailed. especially when you take into account the automation. does it matter? does it matter for markets? i think trade is a sideshow. there is a pretty binary outcome. tough to bet on for market participants. you probably do lean on it getting done.

on multiple contraction. everybody knows that we have been bombarded with strong earnings growth. no one is talking about significant multiple contraction and why it is happening. i think this has to do with the rateeing on a sustained hike cycle. lisa: fed officials absolutely are not concerned about downside risks to inflation anymore and this is feeding into the decision to raise rates more rapidly. do you think they are right? is the market accurately pricing in inflation right now? dennis: there is always downside risk to inflation because of shock potential but there is a lot more upside than downside risk. and you may be at a more core, 2% core

inflation which is what we had yesterday. let's project down a year. 3% core?- will be at is the 2.5% and rate make any sense? coming up which means that short rates are attractive relative to equities. pe the above normal medium probably makes sense. this. take me through i understand that if the inflation rate goes up than the value of the stock was down. because you use a discount rate that is different. but we are talking about the difference between 1.5% and 2%. really have that much of an effect on the earnings of the companies?

michael: in the larger sense, no. but with yields across the board in all asset classes so low for so long, it has an effect on what people are projecting they can learn. so it has an impact. so how far does the fed with inflation rising? it will be interesting to see tomorrow how they describe the inflation environment. do they go beyond that? some members have said that would be ok. and today push that further? and throw in treasuries because you will have the refunding argument of the treasury on the short head with an argument for an even flatter yield curve. can see here that the pace of increases on the short end has been dramatic this year. pace ofa normalized

increase. really quick, you said that the short-term rates are starting to look attractive relative to the risks that you have in equities. have you recommended to clients that they allocate risk to clients right now? absolutely. we are in a very choppy market for the next six months. if you are making a decision on a rate that will move higher, it is safer to make that adjustment in cash. sixmber when we came from months ago, no one thought there would be inflation and the next recession would be never. in that multiple, it is infinitely. we are unwinding that so that is why it matters. andd: dennis debusschere

michael mckee, thanks for being with us. coming up, 60% of the s&p 500 companies are out with results. this is bloomberg. ♪

david w.: 60% of the companies in the of the beef up hundred have reported earnings so far and here is where we stand. more than 70% had eight sales the average one day move after reporting was .1%. they didn't get much credit for it. we will take a look at how this

compares historically on my terminal. you can see on the right that the 80% number, historically it is extraordinarily. dennis debusschere is still with us. lightse shooting the out. both on the top line and earnings, and the market doesn't seem to be impressed? dennis: a lot has to do with the fed tightening schedule on the offset of the earnings. but also there's the potential for p earnings right now. so one of the things people are concerned with is the ill-timed fiscal stimulus. aside, what that 2020is increase recession and beyond. so if you start to worry about a recession in 2020 and beyond, if your earnings now and what you are paying for in the future, it should increase. lisa: talking about the scorecard, you can see the us

performing sectors since burning season started on april 12. energy is hugely outperforming. staples, industrials, materials, those have been the worst performers. is this telling you that the global economy is perhaps reaching peak growth or slowing growth? it does to just that people are concerned about the outlook for economic growth which is reflected in the yield curve flattening. everybody seems to hyperventilate about that. being positive on economic growth means being positive on inflation which is why your multiples contract. people have gotten excited about the yield curve and it potentially telling us something into the future. we are in an economic cycle that is different than what we have

been in the past. onid: if you are positive growth, does that mean you are positive -- dennis: positive on inflation. david: is this what we want to be? but i think that is where we are going to be. all of the work we have done on this says it is unlikely to expect an increase in productivity given the nature of economy where there is a significant headwind for growth. are not concerned about the yield curve. what are you concerned about the increase in the megamergers? on some levels this is at the fastest pace ever. dennis: i am concerned about the second derivative. we had a chart yesterday that correlated it is

with the global m&a activity. so when you see that pickup we see stocks outperform. counter to that is the headwind. because people are trying to get ahead of tightening financial conditions now, you will have another headwind for the market, which is to say, the age goes away as financial conditions tightening. so there is a big burst right and i worry about the second now.ative but 6-8 months lisa curve so don't hyperventilate about the yield curve, perhaps worry about the inflation. coming up, the iphone slow down. investors are watching following the release. this is bloomberg. ♪ the release. this is bloomberg. ♪

david: apple is up in premarket ahead of the earnings estimate out today. investors are focused on the sales of the key product of the iphone. ,elcome now to shannon cross she has a buy rating on apple. still with us is dennis debusschere. shannon, tell us what you are expecting in terms of the iphone growth? are expecting 52 million iphones. next quarter at 39. there has been pressure from the standpoint of the $1000 iphone x but we do think that units will come in relatively in line where

the buy side is at. you have seen the significant decline in the expectations over the last several weeks. by sony'ss struck earnings that were released overnight in asia. there was a 39% decline in operating profit. largely tied to phone camera chips. manufacturing as much for the smartphone. how concerning is this and how relevant is it to apple? shannon: we have seen this in a number of suppliers in the thely chain where you have 30% range, a lot of that is baked into expectations for next quarter, especially which is where we will see the decline on a year-by-year basis. we had david: care a year ago, he would not have predicted situation. in this

is it too much to ask the question, what went wrong? shannon: management acknowledges that this was a new price point. the market has responded with that there is a finite amount of people who are willing to pay over $1000 for a phone. that being said, it looks like apple is making changes to the phone for the next launch, to be able to have a lower price offering that is compelling. one example would be moving back which chinese smartphone makers trade that off and on depending of the pricing. what wehere will we be hear from apple today on the average selling price? up or down? shannon: the average price will come down. we do still think this will be over 700, but that is up year

over year by 10%. pricing powerill and there has been a mix shift up given the prices we have seen. , i think they have realized that there is a finite amount that people will pay. and the other thing to keep in mind is that currency moved in their favor. each will help on the gross margin line. we will see where they come up becausecing in november they harmonize across country. lisa: let's broaden out with the importance of apple over the rest of the nasdaq? this is a huge proportion of the overall index. how important are the earnings and our people overstating or understanding -- overstating or understating the importance? i don't want to talk specifically on apple because i am swimming a little bit far

from shore but the capital for tech names, including amazon, has come down towards the s&p. that is critically important as something showing up in earnings they were monopolies. meaning that the capital stays -- capital. now, this is coming under a little bit of rusher. the earnings are significant. google earnings in particular are critical. and maybe talking about apple for a second, if the profitability metrics don't look -- they are one of the greatest cash generating machines of all time -- but it may be that these companies are not monopolies anymore. and that is a headwind to multiples. david: are they becoming more capital intensive. ?

they are putting a lot of capital into the ground. shannon: one thing you are seeing is a significant capital investing data center. there is the shift to the cloud and overall, when we look at hardware companies, there will be an uptick in spending by the cloud companies because they need to increase capacity. david: thank you so much, that was shannon cross. dennis debusschere will be staying with us. this is bloomberg. ♪ ying with us. this is bloomberg. ♪ mr. elliot, what's your wifi password?

wifi? wifi's ordinary. basic. do i look basic? nope! which is why i have xfinity xfi. it's super fast and you can control every device in the house. [ child offscreen ] hey! let's basement. and thanks to these xfi pods, the signal reaches down here, too. so sophie, i have an xfi password, and it's "daditude". simple. easy. awesome. xfinity. the future of awesome. lisa: this is "bloomberg daybreak." get you caught up across the board. theee some red ahead of

open. dow jones and nasdaq futures are a touch lower. ftse 100 is dipping higher. if you flip up the board we get an idea of what is going on across assets. is going nowhere in the u.s. and the british pound is weakening against the dollar as a result of weakening manufacturing data. oil is dipping lower. david: we have -- earnings out. $2.08 is what was forecast. i'm not sure if that is apples to apples. lisa: before you get too the fiscal still see year adjusted of $8.45 billion so they did not increase the estimates. seenased on what we have with previous earnings, that is

what matters most, the outlook, going forward. but they did beat across the board. is -- aboveven diet what was expected. earlier this morning, we heard from another sector when pfizer reported their earnings. pfizer was down somewhat and merck is unchanged. to give us a broader view on health care, we welcome cynthia and dennisna gupte debusschere, still with us. let's start with big pharma first. 's results were as expected. they have an oncology drug which is first in class now and is

the shares a leader. aren't moving. investors have this priced in and are waiting to see what else they will do or what it may do to diversify a bit because it is leverage to this one part of the business at the moment. but it is performing and merck is doing well. the pfizer story is different. revenue wasn't quite what analysts have been expecting. investors are looking for is that with pfizer, they have made big moves and shown willingness to do big deals and people have been looking at them to say, ok. tax reform is done. what do you don't now -- what do you do now? lisa: they are waiting for pfizer to make a big move. what are people speculating? bristol-myers has been in a little bit of trouble.

they have designed clinical trials hasn't worked out as it did work out for merck . but there is potential so a lot of people thought that would be .fizer's target but the ceo came out and said they were not interested in bristol. and that shook people up because what are they looking for? presumably, it is in oncology. it seems to be for the pharmaceutical companies, it is a race for drugs coming off --ents and developing them developing new drugs. cynthia: it depends on where you buy them. they pay a lot of money for it and it is risky for shareholders.

you see that working out but it 50-50. right now, a lot of companies are at points where big drugs, off patents so the pressure is on to buy assets and revenue growth. lisa: and avoid regulatory screenings because trump will think, are they earning too much? we are getting results from the healthcare services. we are trying to parse through whether this was good or bad. shares are slightly down. hca is uniquely pressured and highly leveraged. .hought to be over bedded what were you looking for with these results? and what does the same with the butchered iteration? was this positive from your perspective? ana: it does look like they have met expectations. first quarter utilization has been weak.

managed care has been tremendous. and them was this morning and edna reported beating across the board. tenet yesterday had a modest beat so that exceeded expectations to some degree. has been moving sideways in the second half of the first quarter. a lot of the shares look like they are slightly down. i think the fears of a mess were in the stock to some degree. part of the puzzle is coming in. a new he's on the bloomberg says there are extraordinary things having to do with tax benefits. in general, it looks like they are in line extract -- in line except for extraordinary benefits. wasooks like the tax extremely important.

explain how this is doing? are shares going up, overall? this quarter has been mixed. a positiveve been catalyst for management. managed care. we are contrary and in our view of hca being strong out performers. both the names have the ambulatory platform and there is a mixing outside the hospital into urgent care centers. we don't think the multiples and valuations reflect that so we do think there should be more dispersion within hospitals. they're all converging at 7.5 times but there is a huge difference. we talked about the health care and pharmaceutical industries.

there is a big question over how much consolidation there could be. yesterday we spoke to bain capital. >> if people look at the health care landscape, they see what is shifting and the landscape and they see access to additional profit pools. i think we will continue to see a lot of m&a activity is here and probably for the foreseeable future. lisa: if you take a look at the bloomberg terminal, it was a record for health-care mergers and acquisitions. aready getting up there with month of the second quarter. types, do you expect this of activity to continue and health care and is this a heat when people think their own shares might be overvalued? dennis: do i expect this activity to continue? absolutely. and that makes health care from a macro point of view,

treacherous. you don't want to make a significant bid one way or the other. you want to be idiosyncratic. multiple dispersion in several areas. i don't think health care should vastly underperform but this is not a cyclical that benefits from inflation so it is right there in the middle. m&a bid an obvious which was talked about. that should continue and we have these political headwinds that are not necessarily benefits from inflation. so it is difficult from the sector point of view. investor, a long-term are there demographics going forward? dennis: if you want to think long-term, absolutely. demographics going forward and over 3, 5, 10 year cycle, you probably have consistent lower 10 year rates that are likely.

cynthia: so much of the m&a is unexpected. it isn't just big companies and pharma may be obvious as they try to buy other assets but as far as the pharmaceutical benefits space, in these areas, they are doing unique deals. and these kinds of deals now are different. so it will be different to get through regulatory differences and you have to be prepared for the unexpected. some level of m&a will be expected. lisa: do we see corporations buying their way out of a lack of creation? valeant is the poster child of terrible but it has been up and down. goodia: it is a really point. there are companies that have a lot of debt and you can't forget that. dennis: what do you want to be

short idiosyncratic takeouts? if you want to be negative on the health care sector now, do you want to be short these names, i think that is a difficult yes if you are unsure where they are coming from. cynthia kuntz and ana gupte. thank you for being here with us. now for an update outside the business world. the eu doesn't like trump's decision to delay imposing steel and aluminum tariffs. a say it is bad for business and save the block should be granted a permanent exemption. the president will use the delay to work out a deal with the eu and canada and mexico. the uk's slowed more than expected in april to a 17 month low. raising speculation

that a bank of england interest rate hike is unlikely. members of the migrant caravan who traveled from central america have stepped up the challenge to the trump administration. they have begun turning themselves into authorities to seek asylum. at least eight applied for border crossing. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. this is bloomberg. david: thank you. coming up, mike jackson. that is coming up. this is new york and this is bloomberg. ♪ erg. ♪

kailey: this is "bloomberg daybreak." i am in the hewlett-packard enterprise green room. coming up later today is tom barrick. calling the northstar executive chairman. ♪ kailey: now to the bloomberg business flash. boeing has taken a step to expanding service business. they have agreed to buy tale ask for $4.3 billion including debt. fromget 90% of the sales aftermarket services. it changes at sky bridge capital.

dropping plans to be acquired by a chinese group. seeking -- they say u.s. approval would take too long. in the meantime, anthony scaramucci is returning. he spent 10 days as the white house communications director. and a caught on camera moment for the ceo that he wishes he could take back. preparing toas takeover when he was caught singing. we're in the money this guy is sunny -- the sky is sunny ♪ he apologizes for that choice of song. he says he saw the musical last year. it stuck with him.

david: i have heard quite a few of those things but that is far from the worst i have heard. lisa: i agree. wonder, how did that make that out? who was recording that? is a little unsavory when your shares are up that much but i don't blame him. david: i have heard so much .orse than that the company says it is unfortunate but obviously that wasn't intentional. auto sales are due out over the next hour. the industry comes to terms with a softening north america after hitting record highs a couple of years ago. and who knows more then the head of the largest automobile dealer chain, mike jackson? the ceo of autonation coming to us from florida. good to have you here.

to be with you. david: give us a sense of where this is. k a couple of pea years ago but it has declined stop. ome. mike: the industry is in a very good place. new vehicle sales will decline so far that2% and is exactly what has happened with retail sales. fleet sales 6%.up by the big story is the continued shift of the mix towards trucks and suvs with passenger car sales down by 10% this year. 10%.-based vehicles are up it is absolutely a phenomenon with sales approaching 70% of the mix. it is a permanent shift in

american taste and values. they love the high seating position.nd command if you'll economy has improved dramatically. gasoline is affordable. and with fracking, we will have relatively stable fuel economy. be a good it will year in the industry even with pullback in sales. on forward.w this but what about prices? when a large number of cars come off the leases, there would be a depressive number in used cars, saying that? mike: i called that going into the year. it push leasing into the united

and has been there for a sustained amount of time. so now you have a new choice for consumers. vehicles. new if you add that together, the totality of the market, new and .reowned, it hold steady it is still a solid market but you can't expect new vehicle sales to grow with this new choice to the marketplace. the fact struck by that perhaps we are reaching a peak where there should be a car sales?line in auto lenders have been ns.reasing the auto loan a accelerating its

entrance into subprime auto lending. is this the wrong time? is the market setting up or a crash? mike: there is no sign of a crash. if you look at the credit debt profiles, the only thing i'm concerned about is student debt. it is way too high with structural problems. we saw this in the crash of 2008 and 2009, a financial crash. consumers want to be a will to pay for their car and get around to work.r -- and go when it comes to subprime, you have bad apples who have done too much but it isn't a systemic risk. and if i look at this, it funds .nly 5%

in principle, credit is a principal for the auto buyer, and the american consumer is paying their monthly car payment. so at autonation, we announced quarterly results today. .e had an all-time record $1.01 per share. all of our autonation brand embracedes are being by consumers. preowned gross profits up 9% compared to a year ago and customer care is up 5% and financial products, 10% gain. lisa: what about rising interest rates? into auto sales at all? mike: as i already said, credit

is available for car loans and it is very affordable. let's have a history lesson. i have been in this business coming up on 50 years. i remember 20% inventory costs. to go upates are going somewhat. they are still extremely attractive. the american economy is not in a crisis. we need to move off the crisis rates that were in place. so it is appropriate and expected and manageable that the federal reserve increases interest rates. doing that in a prudent, transparent and predictable way, which is healthy for the economy, overall . mike johnsonou to for being with us. where they will actually pay you to move there.

on what we are watching, up next. our recent charts featured shilique analysis and you can save charts for future analysis. this is bloomberg. ♪ is is bloomberg. ♪

lisa: this is what i am watching. wall street journal out about the labor shortage in small towns where it has gotten so bad that they will pay you to move there. in prime age population rural areas, look. for personal experience, i lived in north dakota for two years and there was a 0% unemployment rate. and you do see places in see places like hamilton where they pay people to absolve student loans and give a $5,000 moving bonus.

david: must we continue this? does this indicate a tight labor market or does it highlight the shift from urban to rural areas? rural to urban, excuse me. david: coming up, neil duane from allianz global. they will be joining jonathan ferro right here. this is bloomberg. ♪

♪ jon: from new york city, i am jonathan ferro. this is the countdown to the open. ♪

jon: coming up, president trump avoiding tension with our allies, the laying imposing tariffs on the eu, mexico, and canada. treasury secretary mnuchin says he is on the concern. expected to confirm the return, results after the opening bell. the story looks like this, futures doing absolutely nothing. negative a single -- single bree in t point. the big story, the president delaying tariffs on u.s. allies until june 1. talks ramping up with a u.s. delegation heading to china later this week. the