alix: halftime, u.s. futures pared gains after a report on president trump looking to exit the wto and its trade battles delivered a big surprise in the market in the first half of the year. alloff, rise and fall, and advance in the dollar. goldman and morgan stanley free some payouts and others released billions in record buybacks. in italy, the new be prime minister gets an immigration package for the e.u. david: welcome to bloomberg "daybreak" on this friday. i am david westin with alix steel. reportame out with a that president trump may pull out of wto, and then you read the report he has been thinking about this for a while. alix: i do not have all the details and then two seconds later you are like, chill. in the market, we take a dip lower and start to use -- climb up. david: you have to read the

bottom of the axios report. alix: it shows you how sensitive markets can be, especially on a day i am guessing liquidity will be really liked and we will have volume be light as well. s&p futures are up about six points. euro-dollar up 6/10 of 1%. you have a migration deal for italy so is there a sense of cohesion in europe? inflation hitting 2%. part of that is oil. the 10 year yield up one basis point. , alan greenspan says that is a good thing. david: alan greenspan likes flat curves. alix: that is not a recession indicator. david: to correlate with capex. we will get core pce and spending numbers for the month of may. the university of michigan will be out with its index of

consumer sentiment. sunday, mexico will be electing its next president. it is time for the bloomberg first take, joined by cameron .rise and brooke sullivan our first topic is the halftime review, because we are coming up to the halftime. we want to spin a minute -- spend a minute on this axial's report. -- axios report. cameron: the dominant narrative for the first half of the year with the president and his trade policies. as you rightly said, it was a question of shoot first and ask questions later. and sayot be a cynic that reading the entire 555 words or however it long -- however long it was, was a bridge too far. he has been talking about this for a while and it would require

an act of congress because u.s. membership in wto is essentially a treaty. when the u.s. joined, part of the congressional law that allowed for that said, if we are going to pull out week, congress will have to pass a law to pull out. that makes it a much higher hurdle for the president to achieve. in this case, it is sort of a dream for mr. trump but probably will not be reality. the bounce back is pretty normal. david: whether in fact he will pull out or not, it has been a surprising year thus far, this first half. we have that chart that shows what did a lot better and what did a lot worse. at the top of the chart is em stocks and bonds. the one that gained the most was oil. as ridiculous as this idea of pulling out of wto is, it feeds into this sense of uncertainty that is undermining the global growth story.

a lot of investors were expecting as we went into this year, and that is where you see the losses, this idea we will see rising stock fell of the world, global growth not happening. the idea that we were going to see a flattened dollar also not happening. i think we will see this continue to play out as we get these types of stories and headlines. alix: you are a traitor and you and youe in -- trader will, in for the second half of the year. how do you think about your strategies? cameron: it depends on how often you look at your p&l. basically gets marked on a daily or more likely a monthly basis, then that naturally mandates a more tactical approach and you can sort of say ,axio maybe things will be ok over the summer -- sort of say, maybe things will be ok over the

summer but in the midterm there'll be a little more risk in terms of the president doing something crazy to mobilize his base. say yes and no at the same time. if he does continue with this track and markets are week over the summer, that would make it more likely he would perhaps try to reach a deal before midterms so the stock market is not week electionsing into the . whatever we see in july and august, we will probably see a reverse in september. onid: there are things going in washington decides what is going on in the white house, for example the fed. there will be some real money going to shareholders. us is a graph we put up, jpmorgan, inc. of america, -- citigrouperica, and

and wells fargo. brooke: the actual dollar amount is massive, about 95% of their revenue. we are talking about a lot of money going back into shareholders' pockets, and i do not think these results were entirely unexpected. i think investors dialback payments from a lot of these banks and people were anticipating it would be equal to years past. you are positioning yourself, do you like financials in this climate? cameron: anything that has gone down 13 days in a row, you have had the news that maybe people were faring, 48 -- fearing, for a bounce. david: at least it is cheap. cameron: that being said, with the curve flattening on the short end as well is where the net interest margins come into play, it is a bit more of a headwind for financials.

if we are moving into a late cycle environment, you want to be looking at things like energy. ironically enough, technology typically does quite well in a late cycle environment. alix: which brings up the great question of leadership has of technology is the leader, it was going to be energy and banks, but energy stocks have not kept up with that rally in crude. what will be the leadership conversation over the next six months? brooke: i think we have to see how it plays out. with technology, there has been so many negative headlines with the privacy concerns and the potential regulatory crackdown. you have the self driving vehicle crashes and the questions about who will take the lead in that technology. alix: questions about europe as well, and that brings us to our third story. there are two kinds of stories in europe. the first is what happened in the summit. it was a win for the newbie

prime minister of italy to beef up the border. on the other side, inflation coming in higher than estimated. what were you looking at today? cameron: there is a third story which is a murderer's report that the proceeds of maturing -- is a report that the proceeds of miss earnings bonds -- at the end of the year. clearly, the initial impulse was down to the summit. any sort of agreement was taken as part of the new stock rally straightaway, and yes, the inflation number is good in the sense that they reached target nominally, although the core number ticked lower. i think draghi has indicated they are aware of the base effects that cause headline to move because of oilnominally, ae number ticked, so even though they target headline inflation close do but not at

2%, they are looking at core as indeed a sort of orthodoxy among central banks. that is because of less underlying inflation pressure. alix: i feel like for once maybe the data does not mean that much when it comes to the ecb. wells forecasted when they will hike, fall of next year. it kind of puts that day today, how will this affect the ecb conversation on the back burner. brooke: they are a deliberate about how they are doing this and have not allow themselves to be swayed by market sentiment or what others think they should do. they laid out a's pacific -- a specific plan to start tapering quantitative easing. david: and now they do not have a breaking up of the e.u. to worry about. brooke: for now. david: thank you very much to cameron crise and brooke sutherland. a reminder that you can find all of the charts we just used by v go.ng gt

coming up, more on where we stand in the markets as we head into the second half of the year. live from new york, this is bloomberg. ♪

♪ emma: this is bloomberg daybreak. novartis is to spin off its i care business as the new ceo refocuses on prescription pharmaceuticals. they will buy back up to $5 billion of shares using proceeds from its stake in the consumer health joint venture with glaxosmithkline. it is up for the final approval at the 2019 meeting. hyundai is denying

declinedeports -- they to comment on the matter. was not looking for a deal until it finished its growth plan this year. unicredit is said to be selling at least 3 billion euros of nonperforming was not looking for adeals. the italian bank is also expanding a partnership to manage troubled corporate debt as part of its cleanup strategy. reducing $700 million of nonperforming loans and the plan to finalize the sale is next month. that is your bloomberg business flash. alix: time now for a first half wrap. we will look at the winners and losers over the last six months. member the beginning of the year

when you were coming in and saying it would be a weak dollar , you definitely wanted to do be in e.m. and europe, oil with the range bound, all of that one out the window. oil got hammered. oil, the big surprise, up 20%. joining us now are bill smead and alicia levine. alicia, what did you learn over the last six months. synchronize growth is no longer synchronized and now we have the virgins. that started to play out in february when we had signals of inflation in the u.s.. alix: you can really see that in the dollar. if you come inside the bloomberg , the decline that we saw earlier in the year but the monster rally. we are still not above that

october 2017 week. do you have to rethink a weaker dollar. ? bill: we do very little rethinking but we think of all these things all the time. is thest thing about oil markets do what they have to do to frustrate most people, so that is a perfect picture on oil. oil looks an awful lot to us like a bear market rally, and the reason we say that is it hit a peak of $147 a barrel in 2008, $32, rallied to $115, dropped again and now it is at the $75 high. let's say it goes all the way to $80, it is still a bear market rally. i think most of the investors who are trying to catch up to this rally in oil will catch up to it when it peeks out. use a lotlly going to

more gasoline 10 years from now than we are now? david: does this reinforce your point that if you are off in global synchronized growth that may affect oil demand reinforcing the point that oil may not go much higher? alicia: let's not forget, every come in he -- car company in the electric within the next five years and china wants to go electric. that will affect demand a lot and that is not in the equation. alix: that speaks to global synchronize growth and what happened with emerging markets. i wanted to point out this chart, the msci china index versus the developed market indexes. you can see the underperformance of chinese equities. do you look at this as a buying opportunity for emerging markets or is this a turnover from the narrative of the last six months? repeat i would like to what bill said, the market will frustrate most people most times

. we have seen the playing out of trade fears and slower growth in the rest of the world. some european stocks are looking attractive. a great thing to be the last person in a trend and to be the last investor in a trade. alix: is it too light to sell? -- late to sell? alicia: i would not sell. i think it absorbed the shock of the stronger dollar and a more aggressive rate cycle in this country, and ultimately global growth is being driven by emerging markets. there are some idiosyncratic cases where that is not the case, but i think it is ok. they absorb the shock. disagree,area where i there were some amazing excesses world white deaths worldwide in interest in china, investing in china. six or seven years ago, 5 million middle-class citizens

being developed, everyone forgets a middle-class citizen in china makes about $10,000. what you rather take care of 86 -- or 500llennials desk 5 million people making $10,000 a year? this emerging-market debacle is primarily being led by the fact that china is just getting the comeuppance that goes with being the most popular place on the planet six years ago, and these things take time. david: one of the things that was a big surprise or a change for 2017 was the volatility. a chart compares 2017 with where we are in 2018. last year we were all board. .hat -- bored alicia: i think we are going into a higher volatility environment because liquidity is being withdrawn from the system

because of fed actions and soon the ecb. bill: you can see that on the good days, on the days the market is up. as the fed tightens short rates and they pull off the long bond buying, there is less money floating around so some have got to win, some have got to lose, and goodtime charlie gets the blues. david: such a good song, you might want to write that down. bill smead and alicia levine are staying with us. america's four biggest ranks will return more than $410 billion to the shareholders after the fed stress test. more on that next. this is bloomberg. ♪

♪ david: the fed stress tests may have been tougher but they will not keep the top banks for making record payouts to shareholders. to give outking

over $110 billion in dividends and stock buybacks. their stocks are up in the premarket and it could not have come to being soon because bank stocks have seen a record 13 days of declines. welcome alison williams. headline, awith the good day for the banks. overall, a good day for the banks. of the day,he end it will matter about expectations. they have been falling since beginning of the year and last week, there was concern about how the banks fared. goldman and morgan stanley which were cutting at the closest were still able to make their payouts. goldman coming in line with their guidance at the low end. interestingly, even though both banks show they cut it a little close -- not even cut it close, but coming under the minimum for the leverage ratio. yellow lightre any

there at all with goldman and morgan stanley and the fact they will have to freeze? alison: i think if anything, investors will be feeling better because even though they came in below the minimum, the fed is letting them pay out and there are some questions, is this the result of the new regime? is this the progress the banks have made? way,oldman sachs pacific even last year when i had a much bigger payout they said, this is an option. they think there could be demand for clients. let's not forget, we focused on capital return but shareholders want the banks to be investing money and making money. .lix: and taking on more risk also with us is bill smead and alicia levine. of comes aftert 13 straight days of losses for financials, a record loss. what names do you like? bill: the point she is making,

if you look at the way the tests workout, if you were a commercial bank dealing with the public on loans, you got treated really well. if you are an investment firm, there seemed to be -- and it kind of makes sense where we are in the cycle. main street will probably outperform wall street. we own jpmorgan, bank of america, and wells fargo, and we are thrilled with how we got treated. we have phoned them a long time and plan on owning them a long time. the fact that they corrected should not be a shock because the day before the presidential election until the end of january, they were on fire. onid: whenever you think whether the regulators did not go too far or did not go far enough, is it working with banking? alicia: they did get back to business and i think this is a great result.

return in the banking sector this year i think is right for picking off. it was one of the most crowded trades as a result of the election and when trades get crowded, it is not surprising that people start using it as an atm to raise capital. bill: we have a rule. there is people we admire, we call them the smart people. whenever the smart people crowded into a trade, even they are dumb when they all agree. hedge fund people, the banks for the number one place. anybody in value who has done well over the past couple of years had to be well-stocked with the banks. that is about the only value trade that worked for the last two years, so therefore it got pretty crowded. this was the2017, most hated industry in the united states and that will not disappear in just a year or two. david: how dependent are the

banks going forward on growth? they have to have loan origination and people wanting to borrow money and activity in the markets. alison: gdp is the core driver for all financials. it will be the key driver for u.s. banks and the core driver locally. as the stress tests are done, we will turn to second-quarter results. low growth has been one of the things, it is not something we have talked a lot about, but it has been an area of disappointment. the yield curve is a focus. alix: alison williams, thank you very much. bill smead and alicia levine are sticking with us. ♪ what's a gig of data?

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by axios that president trump is looking to withdraw from wto. you have a migration deal in italy. that really helping the dax and that is good news for merkel. inflation hitting 2%, and an operation twist, you see the rally underway in the euro, up 7/10 of 1%. reports suggest the ecb will invest maturing money into the long end of the curve to keep the yields anchored. you want to pay attention to the u.n.. george magness saying you could one -- you onars -- george magness, the china expert. alan greenspan says the curve flattening is great. the 5-30.y about david: let's go for headlines

outside the business world. emma chandra is here. were justou discussing, euro area inflation hit the symbolic 2% level in june, the first time in more than a year, supported by higher oil prices. the pickup in the rate of price growth was in line with forecasts. core inflation which excludes food and energy, slowed to 1%. andda is targeting whiskey toilet paper in response to the tariffs on steel and aluminum. the prime minister will mark the 151st earth day sunday by imposing $615 billion worth of terrorists on u.s. -- tariffs on u.s. imports. launched itssfully resupply mission to the international space station. it is carrying equipment, for nasa.

it is now in good orbit and is -- and ai robot is traveling on board. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. david: european leaders way toted to find some deal with the flow of migrants into the bloc, and what happens once they get in. we welcome maria tadeo. mr. ss that mr. macron and conte did not get much sleep. what did they come up with? a long night in brussels and it was a very tense night. at one point the italian prime minister said he would veto the summit if they do not get the migration deal they want. they got a deal. european leaders have agreed to create migrant control centers where they will screen and

decide which migrants qualify for asylum. those who don't will have to go back to their countries of origin. secondly, if a country feels it is being overwhelmed by the flow of migrants, the rest will have to share the distribution" a. -- distribution and quota. treaties do not get enforced by law, they are voluntary, so it depends on what country does what. david: what we are looking at carefully is what was done to help angela merkel when she goes back to germany, because she has a problem with the csu. will this be enough to shore up her leadership? maria: that was a big question. angela merkel came in to the summit under so much pressure. we will have to wait until sunday when she meets with her more conservative side of the coalition. wethe one hand, she can say

have more control over who is coming over to southern european states. the secondary movement in germany will fall the fact. she has met with other nations like spain and greece to come up with a bilateral deal. it looks like she will get something specific to germany and that could prop her up going into sunday. david: that is maria tadeo. most the e.u. was the upgraded economy heading into 2018, and by european stocks was a common trade. that trade has had a rough two months. the s&p is the white line, european stocks of the blue line. you can see the diversions and underperformance of european stocks. still joining us are bill snead and alicia levine. to like european stocks? alicia: i am cautious still but i think it is time to put a toe back in the water. the week data we saw in the first quarter has moderated in the second quarter.

it is not a downward trend. with the weaker euro, it should be a better place to be. alix: bill, you are nodding? bill: from your report, once upon a time there was this country america that had all this land and no people. literally, people came here from everywhere. each set of new people that came into the country were kind of looked down on for 20 to 30 years at the beginning, that particular ethnic group. it was a big deal when the germany's got together, melted together. together. europe is like the united states used to be and people are waking up going, what does it mean to be german or french? i think ultimately, they are human beings and that will all work out fine once you get it sorted out. i would say there is probably a lot of opportunity in europe.

we do not buy europe stocks. was thereo me -- i for 11 days last week and two weeks ago, so there is a lot of activity and lots of opportunity. david: whether it is in europe , there isited states a five letter word, trade, and europe is particularly dependent. 47% of european gdp is based on exports. in america, that is 12%. that gives you a sense of how self-sufficient we are compared to the dependence that europe has. frankly, that is the calculation of this administration. i think we are playing a game of chicken and this car is not swerving off the road. bill: great point. the administration's firmly believe they can come out with policies they want and regardless of how they get there. alix: another thing that is

going on in the background is central-bank convergence. -- divergence. the ecb could potentially get maturing money and investing along. ray dalio had an interesting statement. betweenld say probably 3.5% and 4%. it really, this is an imprecise thing because the feedback loops in terms of -- the more interest rate rise, discount relative to what is discounted in the curve, the more world assets have that as a negative thing. bill: that is a fantastic point. the most important dynamic in common stock investing in the united states over the last two to three years has been the depression rate. a bird in the hand is worth two in the bush. interest, two in the bush

30 years from now is really attractive. what have we been doing? we have been buying revenue growth stories like amazon and netflix, because we have been buying the two in a bush at historically low interest rates. as interest rates normalize, people will go back to the bird in the hand. that is great balance sheets, free cash flow, dependable business. the market is completely mispriced for the normalization of interest rates. alix: will we even get it? versus the two-year ust the schatz. we will have divergence and other economies. how do you make stock investments? alicia: you have to weigh the increasing inflation in the u.s. and the tight labor market here with essentially, this is the only safe sovereign debt market to invest in now because we are the only place with yields.

there is a tug-of-war going on. ultimately, you will see creeping inflation and it is already creeping through the system. bill: you know who wins that and who ends up dominating that? and overn millennials, the next 12 years, the number of 35 to 44-year-olds explodes in the united states and that is who borrows the money to buy the houses. their demand for money will end up overwhelming activities of the central bank. david: bill talked about amazon. in a world which you have the discount rate going on and inflation going up, what sorts of stocks and bonds do you invest in? alicia: we always stick with our fundamentals which are great businesses, great growth stories that have along trajectory, -- these companies gave

the u.s. a huge boost to their cash flow and that is what you look for. the russell, which is 80% domestically focused companies, is the best performer in the first half and that is no accident. within the turmoil of trade and rising rates and creeping inflation, this is where you can get a return and have a solid balance sheet. bill: we like the homebuilders. we are way under built. i am 60. david: viewpoint out there is a lot of permits that have not been dealt. -- over thehe last years, we think that will be a good area. we own 10% in homebuilders and home depot. the s&p has 45 basis points of homebuilders years, we think tht will be a good area. and building supply companies. it is a great place to be that gives us an opportunity against the index. bill's made and alicia

levine, great to have both of you with us -- bill smead and alicia levine. sweden's welfare system is under pressure. keene andgues tom jonathan ferro from 7:00 to 9:00 on the radio and then tom keene and pimm fox from 9:00 to 10:00. live from new york, this is bloomberg. ♪

♪ emma: this is bloomberg daybreak. i am emma chandra. coming up in the next hour, tom petri, chairman of the tree partners. this is -- peachtree partners. this is bloomberg.

now to your bloomberg business flash. existingd some investors are said to of raised $4.7 billion after the hong kong ipo price at the low end of the marketed range. the smart phone maker priced their shares at 17 hong kong dollars each. the price value of xiaomi is roughly half the company's initial goal. sliding for a fourth straight day and down 70% from its december high. it has been pressured by security concerns, intense regulatory scrutiny, and the hacking of global exchanges. some are comparing this to the dot-com bubble and its first as it gets close to the crash. ray dalio is planning to give some bridgwater staff more ownership over the company as they move to the next phase of their succession plan.

this will give staff a greater say in management. >> we are going from a company in which i led the company in this way, and now we are going to something that needs broader and more formalized partnership. that was bridgwater's ray dalio and that is your bloomberg business flash. david: we turn to bloomberg businessweek where we take a look at stories featured in the latest issue. first, wealth wobbles in sweden. sweden's welfare system is under pressure from an aging population and hundreds of thousands of refugees. goldman moves into main street, looking for growth by lending to the middle class with its online lending platform. india's need for bankruptcy speed is the third story. the new bankruptcy code has been complicated but observers are

optimistic. alix: joining us now is carol massar, the cohost of bloomberg businessweek. we will kick it off with sweden because i think of them that they are a rich, well-off come three -- country and everyone is happy. the refugee crisis has impacted sweden in a specific way. carol: population of 10,000 people, they have had a lot of immigrants come in. this is a country where you can pay state income tax of about 60% but you get subsidized health care, pension, free education. there is a lot of benefits that come with it, but because of the immigrant inflow, that benefit system has been hurt and impacted. some of the services we are seeing, there is a great story that kicks off this story about a maternity ward being shut down . women are being told, you can

drive a couple of hours to deliver your child or you have midwives learning how to deliver in a car, just in case. there has been some surveys there that show they are kind of getting tired of paying these high taxes, especially if the benefits are not there. david: given the european summit, it is part of a larger problem. carol: we keep hearing pieces of this immigrant story and realize it is hitting everybody. david: what else hits everybody is the need to borrow money, goldman sachs is lending not just to the rich fatcats but every day people. carol: we are a bar wing society. -- borrowing society. david: one man are at money and went bankrupt. carol: a lot of individuals are getting this -- these letters saying, we will give you money. this is their online consumer unit that started in 2016. the have about 1.5 million

customers and they have loaned about $3 million. what is interesting is a lot of these borrowers are going into bankruptcy and as a result of the bankruptcy filings, you get a good picture of what their financial situation is like. many have big loans, payday loans. they are blue-collar workers. it is not exactly what you think would be goldman. alix: when i read it, i was like, what does that mean for goldman and their returns in their profit? you pointed out, they do not care. asked lloyd blankfein was this question and he said, we are not in the lending business, we are in the numbers business. >> we are going into the consumer business, but not so much that we are chasing the consumer business that is so foreign to us. happened as as result of moving to technology, the opportunity in the consumer

space has moved to us. david: what he was saying basically is we do not sit down and decide alone. we deal with big numbers and big numbers alone because we are good at that. carol: there is some concern about their exposure to subprime loans, this category of borrowers, but $3 million, they can earn that back in about six months. alix: there you go. david: india, another bankruptcy story. camederstand when mr. modi to office it was financial reform. they did an incredible bankruptcy law. carol: they have got a backlog of about 2500 cases, and this is a bigger deal. you are talking about $210 billion of bad loans sitting on mostly state-run banks. this is a problem so they are trying to speed up the process. they want to be able to sell those assets, get someone who

comes in and reworks the company and gets workers back to work. you have about a million workers coming to the workforce in india. alix: $.26 on the dollar, unbelievable. discussing more on india going forward in our emerging market segment. david: you know what else you will be doing? going to boston with carol. carol: you are invited. david: fireworks, music. alix: carol and i will be hosting the boston -- boston pops fireworks spectacular. carol: a great tradition. i love the audience and the boston pops. it reminds me of our history. david: you make it better. alix: people come in like monday night and stay 48 hours. david: it is also as big as the michigan-ohio state football. checkout tv .

watch us online and interact with us directly. a question, we love to hear from you. this is bloomberg. ♪

♪ david: all of the banks passed the fed stress test, all but one. deutsche bank's u.s. subsidiary failed the quantitative part of the test, with critical deficiencies across the company's planning. that does not sound very good. lison: it doesn't, but it should not be a surprise. given a lot of the stories that have been coming out over the past few weeks about regulatory scrutiny, this provides more of an explanation as to what some of those issues maybe. david: this is part of a longer term set of troubles for deutsche bank.

her stock has been going down and down but it is up a little today. alison: there are two longer-term stories. the stress today and test and regulatory scrutiny, this is the first time this entity has taken place -- taken part in the test has it is a newly formed entity. if you went back over the last three years, deutsche bank's trust subsidiary past quantitatively, tons of capital, but had issues with controls. going to the bigger picture story, with deutsche bank, it has just been several years of not getting it right on the core issues. deciding, this is where we are going to focus our business, this is where we will improve profitability. there was an issue with not enough capital and that can lead to revenue issues because when they have the legal troubles, they had people come away from them and had trouble trying to get that business back. alix: if you are going to buy a

big bank in the u.s., payouts, less regulation, and higher rates, i don't know what that would be for deutsche bank. if i am an investor, what is the case for me to want to keep my money in there? alison: that probably is one of the issues with the stock. alix: someone is still in. alison: what will be the catalyst for deutsche bank? the catalyst will be a slow, improvement. after years and years of frustration and not getting there, there is not a lot of confidence. that is really the underlying issue. david: the thing we hear about from time to time is consolidation. is that realistic? alison: it is not realistic and it does not really solve any of the core issues. the core issue with deutsche bank is the fact that they need to rationalize their business,

decide who they want to be, and run a profitable operation. the new ceo is doing all he can do in terms of, i am going to commit to costs, right side the business, refocus the business, but investors will need time. they are not going to -- they have had several years of giving the benefit of the doubt and they will not want to do that, so it takes time. alix: alison williams from bloomberg intelligence. will be joining us. when you have oil set for its best quarterly run in eight years, this is bloomberg. ♪

>> halftime.

the first half of the year delivers surprises in the markets. and then volatility rising dollar, we break down the traits and what is in store. deutsche bank fails its stress test. unleashing billions in record buybacks and dividends. -- gets a migration package from eu, possible cohesion on an issue tearing europe apart. david: welcome to bloomberg. it is already hot, and it is going to be for a long time. going into fourth of july, but it is going to be hot in the states. >> baby at night, it will cool off. we are there all day rehearsing. it could get gross. endingmarkets, we are futures six months, s&p

dipping lower on the axios reports that president trump was seeking to exit the wto. once the traders read between the lines, there was movement. three stories. one is the deal and italy, inflation around 2%, and they were that says the ecb could take maturing money and by the log end -- by the long end. spread for, 530 the alan greenspan? david: it is highly correlated to capital investment. you getich means long-term money, and you invest it. i think that's what he means. i'm not willing to interpret alan greenspan. looking at personal income and spending numbers for the month of may. the consumer sentiment

index will be out. sunday, mexico holds a big election where they pick their next president. alix: top business leaders met in colorado for the -- festival. there was a common theme, trade. >> we are heading down a risky path. ourink we need to redo trade policies, but i don't think we need to redo our trade policies with all countries at the same time. >> how would you redo them? >> i would focus on china, and i would align the world to try to get china to a new standard. >> we are most doubtful of the fact that all the trade things can be resolved in the next six months. ffs, barriers- tari disputes. i'm not 100% sure. a crash, butedict we have a number of delicate

situations. i don't think it will be particularly disorderly. the bank has better balance sheets, the company has better cash on hand. all of that doesn't lend itself to the big things. >> we are going to have to be agile, and food companies are not known for being agile historically. it is a matter of surveying the historical landscape. whether it is trade, commodity prices. we know they are going to change, but we don't know how. the key is to make sure we are keeping up with those changes and not whining about them. disrupted --ears if you wanted to buy em stocks in january, the dollar was going to be weaker. the didn't play out in first half of the year. the dollar and oil were the top winners, and em stocks did the worst. joining from denver is carmel

wellso. as we go into the back half of the year, what will be the top performing trade? >> we are still expecting oil to do well. there's been a divergence between oil stocks and the xlt. there's a bigger chance of a breakout to 99 to 50 for the stage. will be al think oil good performer, but i would still bet on u.s. stocks with solid growth behind them. let's talk about what categories of stocks. -- didn't play out in the first six months. is it a better idea in the next six months or will it continue to be under siege? carmel: i still think there is a space for value, but i'm talking about the lower growth companies with good yields. let's take the banks, massive underperformers, not just in the

u.s., but in china and europe. banks will be returning cash, buying back shares. the largest cap stocks are over 3%. they are attractive again, and i think people need to consider those. i still think we get interest rate increases. less regulation, a lot of upside there. on the growth side, let's look at something like accenture for nike. their growth is strong. the digital platform, we are seeing 20%, 30% growth as well as out of the u.s. and emerging markets. still somethese are great ideas in the united states. i would rotate some money into the stock that has underperformed, but still has a good outlook. let's talk about things like industrial, caterpillar.

things like that. how do you feel they are in the second half of the year? carmel: let's think about what they told us in their last earnings call. they said they hit peak margins. they continue to come under .ricing pressure there's no sector that is most at the nexus of trade than the heavy industrials. cap definitely -- cat definitely has a target on its back. there are certainly substitution products for that kind of company. own brand toir sell. japan has equally good products. is at a disadvantage. alix: it seems like what you are going to tell me is that small caps and the mastic random domesticll -- and stocks will do well. .he -- versus the s&p

you can see the monster rally from this year, but they are headwinds. specific issues, tough costs coming up, for valuations. how do you keep betting on domestic-oriented names when that has already been the trade? because the growth is still strong. it is not a global synchronized growth, we have to look at the u.s., specifically? carmel: you were talking about active growth. i think we have to look at the fundamentals of the individual company. thereality is, if i buy u.s. index, i'm getting the caps on the world. if i buy companies that are specifically growing, something you see their decline this year because growth has been so strong. there's no reason to think that pivot toward digitizing platforms is going to actually even in growth decline,

markets where you are starting to see earnings flow, you are still seeing growth in digital platforms being healthy. i'm not one to say you need to get out of those stocks. i think valuations don't imply they are expensive at this stage. but i do think that you pivoting into 1 -- and to some of these stocks, like the banks, is interesting here. david: one of the big themes this year has been the return of -- 2017, there was almost no volatility, then a big change in 2018. investinghat change in equities? carmel: investment banks are some of the best beneficiaries of volatility. what do i worry about? we will continue to see good numbers coming out of the bank.

on the negative, volatility tends to affect some of the higher pe stocks. if you look at the high-growth servicesks, software and sectors like that, you've seen the multiple come down slightly because the growth in the year earnings is outpacing the movement and share prices. i think that is still a healthy place to spend your time. volatility will impact some of those high pe stocks, especially as they start to miss their earnings. we tend to focus on the names we still feel have very solid earnings tailwinds. please stick with us, we have a lot more to talk to you about. we will talk about oil, surging the most in two months. more on what is ahead with tom petrie. this is bloomberg. ♪

>> this is bloomberg daybreak. shares of -- plunged after the company cut its profit costs for the year. earnings couldd drop to as low as 200 million euros or may rise to 450 million euros from 410 million. highestviously said -- fuel costs and a slower than expected recovery in freight rates. bank of america is turning to artificial intelligence for guidance. machine learning programs to tell clients what to buy and sell. the first of america's large banks to incorporate ai insights

into its corporate research. the takeover of fiat chrysler. the spokesperson for -- called it groundless. the ceo said in march -- only after finishing its program this year. run, a largeonster part of it is supply outages and worries that iran will lose oil buyers as the u.s. takes a harder line on the country. it has also been an amazing quarter for crude. , andng us is tom petrie s isel wellso of janu still with us. the rally we've seen in crude, is it still sustainable? that at somes point it will spiral upward into

too much, but i don't think that will be this year. it is sustainable right now because we have a variety of talents. libya, where there is a civil war between the east and west. that is control of oil in libya. .hen iran venezuela is still in a meltdown. we have a tight inventory situation. opec has not come forth with as much of what will probably be needed to keep prices somewhat under control. alix: you mentioned, they might pump a record in july. reports indicate it could be 10.08 million barrels per day, but it rests on how much reduction iran is going to lose. we see the u.s. pressuring allies to stop buying,. full stop.ing,

long-term, the issue is going to be china. they'll say, this is the opportunity to get things priced in our currency. we will let the u.s. try to sanction us, and so on. over time, this thing could erode. but i think the impact, i don't believe one million barrels per day, but i believe the impact will be hundreds of thousands of barrels per day. david: what about on the demand side? we are seeing suggestions that the global synchronized growth isn't so synchronized or growing. tom: high interest rates in the u.s. don't help. the strong dollar doesn't help. that's a real risk, certainly by the end of -- by the beginning of next year. alix: what do you make of the spread between wti and brent? we are still unclear about iran. it spread and is back down to

five. what do you make of it? 9, 10, and 11 were crazy, but it was in a time of a lot of confusion. a 4-7k we are probably in dollar range this year. , as the u.s. builds more capability, it should begin to erode from that range. carmel, talk to us in terms of equities. obviously, oil stocks are all up. we see a lot of opportunity, particularly in the short-term. you were talking about the supply-side. we are heading into the summer months, and usually demand goes up at that stage in the u.s.. i expect that trend to go on this year, especially when you see these strong travel receipts across the globe and in the united states. constrained, more

upside than downside. we think it is more likely to go to 50 or 60. a lot of that also depends -- supply constraints and not outages. what are your expectations? we had a quick build, getting from 10.4 to 10.5 million barrels per day. we are now at the point where infrastructure will limit that somewhat. comes in the second and third quarters of 19. that is when i see the next big step function in shale. producers do? do they drill but don't -- what is going to be the effect? out i believe they stretch there drilling schedule, stretched some more.

part of why we could go so quickly from 8.5 to 9.5, to now, 10 plus. i think all of that will happen. the other part, if we do anything like what carmel was talking about, how tempting is it going to be for vladimir ?utin's people they are probably delighted with where oil is right now. sounds to me like oil service is the place to be. absolutely. that is where we are putting a lot of our money, more in the stocks that are exposed to the mid stream. as you look at the upcoming seeges in the r1g, you will a shift toward companies like anna darko and enterprise

companies. we've seen underperformance of oil stocks. will this be an actual opportunity for catch up? they are going to need to see more evidence of that. me, if thatsurprise shows up in literally the next several quarters. alix: thank you both so much. dalio'sming up, ray succession plan for bridgewater. for hishe new structure firm in an exclusive interview with bloomberg television. ♪ with bloomberg television. ♪

bridgewateralio's associates is planning to give more employees ownership as the firm moves toward its next phase of its decades long succession

plan. he detailed the plan with erik schatzker yesterday at the aspen ideas festival. to formalize our partnership structure so they are actual -- there rules about partnerships, a designated group. because we are going from a company in which -- i led the way,ny in a meritocratic and now, a broader and more partnership. it would be like if you were going to have mackenzie as a partnership. goldman sachs -- it is a good example, because when they have the partnership, they still have to maintain the partnership way of being. but we aren't going to be a public company, never. at the notion of creating structure so there is a partnership structure and it

plays a greater role and it needs some formalization, that is why we are really excited. erik: how will it work? ray: we are in the process of figuring out how it will work. mostly, it has been a group of designated preliminary partners. 60 partners, and then 50 others. senior people, generally speaking. people who had been there a certain number of years, all of to things you would expect represent partnership as far as decision-making capabilities. group, established that and they have to decide how it is going to work. so, we are not part of it. we have the total freedom. there is a board. it will have board representation. in goldman, in a

sense. erik: these partners will have equity in the firm? ray: a lot of them already do, but they will continue. they will have their board representations on the board, and ceos will really have to -- they will evaluate the ceos. david and eileen. so that process will operate by , who will then report to that, and a board overseeing that, representing the owners as there is a transition. erik: over what amount of time? ray: we've done most of the transition in terms of equity and the like, a lot of it. probably overt the next three years or so, we'll do a lot more. most of it has been done and we need just to formalize their decision-making capabilities. alix: that was ray dalio and

erik schatzker. david, you are a lawyer. the first timeer i walked into a partners meeting as a partner. you start as a junior partner. it is a different psychological relationship. the relationship among the people is different between partners than employees. not the same hierarchy, even if you are a junior partner, you have a stake in it and people listen to you more. also impressive to me, he said he would have a succession. a lot of people were skeptical of that, because so much, he ran that shop, bridgewater. how it works out. not many people in that position are able to pass it off to the next generation. alix: i didn't know that. i guess it makes sense that you have more ownership. david: you think about the relationship in a different way.

alix: i wanted to point out -- speaking to another network about the axios report, that it is not right on the wto thing and fox business news. the story that came out, that trump plans to pull out, is not quite right. trump has said many times, and navarro and ross have said it. if you read at the bottom of it, it says we are going to do anything right away. it's sort of overblown. alix: the latest read on the feds preferred measure. numbers will be out in a few minutes. ♪

alix: this is bloomberg daybreak. out inflation in the u.s.. s&p up a solid 10 points, dow -- what is happening with euro-dollar, up .7%.

a higher inflation, italy deal on migration, and reports the ecb could consider an operation twists like effect in the bond market. the 530 curves continue to get flatter at 24 basis points. we are looking at core pce, bang online with the fed target, 2% on a year-over-year basis. the broad pce indicators are now at -- the court at 2.0%, an increase from what we expected, right in line with the rising higher inflation story we keep looking at. david: personal income came out right on survey, .4%. .3 2.2.ised from 4/10 was what was projected.

on -- i am a little soft on personal income and personal spending. is the first time in six years that the core index registered a 2% gain, which is really interesting as well. i want to point out that real .2%,sable income is up by and the saving rate is also increasing. consumer spending is a little weaker as those services fell and americans basically save more. david: i can never quite figure out if that is good news. it sounds good that we are saving more. we are joined by sam finkelstein managementachs asset -- head of emerging markets. and -- peter, one data point.

>> it has succeeded. how could that be a bad thing, especially since the economy is so strong. the fed has gotten to where it wants to be on inflation, not above. very healthy economic growth and low inflation, i would be throwing some confetti. way,: did the fed get its or congress? the problem here was not just monetary policy. >> i think inflation is at the fiscal certainly stimulus. i think that what is clear is that the fed needs to withdraw quiddity and tighten financial negations. what is not clear is if it is a firm or dollar, but all of those wheels are in motion with a healthy economic backdrop. david: are we seeing tightening

financial conditions? in recent months, i would say the answer is yes. year, beginning of the credit specs were well behaved and one could argue that financial conditions were not tightening, but in recent months, there are signs that it is. the tightening of financial conditions materially slow down the economy? i would say there's enough of a fiscal stimulus that there's no major headwinds. everything right now looks fairly orderly. it also depends on what the mutual rate is going to be. joe weisenthal met with neel kashkari and here's what he had to say about the mutual rate. >> i think legitimately, we are moving toward our inflation target. core inflation is at 1.8%, wage growth ticking up. i would be comfortable with us rate, anda neutral

once we get to neutral, let's wait and see how inflation evolves. look at how wage growth evolves. that, to meet, we could be one hike or two away from neutral. how is this going to dominate the conversation? >> he is a dove. saying let's not overshoot on the upside. we'll get one or two -- one or two hikes, and by the end of 2018, we'll be where we want to be. the new chairman of the fed seems to be sympathetic to the view, jay powell. he talks about the virtues of a high-pressure economy, saying it is not a bad thing to let the economy go hot, because you can pull people back into the labor force to learn on the job and become more productive. it's a bit of a controversial

argument. it,uldn't have predicted but he seems to be leaning more dovish than people think. alix: what do you do with the 10 year and the curve? sam: neal might think it is lower and others might think it is higher, but what the market is saying is next year, despite fed dots around three, the market is skeptical the fed will be able to hike that aggressively. whether we are in a global environment where the euro is low, due to the length of the deems thethe market mutual rates that are lower will have a material impact. i think that being anchored in the academic answer, it is difficult and time will tell. the market has ample skepticism.

there's a lot of talk of the yield curve getting flatter. there was a piece in bloomberg where alan greenspan did a telephone interview, and what he yield spread between the 30 year treasury bond and the 5-year note is a statistically significant gauge of the willingness of corporations to invest. when this curve flattens, it is a positive. this is the first i've heard this said, that he thinks it is flattens.the 530 he also said he doesn't think it will invert. that issomething generally understood? i hadn't understood it before. >> historically, when you look at a flat curve, i would say a recessionsm about or policy being too tight. i think it is a function of the global yield right now. while the u.s. is reaching its

inflation target, you can't say the same about peterson or europe and japan. so it is phenomenal when global yield curves are low. forwill see foreign demand u.s. treasuries, technical dynamics. a lot of issuance in the front end in terms of bills, benefits in terms of funding pension funds from a tax perspective that could lead to -- before september. alix: do you sure the front end by the login? -- by the long end? >> -- think the fed is on a tightening path. we should be cautious in terms of interest rates and preference as far as the five to seven year part of the curve, where not enough is priced in in terms of hikes. i think the long-term view is much more technical. alix: you are sticking with us, sam. peter, we'll get some confetti

and balloons. headlines outside the business world, emma chandra is here with first word news. >> president trump is said to of hed white house officials will withdraw from the world trade organization. -- also said the president's economic advisers have pushed back. steve mnuchin called the report and exaggeration. theo spokesperson says agency has not heard anything on the matter and will not speculate. canada is targeting whiskey and toilet paper in response to the trump administration's tariffs on steals and aluminum. this will -- imposing $14.6 billion worth of tariffs on u.s. imports. the economic impact is expected to be minimal compared to large issues such as auto tariffs and threats to end nafta. italian prime minister has

negotiated a package of measures to stem the flow of migrants enter to europe and spread the burden of handling new arrivals. talks in brussels continued beyond 4:30 this morning. increased border security, holding centers to handle asylum seekers, and to speed up the processing of applicants. also agreed to key italian demands of -- when an additional country is overwhelmed. global news, 24 hours a day on air and on tictoc on twitter. powered by more than 2700 journalists and analysts in more than 120 countries. alix: i want to recap the data we got. the fed did it. inflation is at 2% at a court pce year on year aces. americans are's -- are earning a little more and spending less than in may. reactions are calm. i want to point out what is happening in australia with the loonie. the data is interesting.

gdp coming in at 2.5% with raw 4% asal prices of almost we wind up dealing with inflation there. canada is in a tough spot. there are so many headwinds. david: they have a tough time, but they should be benefited by oil, right? alix: but they have outages, and there are issues there. is discount on oil there dramatic compared to what wti and brent are trading at. david: coming up, amid dem route, one country has managed to stay afloat: india. next, tom keene and -- on the radio 7:00 to 9:00. bloomberg can be heard on -- on sirius xm radio. ♪

emma: this is bloomberg daybreak. ising up later, milton berg a founder and ceo. this is bloomberg. ♪ >> emerging markets closing the book on what has been a terrible quarter. one bright spot is india. the final part of our weeklong series, the fastest-growing large economy has been through structural reforms under their prime minister. this is indian stocks versus emerging-market stocks. you see the white line, how resilient indian stocks have been.

the rupee is at a record low. it looks a little more challenging. sha.ing us is har -- work? >> it has been a mixed bag. the one presented tax reform that india has seen, and has overhauled the bankruptcy law that initiated the cleanup of -- indian bankruptcy system up 30 points on the eve of business rankings. if you look at the economy, there are significant achievements. harsha: budget deficits are under control. next oil, economic parameters are looking stable.

india has been growing at 7%, 7.5%. give the devil it's due. that india is in the middle of a serious crisis. the government has done little to ensure that farming becomes a viable business and that more farmers are sticking to it. the other has been job creation. while india has been growing at 7%, the administration has done little to ensure that jobs are created. other part is what they are doing with reform in terms of bankruptcy. it used to be that if you owned a corporate bond, you could recover way less than other countries. what would be a game changer for businesses? harsha: it is going to be a game changer, coming off an extremely slow time of growth and stalled projects. the administration has ensured that that is on track, but this is going to be a long haul.

the creation of a bankruptcy court was just one important step in ensuring the bankruptcy plazas -- bankruptcy process begins. nobody expects us to get this completed in a few years time. the larger concern is infrastructure. who will be funding the large infrastructure projects that india requires? stock markets reflecting the domestic consumption. a lot of the money in the market is domestic money. the way you are seeing currency the hate the way it has is because of the trade tariffs hike globally. headwinds of the trump administration and what it does to global growth. the second is the political headwind of whether modhi's administration will be prime minister -- whether he will be prime minister in 2019. david: that was a terrific

synopsis. joining usamaniam from india. vontobel asset management equity portfolio manager, brian bandsma. also still with us is sam finkelstein. sam, let me start with you. we talk about emerging markets as if it were one thing. it's not. what is different about india? the biggest difference is the population, 1.3 billion, similar to china, but about 1/5 the size of the economy. brian: unlike china, the demographics of india are particularly good. low, andnization is this creates challenges and opportunities. when you think of challenges in the urban markets, with fed is onetightening, india

of the few emerging markets with very little foreign ownership of the bond market, primarily due to restrictions on foreign participation. foreign ownership of india's bond market is low compared to other emerging markets, around 5%. there's concern on trade wars. india, unlike some other running a trade deficit. the u.s. is at a $25 billion surplus, which pales in comparison to mexico or china. while the potential for trade wars creates a threat for global economies, india is sort of immune and being a service economy versus a manufacturing economy. david: how deep, rich, liquid is the equities market? how limited is it from the trade market? brian: one of the reasons we are heavily invested in india is markets, equity

representing lots of different components of the economy. -- as-- as an emergency an emerging market investor, it is important to find a reflection of growth in certain markets. alix: what are they? india, we have the banking sector, exposure to the telecommunications industry. exposure to the i.t. services industry. we don't have them now, but there's a robust pharmaceutical industry, a robust consumer staples market that we've had in the past. but that has gotten expensive. alix: where is the nietzsche about, the we talked bankruptcy? sam: one of the most important reforms under the modhi administration was the bankruptcy law. india was one of the most challenging countries to resolve any kind of insolvency. this hurt the macro economic

outlook because you have large state banks with npl's that have been unable to be resolved. the introduction of a bankruptcy law modeled after a u.k. law should expedite the process, which should create interesting ,pportunities under the law within 270 days. you would either have to restructure the debt or liquidate the company. this presents interesting opportunities from the financing of restructuring to a bidding of access sales -- of asset sales. i think it is transformational in terms of making the system more fluid and creating investment opportunities. which way does it cut for the equity owner? with a more efficiency bankruptcy law, you wipe out more quickly. but also there aren't zombie companies wasting people's time. brian: we say the weakness of

the public sector banks is an opportunity for the private sector banks. public sector banks are struggling with loan losses and restructuring the loan portfolio. private sector banks have that opportunity to grow in retail banking. sam finkelstein of goldman sachs, and brian bandsma of vontobel asset management. coming up, another emerging market, mexico voting for a new president. the peso is one of the worst-performing major currencies this quarter. if you have a bloomberg terminal, go to g tv to see all of the charts we've been using. this is bloomberg. ♪

david: it will surprise no one that we are watching mexico this weekend. a big election for president,

four candidates in the lead. a lot of controversy over where they will lead the country. alix: joining us from mexico city is carlos manuel rodriguez from mexico city -- this is a huge day. what are going to be the big issues in the election? how will it impact businesses? onthe big question is if sunday, the results prove that the expectations from the trade or markets -- then the big question on monday, what kind of administration we will have. there is still kind of a guessing game. she will take the path that is a little more moderate, being pragmatic, trying to get advice from technocrats or u.s. educated experts in his potential cabinet, or he will

follow -- when he feels the power and gets the type of resource he's expecting sunday, not only for him, but also for congress. want to talk't about what is likely to happen sunday, because people have yet to go to the polls, but he has gotten a lot of attention. we don't know if he will win, but would it be more likely that he will be -- or chavez? games: that is a guessing that will start next week and will probably keep going for months. in mexico, we have a long transition period. when he orrt july 2 whoever takes office, until -- closely bylowed investors and traders, and they will be looking for signs. one interesting focus will be if

he requests the current administration to stop construction on the new airport, something he's been asking during campaigns. he recently has indicated he might allow the project to keep going. david: thank you so much. alix: that is a good point. i spoke to the ceo of an energy company -- secretly, they have to be really scared about new restrictions on their businesses. that does it for bloomberg markets? no, bloomberg business: america. ♪ ♪

♪ new york, to our viewers worldwide, this is the countdown to the open. ♪

jon: coming up, market sentiment went soaring on a report that the president is expected to tell advisers that he thinks wto -- the four largest lenders to pay out $110 billion. rallying and inflation in the eurozone gets . ck to 2% thre -- 2% the euro is stronger and treasuries are stable. the first half, we are drawing the line between noise and the news which is been one of the hardest things to do. the president is set to withdraw from the wto, but this is not the first time that trump has expressed his dislike for the organization. pres