eight-month low. the ecb says protectionism is a key risk to global growth. relief for emerging markets, the indian rupee hitting a low as rising oil prices. president is not retreating on china. it is the real world impact of trade battles. david: welcome to "bloomberg daybreak" on this thursday, june 28. this is a red letter day. alix steel is following soccer. alix: i totally surprised david this morning. i clicked on an article in the bloomberg. it was about soccer. david: it is quite a big deal. alix: you should have heard the

newsroom yesterday. we are seeinghat and soccer, let's take a look at markets. s&p futures trying to hang on. -dollar stronger. a bazaar dollars session. stronger on the day, then weaker. 10 year yield pretty much goes nowhere, and crude going nowhere as well. high,g at a 3.5 year rippling through the market. david: you will tell us all about it. alix: you know it. the morningnow for brief. u.s. personal consumption numbers and gdp growth last quarter. at 1:00, the u.s. treasury selling $30 billion in seven-year notes. the, the fed releases

second part of its bank stress test. that is when we learn how much capital banks will return. alix: time now for bloomberg's first take. guests.oined by our we want to start with europe. is consumer confidence, euro -area confidence, and economic outlook confidence rolling over? near an eight-month low. i'm wondering how much is italy and how much is trade. >> that's a great question. it is also higher gas prices that will affect consumer confidence. you have to think about how germany has been slowing down. there are a lot of things playing into this. there are other trouble spots in region. mario draghi is concerned as well, trying to dial back any potential hawkishness, saying we will not hike rates forever basically. bloomberg economics had a

report that the ecb could hike faster than people think. once it starts, it will have to play catch-up. traders turning off that narrative now? >> it is a long, slow threat that this might be another brick in the wall. europe was the most upgraded economy coming into this year. it is looking like that optimism might not have been founded. there are two key things that helped spur europe to do better, ,nd one was huge qe unprecedented stimulus from the ecb. at the same time, oil prices sinking very low. if one is going out of the way in terms of oil prices, that means the ecb will be moving slower than would otherwise be the case. david: there are also politics and geopolitics. they will be convening and a couple of hours.

angela merkel walking into it a moment ago. , refugeesa big agenda and migration, threat for angela merkel's leadership. >> the interesting thing is this is 75%s immigration lower this year than last year to the euro region. this is a huge issue. this thes from is european union or specific countries, trying to figure out if an immigrant comes to italy, then moves to germany, can germany send the immigrant act a italy, or will they have center where they tried to coordinate for immigrants to be sent to in order to process and figure out. since some of these agrees,ack to italy it's not so popular. alix: it is no surprise the dax

is the biggest underperformer in europe. david: not just germany, but emerging markets. they have taken a hit. this chart shows the currency and the stocks. the stocks were doing better for a while them up and now they are doing worse than the currencies. em can't get a break. tolds not long ago we were they were immune. >> one thing i would distinguish between is on the currency front. it is widespread and a product of broad u.s. dollar strength. you can see the oil effect come performer,o the best and the indian rupee is trailing. on stocks, a lot of this is all china. index look at the msci em the index has been

outperforming u.s. stocks. that is surprising and suggests these idiosyncratic stories like brazil are out there, but trade has not broken the camels back to me yet. david: what about em debt? >> it has been underperforming pretty dramatically. i went to bring something a said security's analyst yesterday, emerging market weakness is the first sign of the credit cycle turning globally. he thinks this is the beginning of something larger. while you have central banks that aren't withdrawing completely, they are starting to not accelerate their stimulus. even if we don't see interest rates rise, you could see credit spreads rise rapidly. you are seeing that in u.s. high-yield a little bit.

it will only continue as people prepare for a new era. there is a lot of nervousness around is this a sea change and we are adjusting the beginnings of it. alix: and how oil feeds into all that. oil at a 3.5 year high. has moved inch wti five days. some of that could be long-term. we will see winners and losers here. i'm waiting for energy stocks to outperform. >> somebody tell the canadian .ollar the sorry it has been rough. on oil, when you're looking at the u.s. data specifically, there was a good chart showing inventories are being drawn at a pace beyond the five-year high for inventory draws. exports were off the charts. imports are also fairly high. when you put that picture

together, oil and the world largest economy, the picture looks robust from both sides. alix: you mentioned china. come inside the bloomberg and talk about the underperformance of china. the yellow line is the msci index ex china. the white line is the china tech area for msci. a big underperformer as the trade battle continues. i'm wondering, the real-world effects we will start to see, chinese tech companies need to invest and buy stuff. >> right. you see alibaba pull back. they have been investing less in silicon valley. continues to china crack down on leverage. china made a couple of key moves to date where they limited short-term dollar bond sales by companies. this hit the developers in particular. they're trying to reduce the leverage in the housing sector. clearly they are continue with

their plans despite the economy is slowing and there is a rising concern on the fringes we will see a hard landing given trade tensions and the fact china is pretty confident they are going to reduce leverage. be one mainmay indicator of that, considering how important they are to the economy. david: they have the leverage issue, but if they need to invest, they will not be able to do it easily in the united states. alibaba is retrenching. they went on a buying spree. spent $26 they only million. given what president trump and very cut both said, i'm not sure it will be easy to invest in the united states anytime soon. disruptions inng the flow of goods and flow of capital, and that's what we are seeing with alibaba. wells fargo made an interesting call this morning, commenting on the weakness in chinese tech and how we might see this play out.

he referenced the divorce between chris martin and gwyneth paltrow and said we will see a conscious the coupling between them. david: you can find all the charts we use by running gtv on your terminal, browse features and save charts, all at gtv . coming up, more at the summit in brussels. angela merkel said the meeting could prove decisive for the future of the union. that is next. this is bloomberg. ♪

>> this is "bloomberg daybreak." i am emma chandra. a snack in logistics systems slow down online sales to u.s. and france markets. the retailer reported lower earnings. struggled and has a large inventory built up that some analysts say will take time to fix. the ceo says he anticipates a stronger second half. amazon and encouraging people to start their own delivery businesses. it will offer financial and support for americans. uniforms, andcks, insurance will be included. amazon executives have then looking for ways to expand delivery capacity. ipo now vis a company at more than $2 billion.

it is expected to return to trading after being taken private. thatbj's has learned has open 25 stores and spent $230 million on technology. that is your bloomberg business flash. n leaders meet in brussels with a full agenda of contentious issues, refugees to the nine states. welcome now our bloomberg colleague. great to have you with us. set the stage. what is the agenda and the top items for these leaders? >> that's right. it is a huge summit today. two big themes we have to focus on. first, trade. i have been speaking to officials in brussels who are confused by donald trump's agenda when it comes to trade, potential tariffs.

the europeansaid union is prepping for a full on trade war. that might see the european reunion retaliate against the united states. the second topic is angela merkel and the migration crisis in europe. migration numbers in europe are down, but the political crisis has escalated. angela merkel under pressure in germany and the new italian government. david: we have read a lot about this being almost a vote on angela merkel and whether she will stay in power. is there a solution to this refugee crisis? >> right. what we have to understand, again, migration numbers are down. this goes back to her decision to taken one million refugees at the height of the libya crisis. she is under pressure from her own allies who want to distance themselves from that policy. the issue here is crucial for

international viewers to understand, this crisis is underpinned by a fundamental and key principle, the free movement of people. arrivingget migrants in europe, they can go somewhere else. angela merkel has to limit that and set a strong message at home. european states at the border along the mediterranean want a much more comprehensive reform. they say we do all the work. now we need other countries like germany to step up. it is a delicate balancing act she needs to do. it has repercussions in germany and the european union. this is the woman who has led european policy for a decade now. david: thank you very much on that big new summit. alix: weakness in european equities, particularly german equities. it is tech and consumer discretionary and health care getting hit the hardest.

a risk off feel. is the director of global macro at fidelity investments and a principal global investor's ceo. >> good to be here. alix: do you have to factor in a weaker political merkel into your outlook when it comes to germany? >> you have to come and for europe as a whole. the weakness of chancellor merkel arises from sentiment still very negative around immigration, even though it was pointed out in the report a moment ago the immigration crisis, there are less numbers. the only way we are going to solve or manage this immigration movingin europe is by back from the schengen agreement. the fundamental problem is people come into italy, greece, but they want to go to germany. theythey are in the eu,

can move freely without border checks. i do think this will have to change at some point. i don't think europe will step back from free movement of people, but it does not mean without checks. if they manage it and the entitlement to stay in the first port of entry more effectively, they could get towards a resolution, but chancellor merkel's position makes this more difficult. at thehen you look equity markets, you not seeing that filter through. euro confidence, that has rolled over. te line is broad confidence. is this the first? soft indicator that we have a problem in europe -- first soft indicator we have a problem in europe? >> it has been slowing now for a

number of months. em and china have been in the eye of the storm in the u.s. liquidity tightening scenario with the fed raising rates seven times. it is part of the overall picture. in europe there is something to always be worried about coming italy, now germany. last year it was france. there is a reason why valuations are lower than the u.s. there is always that thing hanging over us. this is consistent with the overall theme that momentum has peaked, even though growth has not. that is a twilight's own for the market, where markets generally sit around and not do a lot in that phase of the cycle. that is what we are seeing. david: we have heard for months or years that europe is behind the u.s. you wonder if they have passes by and we are on a downward slope. >> i think europe is behind the

u.s. by a couple of years. if you think about the financial crisis, it hit the way it did. we had the euro crisis later. is behind the fed in terms of easing. there are economy is late -- less late cycle than the u.s. >> europe was later into the recovery in the u.s., but it has always been fragile because the political schisms in europe. the italian election makes that worse, of the country with no unified leadership. you have other factors like the new economy has taken off in europe. the big companies are not tech companies. that is a reason for the market rating to be lower. you have interest rates near 01 growth is rolling over. what do you do about that?

i see political and policy conundrums that we can the outlook for the market. alix: at least you have deutsche bank. trade conflict with united states, how material is that at this point with european growth? >> the interesting thing to me longer-term about trade conflict is a full on trade war is bad for the u.s. it is equivalent to a big tax increase that led to the loss of jobs, but with europe and asia having more open economies, it is worse for them than the united states. in that trade war scenario, if you want to run for safety in the u.s., even though you could that europe is so much more vulnerable. alix: you guys will be sticking with us. certainp, no relief for emerging markets.

stocks heading for another day of declines. is this just the beginning? this is bloomberg. ♪

alix: the emerging markets having another day of declines. you can see how the equities and currencies continue to rollover. still with us are our guests. im, is this a buying >> opportunity for certain emerging markets? not yet. not yet. the threat of a trade war are bad for emerging markets. i think a buying opportunity is coming up. i would be wary. alix: it is easy to blame trade hikes for emerging markets, but there is also oil in the background. i wonder how much is real and fundamental versus the trade confrontation? em arefundamentals for

constructive, but em is always in the eye of the storm went liquidity conditions are tightening. em funds itself and dollars. when the dollar is going up because the interest rate spread it is widening, they have to look past the u.s. policy diversions to get a handle on when this e.m. becomes a buy. are negative, so maybe we are trying to reach a level of catharsis. alix: china worried about capital flows, putting a cap on bond sales. if you're going to pull a?trigger, where would you do it -- whereuld go for the would you do it? >> the stronger economies will benefit from the growing middle class and growth of prosperity. you start with greater china. is thele of east asia

place you go if you're looking to increase in emerging markets. that is where the longer term fundamentals are strongest. alix: thank you both for sticking with us. coming up to date later on the pureies edge," player in the permian basin. a lot of information about takeaway capacity and how that spread is affecting the business. coming up, justice kennedy stepping down. could meanacement for investment and businesses. we will discuss that with a former supreme court clerk next. this is bloomberg. ♪ g. ♪ what's a gig of data?

well, it's a whole day's worth of love songs. 300 minutes of baby videos. or, it's a million chat messages. a gig goes a long way. that's why xfinity mobile lets you pay for data one gig at a time.

and with millions of wifi hotspots included, you'll pay less for data. it's a new kind of network designed to save you money. click, call or visit a store today. alix: this is "bloomberg daybreak." a little bit of weakness in europe and strength in the u.s., s&p futures up by two points. we closed below the 100 day

moving average. if we see follow-through selling, that is one signal. if we are able to reclaim, that is another signal. italian banks taking the lead on the downside. it wasr asset classes, an interesting session for the dollar, euro dollar higher by .3%. acrossa stronger story the board. emerging markets still getting hit, the ruby at a record low -- pee at a record low. not a lot of demand, the first one after the new government took hold and you did not see the demand maybe analysts and investors were looking for. 530 continues to flatten as you have bmo saying we will see curve inversion flatten. david: i keep hearing that more and more. alix: they say it will be a day of reckoning for the fed and others say it does not signal recession. david: can you spell policy

error? let's get a look at what is making headlines outside the business world. emma: president trump and vladimir putin will hold their first financial summit this summer. russia announced the plan after u.s. hosted john bolton for talks on wednesday. talksence says he expects to include russian interference in u.s. elections and the kremlin's military incursions into ukraine and syria. u.k., teen energy investments are paying off for the -- clean energy investments are paying off for the queen. -- the u.k. is a world leader in offshore wind with more turbines than any other nation. profits from the crown estate portfolio were sent to the treasury. greek prime minister has vowed

to stick to the financial agreements he agreed with -- european leaders. he says his government will not pretend -- what happened in greece in previous years and led us to bankruptcy was a huge waste of money, corruption, and irresponsibility in the management of public finance. we should not go back to that and i will do whatever i can for greece to not go that -- back to that tragic period. emma: lourenco goncalves -- this isa chandra, bloomberg. david: it may have been inevitable, but no less a shock to the world of law that -- when anthony kennedy announced he will step down from justice of

we welcome the dean of the supreme court bar, carter phillips, who served in the solicitor general's office and argues regularly for the supreme court as a partner in washington. really great to have you with us. thank you for joining us. carter: let's -- let's start with the legacy of justice kennedy. if you read in the newspaper and a lot of the social issues, where he was on abortion and things like that, what about the affected business and financial markets? carter: he was a pretty solid pro-business conservative jurist and i trust -- antitrust issues, he tried to limit the sweep of the antitrust laws. securities laws, he was, generally speaking, for narrower source of liability, he did not want to go beyond whatever congress provided. he was not a big fan of large

litigation, was not a fan of class actions. from the business community's perspective, getting somebody like him would be extraordinarily important. on the other hand, the problem is with -- the problem is conservatives come with different stripes. some are more business oriented and more ideologically oriented, but on some issues, it will not benefit the business community. david: in some ways he did side with the majority in striking down -- the one about baking the wedding cake, that was not implying a colorado state use of piece of legislation -- in general, was he receptive to claims that regulators have overstepped boundaries? carter: yes, he was, and the cake shop is overlaid between sort of complicated first amendment and lgbt writes.

it is sort of odd in that respect. if you look at him at some of the that would find certain state laws were preempted and the dormant commerce clause, which is something in the constitution the business community relies on heavily, those are principles he applied regular, a balancesess way, it states rights preferences or the desire to allow the states to regulate. in general, given the opportunity to find a path that would make the lives of the lessess community somewhat complicated, he tended to find that way. david: even as we reflect on his legacy, we look forward. the president has put out a list about what ispen on it. not asking you to pick who it will be. if you look at the candidates, how would they be likely to

change the court in terms of business or would it be more of the same from justice kennedy? carter: i think it would be similar. i don't expect there would be a fundamental change on questions of class actions, antipathy to large litigation, probably not a difference in terms of, say intellectual property. it is one area at least from the defendant side of patent limit litigation, he was across the board across the area. the court hasn't revisited the question of what limits the place on punitive damages for quite some time and the composition of the court has changed dramatically. if you go back to the decision where the court imposed limits, the two justices who refused to impose limits were scalia and thomas. if the newer justices were to

follow that approached saying the due process clause has no business there, the business community could easily find itself with a 54 6 member majority. that would not be a positive development for business. thed: it struck me that on supreme court at this point, i don't believe there is anyone who has substantial corporate experience as a lawyer or otherwise. i wonder if there are any candidates that have been in a board room, done things in the corporate world who understand the inner workings of a corporation and is that make a difference? carter: clearly it would make a difference. if you go back to your old boss, justice powell, who had an enormous amount of experience kennedyhowed, just as had some of that as well and i think about most of the candidates sort of sitting down and analyzing them and most of them are either academic or would -- or were academic or

have been judges for quite some time. for better or worse, people who are judges tend not to be focused on board room activities , they are cloistered to a certain extent and that is a fact of life. david: with out regard to who will replace justice kennedy, what are the biggest issues you think might affect? you mentioned punitive damages and antitrust law. being mindful of the fact president trump and his administration have been in favor of the regulating, are there major regulatory issues or commerce clause issues we might expect to come up in the next term or two? carter: i don't have any doubt environmental issues will be all over the place. the president and the epa have engaged in a fairly systematic effort to deregulate a substantial amount of the environmental legislation and i think that will be -- not the

legislation, regulation and those issues will make their way through the d.c. circuit and backup. i think that is going to be one for -- absolutely. i think class actions will continue to be an issue that the lower courts are struggling with and that the court itself will have to evaluate and obviously from the business community's perspective, they hope the justices who lined up to kind of more clearly return to the rule 23 that was adopted 60 years ago will be the approach taken going forward. really great to have you with us today. that is carter phillips, former supreme court law clerk and the best shooting guard on the court in the 78th term. i was really bad, but -- carter: that made my day. david: it is true.

we clocked together and there -- clerked together and we played basketball regularly and carter is a very good guard. alix: you buried the lead with that. .till with us is jim mccaughan i just want to bring in this chart to illustrate how important the regulation conversation and the regulation conversation will be. the white line is the unfavorable news and the blue line is the favorable news and they are in exactly the same space. that usually does not happen, meaning it is a lot up to politics, president trump, and maybe even the supreme court to help guide that. what is the risk or opportunity of the supreme court or washington, d.c. that continues to look at the regulation? -- a very goodg

question. a lot of the the regulation -- the regulation -- a lot of the deregulation is actually enforcement of regulation. when you look right after the election at the small business werey, etc., taxes important, but regulation was even more important and i think that is largely responsible for bringing back the animal spirits in corporate america and we are seeing that, q1 earnings growth 24% and q2 is a -- is around the corner, 20% expected. 20% growth through the rest of the year. fundamentally and whether you add regulation or not, things continue to be pretty good. tion, if you think deregula the first thing you think of his banks. -- is banks. it is not enough whether you

deregulate for a sector. ofthere are certainly a lot issues affecting financials. if we are toward the end of this recovery and say trade war brings the downturn, which is quite possible, you will elevate to bad debt and it will be a silly time to get into financials. probability, a 30% maybe the downturn is two or three years away. i believe thanks are not really a great overweight in the market. i think they are a trade and they will trade on bad news and good news. beingn: they are also affected by the yield curve, which continues to flatten. jim: it is an interesting point, there has never been an inverted yield curve that did not associate with a recession. david: there is this correlation. jurrien: jurrien timmer and jim mccaughan, thank you for being with us. a rude awakening, that is what elon musk said is in store for

analysts critical of his company. turn on the radio to listen to tom keene and jon ferro and then pimm fox from 9:00 to 10:00. this is bloomberg. ♪

emma: this is "bloomberg daybreak." emma chandra. coming up, nathan sheets. this is bloomberg. now to your bloomberg business flash.

bp is to buy charge master, the u.k.'s biggest electric vehicle -- there will be 12 million electric vehicles on the u.k.'s roads by 2040. chargingster has 6500 points across the country. apple is said to have landed a second supply of the led screens used in high end iphones. the lg display will supply between 2 million and 4 million units. that is small relative to all iphone sales, but it will -- messagingainst service is opening a cryptocurrency exchange in singapore. it will be available in 15 languages excluding japan and the u.s. it will offer trading in virtual coins including bitcoin and ethereum.

that is your bloomberg business flash. alix: we turn now to wall street beat where we cover three things wall street is buzzing about. goldman's expensive malaysian lunch. investigators turn their attention to a 2012 lunch meeting involving two goldman sachs bankers that set the scene for the money probe. bares,nts goldman pushing back against a prediction made by goldman. drilling into corporate dentistry. dental companies gaining attention. -- the dental industry did not know it was $73 billion. david: dental change. joining us is jason kelly. i have to say i have a soft spot for this 1mdb story. alix: it is because he understands it. jason: you are a small category. david: they raised money for a

sovereign wealth fund and it went into a lot of people's pockets. to trips a continues and drop, you have to go back to the idea for an half ill you dollars is the money we are talking about -- four and a half million dollars is the money we are talking about in the fund. it touches the u.s. and bank accounts, which is a good money story. david: movies, wolf of wall street got financed with it. jason: even yesterday on the bloomberg there was a great photo of authorities holding up these bags and now we come to goldman bankers, a fancy lunch. it just gets more and more cinematic. --id: we know what have are whatever happened to the money, goldman made quite a bit on the fees. there was this lunch at this restaurant in singapore where they all got together and issued bonds and quickly found out -- showed up in a swiss bank

account. alix:6 clients they were trying to pitch at this lunch. david: no longer goldman bankers. jason: that is correct and as you get further into the story, this is why it is a story from a journalistic perspective, you have a name check of russell simmons late in the game. his former wife is now married to one of these bankers who was involved in this. the twists and turns are amazing. it goes to the heart of a really, big, major and political scandal not limited to this one country. david: and the malaysian minister said i want to get to the bottom of it. russelldegrees of simmons. elon musk is apparently reading research reports or goldman -- goldman sachs bears that said it would be easy for the car

company to miss the estimates. they want to build 3000 of the model 3 sedans by the end of this month and then musk comes out saying they are in for a rude awakening. jason: smiley face emoji. alix: exactly. isn't that kind of a legal or against some fair disclosure act? jason: we will turn to the lawyer, reg fed would be the point in question. it appears it is not and you may .ave more familiarity my understanding based on our reporting is because it was internal communication. david: what is that in this day and age? you tweet to a few hundred people and it is internal communication. alix: 5000 a month. unless my math is off, that is like 20,000 cars a month and the bloomberg tracker is looking for 27,000 a quarter. jason: right.

i would go back to something you said at the top half, is this the best -- if you are an investor, is this what you really want elon musk focused on, hand-to-hand combat with outside analysts. remember, he cuts and analyst off on a call. there has been a lot of back-and-forth and tweeting. #sadface. our second story has to do with a dentist industry -- corporate owned dental practices being a missed opportunity. you have this guy at the center, a you have this guy at e center, a dentist named richard workman. he set aside his dental practice a few years back basically to start doing big rollup's and along comes private equity, which has an appetite for dentistry. when you dig in, it makes a lot of sense because there is a lot of consolidation that is possible. this is a pretty profitable business, the cash flow is

predictable and it checks all these boxes. david: it is one of the stories that never would have occurred to me and as soon as i read it, of course. alix: we have a zillion dollars in our space. david: thank you so much, jason for being with us. alibaba says it is scaling back its u.s. presence. how other countries could be -- companies can be affected. onx: watch us online, click charts and graphics and interact with us erratically. go to tv and check it out -- interact with us directly. ♪

alix: we have breaking news concerning the ecb. a member of the council is actually going to be praising prosecution in lafayette after a bribery investigation. it has been months since they

have been going back and forth and having a lot of issues and in february, the bank -- the treasury department said it violated north korean sanctions, so bribery investigation. david: he claimed he was too much of an informer. he could not travel to the ecb because of the charges against him. we want to turn back to china and alibaba. alibaba is scaling back the presence in the united states and it may be a sign the president's crackdown is calling a -- causing a chill on companies. there was a time alibaba was active buying up pieces of tech companies in the united states. and now they are dialing back. is it because of what is going on with the u.s. and china? >> i think it is a little bit twofold. when you have this lack of clarity around what kind of investment will be allowed and in what industries, that forces companies to take a pause. shiftingsee alibaba

its strategy back to asia and looking at growth opportunities there. i think it is a little bit of both. david: is this likely to have an effect on tech company stocks? brooke: i think so. i think you are already seeing this in semiconductor companies. if you look at genworth financial, gnc, -- gmc, the vitamin maker, china really save them from think wreps he or financial duress and without that -- bankruptcy or financial duress. alix: brooke sutherland, thank you very much. nathan sheets coming up. this is bloomberg. ♪ two, down, back up!

our phones are more than just phones. they're pocket-sized personal trainers. last minute gift finders. [phone voice] destination ahead. and discoverers of new places. it's the internet in your hand. that's why xfinity mobile can be included with xfinity internet

which could save you $400 or more a year. it's a new kind of network designed to save you money. click, call, or visit a store today. alix: losing confidence. european confidence falling to an 8 month low.

the ecb says protectionism is a key risk to global growth. no relief for emerging markets. dollar strength in a monster whammyeliver a double for the s&p asset class. alibaba scaling back in silicon valley as president trump says -- president trump's not retreating on china. david: i am david westin with alix steel. we will see how awful it is for good, rainy, but this is news. i called up my weather app, boston wednesday partly sunny and 87. alix: i can handle that. thell be in boston hosting boston spectacular and it always is the -- what will happen to my hair and with my dress be appropriate and will it rain?

these are the questions that will plague me on set. david: it does not have to plague you, i just told you. alix: but is it going to be humid? david: that is way beyond what we talked about. alix: u.s. equities trying to inch higher and losing some steam. following european equities lower. the german inflation reading right now slowing to 2.1%. it didn't match the estimate, but nonetheless, slowing. 115 is how the euro prince. going nowhere in the bond market, seven-year auction later today, but we have a solid , two-year,akedown what will we see for the 7? days, ay in just five really unbelievable move for crude. it is having ripple affects all over the globe. david: we now know president trump will meet with president .utin july the 16th

we have been waiting for this announcement, this meeting between president trump and the whole world waiting for this. it will be interesting to see what they have to say. alix: did they outline an agenda before they go? david: that is the way it is -- it has always been done. i am not sure. it is time for your morning brief. we will get u.s. personal consumption numbers and the third read on gdp growth last quarter. at 1:00, the u.s. treasury will sell $30 billion worth of notes. the fed will release the second part of the bank stress test where we find out how much capital individual banks will be able to return to shareholders. yesterday was another good cop, trumpp day with president starting the day by announcing an approach to limiting foreign tech investing that seems -- seemed to take china out of the

spotlight and three hours later, larry kudlow going on tv to make sure china was very much in the crosshairs. president trump said we will use cfius, that committee on foreign investment in the united states process. then the red line here is when larry kudlow said don't make any mistake, we are targeting china and the market came down after that. we welcome nathan sheets, who spent 18 years at the fed before he took over as treasury as undersecretary. welcome back. is this all about china at this point? maybe two seems to be thirds or three fourths about china. the administration has some very -- in my view, some very legitimate complaints about thinks trade policy and i at that end of the day, that is

what they are primarily focused on. i also have to interpret what the administration dead -- did so far and -- -- i thinkxtent president trump has in mind, a broad remaking of the global trading system. alix: basic question, is that good or bad for global growth? nathan: i think if we can get to a global economy that has fewer restrictions on trade, that is good. then the question is how costly is it to get there. my background at the fed and treasury would tell me you get there through negotiation, through bilateral talks and through multilateral mechanisms like the wto. getting there through unilateral threats and accusations could be very disruptive and i think risks ending up in a very

different place than where the president would like to land. david: and your experience, you understand the extent to which you have to communicate with central bankers and monetary officials around the world and where wense of wire -- are going and what we are doing. could we curtail growth just by the uncertainty? nathan: these are one of the grand ironies of the trump administration, that previous administrations of both parties very much believe the policy should be predictable, transparent, more or less linear from its just station into its implementation. ar trump, this is all negotiation and it is not clear where he is headed and i would've thought that would've created huge macro uncertainties, but the economy seems to be performing well and business and consumer confidence in the united states is strong. alix: but not when it comes to certain emerging-market equities and fx.

i want to show you this chart looking at the asset classes, equities versus jpmorgan and fx, continues to grind lower. how do you think about that when there is talk about u.n. devaluation? nathan: the backdrop is federal reserve rate hikes and i think that is very important. in addition, this disruptive interaction between the united states and china, between the united states and europe is creating uncertainties that i think are impacting the emerging markets. david: you talk about the fed on a path to rate hikes. until then, the pboc seemed to be going along with us. it appears over the weekend and last night they may be taking a different course, they changed the reserve requirements and -- is the chinese government

consciously deciding as a tactical if not strategic matter to fire a shot across our bow? nathan: i think there are two things going on. the data suggests the chinese economy slowed somewhat more than they wanted ring the first during five months -- the first four or five months of the year and for that reason the pboc is taking its foot off the brake. in this environment where the united states is threatening china, is china going to use the monetary policy to defend the currency? no. is it going to use reserves to defend the currency? no. alix: there is no u.n. weaponization that you see? nathan: i would see this is a natural response. they will not use reserves to defend the currency and part of that is china, through this talk, is sustaining a real .conomic shock

it will hit china more than it hits the united states. that does not mean that ultimately we can -- i think it is an open issue and they will get hit more on economics and finance, but the politics, are they sustainable in the united states? david: but do the economic shock and the asymmetry cut in president trump's favor? that is what they are looking at, absolutely. by the same token, president xi's advisors are saying look at the political structure in the united states. thisdent trump cannot keep up. both sides think they have the upper hand and that is what scares me about it. bex: nathan sheets, you will

sticking with us. corporate has -- debt has tripled in size. we will take a look at the risk ahead with susan lund. this is bloomberg. ♪

emma: this is "bloomberg daybreak." earnings forlower the fourth consecutive quarter as the company continues to struggle with the shift to on time -- online shopping. a slow in shipping continue to an inventory buildup and they

say that will take time to fix. the securities and exchange commission will review a proposal to make it easier to bring etf's to market. the mutual fund industry has long complained about the time and cost associated with sec's approval process. the chairman has made passing etf's a priority. amidallest semi-rise bonds terror of concerns. tariffng to -- amid concerns. offered $166 also million in five-year bond, a 31% slide from similar issues last year. president trump's threat to slap tariffs on european car imports are being felt as far away as --

causality -- i don't think that is the word i meant. david: casualty. normally i can interpret's her writing. alix: i use david to speak my language. into investment grade spreads globally widening. the white line is the bloomberg barclays global aggregate spread and you can see that widening in the past few months versus the equity story, the blue line pretty much stable. joining us from aspen, colorado, is susan lund, author of the mckinsey report: rising corporate debt parol or progress -- peril or progress? i want to point out, we have a chart we can pull up that since two thousand eight, the total global debt has grown by three

quarters to all the way to $169 trillion. who is the biggest offender? what country added on the most debt? susan: we have got two different things going on. one is the growth in government debt, which explains the largest portion. less noticed has been the growth in corporate debt. landscape,ok at the china really stands out. david: a couple things to take away from this. number one, the number of corporate debt has doubled. china accounts for so much of the growth. susan: it did. the corporate bond market went 2om virtually nothing to trillion, now one of the largest in the world. upnese corporate debt is

at 163%, higher than any other country in the world except financial centers. alix: when does it burst? what is the implication and what will be the trigger? nathan: this is the number one policy -- number one domestic policy challenge for the chinese and president xi. they have seen an extraordinary increase in domestic indebtedness that has huge implications for the sustainability of growth and the and theynd the banks are trying to slow the growth of debt and leverage and credit. how do you do that in a way where you are slowing it down %ust enough to also hit the 6.5 growth target? this is the tension chinese authorities deal with on a day to day basis.

david: how much of this is the increase in the amount of money or how much of it is a shift in bank loans to capital markets? i heard we are shifting the risk in the banks and now we have reserves there but it is being shifted to debt capital markets. susan: that is part of the trend , definitely. because banks have been restructuring and adapting to new regulations, growth in the bond market has soared. net said, there is a increase. overall, corporations are more leveraged and more indebted today than 10 years ago. in particular, the bond market has grown. alix: true, but where it grew has been interesting. the nonfinancial corporate that into its -- issuance has been strong in triple bbb's. tell us about that. susan: one risk is credit

quality slipped. we have had 10 years of low interest rates and that enabled all sorts of companies with weaker credit ratings to borrow money. about 22% of overall debt outstanding in the u.s. or corporate bonds is high yield and when you look at investment grade, you find bbb is the largest chunk of the investment grade debt. that is one notch above junk bonds. overall, we have seen a downward migration in the credit quality of companies able to issue bonds. david: there is the credit quality bbb and junk. i would like to put up the chart showing where these mature showing a bubble around 1920. at the same time globally some liquidities coming out of the market because of central banks. what kind of problems could we be facing as people try to roll those over and refinance them? susan: 2020 -- nathan: 2020 is

going to be a key date in the expansion particularly in the united states. should beint, the fed at or above neutral and importantly, the fiscal stimulus will swing almost a percentage point of support to growth to maybe being a slight contraction and on top of this, if we have a lot of refinancings that are necessary, that could suggest financial market stress at that point. if there is a date in my expectation for each session, the date that is most likely is some point in 2020. i think we can go beyond that, but we have to be very careful. alix: it is going to be like the trifecta of all things hitting at once. in your experience and work, what countries have the companies that can service the debt and what countries have the companies that cannot? susan: according to our

analysis, companies in western europe look like they are in pretty good shape. they traditionally have not had a large corporate bond market, so this is new for them. it has been the biggest, best blue-chip companies that have issued. the u.s. is in pretty good shape although when you look at specific sectors like energy and retail, you find there are a lot of companies that could be in distress. when you look at emerging markets, that is where the real problem is. we looked at brazil, india, and china and we find roughly a quarter of the companies today have very fragile financial positions struggling to repay debt and if interest rates rise, that share can rise to as much as 40%. dox: the question becomes, central banks have the power to actually step in and help when the bill comes due and they cannot pay? susan: i think central banks think central i

banks have latitude and the more important question is does growth remain strong? my feeling is these corporate will be able to make the payments. significantlys come a could be rough. david: growth fixes most problems, the point is can you count on it? susan lund, that was a terrific report. nathan sheets will be staying with us. bank stress test, can the big banks make good on -- morgan stanley raises some yellow flags breed we will tell you what to expect in the second round of stress tests. ♪

david: round 2, the fed announces results from the stress test today at 4:30 eastern time. the good, the bad, and the ugly will hit banks at a tense time.

forlongest losing streak the s&p on record. joining us with what to expect allison tests is williams and still with us is nathan sheets. give us a preview. we had a hint maybe last week with the first around, there were banks close to the line. what are we expecting today? allison: wells fargo i think will be the most interesting. that is the binary event. even before last week, if you look at their capital, they well and above had the most capital, the most capacity to return to shareholders. investors are worried about the qualitative aspect. i read about that on the bloomberg that said having that much capital might be a bad indication because it might indicate the market wants you to have more capital put a way to mitigate risk. allison: excess capital is really just a function of what earnings may have on the balance

sheet. the other issue with wells is they have a growth constraint. if you cannot grow and you have a lot of excess capital, the hope is you will be able to return that to shareholders. alix: the other will be goldman sachs and morgan stanley. how much are they allowed to return to shareholders? alison: when their results came out last week, they passed with the least amount of cushion. coming into the test, i think the expectations were the least for goldman. wells had the most capital and they are best in the test in terms of having the least change from last year. goldman was sort of this litmus coming into the test and we saw a slimmer cushion. morgan stanley and citigroup was another that came in a little close. easy: those may be the ones. it would not be a banking segment without talking about deutsche bank. alix: i think -- alison: i think there is an expectation they would fail. if anything, i think the results

last week should quell concerns. when we had concerns a couple of weeks ago they had been added to this confidential list and those are kind of the toughest stories because there is no way for it to be confirmed because by definition, it is confidential. the question is is this a capital and liquidity issue or some sort of internal control issue? i think the stress tests validate this is not a control issue. nathan: i am going to be hesitate -- hesitant to comment on any particular name or institution. as a general proposition, and i think this applies to many european banks, they need to be well capitalized and i think in recent years, european banks in thate strides direction. whether they have gone far enough i think is an open issue. profitableo have a business model. european banks need to figure

out over the medium to long run, how are they going to make money? i think we are in a place where the fed is asking those questions in the stress test and may be more vigorously, the markets are asking those questions. so far, i think there are at least some european institutions that have not yet been able to answer that question to the satisfaction of market artisans and analysts. alix: well said, figure out how to make money. .oom alison williams, thank you so much and nathan sheets will stick with us. calm headed into that number. this is bloomberg. ♪

alix: this is "bloomberg daybreak." eco-data, butrom having a rollover in the markets. european equities in deeper territory and the dax off over 1%. .3%. in otherwn

asset classes, the bond market very quiet, even marginal selling in the market despite a lackluster auction in the fives and 10s. the dollar completely mixed on the session. 227,000, a little higher than estimated. information, we have the gdp, final read on the first quarter of bit lighter and the second read at 2% and the core pcp quarter on quarter index bang on line with where we were at 2.3% and personal consumption a little under 1%. david: a little lighter than expected. we returned to nathan sheets and also with us in london is tina martin adams, the bloomberg's intelligence chief market analyst. where are we with the u.s. economy? nathan: the u.s. economy is

looking very solid, probably word, would be a better 2% growth for the first quarter is ok, but the tractor -- tracker for the second quarter 2% toorting gdp growth of 3%, very strong. we are supported by fiscal stimulus that is significant. , we heard from secretary mnuchin expecting second-quarter gdp numbers will be strong. if you take $1.5 trillion and pump it into the economy, shouldn't you expect this? gina: you would think so. i think what we had was a pretty good fiscal boost on top of what was already going to be a boost to economic growth. even without that, we had strong leading indicators of growth surveys,business

consumer surveys reaching all-time highs within the last year. there was leading indication we were going to get much stronger growth in 2018 than in 2017 and we are seeing that come into fruition. the expectation is stronger growth will endure to the second half of the year. growth waseason why downgraded for the second quarter was provisions to spending -- revisions to spending for services and inventory investment. consumer spending rose 9/10 of 1%. inventories and exports also subtracted from gdp. we also have breaking headlines. amazon is making an acquisition to buy pill back -- pill pack. if i't even know what i -- know what that company is. let me look that up for you.

it is a nonpublic company, that i can tell you, it is private and it is a pharmaceutical services company. that is kind of interesting, full-service pharmacy with online prescription management. david: amazon is not going to come in with the pbm's and something like that. i was talking to somebody in a startup business this week that said amazon has not yet come to prescription drugs and when that happens, you will see changes. tox: i moved my prescription duane read from some thing like that called capsule. it is easier to do it online. if amazon does it and i am a prime member. david: we don't go from pharmacy to pharmacy to see if you can get the best deal. if you are online and can see the price, it could have a substantial effect. alix: walmart was looking at one point to buy pillpack. anzon buying pillpack,

online pharmacy services company and no terms disclosed. an interesting development for the company. before that i was talking about exports, and services that subtracted from gdp per it weren't those things that were supposed to help us? nathan: in this world, net exports are likely to subtract at least some, strengthening dollar, relatively strong u.s. growth. i think that is a component of gdp i would expect to subtract this year. consumption and investment i think are going to be very justg and inventory is kind of bouncing around some. often you have a negative contribution one quarter and then it is offset and positive in the next, those just tend to even out over time. david: gina martin adams, i want to bring you back up and put up onhart, it is alix's chart the dallas fed indicating material prices and they are

really taking up. at least for the dallas fed area we see inflation kicking in and maybe pricing power. are you seeing that in the markets? gina: to a certain degree. --hink that are sectors have certain sectors have better pricing power than others. generally across the s&p 500 operating margins are expected to expand over the next 12 months. 10 of the 11 sectors are expected to post expansions in operating margins, which would tell you there is pricing power expected for the index. investors are questioning how much pricing power there will be and that is showing up in industrials and materials companies. things to watch closely in the upcoming quarter of earnings starting in the middle of july, how much pricing power the companies themselves

are suggesting they are likely to have in this environment where inflation is breaking out a little bit. alix: oil prices. there is that. nathan sheets, it was a pleasure to have you on set and gina martin adams, thank you very much. david: let's get an update on what is making headlines outside the business world. emma chandra is here with first word news. gina: president trump and vladimir putin will hold the first bilateral summit july 16th. talkpence says he expects to include russian interference in u.s. elections and the kremlin's military incursions into the ukraine and syria. euro area arehe growing concerned about the economic outlook. the european commission index of household sentiment fell to an 8 month low. aboard a measure of confidence that includes businesses also fell for 6 straight months. e.u. leaders are meeting in

brussels as part of a two-day summit. immigration is part of the agenda. the prime minister of greece alexis tsipras told bloomberg it requires an european solution. >> we need to consider whether the crisis and other -- at any other big crisis and challenges felt by europe will be dealt collective spirit. dealer each country will with it separately tilting fences and only looking in their own front yard. emma: global news 24 hours a day, on air and tictoc at twitter, powered by more 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. alix: just to recap the data we got in the last 6 minutes. gdp has been revised down in the first quarter 2% due to services.

you see futures around the lows of the session, it is hard to see if it is the data or a rollover because european equities are beginning to selloff more and that is dragging down u.s. the bond market doesn't seem to be going anywhere. .mazon is buying pillpack we don't have the terms, but they are an online pharmacy services manager. walgreens might have wanted to buy them at some point and amazon is getting in to sell basic items like inhalers, insulin, etc. david: as recently as april, there were reports by others that walmart would be buying them and would pay something under $1 billion. that is what was reported in april, that walmart had a deal. coming up, the brazilian reality -- real is weakening after the quarterly inflation report came out. houston coming up , coming up alston

next. as you commute, you can listen on the radio. bloomberg surveillance can be boston, the york, bay area, washington, d.c., and all across the united states. this is bloomberg. ♪

emma: this is "bloomberg daybreak." i am in the hewlett-packard enterprise greenroom. coming up later today, jason furman, the former chairman of the council of economic advisers. this is bloomberg. now to your bloomberg business flash. alibaba is scaling back the presence in silicon valley amid president trump's crackdown on chinese investments.

their strategy has been to encourage u.s. businesses to reach chinese customers through the online bazaar. alibaba has also taken sizable stake in u.s. size -- startups. they will focus business on china and southeast asia. amazon is encouraging americans to start their own delivery businesses to help recover the last mile. they will offer financial and operational support including truckp cost, discounted fuel and insurance. and amazon executive says the company is looking at ways to fix and delivery capacity is -- as custard -- as customer demand is higher than ever. etf's to market. it outlines formal steps for more straightforward funds. they have long complained about the time and cost associated approval process. the chairman has made passing an etf rule a priority since he took the helm.

chinese equities go deeper into the bear market territory. ten-day decline matching what we saw during the 2015 devaluation that has ripple affects throughout the emerging markets. some p.m. countries have unique issues. we are digging into to find the problem and find the opportunity. we are focusing on brazil. latin america's largest economy feeling the pain from a trucker's strike. prices toraised increase profitability and appeal to investors that triggered a strike that crippled exports and transportation in the country and the central bank said it's making it harder to read economy. leche --s is julia julia leite. walk us through the tumult and why petrobras raised prices in

the first place greeted julia: i think you explained it very well and petrobras had been practicing low international prices for a long time. when the new president came in, he put in new management and said he would raise prices following for a long time. company great for the and investors loved it, but it had an impact on the economy which ended up causing the ten-day trucker strike. alix: what was interesting is resignedf petrobras and his promise was to come in and make it a profitable country -- company an appeal to investors. what is it safe for the future of is this if they had to reverse the fuel policy and the ceo had to get the boot? julia: they haven't actually changed the fuel price yet, they are discussing what to do. cfonew ceo used to be the and said he is assured he could do fuel prices as he sees fit.

willwas his condition, i stay as long as there is no government meddling in this state run company. david: thank you so much, that is julia leite. always good to have you. from the trucker strike to corruption scandals and changes in presidential leadership, the present -- the brazilian real has been on quite a rise. it started with protesting with we ended line and and with credit being downgrading and then the impeachment the yellow line and you can see the real strengthening against the dollar and purple is when -- went to prison and oranges the trucker strike. joining us on the telephone is lee alston, great to have you here professor. he give us a sense, how much of this is politics and how much is

economics? how much is fiscal and monetary problems and how much is corruption? lee: that is a real question. my take on it is it is more due to political uncertainty right now that is putting a check on foreign direct investment which had been quite high and the riau -- real had been doing pretty last couple years. monetary policy, i would say, has been outstanding. the real problem on the fiscal side is timers had been trying to push through pension reform, which brazil really needs. i don't see that going anywhere. until after the election. the two things holding back investment, foreign direct investment in particular would reformlack of pension

and the so-called brazilian tax. david: as we have seen, even with the truckers strike, when you do things that do tend to pocketbooks, people don't like that. minister timers was almost an accidental president. ,ee: he was accidental, which to some extent gave him his advantage, i would say from the lame-duck,was a which gave him a lot more policies. pursue unfortunately, right now, we do not see anybody with a clear lula and iept for don't think that is going to happen in on the right, the rejection rate is really quite

high. i am bullish about brazil in the long run, but pessimistic in the short run. alix: also joining us is mauricio oreng. -- provides loans to the agricultural sector. pivoting from the short-term issues, how much trouble is the sugar mill and soybean industry in brazil right now? mauricio: basically, i don't cover the agricultural sectors in brazil. just as an overview, i think this political uncertainty will have limited impact on overall the agricultural sector and basically we have to monitor the developments, what is going to happen with the exchange rate, which could, of course, have a very different outcomes depending on the political results after the election.

basically, that could influence the sector, but on a structural basis, the sector is strong. alix: when you take the story of as an example of a company trying to appeal to international investors and not being able to make the changes in the government taking control of policy, what does that say to a business leader in brazil or outside -- or an outside investor? , the idea isically that the next president will have to allow petrobras to practice like a pro market policy -- pricing policy and i aink -- of course, i am not specialist in the sector to discuss the issues, but the most important factor is that petrobras has freedom to set prices so that they will continue to invest in the oil

sector, which is pretty important for the brazilian economy in the long term and i think as petrobras practices the pricing policy, we will not have a negative spillovers to the fiscal side where we already have huge problems to solve. anid: in a nutshell if i am investor thinking about brazil, what is your pitch to me that i should invest in brazil? mauricio: brazil has many opportunities, notably in the agriculture sector. big opportunities for instance in infrastructure. we have an underdeveloped infrastructure here, so that could create -- positive spillovers into other investment . i would say agricultural infrastructure and some of the soft sectors where the opportunities are. basically, brazil needs to solve macroeconomic problems especially on the fiscal side

and the key to deliver social security reform so we will have like a solution to the debt sustainability problem and that will improve other sectors as well. alix: thank you very much reseal ornate and lee -- thank you very mauricipal or in cash alston.and lee coming up, we will talk about oil, crude trading at the highest level in 3.5 years. we will break it down. this is bloomberg. ♪ ♪

alix: what i am watching is the rally we have seen in crude, five days we are up over 10% in wti. joining us on the phone is chris main. you are sticking by the phone -- the call you had.

are you seeing this as a short-term phenomenon? >> i think it can have legs. there are two forces acting on the market, the more bearish take from opec that the saudi's and russians adding close to one -- one million barrels a day and we have had further passages in libya, issues in kaz expand -- posix tom -- hkstan. n laza i think at least through the course of this year, it is not necessarily a short time rally. alix: over the next two quarters we see prices in the high 70's when it comes to brent. what would you need to see to make you get more bullish? it -- i would say where that is where average prices are. there is definitely going to be bearishness around that.

to get more bullish, i would say right now the rhetoric around iran is hawkish from the u.s. side of things, but the actual flows are only showing a small reduction. in the numbers, production and iran in may was about $4 million a day and it looks like it is tracking 3.6 million to 3.7 million barrels a day in june and by the end of the year even though we expect production to be around 3 million barrels, we have not seen evidence of it yet. if we see more tangible evidence, it could be time to get more bearish. we see synchronized growth breaking down, what about the demand side? chris: there are two key concerns on the bearish side. one is disruptions are very hard to gauge. when you run through from libya to reductions in canada and kaz

expand, it is close to a million barrels a day. bearish sign is one you touched on, at the moment, you are not seeing a re-rating of global growth. risks are definitely being highlighted. if we do see a re-rating of global growth, i think it means re-rating of global demand growth and it can weigh on the oil complex. alix: it is great to get your perspective, chris main of citigroup. will be joining jon ferro. that wraps it up for "bloomberg daybreak: america's." this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. >> 30 minutes until the start of trading. this is the countdown to the open.

>> coming up, the back of the never-ending trade story. stocks struggling to stabilize. u.s. financials posting a 13 day losing streak. amazon venturing into the online pharmacy business. sending walgreens and cvs lower. 30 minutes from the open. up by a third of 1%. treasuries going nowhere. if you lift the lid on the industries you will find surprise action. let's get over to the amazon story. amazon agreeing to buy pill pack. it will further push the company into health care. we don't have a ton of details. we did comment a time when we thought amazon was planning to get into the pharmacy or drug distribution