will cut the import duty on cars to 15%, the big winner in europe. come before another storm paired dollar frank takes a break. boe officials lean somewhat hawkish. willfor impact, treasury auction two-year notes. >> welcome to "bloomberg daybreak. i'm david westin. i'm with alix steel. alix: happy tuesday. there is stuff happening in the market. u.s. helping european automakers. david: president trump has a victory in china, and it helps the europeans. alix: the story is the dollar column. s&p futures. euro-dollar up .2%. emerging-market currencies, and the lira hitting another record low. 10 year yield inching higher.

$33 billion auction of notes today. the dollar weakens. david: time for the morning brief. at noon, president trump leads with the south korean president. they will get the president ready for the big summit coming up next month. facebook founder mark sen. burr: and faces questions from eu markkers on concerns -- faces questions from it you lawmakers. note's sale of 2-year since 2013. we will watch that. now for the bloomberg first take, we are joined by our chief equity strategist and former trader. i love that title. alix: what title is that? >> it wraps around the business card. david: big news out of china overnight. import will the cuts on

cars from 25% to 15%. we'll put up a bar chart on who benefit. for status, alexis, toyota, land rover. you go down to seven before you get to lincoln. what does this mean for the u.s.? gina: you'll have optimism in bedded. -- embedded. get a little of optimism. industrial space and it is a global entity. the supply chain wraps around the go -- globe. the industrial supply chain wraps and generally any reduction in tariffs potentially elevates activity which elevates the industrial sector. we saw that a little yesterday. there is general easing tensions. david: back in the 1980's,

japanese imports in cars and general motors was not in the chart. general motors has changed and they produce them in china. things has changed since the 1980's. >> this has a political feel to it. we have midterms coming up. president trump not popular among women voters. he needs support. his base is the midwest. and the agricultural sector. the negotiations with china lately seems to want to benefit that group. beneficial to china and the luxury carmakers, which we don't have. alix: i want to go back to the 1980's where i wore my hair like this. david: can we put a picture of?

vince, how do you understand what we are seeing in the dollar? it is a -- is it pause or a rollover? the trade has been exiting the em. they thought, let's get into the high yields. good growth and exports. trade tensions caused that to come off and everyone went into the dollar because that was the contrary side of the trade. trade tensions seem to be used and everyone is getting back to em and dollar is being sold off. what we are seeing from trade negotiations is some substance. eventually it will come out that this is not such a trade deal after all. those tensions will reemerge and trade will come back. small-cap ande by by the dollar and the cell em --

will that still be what we are talking about? i think it is more than just the dollar. you can have the dollar weakened and small caps still working it is an earnings story. financials and health care are rallyinghe rally -- the leads. if the dollar pulls back, it may as longelative trade, as the earning stability stays and growth commissions improve, small-cap index can continue to outperform. the dollar is easing its way into some global trading him up but it is not the entire story. it is nudging its way in, but not the entirety. the dollarwill be

will be the treasury action. come into the bloomberg. these are notes that have been auctions page you can see the rise. -- auctions. supply see the rise as issues come on. the action has done well. the market has been ahead of it. traders do not price it as it hits, they price i had of it. -- ahead of it. asy cannot hold it as much they could in the past because of the volcker rule's. -- role. -- rule. yields in really good the u.s., comparable to europe. as that yield has come a, up,sury -- has come treasuries have done well.

david: it is short on the two-year. what is going on with the yield curve? gina: it is continuing to flatten. it is getting into the sub speak. officials are starting to notice . the curve is flattening. how much do we want to press limits on flattening? we know what an inversion means. i do think you will get to a point later this year where the fed has to make tough decisions. frankly, as long as the yield curve is just flattening, it is a great environment for stocks and equity markets with respect to the curve. it is the point where it inverts that we have to worry. there is sensitivity on the investor base toward these auctions. that is not something equity investors normally pay a lot of attention to. david: we will hear from jay

powell on friday. bloomberg's gina martin adams and vince, thank you for being with us. coming up, u.s. china trade relationships. alix: earnings coming out. .arnings beat revenue a boosted forecast. the have's and have-nots of retail. this is bloomberg. ♪

>> this is "bloomberg daybreak.". i'm kailey leinz. sony underscoring new strategy with an acquisition. its hands onetting a catalog of 2 million songs from performers like beyonce and

carole king. it is buying 50% of a music publishing company that it doesn't own for $2 billion. the seller is a consortium. plan isew growth can -- based on product and services. the biggest takeover deal in turkey since 2012. the largest bank in to buy has agreed to buy a bank unit in turkey. expanding ine markets like turkey because they face limited opportunities at home. australian oil and gas looser offer byted a takeover a u.s. company. they have terminated all talks with harbaugh -- harbor. that is your "bloomberg business flash." taken aaul singer has

significant taken a german engineering company. he objects to a turnaround plan from the ceo which would put together the steel assets with another group you he does not like that. he has taken a substantial take and has taken action to ask for the ceo to be replaced. he said they are making a mistake putting it into the indian group. alix: the second largest investor says they need to untangle operations and cut costs. became a big conglomerate and now it is paring down to cut costs. david: that is what he thinks he is trying to do, take european out of it and avoid the joint venture. we will watch as they build their stake. we'll see what happens to tyson hyssenkrupp.

import dutyutting from 25% to 15%. joining us from beijing is john. the chineses thinking. is this a major step forward toward a deal with the trump administration? john: the chinese will present this as china opening to the world. china is not going to want people to see this as china conceding to u.s. demand. how much of a role the man -- u.s. has in making it now and happen it all is hard to say. it is possible the u.s. administration will claim some credit for this happening. you ask companies don't export that many cars to china to begin with. it is more bmw and mercy 80's and people like that -- and

mercedes and people like that. will this make a substantial difference to the chinese car market? gm, a huge presence but primarily for manufacturing locally in china. a lot of luxury european carmakers are the bigger importers. there is an interesting name not on the chart, and that is tesla. looking forward, we have research that shows china will be the biggest market for new energy vehicles in the next decades. i think that says a lot about the future for tesla and the other automakers. david: the focus from the trump administration has been trade deficit. make inference will it the trade deficit between the united states and china? john: based on current data, not very much. it is hard to say how much additional import there would

be. primarily, the vast majority of cars sold in china are made in china. david: john, thank you so much for your time. alix: this will fix the whole break problem and the other issues. pimco short management portfolio, how do you manage risk? >> we have to deal with geopolitical risk and trade policy. we have to deal with the potential for fiscal policy changing. as a result, as investors, we have to prepare for better risk returns and create optionality. and thena for future as opportunities present themselves, be able to create liquidity over the next few years. alix: sounds perfect.

jerome: i deal, right? to do that you have to take -- ideal, right? to do that, you have to take advantage of opportunities within the front end of the yield curve. to hear rates are at 2.6%. another option coming forth today is creating good opportunities to preserve capital. at the same time, also reducing volatility to overall uncertainty in the marketplace. that is the ideal place to be. david: how much is the yield you gain and how much is optionality? to things youd cannot anticipate. jerome: by taking advantage of the opportunities in treasuries and across the fixed income spectrum, you are able to create a diversified portfolio that

offers not only differing and diversified set of income, but diversified liquidity. when opportunities come up, they can shift to risk allocation spirit with uncertainty in the marketplace -- allocations. with uncertainty in the marketplace, you can take a reduced interest rate exposure or you can take a less interest rate exposure as opposed to taking a lot of credit risk or exposure. more importantly, going wholeheartedly into higher risk situations. treasuryal outstanding notes coming out today on a two year yield that has had a spike and almost hitting 3%. i want to get your take. is at the same for shorter term duration in other countries? jerome: we are ahead of the curve.

across the curve will create pressures in addition to the shape of the yield curve in the u.s. at the same time, as other people normalize monetary policies and central banks, that will put pressure on front end rates. the opportunity is in the united states as a place to diversify portfolio and reduced volatility. david: jerome, thank you very much. i talk to the ceo of wells fargo and he said some things about the tenure rate. i imagine us seeing a 10 year at 3.5% or 4% sometime in the next six to 12 months, absolutely. we have had a backup of 50 basis .oints in the last few months if you believe that economic

activity not only in the u.s. but around the world will continue to increase, then you can imagine rates getting in that range. it by the two and short the 10? jerome: if it is your believe that it continues, that could be your trade. when you have such a flat yield curve, you want to be careful of the risk you are taking paid you have to be convicted if you are extended and taking more rate exposure and if you want to take volatility, you will get paid for. if you want equities, you have to understand them. right now, we are hearing general uncertainty in the market place is not poised for preserving optionality. pimcojohn schnatter of will be speaking with us. how to find optionality and safety and corporate credit

after the worst of three days slumps. theve in corporate credit, highest in 18 years. this is bloomberg. ♪

alix: the rally in yield to 3% had an effect on corporate. this is the 100 date return of corporate bonds. returnrd worst 100 date since 2000. still with us is jerome schneider. what is safety in the corporate credit market? jerome: you have to be selective with the risks you are taking. you have to realize that the good tailwinds we have enjoyed over the past years will create differentiation in terms of corporate credits over the next two to three years. that goes not only for the , but also thement ig sector as balance sheets

ver.r and deli will have, you different sectors along the way. alix: different sectors and credit ratings. what do you do in junk versus ig? at the you take a look big picture and the ultimate credit index. you see the bbb sector has grown substantially. terms ofmore risk in the data and baseline exposure. what does that mean? they have to be more selective if they want to de-risk. process, isection that a safe proposition? the answer is it -- probably not. you want to deviate away from

the benchmarks to selectively find credits for upgrades and defend against credit risks in the downgrade. david: is this a credit risk issue? people are waking up to the fact that people are taking a lot of debt. is this really an increased concern about credit risk? jerome: even more profoundly. when you go into a tightened environment and credit is going up -- and that is what the fed wants to do which is increase tightening financial conditions. in that process, there would -- will be selective and tightening credit sequences. for credit exposure, are the balance sheets healthy enough to pay the debt ratio? some are, and there are some that are not. david: people overreact to the

is goodector and their with bad and they have to sort them out. deviating from the benchmark. owning the benchmark is dangerous because you have credit that is not differentiate leverage points and you are inheriting credit risk. the second is looking for opportunity for healthy balance sheets that can outperform. trend, when you speak about credit risk market, you do not see a a lot of risk in the ig sector for the next year or so. you can find very short data and can yield in the range of 3%, that is a good place to hide out and take high-quality credit risk for the short term. alix: sector specific? jerome: you want to think about plays that are right for a leveraging firm and those

situations where there is a changing balance sheet situation. alix: thank you for joining us. david: coming up, the power of big tech. the governor -- government wants to keep more ion appeared we will talk with tim armstrong. alix: weaker dollar reversing gains we have seen with s&p futures up 5%. it is all about the dollar, etc. they lira, which is hit another lira, except for the which hit another low. this is bloomberg. ♪ mom you called?

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i know. find your phone easily with the xfinity voice remote. one more way comcast is working to fit into your life, not the other way around. >> this is "bloomberg daybreak." all about the dollar, reversing gains. futures up. ftse at one point hitting a record.

let's look at the board at the currency markers. dollar weaker against all currencies, with the exception of the lira. italian bond yields down. strong buying coming in and tremendous selling. it was a pause or reversal of the populist government reaction we have seen in italy. in the u.s., 2-year note's coming due, $33 billion worth coming at 1:00 p.m. basisg higher by one points. crude up by .2%. easingmp's sanctions some debt. david: let's find out what is going outside the business world. we turn to kailey leinz with "first word news." michael: just as the threat -- >> duties on imported cars from

china will be cut from 25% to 15%. it will be a boost to foreign and luxury automakers such as bmw. less of their production has moved to china. there is a report that the u.s. and china have agreed to resolve the telecom buying american technologies. the details are being worked out. they would involve changes to management. the trump administration put new pressure on venezuela's president maduro. the u.s. band purchases of the ownrnment including state oil companies. president trump says that will present maduro from holding a sale of its assets. 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. alix: back to the markets. by boe governor grilled lawmakers as he defended communications yet again. economyhappened was the did not, in the first corner, fall in line with the forecast. and a numberntum of signs were lowered and ultimately the hard data came in lower as well. we, as a committee, looks at that data and took our own assessments. alix: the market reaction -- here you go. sterling going nowhere. it was on a high in the session. the 10 year yield was selling off as it yields grind it higher. one of the coworkers at the boe on a more hawkish side. is lucy.s

what have we learned today? lucy: what we learned today is that he does not when to change his communication policy. we had what we expected to hear on policy. he has been on the ropes in regard to communications and doesn't want to get into it further. alix: the backdrop continues to be brexit. there have been rumblings about whether we will see another election in 2018, which was weighing yesterday and what is the rhetoric in london on that? chancet is an outside looking at another election. what comes down to, is it will not affect the rates in the coming months. there is only so much they can factor in. they are to have brexit and working around the effects of that and inflation from the pound's drop. it will be difficult for them.

to be honest, they do not particularly want to do it. alix: thank you very much. trading and selloff continues in the market. david: from cable to tech and media. alix: i like cable. david: universal reach and the big technology companies have transformed the lives of billions of people. with that comes ubiquity. we have increased scrutiny from government. secretary steve mnuchin saying the government should take a look on asking about google, he said these are issues that we need to look at seriously and not for any one company, but as the technology companies have a greater impact on the economy. welcome to tim armstrong, ceo of oath, inc. and many others. cio just former al you

alu cio. -- chairman. you get a lot of data. what are your responsibilities about how you handle those data? partwhere at an important where half of the world is online and more are coming online. the issues you are seeing our natural outcome of how quickly -- are a natural outcome of how quickly it is growing. you are seeing the formation of the future of the way the data will get used. my viewpoint and my companies viewpoint is the data will hand up -- end up in the hands of the consumer. it allows the consumer to have access and control all of their data that we use for them. we will put the consumer in power. if you go forward five years, you'll start to see a reversal

of what sat on everyone else's servers, the consumers will have more control over. the stuff happening in europe with the reviews there and what you have seen in the last couple of months are the start of the movement. david: we will hear from mark zuckerberg later in front of the u.s. -- eu parliament. will put up a slide for what they provide. if you look at the various things they are requiring, it looks like aol is ahead of that. it talks about opting in an acting out. you will have a read -- right to retrieve and sell your own data. tim: we took a giant step back and ask where the world is going to go in three or five years? once gdpr happens, and it will .o away

we built individual consumer dashboards and it looks like a consumer service, but it is your data. our global plan was to build this dashboard for global servers. that is the standpoint. we wanted to make something to consumer that could empower them. alix: if you take the power away from you and give it to consumers, how does that affect your ability for ads and marketing? tim: we have to deliver higher value services to consumers. that is one thing we are working on -- how do we supercharge our units to have more functionality? consumers will opt in because of thet big values out data transfers, but we want to have the worlds best ads for consumers and functionality. you have probably been on the internet and see ads follow you around. alix: that freaks me out a little.

tim: that is not a great experience. with our partnership with verizon, we can bring brands directly to your desktop on your phone. we have looked at this from different sides and said, let's put consumers first. hopefully that strategy will work out. serviceslivering great , italy the consumers will opt in -- and hopefully the consumers will opt in. we are trying to get in front of it. david: the impression is that not all companies like yours are embracing it so aggressively. i assume they will pull data back and will get the same benefit from advertisers. all of the advertisers across the board have different strategies. largest company

in this space, although we have one billion users. we have flexibility to develop models quickly. we have aol and yahoo! together. we always try to forward -- point toward the future. it will be harder knowing some of the companies and harder to untangle business models. we have a new set of businesses that are moving to mobile so we can start from scratch. david: the name of the game in the media world is bulking up. you talk about disney buying my first century. you bought yahoo! -- 21st century. you bought yahoo! what is the next deal you need to make? to 10n the last six months, we announced nfl partnership, and be a partnership in sports. we do 4000 guests year with live internet in new york city on the

streets. we will launch super channels in sports. from our standpoint, we have gone out by five times in video content in the last year. us onould expect to see mobile phones and the best video channels that you will see on cable but directly on mobile. we announced a giant deal was samsung to put our brands directly on samsung deked tops -- desktops. we are in the business of creating mobile digital as fastly -- as fast as we can. digitalree to launch and cyber. our choice was to go digital in heaven untangled future versus a tangled future. that is what we have been focused on. netflix like amazon and in terms of their own content,

that will not come to you? how do you compete with that kind of pocket and aim? compete on the live basis. we tend to be live services and information. if you look at netflix and amazon, they are doing longform entertainment programs. is your mobile phone and you want instant access to information -- those are what we are doing with our brands. we spent a specific amount of money on content. we are not going into the lions den. -- line's den. den. -- lion's they are spending lots of money on it. we are differentiating directly into life content and daily aspects. alix: you are taking our job? .im: no, no

lot.: you are building a a lot of people say they have to buy. and century fox or comcast there are big lotteries. libraries. can you get that done without buying some big scope of content, like a library? tim: they were clear about it yesterday. our m&a strategy is about operationalizing digital investments and going toward 5g. there are massive cable deals getting done, but in front of you you have 5g staring you in the face, which will be the largest consumer revelation for media services. would you look backwards and go back into this industry or look forward into 5g? , andu see us do deals

there are none planned, it would be to move things further into 5g and access. david: what is 5g point you? i know there is no deal now, but how will that change and where will it point you for the types of deals? tim: the easiest way to think of or ahink about a server device from an operating system and it puts it on a network. you will have a network in the world out in wireless and allow you to do services you have never seen before to consumers. if you wanted to see the celtics -cavaliers game in the front seat and have the same view as someone in the front seat, you will be able to have that same view. if you want to look at financial ,usiness or machine learning they will reset your financial incher in a port -- picture

a portfolio, 5g will allow you to do that. it is a big opportunity. you will see everyone we normally talk about and deal with in businesses who create services for consumers, re-creating 5g and coming out with new apps. it is exciting. david: thank you so much. tim armstrong of oath, inc.. coming up, wells auto corrects. they expand auto lending. we will tell you that next in "wall street beats." "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 hewlett-packard enterprise green room. almuda.p, joe a moo we cover three things we are buzzing about. wells auto correct after pulling back last year. the bank is boosting auto lending. history making after 226 years on the new york stock exchange, the first woman president named. 's economic board, one may

not be in attendance. david: joining us is jason kelly. we have to get back to paul singer. getting back to that. david: what are we seeing? jason: we are seeing a lot from paul singer and elliott. we are seeing a lot of activism. icon and others -- paul icon and others. -- paul ichan and others. >> we tend to be more conservative than many of our competitors. during the financial crisis, we were not one of the banks that

created concerns in the industry. there are some markets that we are concerned about. andave pulled back in off now we will grow our business again. we are looking at this -- and you taught me this. we are looking at loan officers. the growth rate has come down. now it is coming back. jason: it is interesting to note what he is more interested about , and that is commercial real estate. it is no huge surprise. it is if wells fargo is concerned about that, people should be. alix: is it not enough demand or are they getting money in different places? something to watch as well. , stacy a new head

cunningham. jason: it is a big move for the nyse. it is one of these places that is very important publicly and in some ways while they are much older than the nasdaq in this regard, they are catching up. stacey actually work there for a while. she has a long career in very entrenched. tom farley going onto something new, reportedly. --id: there are some very when you see some big hedge funds run by women, that will be excited. is where they had a party. that dates me. a big bash every year. we go over.

alix: this is about the economic forum. jason: we cover the conference. what people talk about is the party. g deripaska -- ole is a major player. thrown thatparty -- henrique kweisi us henrique iglesias. enrique iglesias. alix: with the goto st. petersburg as well? i am waiting for the pictures. --on: there we a lot of

there will be a lot of important things coming out of st. petersburg this week. david: we will cover it. many thanks to bloomberg's jason kelly. bannonwhite house steve speaks out on an interview. that is what i am watching. this is bloomberg. ♪

david: this is what i am watching. steve bannon is not gone. he gave an interview over in europe. listen to what he had to say about china and trade. >> what started as a defined process because we were taking a hard line, is now vague. what the chinese want to do is play for time. they want to see the political capital that donald trump has. they want to see what happens in november and 2020. they have never had to face

someone in a leadership in the united states of america that fundamentally understands what industrial in the relationship we have. trump has done more in a year and a half than administrations over 30 years have done. he brought to life the fact that we had no tools. are laying for time. i have always been a strong advocate as well as others that the best thing to do with china is a confrontation, but not trying to go to a trade war, but a confrontation to say that we are firm in the lease and will not let you sit there and rate silicon valley. silicont -- rape valley. it is not going to happen. david: he thinks trump is headed in the right direction. he has always said he wants trump to be trump and his worried about people around him

are raining him in and not letting him be himself. is --i do not know how how he is relevant anymore. that opinion no longer has any water. and todoes he speak for the trump voter base? more if they get to export soybeans, isn't that a good thing? an exclusive interview of the ceo of baxter international who raise their forecast. -- who raised their forecast. this is bloomberg. ♪

alix: race for impact. as 4% onset to auction

the tenure may be a possibility. china will cut the import duty on cars to 15%. the big winner? europe. and the house votes and the dodd-frank rollback. we speak to the head of the american bankers association about the impact on financials. david: welcome to bloomberg daybreak this may 22. i am david westin alongside alix steel. is china caving in? alix: president trump is saying we will help you out, so we are good. markets, we see a modest rally. s&p futures up. the dollar is weaker against all g10 and id. currencies except the lira, which is that another record low. and the 10 year yield moving higher by two basis points. we will see what kind of yields

will have to be offered to meet the demand an option.and about $72 for crude, despite president trump lobbied sanctions on the venezuelan debt and markets did not blink. david: you said, who would want to buy it anyway? at noon, president trump will meet with the south korean president in the oval office, getting ready for the north korean summit next month. facebook founder mark zuckerberg faces questions from european lawmakers over privacy concerns and data usage. at 1:00, the u.s. treasury will so $33 billion worth of two-year notes, the largest seo since 2013. we want to return to china. it will be cutting tariffs on auto imports to 15%, which can be seen as a wi forn president trump. we welcome michael mckee. trump? win for president we will put up a chart who shows who exports automobiles to china.

michael: the headline optics are first come the chinese have liberalized the number of rules in the auto industry a couple of months ago, ticking off the 50% ownership cap. they will not be able to do joint ventures, auto companies, starting in 2020. that was perhaps a bigger move for the chinese than this because u.s. automakers all have auto plants in china. u.s.: that is why we saw automakers because for example, general motors makes the cars there. michael: they all have joint ventures. even though they will not need them, they intend to keep him. i have another chart that shows the opportunity, i suppose. you can see the growth rates of total imports in china and north made have been growing

faster but i put red lines in there to show you these two things are flat. the market has been more open and automakers are making cars there, but people are not buying them to the extent that they have another countries, when markets have opened up. david: in a larger perspective, we will cut the trade deficit by 200 billion dollars, if you sold all of the cars in china, how much of a dent would you put? michael: they do not buy that many cars. there is a huge opportunity but we are talking imported cars. the idea is you make things were customers are, so those will not count against the trade deficit. the joint ventures there, and what will happen with it going away, his foreign automakers who do not have enough plants there will be building more. this is more symbolic than anything else. alix: tesla stock was up 5.8, but a report yesterday said it will be china driving ev sales,

making up 38% of the market or 2040, so the fact there could be a longer-term impact, especially when it comes to electric cars. michael: tesla is the big winner. they have not wanted to do a joint venture and do not have a plan to china. there is another rule that the chinese have not lifted yet that affects tesla and electric carmakers. they force electric vehicle makers in china to use chinese made batteries, whereas chinese made electric vehicles can use superior batteries made in north america south korea. there are requirements that keep the chinese in the forefront of these manufacturing activities, so if they change that, you might see real progress. david: tesla is a big beneficiary if they can make the cars. alix: they are having troubles. will try to make them over in china but it will be more difficult. but it will make their cars less expensive as they import them,

to the extent they do. alix: thank you. good perrone joins us now, to see you. i wanted to get your take on how you price risk now. chris: when we look at the broader backdrop, it is a market that has probably gone nowhere much of the year but the leadership relationships are risk seeking. we have small caps better than large caps, high data better than the data, so the central question we are trying to answer, how do we know the difference between a 10% pullback and the start of something more serious? if it is the latter, you tend to see leadership gets defensive and we have not seen that yet. we have a tough case getting too defensive. general -- we think the market is an ok hands. alix: here's the performance we have seen with small caps and the russell 2000 is the white line. can you argue small caps in some way is defensive because of less

exposure to the dollar, international issues, and trade? chris: we have looked at this to the sense that based on the dollar would be better for small caps. got are times when dollars are strong and small caps the better, so right now, this is telling us small caps are a function of liquidity and what influenced by liquidity circumstances. we would argue it is still supportive of the broader market and keep in mind, what are the the pieces and small-cap index question mark regional businesses. -- small-cap index? businesses. we think this is about banks, as well. david: you did a great chart on road rail what about -- road rail. what about it? chris: the caterpillar earnings call clicked a lot of people

out, and the outgoing ceo of cat talked about pico means that growth, and we do not see without the rest of the sector behaves. we have others making new highs breaking out. we have had deere we accelerated, so when you look at industrial as a whole, particularly transportation names, the sectors are actually firming. that is not a risk off message. alix: a few weeks ago, we would have said industrials will be doing well. now, the story as we have extra stimulus and the u.s. and we will outperform other regions, etc., which is right. chris: there is this wall of worry. -- we had seen it with peak earnings that growth. i think that has lowered the bar for the markets a price on the upside in the back half of the year. we see it in meetings, as well. everyone concerned about pico

and the shape of the yield curve. we do not see that reflected in the leadership backdrop of the market. david: how do you square with what you just said with the fact that we had strong earnings come out, the market under reacted to the upside? we saw one company do well, yeah, they got no bump up in their stock. ultimately, it was her collection of how bullish sentiment got in early january. the bar was probably too high. we think that has totally changed. at the end of the day, with the last months have done are reset valuation. we have seen the multiple and s&p, a about 300 basis points so we are trading at multiples we late in 2016 and early 2017 and we think that gives alix: the market support. chris verrone will be sticking with us. notesllion worth of fixed

treasury go on sale this week. more, next. this is bloomberg. ♪ ♪

kailey: activist investor elliott manager this building a state in a german engineering giant. elliott would like to replace the ceo. since he took over in 2011, shares have lost 30%. australian oil and gas producer santos has rejected a $10.9 billion takeover offer by harbor energy. the company has now terminated

all discussions with harbor. santos says it is not represent the full value of the company and does not in the best interest of shareholders. shares of calls are higher in premarket trading. posted first-quarter earnings and sales that beat estimates. then you ceo is trying to differentiate kohl's from other stores. that is your bloomberg business flash. alix: it is a big week for u.s. bonds with notes up for sale. today, it is 33 billion up for sale and 30 billion of seven year on thursday. so far, you have had a good demand for the long end you did have the ceo of wells fargo talk about what could happen to 10 year yields. >> could i imagine us seeing a 10 year at 3.5% or 4% in the next six months to 12 months? absolutely.

we have had a significant backup of 50 basis points in the last few months. if you believe economic activity in the u.s. and around the world will continue to increase, you can imagine rates getting in that range. .lix: with us is chris verrone 4%, six to 12 months? chris: we were all wrong on how and how longd go and how long they would stay. it is reasonable to assume you may be on how high they could go. 3.5% to 4% is in reason. when we think of this move, we are 60 basis points above where we started the year. if you look at the bond backup in 2013, that move was 120. we are only halfway in terms of yield and what we saw in 2013. alix: into bloomberg, you can see the result it has had on the two-year. the blue area is the total out forreasury notes, and today

the two-year, it will be the largest since 2013. the yellow notice the -- the is in -- the yellow line tight correlation with the 10 year. chris: when people talk about banks, they typically talk about the shape of the curve. short yields are more important. two-year rising are bullish for small banks. alix: ms they pass on deposit data. chris: we have not seen that yet. correlation with the two-year yield is about .9 over the last five years. two year yield that 2.60 is important for the group. let's talk the bigger picture. 10 year yield to 3%, i would argue the equity market has been trading like that the last 13 months. the fact that staples and utilities have not worked over the last 25 years was an indication that this is where yields were going. we think the bond market is playing catch-up with the equity market has been telling us.

alix: i have seen increasing calls. morgan stanley said they would think of turning defenses in the back half of the year and look at utility opportunities at the last cap, what do you see? chris: in the very short term, it can make a case that utilities are washed out but structurally, they have only underperformed for about a year. the last time bonds when up in the 1950's, staples and utilities underperformed for 10 years. went bonds at rise, they can stay out of favor for a long time. andclorox's" gates -- colgate's still have a lot to back. it is early to say these have bottomed and we prefer to take other side. alix: the story not long ago was that the ecb would plate catch up and we would see the rise in

yields and it is not reverse print how do you view it in the equity perspective? chris: when you look at european case, you can make a they are trading like u.s. banks 18 months ago in summer 2016.i know the charts are not great-looking but i would be hesitant getting to defensive if we see german yield rise. everyone points to the spread between u.s. 10 and german yield that 70 basis points. it is misleading. when you hedge out how expensive it has become to hedge euros, the rate differential collapses. there is no positive carry there anymore. we have increased supply ms foreign demand. i think that is a recipe for lower bond prices and higher bond yields. alix: we are starting to see it move would differentials. chris: repatriation is a big story there. if you look at money that has gone into money market top funds -- type funds, you have seen a surge of cash the last weeks

into cash-like instruments. inflows.ig i think that has got to be money coming from abroad, number one. secondly, i would argue it is a sign there is competition for where the next dollar goes. it does not have to go into utility or stable anymore. the bond investors who had to deviate from their own asset classes can now come back home and i think they are buying cash. alix: interesting, chris verrone sticks with us. coming up, the latest on oil pricing on venezuela sanctions. we will break it down with barclays head of commodity research, who says it could reach a low of one billion barrels of oil a day. this is bloomberg. ♪

alix: president trump is stepping up pressure on the venezuelan president, prohibiting purchases of debt go to the country. oil extending a three-year high is the way it new u.s. sanctions on venezuela with concerns over its crude production. michael cohen joins us now, head of barclays energy commodities research. chris verrone is still with us. output, 1.4rude million barrels of oil a day. what is your base case for how that goes? michael: in january, expected when venezuelan production was at 2 billion barrels a day, 1.4.ted it to go down to we said the situation is getting worse and likely to get worse before it gets better and we corrected the forecast to 1.2. after the most recent wave of sanctions and the government's

willingness to go ahead with the election, he said the situation will get worse before gets better and we revised the 1.0 millionone, barrels a day, not just this year but through next year. that is a significant change the market balance. venezuela is producing 1.4 million 25 million barrels a day. given the new way -- to 1.5 million barrels a day. given the new wave, it is likely to get worse than better. it could range from 5000 to 6000 barrels a day. if we get to that point, prices could go higher than what we forecast, into $85 to $90 a barrel. alix: you recently upgraded your price forecast to 70 for this year and 65 between 19. 65 still see a rollover -- to 2019.the blue line is a five-year forward versus theil up 11%

front months, which is six percent. what is that about why don't you believe it? michael: we highlighted in our most recent research that we expected the longer deferred prices and contracts to move higher. the important thing to understand is the issue associated with iran, the two issues associated with venezuela, and the issues with repeatability of the growth in the permian to the long-term, all of that has changed over the last quarter. i think that is part of the reason why we are seeing those deferred prices move higher. arguably, we could see a correction the front down, and an increase in different prices. david: who might make up the difference? you have the saudis and other producers who could produce more. and you referred to the permian. i understand there are supply concerns but what is the chance it will be a place of venezuela

or iran? michael: the important thing is the market is at equilibrium. there is an equilibrium here that has to be found. in our view, it is not necessarily a monolith of supply and supply that may be lost from venezuela and iran that could be made up by the permian. looking at it in that sense may be too black and white. what i mean by dynamic is that demand will adjust and other assets can adjust. in our view, the right band is one that is not 70 to 80 but one that is 60 to 70 the longer-term. higher, ishe band is there a level where we have to worry about the economy or about the broader market? secondly, do the energy stocks need oil a lot higher to work from here? they did not last year when oil was lower so is there a- rereading of the names?

michael: we highlighted in recent research that for the most part the u.s. and china remain insulated from a higher oil price, and arguably, it is not until we go higher that we see that pass on inflation and pastor one growth -- and pass through on growth being threatened.when we look at other asian economies, especially thailand, taiwan, south korea, some of ande, both emerging developing economies, seeing a much greater headwind from higher oil prices than other economies. that is a concern to us. we expect the current surplus will be reduced by 25% overall for emerging markets asia. in terms of the second question, it is hard to say whether we would see a rereading of the stocks. it is clear we have seen equity and commodity differential be quite wide. we would expect that to come and nine, whether that is from oil prices moving lower or higher.

arguably, many of the majors have seen their operations at this higher oil price level and they are ok with it. it?: are you ok with this chart shows the divergence we have seen. yellow is oil and white is energy stocks. now?u want to buy energy michael: we do. i'm not convinced it will be a multi-year secular move but we have a couple of more quarters in front of us of stocks. we like e&p, marathon, and when we look at energies and the underperformance in the last decade, it ranks up there with thatorst sector overturn we see compared to banks in 2009 and tech, so a lot of the worst days of energy are probably behind it and this rally has likely more in front of it. alix: is your base case the gapalix: closes between oil and energy stocks? michael: it is and the base case

is we do not necessarily need higher crude from here for the momentum the energy stocks have shown to keep going. alix: thanks, chris verrone and michael cohen, great to see you. forng up, prescription profits. a company striking a bullish tone at its investors day. we will have an exclusive interview with the ceo, joe almeida, next. this is bloomberg. ♪ mom, dad, can we talk?

sure. what's up, son? i can't be your it guy anymore. what? you guys have xfinity. you can do this. what's a good wifi password, mom? you still have to visit us. i will. no. make that the password: "you_stillóhave_toóvisit_us." that's a good one. seems a bit long, but okay... set a memorable wifi password with xfinity my account. one more way comcast is working to fit into your life, not the other way around. alix: this is bloomberg daybreak. alix:i am alix steel. by five s&p futures up points and the ftse hitting a record despite the fact that the cable rate is also grinding higher.

it is a story of a weaker dollar, but nonetheless, the dxy below 94 at 93.46. euro-dollar inching higher, as well. and cable moving higher. in italy, buying is coming into the market with yields lower by five basis points as the market takes a break from relentless selling to be seen over the last week. in the u.s., yields up by one basis points as we wait for the two-year option later. and venezuelan sanctions are not going anywhere, up by .4. david: let's turn to kailey leinz with first word news. of ay: as the threat trade war receipts, china has agreed to cut our import tariffs. 15%ill be cut from 25% to to help american automakers, like ford. it will also be a boost to luxury automakers like bmw

because less of the production has moved to china. there is a report that the u.s. and china have agreed to resolve the seven-year ban on telecom makers ut buying american technology. the details are being worked out, but they would involve changes to management and significant buying. facebook's mark zuckerberg testifies before the european parliament today. testimony, he will take responsibility for privacy failures with data links to keep which analytica. -- data leaks to cambridge analytica. i am kailey leinz. this is bloomberg. alix: thank you. was bullishnational after investor meeting earlier, laying out 2023 targets of 5% revenue, and strong free cash flow. makes many, which

products found in hospitals, has undergone a major rebrand under .he ceo joe almeida since taking the helm, shares are up nearly 90% and the ceo joins us now in an exclusive interview. thank you for joining us. i went to to talk about the revenue increase of 5%. how much of that will come from growing international they see do not have yet and how much will come from your current portfolio? joe: about two thirds from new products and about one third and geographic expansion, so places like japan and china, where we had good presence but our product portfolio is not complete. alix: how do you view all the trade disputes we are seeing in d.c. commode china and europe, etc.? joe: we hope this gets resolved and it seems they are getting their. we are a chinese

company in china. we make 90% of our products in china for china, so despite the fact we export some products, it will not affect us to the great extent that maybe other companies. david: you had quite a run. you were successful during your tenure as ceo. you are not like a pharmaceutical company with patents and things. joe: no, we are an injectable pharmaceutical company with medical devices, as well. if you are in health care, you have touched our products. if you have been in the hospital, you may have entered contact with one of our injectable products, so we are in-based health care and every hospital and clinic. we are also in chronic disease with dialysis products. david: what are your advantages has posted competitors? joe: we have the ability to produce the product on a global basis, and we also have the ability to deploy a supply chain across the globe. david: how much of your growth

in earnings is because of topline gross revenue as opposed to you have been effective and cost-cutting, i understand, as well. joe: yes, we have. we were able to get our margins going up our gross margins going year thee removed this of almost $900 million across from our estimate. david: how do you take $900 million out? the follow-up question is, the first million is easiest for the next gets harder. joe: that is correct. you go wet zero-based budgeting exercise, you take layers out of the organization and make it simple, less bureaucratic, more pleasant for employees to be engaged, and at the same time, you remove things that are not necessary. i'm sure many companies around the globe have the same opportunity but it is just the coverage that is sometimes not

there. alix: how much money do you spend on plan -- do you plan on spending this year? joe:joe: $600 million to $700 million in capital. costs?hat about hiring you talk about taking costs out and spending money but where are costs rising? joe: the cost of our supply chain is usually well contained. we are a company that has a significant amount of opportunities to improve our supply chain. clearly, we are a company that also makes a lot of plastic non-pvc and pvc products, so we always have a chance of being affected by oil price but that has been minimized because of our cost reduction program that have offset it tremendously. david: tell us about the overall size of the pie you are taking a piece of. is it growing or static? are you taking share?

joe: the market is growing and baxter is growing 4% to 5% and then accelerating into 2023 to 5% to 6%. so we are growing above our market growth rates. we are happy with the markets we are competing in currently but we are accelerating market share gains. david: we hear a lot about obamacare and attempts to curtail it. there are fewer people covered by insurance today than a year ago. we also hear of ending the cost curve.is that pose a risk to you? we: baxter believes that should have coverage for more people. more people should be entitled to coverage in the u.s. and every place in the world. we have the ability to service all the patients, covered or not, because we are in the hospital business, and the chronic disease business, so when you come to the hospital, paying the bill or not paying the bill, being covered or not being covered, our products are essential to health care.

david: fewer people are covered, doesn't mean that they are seeking less medical coverage and doesn't that mean people are not using as many baxter products? joe: when people get sick, they get sick.they have to go through emergency care or primary care physicians. if you do not have a primary care physician, you end up in the er. no matter where you end up going, you have one of our products with you. alix: what if there are less hospitals? joe: the volume does not change. joe:alix: what if there is a merger, that will be a marginal reduction. joe: there is a shift between acute-care into more home and less expensive. for is one of the abilities the hospitals to come together and merge, but the volume of patients is not changing. we still have people getting sick, getting the flu, going to the hospital, getting treatment. this is when people use baxter products. our products are in the icu, no matter their mergers, we still

have i see you's and that some people -- icu's and beds. people still need to be treated. there is a way of creating synergies on infrastructure cost and not necessarily removing bets from the system. david: and it is a way of increasing pricing power of hospitals. joe: correct. david: there's one thing of how many products are sold and what you charge. are you seeing downward pressure because of consolidation? joe: our products are not elected devices for health care. we're not in the pacemaker business. ,e are in basic health care injectables, saving, glucose, antibiotics, dialysis. those products usually have more stable pricing's. alix: what is the biggest worry you have right now as a ceo? joe: internally to the company, it is about our ability to shift the culture permanently to a culture, courage, and speed.

if we can do that, we will continue to evolve into a company that is innovative, that delivers the bottom line through a good growth on the top line. alix: when you are debating whether or not you will make an investment decision, what does that hinge on for you? joe: it hinges on the demographics, the size of the market in the future, and our ability to grow with the market. alix: so not what comes down the pipes from there or geopolitical risk? how do you view that men's? -- how do you view that? joe: there is geopolitical risk. if you asked if he would invest in venezuela today, no, but in china, for sure because demographics are there. no matter what the trade war and where the stakes are, there are still patients in china needing our treatment. geopolitical changes are part of the conversation. more importantly, it is about the therapies that we can bring in addition to the market. you --john maeda, thank

joe almeda, thank you. the ceo of jcpenney announced he will step down, apparently to do everything a -- to do other things and the current director will run jcpenney right now. the stock is down 8% on the news. jcpenney is getting hit. this goes to show, i feel like jcpenney was the one retail company that cannot catch a break last earnings season. you saw other names coming in well and jcpenney did not cut it. macy's crushed it. david: apparently, lowe's does not think it was the ceo's fault because he will go work for them. willg up, congressman loosen the reins on the banking industry.how will it affect

banks ? you will discuss that with rob nichols. this is bloomberg. ♪

kailey: coming up on bloomberg markets, an exclusive interview with the publicist ceo. david: the house is scheduled to how the dodd-frank applies to regional and community banks. the senate has audi passed its version of the same proposed

law. we now welcome robert nichols. good to have you. take us through this. i will put up on the screen are summary of what is in the senate version that has passed and then he will go to how it compares to what the house will likely pass today. as you know, it will exempt small banks from local rules and sets capital requirements and regulatory exams. how does that compare with what the house looks at today? robert: good morning, the house will pass that same version of the legislation. there has been a conversation in the house about doing additional things through legislation and regulation. but the house will take up today is the same bipartisan common sense bill passed in the senate of weeks ago with republican and democratic support and we expect the same bipartisan approach in the house later this afternoon mid or late afternoon. we are excited about it.

this has been years in the making, not something that just popped up over the last months. bankhas been the result of leaders and ceos coming to washington and talking about some unintended components of public policy response in the wake of dodd-frank making it harder for the community. this has not seen a lot of reporting and this is not a huge rollback or giveaway to wall street. these are thoughtful, common sense, bipartisan changes, particularly aimed at our nation's community banks, midsize banks, and i would say it is in perfect but it keeps and to lock some artificial asset thresholds. we prefer to see banks supervised based on business model and risk profile, which we think is more of a thoughtful way and we would like to see regulation tailored appropriately. make no mistake, this is a huge and important step forward.

we hope the first of additional steps to modernize and properly tailor the supervisory framework. david: i want to take you back a half step and put back up the last list that compared the senate with with the house proposed. the house had proposed doing thoseith sifi, and things they understand the senate has now -- the house has moved away and will go along with the senate. this that mean the house requests are gone forever or will they come back? robert: i think a number of those will come back. advocate for regulatory relief has worked with his colleagues in the senate and i know he intends to bring forward additional measures later this year. his focus is to bring forward the bipartisan measures the house financial services committee has been working on. are not think all of those

likely to become law later this year, but the bipartisan things the committee has worked on will probably be taken up in some form or another. there is a really important role that the regulators can play, subpart what is happening on capitol hill at the side, and oic see, there are shuffled conversations around a host of regulatory measures we think is positive. not to do anything to a road safety or consumer protection, but the right size of will set. david: what could the regulators do? we will put a vest on some of the things bloomberg has reported they are considering moving forward with, doing away with the 60 day presumption speculation by banks, and cutting back on documentation on hedging, the two things bloomberg has reported. what are the regulars likely to move forward on with this? robert: you are referencing the

volcker rule. any regulation is only as good as its limitation. from day one, -- as good as its implementation. from day one, it was hard to comply. there was a conversation with regulators, that said, we need to get this right. we think very soon, led by the federal was a, you will see a volc proposedker 2.0 -- .0 proposed. we think that makes sense to modernize that and address those issues. also, the idea of having a single regulator for volcker also think makes sense, as well as what is in the legislation and exempting community banks that do not have the market making components, so under 10 billion makes sense as well to have them exempt. there has been a conversation

around this response and you have had regulators on the left and right who have said let's clean this up. david: i know how important that bipartisan approach is to you, but you live in washington and take us across the rest of the country. when we get this new version out of congress today and we get the volcker 2.0, what difference will it make in the real world? robert: it would be easier for banks to serve the customers. thanks to vote when the customers and the economy does well, when you have enhanced jobs and prosperity. this is not about the banking sector customers and clients that we serve, small, medium, and large. when the bill is passed, the bulk of the bill is focused on banks under the 90% of the banks in the u.s. under 10 billion and asset size, but it also goes important things for midsize and some regional lenders. there are a number of regional lenders not seen in the bill

that we think should be subject to additional tabling and those things we will continue to work on. this will make it easier for community banks and midsize and some regional banks to serve their clients, be it commercial, residential clients, and to make it easier. david: i know you havedavid: the very active and it sounds like your work is not done. thanks for being with us, rob nichols. alix: coming up, a major shakeup in the retail world. the ceo at jcpenney out and in fact lowe's. at the markets, -- in the markets, you are seeing the buying in in the peripheral bond market in europe easing back as yields moved lower than what we have seen, causing euro-dollar to lose, pretty much flat on the day. crude continues to strengthen. this is bloomberg. ♪ ♪

alix: i am watching the major shakeup in the retail world. the ceo of jcpenney is resigning joinlowe'se's -- to -- to join lowe's. i do not get it, the last quarter was bad, the stock down 70% since ellison took the home of jcpenney, why would lowe's wa nt him? >> he has experience in the home space>> so he brings that experience to lowe's. and himtill struggling leaving abruptly will add more pain as the retailer has to see

if they will continue his vision and strategy to diversify some apparel and move more into home or not. alix: his strategy was about streamlining expenses, cutting cost and trying to drive big ticket items, who would be best poised to take on something at jcp to fix the strategy and to fix what is broken? poonam: i do not know if i have an answer. jcpenney of all the department stores was struggling most, but who is in good shape to take on this retailer entering its sales around? the company has lost $5 billion in sales and it is not an easy feat to recover some or all of that. alix: same-store sales were up lowe's, whatbout problem with mr. ellison solved for them? poonam: i do not cover them

directly but they have been struggling in comparison to home depot. i think they probably just need leadership to improve execution, which marvin allison has played has played aison key role in. alix: if you are looking at jcpenney, what would be attractive to any ceo to step into this role when they have , when other retail sectors are doing well? poonam: the only silver lining i see is that they reset apparel last year, where they went under massive liquidation ahead of the fourth quarter and it is poised to improve. that is probably the bright spot for jcpenney, if there is one. of theirs 50% to 60% sales, so if they can get that to turn positive, that is a huge incremental opportunity to the bottom line. alix: what is the probability they can do that when competitors are already doing

that? tonam: it comes down execution of merchandise. i think they have done a better job most recently in dresses. they have turned the corner there, but undoubtedly, there is going to be more competition. macy's and khol's when not just let them take their share -- kohl's when not just let them take their share. alix: thank you. is hard totimes, it buy stuff that lowe's when there is amazon. globaloming up, federal investments management will be joining jon ferro. this is bloomberg. ♪

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

coming up, china opening up to 15% to 25%.makers, mark zuckerberg taking ihis apology tour on to brussels. the markets, 30 minutes away from the opening bell. euro --arkets, the italy still in focus. stability in the treasury markets, 3.06 is your yield on the u.s. 10 year. the unitednt of states backing down from imposing tariffs on china amidst discourse inside his administration. but former strategist at steve bannon who defends the president's strategy. >> he has done right on china