copper hits a bear market. what other asset can be dragged down by dollar strength? turkey limits swap transactions to limit short-sellers and transactions on u.s. goods. macy's on deck, the latest on consumer spending, third quarter growth, is 4% sustainable? david: welcome to "bloomberg daybreak." i think it is the summer of the tariffs. tariffs and more terrorists. alix: the more we do it, the more immune to the tariffs. alcohol, it feels like $1 billion. david: it is all going to work out, right? alix: right, and don't buy those iphones. markets, the relief rally yesterday. today, it feels like a dead cat

bounce. euro-dollar is the currency cross to watch. down .2%. how much more upside for the dollar? eco-data.lly ignoring 25 basis points is the worst inttening round since 2017 november. the flattening continues. crude,ot choose commodities in general getting hammered. copper collapsing, and crude dragged down with that. david: the question is whether the flattening makes a difference or not. eastern, retail sales numbers for july. , paul manafort's trial resumes, lawyers with closing arguments and the case going to the jury for decision. ther the bell, data showing

flows of capital into and out of the u.s. for june. right now, we are joined by our chief equity strategist and one other test. let's look at the lear and what happened overnight. the central bank announced new restrictions. ticked up right, it some. they also impose tariffs on imports from the nine states on things like -- the united states on things like alcohol and cars. they keep saying they will not raise their interest rates. will things like this sure up the economy? >> i don't know. this is the second day for the lira to go up. we will see. david: markets coming down with the lira? is this cia of the storm or the end of the storm? >> it is more likely the eye.

august 500 by itself, rising without momentum, so we were due for correction. the dollar has broken out versus global currencies, not just the lira, but emerging-market currencies. it is august, poster earnings loton, so there is not a for stocks to grab onto to move higher. i think the default will be continued weakness in the short run. alix: we see indonesia having to hike their rates to defend of their currency. the rupiah did not have the rally you might expect. these kinds of hikes might not be enough. what do we need to see? exactly sure what we need to see on a global basis. looking at turkey, we just got this ripple effect going on all over the world right now. the rates overnight -- david: what about that ripple

effect? if central banks feel they have to tighten, it could affect global growth at some point. to startody has tightening, what fx could that have? >> this is the classic question. , you haveies drop fight inflation and capital outflow. this is an ongoing issue. we had argentina earlier this week hike rates. unfortunately the linchpin is currencies. until you get stabilization in currencies come it is unlikely you will have stabilization in any asset classes. all these banks will fight that currency depreciation first. will it result in slower economic growth? that is the concern of the market. alix: the bull case a year ago with countries cutting rates, now the situation reversed.

is ours like the dollar story across all three areas. index pushingllar above 72. what is the effect on not just emerging markets, but the developed market affect? >> we had an impact when the dollar moves. the dollar is breaking out of this tight range for the last several months. that tight range increases stability and asset prices, right? now the dollar is moving higher versus not only emerging markets, but the euro as well. that has different impacts. with em, it is negative for em stocks. the decline is problematic. when it moves higher versus the euro, it usually results in better european earnings growth, so maybe you could expect a rotation into european stocks. it is consistent versus the euro

and yen, when the dollar rises come it tends to inflate those markets and create better performance for stocks. it is creating a lot of ripple effects in equity markets. alix: you wind up having a strong move anywhere, that is what changes the mood in the market. what are you hearing? i the mood in the markets, would say yesterday was probably the first day in a week where calmed down. i think it is a bit of weight and see right now. factorshere are so many that go into fx and the strength of the dollar. you put together your chart. we have a president of the united states who likes a weaker dollar. he is not ashamed to job on the subject. you wonder if there are forces that might mean a weaker dollar going forward. >> we are at a 14-month high

today, so a good run. david: ok. a.m.,ic data had a: 30 retail sales numbers coming out. let's take a look at where retail sales have been in the past. all these things are quarterly things. thesen see how noisy numbers are. maybe there is a slight trend up in the past two years. the projections are for retail numbers to be down. in the last couple of months, the headline number has been inflated by automobiles and fuel. you take that out, .3% or something. at core sales,k the story is one of consistency. the consumers are not going out and borrowing a tremendous amount of money to spend on core items anymore. they are fueling economic growth , but not accelerating the pace of spending. instead, the biggest accelerant is capital spending, business investment, creating the upside

potential. retail sales are the story of consistency. this point ist that retail sales start to deteriorate. alix: i am helping with that. i had a wardrobe replenishment. my husband is like, you need to cut down on this right now. companies are reporting solid quarters. macy's, will we see the stella reports like we saw in the first quarter? >> i think the street is expecting macy's to have a rosier picture. the only thing that might dampen it a bit is they have changed their friends and family timing. that may have an effect. the overall department store landscape is looking better david: which we have not said -- looking better. david: which we have not said in some time. the question is whether macy's can rise above that. >> walmart and j.c. penney tomorrow. alix: the question it becomes

is, are the numbers we will get with theuarter matchup fourth quarter 4% growth? it feels like these are the questions we have to be asking when we get the retail data. >> peak earnings, p growth, where do we go from here? it is a big growth and weighing on investor sentiment to a degree. it is unlikely we will consistently print 4%. the question is how much do we excel rate -- do we decelerate? more likely to .5%, 3%. it is unlikely they economy will show contraction, but 4% is unsustainable. the question for investors is, what does that mean? even a deceleration for earnings growth is not significant for stock prices, but you worry about contraction.

is it just turning over or moderating? is a different allocation for that. thank you very much. you can find all the charts on gtv on your terminal. check it out. coming up, more on turkey's attempts to shore up the lira. our guests will be joining us. this is bloomberg. ♪

>> this is "bloomberg daybreak: americas." one company is looking to buy stake from hna.

the airport services and cargo company could be valued at $3 billion. hna is selling assets after racking up one of the biggest corporate debt loads. shares of a british department store soared today on speculation of a takeover offer. the company owns a 30% stake. a formal bid may be forthcoming in the future. last week, they agreed to buy a struggling department store chain, house of fraser. rbs has agreed to a record settlement. the u.s. justice department said the bank will pay $4.9 billion. authorities call it the biggest penalty ever imposed. rbs is not admitting wrongdoing. that is your business flash. david: turkey and posed to new restrictions on lira speculation and tariffs on goods imported from the u.s.

the lira strengthen, at least for the time being. we welcome our guests now. start on the desk and talk about what is going on in turkey and the reaction. is this a long-term fix or short-term respite? >> we are watching the currency markets closely and seeing a recovery in terms of the turkish currency. when we think about turkey, the economic contagion is expected to be moderate. thathave pointed out turkey represents less than 1% of global gdp. they are not subject to the other vulnerabilities -- more subject to the vulnerabilities than other emerging-market nations. when we think about the is a blow tore, it

an asset class that has come under pressure. emerging-market equities taking it on the chin, and the fact that china is slowing might be a more important factor to us than what is happening in turkey. we are watching that closely. some of that data yesterday disappointed on the downside. david: on those two points, first of all, put up a chart to the point of how extensively the contagion has spread to other markets. it shows volatility in emerging markets not rising come at which would tend to confirm what emily is saying. -- rising, which would tend to confirm what emily is saying. >> we agree the risk is limited. we have seen contagion in the past, but we think the robustness of emerging markets and diversification across markets is such that what is going on in turkey will not have

an impact. keep in mind we have the attempted coup two years ago. they have been having problems for some time. people try to connect this to the greece phenomenon. that was an existential issue for the european union. when you have your own currency, you have the opportunity to reach equilibrium through that. we would agree the implications probably for emerging markets are not what they should. take the u.s. dollar at a 14 month high, this is probably an opportunity for u.s. investors to get there in emerging markets exposure back up to where it should be. don't go overweight, but where it should be. is weemily, the one off did not see markets react to china data except for copper and other metals. copper now in a bear market. is that telling us something that markets are ignoring? >> we are watching the data

closely at of china. what has been remarkable is the resiliency of the u.s. market in the face of emerging-market equities and the weakness we have seen overseas in terms of europe and banks exposed to turkey. we continue to favor the u.s. over non-u.s. equities. the performance cap is the whitest it has been in some time. again, investors should be adding to their exposures domestically and potential staying -- potentially staying neutral weight and taking it down as we get towards the end of the cycle. david: could there be a knock on effect with investments around the world for the possibility of increased tightening from other central banks? the indonesian central bank today increase their rates surprisingly to strengthen the rupiah. if that gets repeated in other emerging markets, could that

happen effect on growth? >> it certainly could. you look at global growth, and back to china. china is 18% of world gdp, but more than a third of global gdp, but you have to be looking at emerging markets and the risk of higher rates, but higher rates in argentina or turkey are not going to have that long-term impact. we think to the extent people want to take advantage of the weakness we are seeing in emerging markets, if you can't stomach the risk and that may to bonds. we do have a favorable view there. alix: if we look at the return for those bonds, turkey, argentina have not paired up. , what kind of bonds make sense. emily, where would you want to trim exposure? spots arerouble

highly speculative, turkey, south africa, argentina, but the broad emerging markets are providing great opportunities and attractive deals come it even though we are in a higher rate environment now. in a more of a less low environment than a higher rate environment. alix: emily. >> emerging-market debts are starting to offer opportunities. those spreads got to a point where they started to look attractive. the key question is where do you take those assets from. that is a tough one. we are starting to get to the point where we are taking a frome risk off the table abroad allocation standpoint, so we would pull those assets out of the equity side and start to think about non-u.s. equities and emerging-market equities. the next step might be small-cap u.s. equities. we are not ready to go there yet. alix: both of you are sticking

with us. dollar, a king 14-month high. we discussed the impact on the fx market and how that changes your portfolio allocations. this is bloomberg. ♪ ns. this is bloomberg. ♪

alix: king dollar climbing to a 14-month high. some momentum and pushed intentionally into overbought is 73.ry shows rsi over 70 indicates overbought. our guests are still with us. are we in overbought territory? has the dollar peak? >> i don't know if it has peaked, but we are in overbought territory. the dollar will demonstrate weakness going forward. discussion,earlier it is a great time to be looking

for shopping opportunities overseas. effectmily, the knock on of a strong dollar in emerging markets is known. what is the potential spread to other markets? >> the dollar strength is critical, especially as it impacts the u.s. in the u.s. impact could be challenged as the dollar strengthens and we see pressure on manufacturers. i will be watching industrial production data later today to see if the dollar has started to impact exports. that is something that could slow the economy down. david: there are a lot of factors. let me point to one factor. i will put a chart that confers the difference in the euro and the dollar as opposed to the u.s. treasury 10 year, which , theres the dollar-euro could be further room for the dollar to strengthen. >> you might see further strengthening. the momentum is there.

the fact we have these huge growth differentials between the u.s. and overseas, where u.s. growth continues to accelerate, it is shifting down a gear, and that has meaningful consequences for the dollar. , ax: we have seen as selloff blowout between the u.s. and bunds spread not coming back in. is that a turkey residual or a decoupling of growth from the two continents? >> there is a diversion's of growth and rates. for the short-term, we are seeing a risk off environment that is beneficial for the dollar. our view is we are seeing dollar strength right now. is we are seeing dollar strength right now. this will not go in a straight line. david: let's talk about growth. . if we are not hitting the growth we expect and china seems to be tapering off, and china has been driving most of the growth

globally, can the u.s. sustained this? >> it does not all have to be shouldered by the united states. this is likely a golden age for the u.s. consumer. growth over 4%, unemployment under 4%. but they areowed, a few innings behind us. the growth rates china are having are slower, but still quite high. keep in mind that gdp per capita u.s. comes 1/8 of the a so there is a long ways to go for china to catch up to the u.s. come even if growth slows. alix: is there a rotation we will have to see if the dollar holds this level? you mentioned may be paring small-cap exposure. wherere will come a point the u.s. can't hold up the rest of the world. at that point, there will be a

bid for defensive assets. we are not there yet. we still have a risk on poor strip. there will come a point when you will want to own duration. us asgh could be behind we start to rotate down the road. you will be erik, sticking with us. a big week for retail, macy's and walmart set to report. i preview. -- a preview coming up. will it support a third quarter gdp of 4%? that is up for debate. this is bloomberg. ♪ xfinity mobile is a new wireless network

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saving you hundreds of dollars a year. plus, get $300 back when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today. 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. alix: this is bloomberg daybreak. a risk obsession developing in the markets. dow jones futures off by triple digits. that relief rally seems to be a

thing of the past. another asset classes, the dollar at a 14 month high. that means the euro is at a one year low. the yen now climbing into positive territory against the dollar. the one currency to start slipping as we see safe haven buying coming through. indonesia coming in and raising rates and it does not have an enormous impact on the currency. will the hikes be enough? spread really flattening here. year of buying on the 10 as well as the belly of the curve. crude off by 1% but that is not the worst of it. you brought up a risk off, potentially global growth story emerging. david: i don't have another hypothesis.

maybe people are going to be concerned it could affect global growth. whatt is time to find out is going on outside the business world with "first word news." turkey is taking more steps to prop up the lira. meanwhile, president erdogan's government proposed higher tariffs on a variety of american goods to retaliate to president trump ticky decisions to impose tariffs on aluminum and steel. -- to quit after that fatal bridge collapse. some critics say the company's license to operate the nation's highways should be withdrawn. at least 37 people were killed when the bridge crashed down after heavy rain. closing arguments are set in the and bankin the tax fraud trial of former trump campaign manager paul manafort. the judge rejected a defense

motion to acquit manafort. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. week: retail earnings continues with macy's coming out this morning and walmart, nordstrom and jcpenney reporting tomorrow. i asked ken langone what meant the difference between success and failure for retailers. walmart a great company and kmart is now gone? the old kmart went bankrupt and is now part of sears. what was the difference? people. sam walton had the people he had around him. tom cotton, david glass. more recently, doug mcmillon.

it is always the people. depot underat home bernie was thriving? and then frank blake and it is roaring? what is it? it is back to the people. whenever i have made a mistake about people, i have paid dearly. , home that is ken langone depot cofounder. that is the premiere episode of big decisions, tonight at 90 5 p.m. eastern. i sat with him for a good half hour. alix: i love ken langone. he says what he thinks, let's it all out there -- puts it all out

there. david: he swore less. alix: that would be weird. staying in retail, u.s. retail sales will be released in an hour. , -- still withes us is emily roland of john hancock investments and erik davidson of wells fargo. i have been talking about the fourth quarter gdp. the consumer represents two thirds of the economy in the u.s. and what is interesting to watch is this interplay between wage growth and inflation. at 2.7% lastame in month and that is a good thing in terms of the length of the cycle. it should stop the fed from moving too fast down the path of

rate normalization. core cpi came in at 2.4% last night. consumers are running around in these hamster wheels where all of their wages are being eaten up by inflation. high --t another modest in retail. erik, do you feel like the markets have priced appropriately for retail sales not supporting a gdp of 4%? erik: probably not. retail is undergoing lots of changes. the u.s. consumer is still very strong. inflation is creeping up. we have not seen a lot of lift in wages yet. we will look back and say those were the good old days. jobs are fairly plentiful and growing, unemployment is now below 4%, growth is above 4%.

the u.s. consumer is doing pretty good these days and that will be reflected long-term in retail sales. david: one of the questions is what the state of the household budget is and there is more leverage on the household balance sheet but delinquencies are approaching an all-time low. people are paying their bills. the consumer is in very good shape in the u.s. and that is something that is really powering the economy. we need to see that continue to hold up for economic growth to continue to accelerate. forre watching for signs how strong the u.s. economy is. it appears they are topping out a bit. all of this data is going to come together for us to help determine how much further we have to go. things are looking fine now but those peaks may be behind us.

alix: do you agree? erik: i do. the consumer debt levels are looking pretty good. on the asset side, you have home prices at all-time highs and the consumer has the leveraged and servicing costs are still pretty low despite rising rates. the consumer balance sheet is looking pretty great. alix: that brings us to the equity perspective, winners versus loses -- losers. learn whatrted to companies actually do have pricing power, what companies you can actually bet on in retail? emily: a distinction that is opening up. you talk about sectors and we are continuing to see remarkable strength among retailers that were beaten down pretty significantly.

theree look at sectors, are a lot of opportunities in financials if you want to go there. sectors where there is a lot of growth and a reasonable price today and we expect areas like technology to continue to do well. alix: erik, what about you? erik: anything that cannot be delivered in a brown cardboard box, that is how you can protect yourself from amazon. the consumer discretionary sector, industrials, the cyclical sectors. these are good times in the united states for sure. david: partly because inflation is down. can we have limited inflation at the same time that we get more robust wage growth? you have the amazon affect. it does have this suppressive -- this oppressive effect on prices. erik: we now have generations of americans who do not know what inflation is.

i don't think there is a lot of complacency building up in the u.s. stock market even though we are about to hit the longest stockmarket rally in history. there is a lot of complacency as it relates to inflation. at the same time, we may see wages starting to improve. recession,great wages did not go down a lot. therefore, there has been a little bit of equilibrium in wages. you will likely see them outpacing inflation in the near future. david: one of the points you make emily is it is real wages, we have inflation starting to take up. can the wage earner get ahead of inflation? erik: that remain -- emily: that remains to be seen. when you think about the cycle, we think about wage growth getting to 4% before we see meaningful impact equities -- impact to equities.

we were talking about the 10 year high in inflation. inflation has been nowhere. i have a lot of questions about inflation breaking out. i think inflation is moving higher not taking off. alix: it definitely seems like we are good now but down the road is when we still have -- when we have to start thinking about things. values started to outperform versus growth. what is going to be the right time to rotate into value, safety, utilities? erik: there is significant diversions going on. lots of people including ourselves are looking at that. investors need to start inching into the value play because the diversions has been so significant. likewise, the do virgins between domestic and international, we will look back and say that was a great opportunity. emily, you raised this

earlier, you said not yet but the time is coming. when will it be? what are the factors you are looking for, that say when that happens, you have to make the move? emily: number one is the yield curve. we are down 21 basis points as of this morning. the 10 year not reacting to that. the next one is high-yield spreads. high-yield bonds tend to peak. in a 350 basis points in terms of high-yield and the third key -- this turkish crisis is certainly adding more pressure to the situation but the slowdown we have seen and how well are the chinese authorities going to be able to manage this? david: emily roland of john hancock investments and erik davidson of wells fargo, thank

you very much for being with us. through thee sift 13 f's in wall street beat. ♪

emma: this is bloomberg daybreak. hour, lizin the next sonders, charles schwab chief investment strategist. this is bloomberg.

now to your bloomberg business flash. the royal bank of scotland has agreed to a record settlement. the u.s. justice department says the bank will pay $4.9 billion. authorities report it is the biggest penalty imposed -- rbs is not admitting to any wrongdoing. a chain department store have soared today. the company owns all of the 30% stake. a formal bid may be forthcoming in the near future. alcoholic beverage -- is -- nding its bad the maker of corona beer is investing in cannabis growth.

that is your bloomberg business flash. alix: we turn now to wall street beat. filings reveal the positions of einhorn and more. china pauses the game amid agency shakeup, china freezes approvals for the world's biggest gaming market. cfa past rates drop. david: joining us now is peggy .ollins these are always a little out of date. they are the u.s. stock bydings, long positions hedge fund managers, but it does give us a comprehensive look at where they were buying and selling in the second quarter and they may still on these holdings. certainly a lot of interest in spotify. we saw a number of hedge funds

disclose holdings in that streaming music company which went public in april. has seen a 47% jump since it went public. that is on the positive side. and we are seeing a number of hedge fund managers bolt up on tech and stick with it. david: and warren buffett is staying the course. peggy: he boosted some of the stakes in the companies we have known he has had any -- for a while, including tesla. also interesting is what they ended up doing with gold, because they tend to buy it as a hedge but do not have it working as a hedge. we havehat's right and

seen some hedge fund managers stick with their gold positions. let's get to our second story which is china. this is interesting. china is going to freeze game approval. they had an agency shakeup. they are worried about violence and gambling and they are shutting down the approval process right now. david: you know she is a gamer. alix: to be fair, i am a board game or. -- gamer. peggy: over in china where they are playing board games and video games, we are seeing this crackdown on the internet companies and licensing for gaming and that is having a huge effect on the goliath in terms of gaming over there and it has taken a hit because of this pause we are seeing in the

government giving licenses for gaming. know china isot the largest gaming market in the the chineseat government has to approve each and every game that gets licensed in china. particularly for sex and violence. remind us ins terms of how much power the chinese government has to do what it wants to do in terms of monitoring people, how they are using their gaming systems and clear out some of those things that may be against the government or not where they want their people to be -- would not what they want the people to be watching. peggy: and for 10 -- alix: and for tencent, they have a ton of players but cannot monetize it. on the flipside, you have the overarching issue of not approving games. david: tencent is so dominant and they make so much money. alix: $150 billion in market value they have lost since

january. david: sounds like facebook. our third story now, cfa levels. the pass rate went down and that has everybody paying attention. it was record highs as of last year. 43%y: 47% last year versus in terms of passing. this test is really hard, but also one of the most honored tags to have, the cfa tag on your name. in the past year, they have added questions about ai and big data. maybe people were not as up on their ai and data. alix: i cannot imagine taking it and not passing and having to take it again. it seems like one of the worst things you can do for your brain. david: it must be harder than the bar exam because that is not the pass rate for the bar exam. peggy: they have multiple

levels. alix: you only have to take one bar exam. this one takes -- is years in the making. do we think law school is harder than the cfa? david: i don't intend to fall -- i don't intend to find out. thanks so much to peggy collins. coming up, battleground states wisconsin and minnesota picked five women as nominees for six seats to run for u.s. senate seats. more on what i am watching next. alix: if you have a bloomberg terminal, check out tv . watch us online and interact with us directly. you can also send us a question. i want to know, law school or cfa, which is harder?

this beautiful non-reigning wednesday in new york city will stop this is bloomberg. ♪ -- city. this is bloomberg. ♪

david: this is what i am watching, the primaries that happened yesterday. this is what i found remarkable. there were six slots in three states for senate. of the 6, 5 of the nominees are women. you can see them right here. we have two more women we will put up now. man. is only one

alix: the question we ask with these is what does that mean for 2020? is this a one-off? tell: it is early to although i think there are some indications. this is not unique, these particular states. all across the current -- all across the country, there are a number of women getting nominated. there are going to be a lot of women, more on the democrats but a lot of republicans as well. alix: is it a partyline response to donald trump? david: more democrats than republicans but it at least looks like we are going to have more women in congress. alix: that is really interesting and i have to wonder does that change the way bills come up or

the way you vote? david: a could still be partyline but i have to believe it will change something. alix: i am more skeptical. deep down, i think women bring a different perspective to many questions. alix: here is to hoping. coming up, liz sonders of charles schwab will be joining us on where investors are going during the turmoil in turkey. markets having a risk obsession as the dow jones futures are off by triple digits. flat yield curves, strong dollar, weaker commodities. this is bloomberg. ♪

alix: king dollar crushes some currencies, the euro hits the

low of the year. what other assets can be taken down by dollar strength? turkey regulators to the rescue. country's last more tariffs on u.s. goods. retail revival. macy's on deck, the latest reads for consumer spending, getting a preview of third-quarter growth. is 4% sustainable? david: welcome to bloomberg daybreak. earnings are out which i am now calling up even as we speak. alix: macy's boosting forecast. earnings coming in at $.70 per share. they thought they were going to be down by 9/10 and they boosted the forecast. david: macy's stock has been quite -- has been up quite a bit. quarter was strong and then second quarter, a lot of people are taking a second look at macy's. they have done internal reengineering that has paid off.

alix: maisie stock is up 2% -- macy's stock is up 2%. can they actually be sustained? there is some strength in retail that is not about amazon that has been clouded and potentially, this really giving another boost to amazon. four dollars and $.15, they had seen three dollars and -- or dollars $.15 -- $4.15. david: there has been such a headwind on department stores overall and macy's had been dragged down. seems to be surging back. 0%.: their own brands, sales was up 5/10 of 1%.

either way you slice it, not negative, helping sales. their inventory coming in just under 5 billion. i am not sure how that compares to previous. we have been waiting for the inventory build to kick in, in general. analysts haveral, thought they manage their inventory relatively well. beyond their own regular products that they sell, they have moved into backstage and have moved forward aggressively at the department store. theme wether sort of have seen from home depot as well. positive in a market that feels that we are developing a risk off kind of day. as of the futures off by 4/10 of 1%. the euro-dollar now down.

dynamichat changing the with the bond market. you see the curve continue to andten at 24 basis points commodities are getting hit quite hard as the -- as the dollar continues to grind harder -- higher. are going to be talking about it over the next hour. david: let's find out what is going on outside the business world. emma chandra is here with "first word news." emma: closing arguments are set in the trial of president take a former campaign manager paul manafort. metaphor decided not to testify in his defense -- manafort decided not to testify in his own defense. isitaly, the government calling on the man that runs the highway operator to quit following the bridge collapse.

at least 37 people were killed when the bridge crashed down after heavy rain yesterday. turkey is taking more steps to prop up the lira. the currency rose from record lows. tickyent erdogan government imposed higher tariffs on a variety of american goods to retaliate for president trump decisions to put tariffs on turkish deal and a -- and aluminum -- turkish steel and aluminum. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: let's say on that story with the standoff between turkey and the united states. turkey has imposed new tariffs on the that the state as well as increased speculation in the turkish lira. we welcome from austin texas, the stratford vice president for global analysis.

it looks liket, we have an irresistible force and an immovable object in president trump and president erdogan. what is the resolution going to be? >> will there be a resolution is the question. i think trump has met his match when it comes to very stubborn leaders on the world stage and to understand erdogan and why he is so reluctant to break from this war against interest rates and this economic model, it is because it has served him very well the past 15 years. heavy government stimulus, big infrastructure spending, that gave him the ability to build this patronage network and he is loathe to break from that model. ofnson has been accused -- movementth the

so they are asking for a high price in return. david: that answer goes to the heart of something which is is there a distinction between the economic and the trade and the geopolitical on the other end? we seem to be mixing up the question of should they be raising interest rates and what is going on with foreign direct investment and trade. on the other hand, the turkish government's claim that perhaps this pastor was involved in the coup. -- >> this is the nature of the political economy. we do see president trump trying to use tools like tariffs to exact political concessions from turkey. he wants to curry favor with the evangelical crowd in the united states. for erdogan, this is not a simple case of economics, this is a matter of preserving that political dynasty.

trump has reshuffled his economic team to incident -- to insert ideal -- ideologues. to remove resistance from his course of action on the economy when it comes to keeping those interest rates low. they actually have quite a bit in common. david: thank you so much. good to have you with us. -- andoining us now is on the phone is liz ann sonders, charles schwab chief investment strategist. you made a call that you wanted to be buying the lira. what would you do now? >> what happened on friday is really a sign that we have gone from a normal economic underperformance story for the weakest link in emerging markets to outright crisis mode and the response we have seen ever cents

is entirely on the political side. we are talking about tariffs and preventing shorting. to consider getting back into turkish assets at this point, you need to see a credible package of -- the announcement of a new economic team and the clear this debtto stop fueled spending economic model, increase the savings ratio and -- the current account surplus. we are not seeing the necessary economic response that the market wants to see. escalationevent the of the negative performance, but

it is not solving the problem. david: he says it is a crisis. a crisis for whom? certainly it has fx trader ticket tensions -- trader's attention. a lot of the charts i have seen only go back a year or so to show that spike. if you look at the long history of currency volatility, it goes back to the early 1990's. we are not even at the long-term average. it has been a short-term spike but we are still relatively suppressed. when you look at the story of the fx volatility, in terms of the implications it has for other asset classes, the u.s. ority market only once in 15 20 occurrences similar to

recently, to the u.s. equity market suffer a big loss. in general, the u.s. equity market tends to do fairly well. e.m. broadly has tended to do toy well and you also tended see an overall drop in equity volatility. consistent weakness and spikes in volatility measures across asset classes. alix: there are some things that could be argued are different and one is a stronger dollar we have seen, finally kicking into gear and the fed continuing to hike as we see this disengaged central-bank options. when do you expect investors to have to rotate into safety like utilities, value versus the growth of your typical stocks? liz ann: we have started to see that. you have seen bouts of outperformance by the asset classes and they moved to more

defense and that shift toward value. i think it may be a sign that we are at or near an inflection point given the fact that inflation is picking up, growth may be slowing because of the tariffs or in general because of the spike we have seen. defensived a more -- thisand we have been adds to the pot of increasing risk. we don't think the secular bull market is dead and buried, but we do think this is an area where we are likely to see more bouts of volatility and greater risk for investors. david: have we seen the height of the fiscal stimulus or is .here more coming

-- is there more coming? i think it is in particular on the regulatory sign that investors may start to fret. they tax piece of it is ongoing. -- the tax piece of it is ongoing. what we are moving into is that phase in the economy marie -- where we are starting to see the upper pressure on inflation but a little bit of a rollover in growth, and that can be cause for increased trouble because the fed is then forced to continue to move interest rates higher even though we have seen a rolling over in the growth rate. i think a recession is still down the road a bit. indicators are moving in the right direction. you have seen kinks in leading indicators with regard to tariffs. the most part, i think a recession is a ways off that we

are at a phase of rising inflation, slower growth which is why we have been warning investors that there are more risks in the equation. alix: we have a viewer question that speaks to the developed market versus the emerging-market. g10,uestion is for fx, for where is the aussie dollar going ? the first time we have had a u.s. policy rate above the cash rate. last time that happened, the aussie dollar was 20% lower. >> the aussie dollar is not in the best position among the g10. -- of the interesting like the yen or the swiss franc

-- the aussie dollar is another boost to these generalized dollar appreciation trends. with respect to the specific question, it is one of our favorite picks and in terms of valuations, is one of the few currencies that looks fairly valued versus the dollar which is on the expensive side against other currencies. david: just a comeback to liz ann's point about possible inflection point, what other factors you are looking at to figure out when that inflection point is? liz ann: it is a number of forces. it is the flattening yield curve. as you go from a phase of accelerated growth and , to oneting inflation where growth starts to decelerate off of its recent peak but inflation is still accelerating, that changes the dynamic in terms of the yield curve and that is when you start

to see more defensive leadership kick in. you have seen bouts of that over the last month or so. it is too soon to declare we are in a trip -- a definitive trend but we have reflected that in our commentary that we may be in that shift to that phase where you see the fed still have to continue to raise interest rates but it is in the context of an overall slowing from recent peaks in economic growth. alix: always a pleasure to get your perspective, liz ann sonders of charles schwab. alesso, you are still with us. this is euro-dollar versus the 10 year. some can make the argument that if you are going to follow the spread, you can see euro-dollar parity. is that something you could realistically see? >> we could realistically see it in the context of the current

growth dynamics which are not favoring economies outside the u.s.. specifically to the interest rate differential, it is a relationship i tend not to rely too much on. it has been a few years now that the two markets have done opposite things and i think the main driver of the dollar rally is not necessarily the rate differential but is the lack of capital outflows from the u.s. into the rest of the world. assetsa that undervalued , and emerging-market equities were due to outperform because of rising cyclical forces. that story has stopped. the global business cycle, we have gone from synchronized growth to these synchronized growth and economic divergence. look at what metals are doing. us that theelling

,ontagion of higher dollars tighter financial conditions and weaker risk sentiment is moving on to real value -- real valuables. we are underweight the euro. we prefer to express it as the euroyen at this stage. with the political risks we are seeing, there is some chatter about the potential intervention of the u.s. in the u.s. dollar. how crazy that might sound, but if you asked me 12 months ago, we would have said tariffs are crazy. it is not that radical anymore. alix: and turkey saw some contagion worries. joining us from london is keith campbell of bloomberg. in particular, it looks we are be -- we are heading to a bear market.

it is important not to overstate the importance that turkey has to these banks. it is an important emerging-market that some of these banks have their hopes on for future profit growth. the biggest one affected is the bank of -- from spain. they get three quarters of their profit from emerging markets which i think about 14% of that is turkey. there are other emerging markets that will hit them, but their stock risk is down about 10%. david: keith, one of the things that strikes us is the rate to -- has allowed bba to allow exposure to turkey. to what extent is the market pricing in if not specifically

turkey, the phenomenon that is turkey, the possibility of that kind of exposure and that count of -- and that kind of downside? keith: it will certainly be a drag and certainly the kind of exposure that you see the europeans have gotten into. it has not been as much of a thing for the americans. youof the tail risks, when are thinking about something like sanctions, nobody is talking yet that the sanction situation with turkey could ever get as far as it has with iran. fromnalyst did an analysis alpha value. if they had to exit turkey entirely, they would take a hit on their capital of possibly 2 billion euros. this is tail risks stuff. -- risk stuff. it is not really going to go

away. david: alessio, what is your view? is it appropriate in your view to underweight european banks? alessio: i think it is the sacred thing to do. the exposures to turkey are not that large. -- this is linkages a classic mistake we always make. remember greece? reality is it is not a deking -- and economic direct link that matters. what matters is that sentiment link. on what condition is this happening and european growth has already been weakening and soon enough, we will move away from turkey and in september we are going to talk about italy and the increasing budget deficit. factorsconfluence of

that may affect the european banking system. it is weaker growth and rising credit risks that makes this a bit of a vulnerable position. david: thank you to keith campbell of bloomberg news from london. alessio de longis will be sticking with us. 13fe going to break down filings for you next. alix: macy's now down 6% in premarket. it market not wanting to buy . same-store sales, what are -- whether it is a broader license brand. we will delve deeper into their earnings over the next half hour. this is bloomberg. ♪

david: hedge funds yesterday earnings through their

13f filings and -- and joining us now is brooke sullivan, bloomberg opinion columnist. left --lk about has tesla. brooke: this is before all of the fracas around elon musk planning to potentially take private. his plan depends on these equity holders rolling over there stakes into whatever the new tesla is going to look like. we don't know exactly why they sold. it could be other bets they have going on in connection with the economy but given the magnitude of the cuts here, there was something in tesla that gave them cause. pause.e -- gave them

david: let's talk about facebook which has had a bumpy quarter. what is going on with facebook? brooke: there were a number of people who bought facebook in the second quarter and also a number of hedge funds who sold their positions. then you have george soros, all building up their holdings and facebook in the second quarter and it seems to me that those hedge funds that were buying came in after the cambridge analytic a scandal and saw the low end as a buying opportunity. want to point out that it depends on when you bought in the quarter and if you bought on the earlier and, you are maybe still in the green. alix: also interesting is diamondback and energy and -- brooke: not all of them stuck

around to get to the finish line. investors encouraging a sale and encouraging this review and then exited their position in the second quarter. over the most active in this and pushing for a sale stock. it reduced its position in the second quarter but still held a significant stake. alix: interesting just before that buyout. sutherland,- brooke thank you very much. retail sales on deck as well as the risk off day continues in the markets. this is bloomberg. ♪

alix: this is bloomberg daybreak. moments away from retail sales data on this risk off day. the dow jones future off by triple digits.

other asset classes, it has been a buy bonds, sell commodities and buy the dollar kind of day. commodities continue to roll over. -- will retail sales be enough to help the indices? the retail control group also better than expected. for july, up 5/10 of 1%. interesting read through, it feels like that is a solid report coming from retail sales and trending deeper. david: we've got a lot and it was over estimates for a month. alix: nonetheless, it is a

pretty broad base. there was some buying and retail like clothes. a lot of restaurants. that is a solid consumer spending game. the question always beating, is it going to be enough to sustain that 4% we saw? will that be able to drive going forward? david: labor costs actually went down. alix: because wage gains had not really accelerated. but consumersnies who cannot buy the stuff to support gdp, they be not so great. david: let's bring in bricklin dwyer, b.n.p. paribas senior economist. bricklin: some of the things we the amazon for, prime affect, we did not quite get a huge surge.

amazon taking up nearly half of the non-store retailers. a big player in that market. some pretty good numbers overall. department stores seem to be doing ok. we got some bounceback in clothing stores and some weakness in sporting goods and things like that. overall, the story remains to be quite positive. we see consumer spending quite positive through the middle of this year and the question is what happens next. david: what does this tell us about earnings? we have some strong home depot numbers right now. we have walmart coming up. what correlation might there be between these retail sales and what we can expect in earnings of the quarter? bricklin: i find very little. we talked with our -- we talk with our retail folks quite often and it is quite disconnected.

a lot of very nuanced stories going on. alix: productivity rose in the second quarter at 2.9%. that seems to be the biggest gain since the first quarter of 2015. unit labor costs are lower. productivity appears to be stronger. can i start to say things like inflection points? hopefully that is right. at think right now, what we usually see with productivity is these numbers are extremely volatile. certainly the trend is moving higher, which makes sense with the investment we have seen that has been picking up over the past year. david: is it too soon to see that some -- to say that some of the capital investment is paying

off? revised: one print gets heavily. i think the number is quite substantial. it is not quite spilling over as you mentioned into those unit labor costs. , put it allio together and what is it telling you about the state of the u.s. consumer? respect to these numbers, this is a very good report. however, putting it in the context of arguing that 4% growth is sustainable, i think it is misplaced. sustain economy cannot sudden acceleration. 4% is not sustainable. being in a slowing growth regime , this is what this report would be consistent with. it says that the consumer is clearly doing well and i think

this report will only continue to fuel the current market regime of u.s. asset outperformance, the u.s. dollar performing in foreign markets. it will fit that theme which we are expressing through small-cap stocks. we continue to favor debt exposure with respect to the themes of the last few years. we are favoring more exposure to the u.s. economy rather than foreign markets. it is a different way within the u.s. equity markets to play this divergence in growth between foreign and u.s. growth. alix: bricklin does this change the fed conversation in any way? bricklin: no. this is quite positive in terms of the forecast. i need something outside of their comfort zone to change things and this does not skew things either way. alix: slow and steady, etc..

bricklin: goldilocks comfortable, reassuring, these kinds of phrases come to mind. david: alessio is right and 4.1% is not sustainable. what is sustainable? stuart: in terms -- bricklin: in terms of overall growth, we see trend growth near sub-2%. youd: you don't think -- don't see anything in the fiscal stimulus that would change that? bricklin: it is really tough to come up with something that is actually going to boost long-term productivity. you get short-term gains that is going to boost gdp, but that long-term education, the kind of structural adjustments. alix: i understand your point -- when u.s. is showing do you have to rotate defensively in the u.s.? alessio: this goes back to some

of the conversations we had earlier. what is anomalous is while we are in the late cycle, the fiscal expansion has reset the clock. we have never had fiscal expansion this late in the cycle. will we are watching for, the sign that it is time to go defensive rotation is credit spreads, now we know what the yield curve is doing, but the real transmission, when will the yield curve tell us that things in mytting tight, opinion, that is when lending standards will begin to tighten. we had a new low and a new high in easing standards. not just yet. alix: is there a level on the yield curve that freaks you out? alessio: i have a long. about this. -- i have a long theory about

this. the inversion of the yield curve does not really matter. it is amount -- it is the amount of time you spend into low single digits are negative numbers. i want to see lending standards tighten. alix: bricklin dwyer of b.n.p. paribas, thank you very much. productivity increasing as unit labor costs fell. staying in retail, macy's is the stock to watch. earnings beat wall street estimates. emma chandra here to take us through the numbers. they raised their forecast. what is the why? margin sales, all the guidance was good. analysts on the south side may be suggesting that the guidance is a little too conservative and that macy's tends to do that all the time. one of the things that was unexpected was the comparative

sales. i have a chart which shows the amount of positives and comparative sales growth and it had been forecasted down .9%. david: what is a company to do? they succeeded the guidance. sometimes you say it is your mistake because you guided too high. they didn't. right now, you's are saying what do i have to do? they posted a much better than expected first-quarter and that might be playing into what is happening there. a lot of questions on the call. alix: also spending. you still get the discounts. you have to spend to grow, cutting back on inventory. their margins do not seem to capture any tariffs issues. emma: i did not see anything related to tariffs.

consumer products are not impacted quite yet. a number of retailers i have spoken to say it is something they are thinking about but nothing that is a concern right now. david: you have to wonder if it some point the investor is thinking is this as good as it gets? alix: high watermark. david: high watermark. alix: learn from caterpillar. , the you like retail at all? alessio: we'll get involved in sectors that fine. said -- play, pricing pressure, pricing power, that sort of narrative? alessio: not so much. alix: you can get there. is that a geopolitical issue? alessio: yes.

this trade story, war is now long in the tooth. it is something we have been dismissing for a while and it is time to recognize that it is the new world we are in. david: without taking a position -- to whatto wit extent do you use retail to get a broader read on the economy and where the economy is going? we don't focus so much on it, even as an input. we tend to follow some of the high-frequency data that emerged that tell us something about the consumer. try not to extract too much information directly from the marketplace because it might be a chicken and an problem -- and an egg problem. there are other measures within

the manufacturing sector in the construction sector and some aspects of the job market the tend to be more leading indicators of the business cycle. david: alessio de longis of oppenheimer funds and bloomberg's emma chandra, thank you for being with us. alix: consolidation continuing in different sectors. -- they total value is $1.6 billion. i just want to point out. anycally the story with kind of petrochemical plant is the u.s. has a lot of polyethylene because you use natural gas to create it. china shorts it. the question is, does it have any change when it comes to the

tariffs? petro cams are now on the terrorist list. does that change the thesis at all? like theit seems merger is going to continue to consolidate here. david: coming up, funding pressure mounts on elon musk is the company tries to meet production goals. we discussed challenges -- we discuss challenges. this is bloomberg. ♪

emma: this is bloomberg daybreak. coming up later today on bloomberg markets, an exclusive interview with -- management ceo. this is bloomberg. show me the money. isla shares a sliding pressure continues to mount on elon musk. goldman says they are missing the mandate to provide legal advice. wening us now -- where are in the funding conversation? >> very much in flux. this is being built on the fly. must has -- is that musk has had contact to present some proposals to the board like the saudi's and many others

including a lot of current investors in tesla to join this cause. alix: what will be different about any kind of buyout versus a traditional wall street deal? >> you're going to have the involvement of the current investors, at least many of them is what elon musk wants to do. says he does not want to take on any actual debt to go through with this transaction. it is going to be very different on what we think of as a typical lob -- lbo. david: let's turn from financing tesla to its making of cars which is supposedly its core business. joining us now is jeffrey liker of the michigan engineering school. he comes to us from michigan and welcome.

the predictions elon musk and tesla has made about the number of cars they're going to make. it has gone down and i'm not sure they have made any of the protections they have made even as they take those predictions down. give us a sense of the challenges of this company in trying to manage that scale. prof. liker: the term that the announcer used on the fly is a good term. i think tesla has been trying to do manufacturing, mass production and there are thousands of parts and all the parts have to fit together and they complicate things by adding a lot of untested automation. david: at the same time, have a surprised you about how far they have come? they have ramped up production substantially. prof. liker: with brute force, you can do that.

through a lot of people at it and work all kinds of hours. -- throw a lot of people at it and work all kinds of hours. motivatedefinitely and they are working really hard. david: it is not just people. they also put a lot of money. we have a bar chart that compares the cost of what they are doing because they are trying to automate so much and it is more capital intensive as you compare with other auto plants. prof. liker: ironically, it is more capital intensive and more people intensive. 10,000 people working at what had been a joint venture between toyota and gm, more than twice as many people to make about a quarter of the cars. a lot of people, a lot of capital investment and that cost a lot of money. david: they are trying to refinance the company and take it private. how much of a distracted -- distraction could that be for the manufacturing process?

how difficult is it to try to really get your manufacturing up and at the same time, you are dealing with goldman sachs? i don't know the people who are actually running the manufacturing. it mightre confident, be better that elon musk is busy with something else because having the ceo hang out in the plant can be a distraction. david: at the same time, tesla said they're going to create a multibillion dollar plant in china. how realistic is that? prof. liker: i have had this experience in america. it sounds to me like another case where an overpromise and under deliver. i think they are way overestimating their ability. alix: i know you made the point

that it might be a good thing that elon musk is distracted. at what point do you expect that to start to detract from the ability to get things done? prof. liker: in the sense that musk is the cheerleader and the visionary and he is making people do what seems impossible, putting in herculean effort. not having him around is a bad thing. he has about a half dozen other companies he is running. he is distracted anyway and i don't think that is a good thing. up annew ceo starting auto company and then ramping up production, it would be plenty on their plate without having building space ships tunnels and batteries and solar panels. david: finally, what about the quality of what is being produced? we are hearing anecdotal evidence that they may be suffering under quality. can they get up to scale at the levels they are predicting and

maintain the quality of those vehicles? prof. liker: i would be surprised if the quality is really good, considering that they are throwing people at it. people are exhausted. they are pushing everybody and equipment beyond current capabilities. i would be surprised if quality is really good. on the other hand, they do a lot of rework which is costly but the end up repairing most of the vehicles after they make them. if their inspection is good enough, they can inspect and .epair quality which is a no-no jeffrey liker, thank you so much for joining us, a university of michigan college of engineering professor. have copper up, you collapsing below six dollars. more of what i am watching next. this is bloomberg.

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alix: what i'm watching is copper's collapse. this came up in our editorial meeting. this is a panel on the top and you have the correlation between the dollar index and copper. it is inversely colluded but only points negative three, not huge. then you have emerging-market equities in dollar terms versus copper and has a higher positive correlation. how much is potential global growth slowing as signaled by emerging markets? david: the fear he is emerging markets are going to want to consume a lot of copper as they grow, so if they are not growing as much. alix: some emerging markets are actually cutting rates which helps their economy grow and potentially help copper. that did not happen and we are seeing rate hikes. david: you also have to factor

in china because china has been such a big consumer of copper. if they are going to dialback, it could really affect copper. alix: you have copper, aluminum, a lady him and platinum -- palladium and platinum. that does it for bloomberg daybreak: americas. -- why he is bullish on tesla as the risk off mood continues to dominate. this is bloomberg. ♪

jonathan: 30 minutes until the start of trading. this is the count down to the open.

coming up, buying american, the dollar rallying for a fifth straight session. turkey giving the white house "a great deal of frustration, the dispute intensifying. afterwards, elon musk tweeted to soon. futures are down 18 and the bond market is a bit on treasuries. in the fx market, a much stronger dollar as u.s. retail sales rise more than forecast in july, just one more sign of america's outperformance. now isu.s. right enjoying exceptionally strong growth. >> delivering twice the earnings growth of the rest of the world. >> breaking out fundamentally and technically.