tv Bloomberg Daybreak Americas Bloomberg October 9, 2018 7:00am-9:00am EDT
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year treasury yields hit a 10 year high. morgan stanley throws in the towel. a imf cuts the global forecast. stresses in emerging markets leads them to gut the global growth forecasted two years. risetion in venezuela will . the italy italian -- italian finance member -- minister defends their policy. david: i am david westin right here with alix steel. we are not in the panhandle of florida. you can see this is the satellite photographs of how the storm is entering the gulf of mexico. it is going to take a right-hand turn and go at cross -- across the panhandle. natural gas hit an eight-month high yesterday.
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north, it's more not going to hit the citrus crop. it could hit the cotton crops in georgia. they haven't done a lot of picking yet. that could be a significant issue. david: it's going to come up short wednesday, about 4:00 in the afternoon grid they are warning this could become a category 3. the gulf of mexico, the water is warmer and more shallow. don't the bottom, this is where we are starting. it's going to curve around and go up the east coast. alix: in the markets, it's another risk off day is yields time -- climb higher. they are off 11 points from the selloff yesterday. we tried to stem some gains. the dow had a rally in the afternoon, but the seven-year high on 10 year yields was not enough to see a rally. the euro-dollar is down.
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it's a stronger dollar story. the indexes over 96. the 10 year yield is 3025. what kind of new range will we be in? we will tackle that for the next two hours. part of that is going to be the hurricane, we also have the aie saying we to cut more. we are in an era of higher injury prices. david: it's time now for the morning brief. the supreme court holds arguments with justice brett cannot taking the best for the first time. google will unveil its new lines of pixel phones. treasurya.m., the resumes option of notes offered today. that's part of $230 billion up for sale on this short week. alix: it's time for first take. we are joined by bloomberg
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intelligence and michael mckee. shorting to draw up the trend line when you look at 10 year yields up over the 100 day moving average. : i think with higher yield, you find a couple of things happening. the first is the pressure intensifies. when you look at how yields impact the equity market, it's to the earnings stream. what we experienced this year's multiple compression. the pe has come in and the rates of resin. rates are rising as a pastor face -- faster pace. it's a little bit fuzzier. high yields accommodate flipping the yield curve. companies have greater earnings growth. that's questionable in the environment. we are looking at a deceleration because of tax reform and margin
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pressures. those factors will overwhelm any sort of upward flipping yield curve that has developed. mike, do we know it's causing this? it's clear the 10-year has wrote in the new bond rate. what is fundamentally causing it? it's a combination of things that center around political instability and the idea of tariffs. when you write down the 10 year yield, it's the term premium that has skyrocketed. havenflation expectations been volatile, but stated the same range they've been in. we don't know it's going to happen with the tariffs and how the fed is going to react. they've been raising rates for some time. they haven't pushed the idea of rates higher. we have a self-fulfilling loop
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here where rates are going up and rates are going up. what will be interesting is if the president does another round of tariffs, what impact that has on the rest of the world and whether that brings buyers into the treasury market that would put a caps on yields. david: that's our second story, the imf has its new global economic report. for took down the estimates .2 in 2019. they referred to tariff tensions among other things. modelthey're trying to with the impact would be on the global economy. that is if the president puts on all the tariffs he's threatened, including autos. it's not going to be that bad. the u.s. and europe have not the belt by .2.
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they don't usually pay attention in advanced economies because there is so much forecasting done. for the rest of the world, global growth is going to come down is a fallout from these tariffs. the interesting thing, the imf but set a financial stability report that hasn't gotten a lot of notice. bank doomalking about loops are still in place. we saw this with greece during their crisis and during the financial crisis. the imf says too many banks are buying government sovereign debt. slows, theal growth balance sheets come under pressure. that creates a downward loop and the banks. that is something to keep an eye on it, especially with was going on in italy. alix: inflation can be over 10,000,000%. what does that even look like? what does that even mean?
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gina: it does bring into affect the liquidity in the market. how do you position for that? see securities that are more actively trading. the have outperformed on the year. we see this impact in developed markets. it is impacting global equities in terms of less risk tolerance at large. you see developed markets went the u.s. performing better than developing markets. that is a risk off trade in equities, equities are still expanding. you see it across the market. so constraining that it results in the deceleration of economic growth? that is not priced into the equity market. at some point, the fed does go tight.
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they will squeeze up economic growth and that's a different environment. accelerating,till but we do see that liquidity tests closing. that impacts security. it's impacting the little bit of risk tolerance. economic see that if growth deteriorated. david: the bond market in italy, he is the finance minister. he warned about the output gap. it is essential to frame my plan in the european context that sees us behind in economic growth and employment. the gap is not acceptable anymore. talking,en as he was shot up.und you were talking about nice and sovereign debt, italy is the
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fourth market in the world. a lot of banks of that italian debt. jonathan: italian banks are buying italian debt. the concern that the markets have is this new budget will add to the debt pile. who is going to buy it? that's the real question with banks being weak. that could set up another crisis there. 3.6% right now. that is not greek yields. when the greek crisis began, yields went up to 7. there are events -- ideas that the debt could be sustained. it's not a terrible situation. italy looks pretty bad on a relative basis. alix: muhammad ali area in talked about that. there was a threat ready to
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that. the real change could be done a lot less. has a italy in some sense lot of cards. the country is too big to fail. what does that do to european equities? gina: it's depressing the tone of equities. you have reasonable economic growth across europe, european equities are trailing. year to dateing lows. if they break through the lows, all bets are off. they have some technical support. it's very clear that italy has been a source of weakness. now you have brexit to worry about in march. the result of the brexit movement has been the outperformance of u.k. securities. if we see that reverse, that adds pressure to your. as long as the economic growth intact, this is an
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opportunity for global investors. before we start to see breakdowns and technicals, we see big currency movements. the bond market is moving. we had to bring up brexit. guys, thank you very much. you can find all the charts we just use. you can go to tv . how to trade the equity market. matt miller.to this is bloomberg. ♪
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focus today. the yield and the u.s. 10 year are higher, seven-year high. this is how far the 10 year yield is above this 100 day moving average. that gap of 31 basis points. joined from new, massachusetts. what is the top or yields? it's funny. it's key that we have seen this breakout in the last week or so. , that was not only the highest this year, it's the highest going back to 2016. in the technical side of things, level, they that spike a lot higher. people are saying we see global growth slow a little bit.
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on a technical basis, the last times we saw significant breakouts, we moved higher. can get to that quicker than you think. alix: in the rotation we've seen, this is the grr function. the outperform or is up by 3%. financials of done really well and tech has not. explain to me the theory about the spike in yields. matt: you would not expect the utilities to bounce higher with a rising interest-rate. it goes to this theme that people are getting more defensive. months, we'veven seen a health care stocks outperformed. consumer staples a done very poorly. outperformedghtly
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the s&p. it's the same thing with utilities. about archerg daniels midland. that is adm. you are talking about food, you can't get more defensive than archer deal. that's a new all-time high. people are starting to see that not only can i get more defensive, it doesn't hurt me to do so. usually you pay a price to get defensive. i think people are moving that way to ensure themselves against any kind of pick up like february. david: is that the right strategy at this point? to get defensive and go into health care? would you recommend that? matt: i would. number one, the utility is a dicier call as interest rates move up. that will be harder.
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when you look at areas where you have health care, we talk about earnings. in the second quarter, the health care was number one in terms of beating expectations. side, wehe political worry about the drug pricing issue. that has been overhanging the market for two years. what we saw in may when president trump came out with his drug pricing initiative, it's not going to be a big issue for him. issue and aolitical technical issue. a groupcombined for that does well. that area is going to work well. we are late in the cycle. be heading into a recession. excuse to bea good
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a little bit more defensive as we move forward. david: it feels like forever that value is going to overtake growth again. have we finally reached that point? matt: they are converging. that's the thing. you want to mix. you don't have to sell everything and go 100% cash. you can pare back some of the growth stocks you have and be more defensive. there are some great names out there. technology is still very good. we have seen a pullback of certain stocks like facebook. you want to readjust your portfolio rather than completely flip it. we are getting more toward a value play. that will help moving into 2019. david: coming up, third-quarter earnings season kicks off this week. we will have more what to expect
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emma: it's a blow to the new head of the largest advertising group. one of its biggest clients has transferred a chunk of business to a rival. ford said it is under five month review. they are trying to revive the company. shares of fallen 17%. bloomberg has learned that they are in talks to some of a joint venture in china. itsman sachs has made spending platform a pillar to raise revenue. bloomberg has learned that the firm wants to restrain the
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expansion of the platform. the target has been cut for next year. they are going more cautious on the consumer debt market. david: for more on the goldman market story, we welcome allison williams. this news broke just as we were going off the air yesterday. it surprised both of us. we thought this was a big initiative for goldman. it looks like they are cutting back now. allison: it's a big initiative. this was a specific an announcement. reportedlyory that they are pulling back. it seems prudent given some of the competition we see out there for this type of product. david: didn't they expect that competition? a lot of people were just consumer lenders.
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competitives a very business. when you start to see competition expanding beyond the market, we've seen a huge uptick in terms of mailing through are anoans, credit cards aggressive business, the personal lending side has been aside this been picking up and getting more aggressive. that theay announcement to me is a signal that there might be some froth in the market. alix: there is another performance from goldman sachs another big banks. they want to close that as best you can. is this going to help with that? allison: what will be ineresting is the target september last year. they would say they were sizing an opportunity across their businesses.
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part of that as a goal for markets. this is a three-year plan. they are stepping in to this to theill he make tweaks plan? a slowdown in the markets suggests that $1 billion goal is in question. that will be something we will hear about more next week. alix: all right. thank you very much. matt is still with us. i can make a case for the good and bad of higher yields. you have to be able to make the loans. risks, what are you expecting on the report? think it's interesting. the last couple of quarters, when the banks of reported, they reported good numbers. in the first case, there was a slant.
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the last time, they didn't bounce much. i'm starting to worry about what we will see. it's not just the earnings themselves. the thing we have to worry about here is rising interest rates. that helps the bank stock is the yield curve can go back a little bit. we have to look at loan growth. it continues to slow. that's a concern for me. banks, these regional housing data slowed a little bit. housing stocks have fallen out of bed. that's an important part of the economy and banks overall. as you talked about earlier, the european banks of the troubled they are having. what group will outperform? -- not so sure that banks
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energy could be a better play in that area for the reasons i mentioned. david: ok. stay with us please. if you look at goldman, it's pretty interesting. which theypeed with have made changes before he took the helm the ceo. there was a lot of rotation with the management. david: nobody ever accused him of being slow. alix: he has to for markets. david: coming up, adobe goes on a buying spree. we go live to barcelona to talk to the ceo. this is bloomberg. ♪
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getting hit, off by 1%. the finance minister said we are going to stick to our guns. it's unacceptable as it is. we will defend it. this is where it could be going. the euro is weaker, it's a stronger dollar story. the 10 year yields in italy are up 10 basis points. that's the highest level we've seen since 2014. the curve gets steeper here in the u.s.. brent is up by 20%. -- .8%. fundamentally, they shouldn't be over 300 basis points. david: typically, you don't want to move markets. he certainly did. he said were not growing fast
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enough, but we are going to stick to this budget. alix: a lot can happen in the next few weeks. they have to submit the draft by october 15. october 20 is the deadline for the whole budget. the credit rating for the s&p could be a big deal. they could get downgraded. david: they could come back and say we don't like the budget. i did not realize, they could impose sanctions against italy. it's never been done in the history of the european union. the have the right to oppose financial sanctions. alix: we've heard from the european commissioners that significant deviation doesn't look positive. david: italy is so big and important europe, europe might have to blink. alix: very different than greece. we should talk to someone who was there during the greek crisis. he will be joining us in the
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back half of this hour. david: what a good idea. let's find that was happening outside the business world. emma: good morning. label trade towards cutting into economic growth. the imf reduces forecast for the first time in more than two years. 3.7% isxpansion of next. that is down .2% in one month ago. trade tensions and stresses in emerging markets were noted. inflation in venezuela will hit one point 4,000,000% by the end of the year. than january. they forecast that the gdp would shrink 18% this year. it's the third straight year of double-digit declines. hurricane michael is strengthening and could be a category 3 before it hits the florida panhandle tomorrow.
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of oilhut down 19% production in the gulf of mexico. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. david? david: adobe systems has been on a buying spree, they picked up magenta no last may. they are putting all together in a new experience cloud. here to tell us about the big announcement is the adobe ceo. thank you for joining us. you put it all together, what do you have? >> adobe has been on a tear. thank you for having me on your show. we have two big growth initiatives. we are empowering people to create. we are enabling businesses to
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transform. the key imperative if you are a government or an educational institution or an enterprise is to engage digitally with your customers across every mobile device. across every mobile device. adobe pioneered digital marketing. what we now have is the ability for enterprises to create content and measure the efficacy of that content to acquire customers. we expanded into significant ways. we now make every experience shop will. so, we expand to be and see companies. it's an exciting time for adobe. david: explain to us the market you are going after. how big is it?
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who are you competing with? think the available opportunity for adobe just in the digital experience area is north of $16 billion. when you think about the financial institutions, financial services, whether you are hospitality or automotive, for the media business, you engage with customers directly. adobe pioneered aspects of creating that content. and dataing content together. while there are other enterprise companies that are looking at that same opportunity, we think we are continuing to innovate at a pace that keeps up distance from the competition. david: you've got direct competitors or people who think they are.
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you've got amazon out there, which is a pretty big grow. are you concerned they could come into this space and be a competitor? i think what amazon has done very effectively is demonstrate the benefits of digital engagement with their customers. that ondo is enable behalf of every other enterprise who wants to create that engagement. we give them the tools, we give them the platform. we give them an ecosystem of partners. whether you are a sports franchise, and airline, a bank, you want to create that digital presence. enablingurselves as these other enterprises to create that engagement with their customers. david: you have to be concerned about security. data privacy issues, you have
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regulations in europe. google said they had a problem with their system. how do you assure your customers that the data is secure and they won't be hacked? shantanu: it's a great question. privacyurity and data is something we have invested in heavily. on the data privacy part, we who millions of customers engage with us on the creative cloud. they are keeping that dana transparent about how we use it. that is front and center for us. on the other side, we enable lee enterprises to understand what are the new regulations, whether that be gdp are in europe, and how they can engage in a transparent way while keeping data secure.
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it's one of those areas where we have invested very heavily from a research and development point of view. we have to constantly stay ahead of what tapping with the regulatory environments around the world. be right on time for the rollout in the art. david: it strikes me that there are two ways in which governments can affect your business. one is regulation. there may be more coming up. the other is by direct interference. we see this conflict and the united states and china. how do you deal with a situation like chinese attempts to move intellectual property? i think at the macro level, the first thing we have to remember is digital is the trend. you can't put the genie back in the bottle. customers and citizens, billions
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around the world, they have the imperative to deal digitally with any does this they are dealing with. i think it's incumbent on companies like adobe to help them do that. help the citizens to get the engaging experiences they want and help the enterprises deliver that. we have to be circumspect about what the rules and regulations are. i think good sense will prevail. thatyou have boundaries are down and you have unfettered access to markets, that will continue to drive innovation and technology in the global economy. david: thank you very much for your time and congratulations on your announcement. he is the adobe chairman and ceo. belowyou have the nasdaq the 100 day moving average. there is rotation in the semi's. what do you do with tech right now?
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matt: you have to be more discriminating than you were in the first half of the year. as you mentioned, the semi the movingtocks, average has been rock solid for quite some time. it bounced up strongly each time. it's been any meaningful fashion. unless that can bounce back quickly, that's going to be a yellow warning flight for the rest of the sector. anyproblem with tech or highflying group is when it gets to extremes. it gets ahead of itself. the market overall is going to roll back over, especially the ones that are more expensive and don't have the fundamental backdrop. money will get out of that
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very quickly. you can see the stock's rollover. one of the things i'm going to be watching very closely is amazon. that's a retail company. they get most of their profits in cloud computing. that's going to be one to watch. it has started to roll over a little bit. that sounds like a lot, but it's not a big move. keep an eye on that one. if that comes down, a lot of the momentum will move out of the other stocks you need to be more with the china trade tensions coming up. david: thank you so much for being with us today. coming up, and up said -- upside. the stock selloff may have gone too far. more on that next. this is bloomberg. ♪
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emma: this is bloomberg daybreak. coming up, the chief equity and derivative strategies. this is bloomberg. alix: we turn now to wall street . this is what we're talking about this morning. is gettingund bigger. the lender is undervalued. this is $1.4 million tax bill. this is haunting the russian billionaire. join us is peggy collins.
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i wanted to take a beat with hedge funds. there is some momentum in tech stocks. who is going to be a winner and loser in the hedge fund industry western mark peggy: hedge funds have been struggling. they have the highest equity exposer compared. a lot of hedge funds have had to go long. a lot of them in order to get a lot of them in order to get the gains they need, they have gone into facebook and amazon. they have ridden those like a lot of regular investors have. now we see things roll off. alix: that's interesting. we have been oil hedge fund guy who is a list. he is finally there. that is the best in four years. marquis hedge funds have closed.
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closed.obson's fund has another hedge fund is closing. these are starting to make money. david: we've talked about this before. analysts say we may have gone too far. alix: they wrote today that there is cooperation in companies. there is an investigation on the u.s. front. that help them be better. bey estimated that it could less than a billion. it sounds like the amount of money involved since its money laundering could be north of $200 billion. alix: you have other banks saying they are not going to pay their debt. it's overblown. david: that's reassuring.
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peggy: it's uncertain how long that will take. david: he has this estate over there. euros.nt to million he is disputing that. put $150 million into refurbishing the house. peggy: that is part of his argument. it's a gorgeous location. he should really airbnb it. i want to go. he could make some money that way. david: not yet. i wonder what it would cost. alix: what was that hotel we talked about friday? it was $75,000 a night. david: not anything like this. alix: $1 million a night?
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i am making a list for me. david: thank you to peggy collins. alix: the italian find -- finance minister said the output is unacceptable. the country has until monday to submit a draft budget, five days before they must do the full budget. joining us from athens is the former finance minister of greece. it's great to see you. if you could say one thing to the italian government, one piece of advice, what would it be? stop adopting the previous government's strategy. i referred to that rather harshly.
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the former prime minister and that darling of the liberal establishment, he would pretend in brussels he was going to stick to the rules. they could not stick to them. they are inconsistent with the italian political economy. he would go to rome and demand from rome that italy's given the right to violate the rules that he supposedly excepts. if you want to be a serious prime minister and be true to your own people, use your position as the prime minister of the third-largest euro zone economy to demand and discuss the rules, the appraisal of the silly rules. don't demand your right to end rules without demanding a discussion. david: is it possible they are going to make some sense? what they are saying is they are going to have to change the
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rules. are they write about that part of it? yanis: the rules are simply unworkable. is something like europe's japan. it's an export oriented industrialized economy. imagine what would happen if japan today if you forced it to have a 0% balanced budget and took away from the bank of japan the capacity to flood the market with liquidity? .apan would be a basket case how do you change the rules? you just idea is convene the counsel. you have the right to do this. discuss the rules again. that they areding
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going to bend the rules. this is not something that goes down well in germany. alix: there is a lot compared to what is happening in greece and italy. this was written in bloomberg opinion last week. italy doesn't have a current account deficit i have surplus. the average duration of its debt is longer with a lower risk of finance the fall in the short term. fromresides in dislocation regional politics that is the most important factor for investors to monitor closely. there was a risk that greece would the fall, that gave urgency to a resolution. there is no urgency for italy. how does that change who has the power? italy is not greece. italy has a dynamic
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economy. time, the government has a primary surplus. most of the debt is owed to italian savers. italy should be flying. italy should be doing very well. an institutional setting that is not allowing it to breathe. that is correct. there is a fundamental difference between italy and greece. i was prepared to take negotiations to the bitter end grexit if it was the only way. i did not want to get out of the eurozone. i am a european us.
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tos a great wish disintegrate the european union and for them to get out of the euro. insisting onment policies that don't work in italy are bring in the european union closer to disintegration. david: is the eu really willing is an that risk and there theoretical possibility of sanctions. given the fact that italy said we are willing to withdraw, does that mean they are calling the bluff and saying you're not going to really hurt us? yanis: not yet. fruition a fewo years from now. .urope is the birthplace there is this process whereby the government goes to brussels for approval.
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brussels would say no. they will go back to rome. they will go backwards and forwards for many months. russell doesn't have a way of dealing with the budget. he is not planning to have a major confrontation with brussels on the budget. he is using migration and thephobia to galvanize support within italy and within the government. the budget class if it's come will happen next september, not this fall. david: we have a question from a viewer. i will read it for you. i think they are pushing back. would you advise the politicians to change the rules as we did in 2015 and ended up with closed banks and a new memorandum that
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stripped the rules? did it work the way you want it to? i will remind the viewer that in greece, the rules were in constant flux. they could never be applied. every time they made new rules, they were violated because they were silly. andy monday, wednesday, thursday, we would have a new rulebook. was theas trying to do only sensible thing, to say i'm not going to take more loans and restructure the debt. minister has a right to do anything beyond that. say italy was not in the euro today.
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they would be fine. they have a very successful economy. how do we change the rules in a way that is the result of a legitimate democratic discussion? this is what i have been advocating for. we start the process of reconvening a summit to discuss something europe is refusing to have. david: explain to us the politics between berlin and rome. will merkel go into that meeting and agreed to change the rules the way you suggest? this is the great difficulty. even if we had a magic wand and convinced to misses merkel today that the rules need to be rationalized, she as
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a result of procrastinating since 2007, of missing the economy to user leadership to change the rules of europe, now she is a lame-duck chancellor. they are simply waiting around until they decide who to replace her with. you are right. the european union is now leaderless. todo not have misses merkel make changes. the public in the south, the public in berlin, the public in the east and west, there are important changes that have to take place. continue possible to with a banking union that is not a banking union in practice. imagine if the united states did not have the fdic and the banks
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of arizona had to be salvaged by a state government that had no access to the markets. we need to have this discussion. alix: if you were the finance minister of italy and you are looking at the basis points, what a level you go back to the table? yanis: the question is what do you want to do? do you want to cover up the crisis? we have an insolvency problem when it comes to banks. we have a low level of investment in real things that are necessary to promote proper growth and italy. years, last six or seven we've been covering them up in a variety of ways. easing, attending , we are running
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out. the government must go to brussels and say we need a proper banking union. alix: did you see spreads widening out? are we in a dramatic world than? we had interest rates that reached 7.5%. by anotherheld, only fudge the did well. investment.d immigration ofe talented young italians away from italy. now we have this populist government. it's about time that we stop fighting. alix: it's great to get your perspective. thank you so much for joining us. ♪
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alix: 10 year treasuries had a seven-year high and create a new range in markets. tech momentum stalls light -- while bank rallies. in emergingstresses markets. that is well a inflation will rise 10,000,000%. it's unacceptable, the italian prime minister says it's unacceptable as he defends the budget and vows to fight spread widening. david: welcome to bloomberg daybreak. that was a fascinating discussion with the former great finance minister. this is a bigger problem than we appreciate. there are constitutional changes that need to be made. alix: italy has the leverage and
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the ability that the greeks never did. there is a conversation that could be made. if it's factored in even more. david: greece needed to stay in the european union. literally is not so sure. alix: that's point. it's the risk off that continues. the nasdaq and the s&p are around the 100 day moving average. the euro dollar is down .5%. it's a stronger dollar story. up.ing picks the downside with equities, crude is down. david is front and center when it comes to your. david: it's time for the morning brief. the supreme court holds oral arguments with justice brett cap not taking the bench. unveil its new line
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of phones in the u.s. auctionsury resumes this morning. it's part of $230 billion up for sale this week. alix: some investors are getting ahead of that. update of what happening outside the business world. emma: the international energy agency warns that oil markets are entering a red zone. he told bloomberg that higher oil prices are inflicting damage on the global economy. if their own major moves, the fourth quarter will be very challenging. for the first time in two years, the imf has cut its forecast for global growth. economy willthe grow 3.7%, down .2% three months ago. the escalating trade war and
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stresses in emerging markets are the problem. u.s., hurricane michael could be a category 3 before and slams into the florida panhandle tomorrow. oilas shut down 19% of output in the gulf of mexico. we will monitor its progress here on bloomberg television. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. alix: thank you so much. it's affecting commodities as we know. 19% of oil production, 11% of natural gas, that's percolate. david: cotton might get hit. that's the satellite photo right now. that's the image as it enters the gulf of mexico. it is a category 1 right now. it should fit the gulf coast where the panhandle of florida
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at 1:00 in the afternoon. that's just about an hour ago. it goes up the east coast. alix: it will go north of the citrus crops. hurricanes in florida are all about the oranges. cotton may be hit. we are watching that over the next couple of hours. the risk off sentiment is growing. this is how some strategists are positioning. >> the u.s. market is defensive. they are rotating more defensively within the equity markets. they are buying growth stocks. that is not a bullish position. >> we are beginning to see durations. i continue to see the u.s. looking good. >> fixed income is the biggest risk out there.
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to us, it's the biggest worry. bad news is happening. nobody cares. >> financials is a good place to be. some areas of the market show quality and good balance sheets. i think that's where you want to be. alix: joining us now is jillian emmanuel. he has a 3000 year in target. what is your call? julian: the move up in yields has greater staying power interview. positively, the steepening of the yield curve is proof in the pudding. signals a psychology change tilting away from high multiple technology and consumer discretionary sector.
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david: when you say it has more staying power, is it the causes? julian: cause and effect is different. part of the issue and your last guest said the italian bond yields arising. it's not entirely obvious the bond market is going to be that safety valve for risk off like it has been in the past. as part of the issue. is there less demand for u.s. treasuries? david: if you are right, what does that say for the value versus growth equation? we heard value is coming back. julian: it's come back over the
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last month. , do weend is something think growth is over and tech is underweight? we don't. our work says tech can have and has have these times of underperformance if they are not severe. the rest of the market can actually do ok. if you look at the last week, part of the head scratching moving into utilities, even as the bond yields are rising, it's relocation -- reallocation of money. more symptomatic of trying to find places away from the momentum names. alix: that has led to more volatility. this is the cross asset. the blue line is the move index. the white line is the vix. the standout is the treasury.
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this can have reverberations throughout the market. how do you position yourself? julian volatility has been our preferred hedge for uncertainty over the last several months. it is coming off a low if you go back 20 years. it's the all-time low, the equivalent of this below nine last year. is this a straight line move higher? no. the fact of the matter is you have pundits declaring the bond bear market. factually, we looked at the end of 2016 as the start of the bond bear market. we would not be surprised if there was a let-up in what has been a parabolic move. you could have treasury volatility rise even if the move goes sideways. there might be more risk off.
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alix: the theory six months ago was it something happened to tech and financials didn't take the lead, you mentioned from the rotation to different parts of technology, different parts of value and growth. the kind of volatility you might expect? julian: this is a critical issue. if you think about the last 30 days and the next 30 days to calm, uncertainty has risen. the fed removed accommodations. they are now more data dependent. the midterm elections speak for themselves. we have an earnings season starting on friday. we will be wondering what the commentary is with the trade war. in that perspective, it's natural to think that volatility
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could rise. it, the market is likely to be under pressure. ultimately, we think the rotation into financials and energy is something that can support the market, awaiting of , there is a lot of heavy lifting to be done. david: you have a viewpoint on the midterms. good news foris democrats and republicans and investors. if you are a democrat, you will notice that the republicans have had unified government coming into midterms three times. they are 0-3 defending unified government. republican, you've
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never had a situation where if you look at the data through the end of the third quarter, the economy and the stock market have been strong. if there's going to be a first time, this could be the first time. for the bipartisan view as investors, the years after midterm elections are 500 basis points higher going back to 1928. david: politics are good for markets. julian will be staying with us. coming up, the imf lowers its growth forecast for the first time in two years as the trade war takes its toll. more on that next. this is bloomberg. ♪
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emma: this is bloomberg daybreak. it's a blow to the new head of the largest advertising group. one of the biggest clients has transferred its business to a rival. after ad it shows them five-month review. they are trying to revise the company, shares of fallen 17% this year. shares of pop at john's are rising. according to the wall street journal, a hedge fund is considering a takeover of the pizza chain. there is a fight with the founder. he owns 30% of papa john's. he is still on the board. is looking into ridesharing in china. they are in talks to set up a joint venture. the project would take on the industry leader in china. that is your bloomberg business flash.
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globalthe imf cut its growth forecast blaming stresses from emerging markets. we welcome mike mckee. julian is still with us. they cut the forecast. what were the main points? mike: it's a weird place to do it. they are meeting in bali. everybody should be happy. we can show the main takeaway. you can see the imf cutting its outlook by .2%. 3.9% that theyom forecast. it's the first downgrade since 2016. they blame the natural fatigue you get at the end of a long economic cycle. some of this is the trade war's that could really affect the global economic growth for years to come.
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what they are actually forecasting, it's not just the world slowing down, but the u.s. and europe slowing down. the u.s. will slow down to 2.5%. europe doesn't change. asian does. inflation is idiosyncratic. it goes up a little bit in the u.s. . you can see the trade war in china. their growth is down to 6.2%. david: how do they take into account that the balance sheets are rolling off? mike: the stimulus from the central banks is rolling off. that hurts growth in a lot of places around the world. the bank of japan hasn't yet. the u.s. is getting out of the business. interesting thing is
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the flipside. what happens if we get a trade deal? here's what he had to say. >> the possibility that china and the u.s. resolve their disagreements is a significant upside to the forecast. at some level, it's not surprising that we are more tentative in our outlook and we were six months ago. alix: that is the opposite of what we keep talking about, if something concrete gets done, that's upside potential. julian: what you see is the bar being lowered. we have lowered the bar in terms of earnings expectations for next year. we are lowering the bar economically. is a dealay our hope that gets cut of some sort with china in 2019.
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the way we see it, when you look at all of the actual soft data and hard data, there is a potential that number has upside risk. david: let's look at some history. let's go to monday when the president had a new deal with canada and mexico. that was only eight days ago. what happened to all that? why we doing something with china fix things? clear and's pretty you've seen it, from the administration, there is a coalition being built to remodel trade in general. be linchpin is going to coming to a moment. you look at the deficit, the u.s. trade deficit.
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80% of it is with china and 20% with the rest of the world. it's not just an economic issue. mike: there could be down the being, hethe time went on to say that the likelihood of further negative shocks to our forecast is rising. they are pessimistic about the medium term. they had a couple of other warnings out there, the doom loop in banks, they are going to be suffering because balance sheets are going down. they are talking about income inequality. i have a chart here. the world is pretty much the same. it just keeps growing and growing. that's a real threat to global growth. we saw the test cats exacerbate
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ventures. we have honda and gm. it's pretty clear people think the need to bulk up and have more mass. alix: haven't they done war -- well of the tech area? they've done some good stuff. they probably don't want to give that away. david: there were speculations that they would find things to do together. you've got to have the chinese market. they have a real leg up there. alix: that's a fair point. tesla is like a tech company in some ways. i am watching the disaster that happened to the stock. they lost more market value than any company in the world this year. don't feel bad. still up- stock is from the ipo through january. they have still done really well
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in that respect. selloff, youech had valuations that are high. you have one big shareholder sharing some of the ship -- selling some of the shares. the government hit them hard. alix: they didn't buy back shares. david: they will be ok in the long run. we will tell you about verizon. a big shake of his coming? brooke: what is happening is the new ceo is interviewing the top 300 liters. they are trying to pick the management team to get the best people in place. this is a continuation of the streamlining effort we saw earlier. last week, they were offering buyout packages to 44,000 top executives. that's a significant number.
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comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?"
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the fed isof speaking, saying pressures are more deflationary but that cyclical pressures are building. he is speaking at the economic club of new york. the fed tightening continues. classes,asset euro-dollar down by .5%. of that leading to pressure in the european bond market, partly because of italy, off the highs of the session. in the u.s., buying coming into the backend of the curve, 34 basis points, bargain -- morgan stanley reversing its go long treasury. brent crude up by .7%. we are looking at higher energy in the world. you had better pump some oil or we will be in a red zone. david: a stock we are following
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specializes in pain killers and into depression medication is falling. 43% in premarket trading because they have a new painkiller. i will try this. the fda has said they have questions about it because it produces dilated pupils as well opioid whichcs an does not sound good. the market is responding saying it does not look like your new painkiller is going anywhere good. do not want your company in the same sentence as opioid. let us get an update on what is making headlines outside the business world. much under is here. here's his kavanaugh first arguments today. he and his family were at the white house for a swearing in. said kavanaugh
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was proven innocent of allegations. the imf predicts inflation will -- it also forecast venezuela's gdp will shrink 18% this year. decided not to compete for a pentagon cloud computing contract that could be worth up to $10 billion. the project may conflict with its corporate values. there have been protests from google employees about working with the military. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra. this is "bloomberg." thanks. a big announcement in new york city today. google is unveiling products. one of them is a new pixel three phone. as they try to increase revenue and become a rival to apples and
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-- apple and samsung. joining us is ramon llamas. what is newnse of about this phone and why it might give google the boost it needs? ramon: when you take a look at the smartphone market, we're only growing by smaller digits every year. google wants to establish itself dealer as thee heavy operating system for vendors. ,hey want to demonstrate without the bloatware you see from vendors. it is important for google to say, this is what we want to have. what our fans want to experience. that is why you see google coming out with these phones. david: once you get an apple,
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they have you hooked. to break mettempt out of the apple ecosystem? have: they want to everybody in that android system as much as possible. all of these are important, do not get me wrong. once we continue with that, having the music and the videos and the photos and the different kinds of distribution systems, it works better on android phones compared to apple or anything else. ast is important for google it attempts to branch out and create an ecosystem of devices. they may other thing wind up unveiling is a competitor to the echo. ramon: you take a look at google
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home and a year ago, they , which is google max their large speaker. it is important. we talked about that ecosystem where it is not just a single device. it is a whole bunch of devices. can say, tell me the weather or scores. about artificial intelligence, so that google understands you can provide suggestions about what you want next. alexae seen this from that says, we noticed you are going to bed. do you want to turn off the lights. google wants a piece of that because that is where the market is heading next.
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will sell you items and provide you services and surround you with an ecosystem of devices, whether it be audio or video. google wants a part of that. david: are they trying to make money off of the phone itself or is it a way of using services more? with alexa, the numbers are extraordinary. people use amazon to buy things a lot more. is that the theory? ramon: for google, it has always been about services. if you dial back the clock to the first search engine, it was revenue. having users talk to their speakers and their phone and whatever other devices google toroduces today, it has got be providing you information and push things toward you. would you be interested in this?
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if google can play that middleman to get you to buy more stuff, that is the end game. having the hardware is important but the services are the big thing they are going for. david: thank you for joining us. that is ramon llamas on google. echo i want to ask my basic questions and have her be able to answer me. i was like, how could you not know that? tech, tech stocks continuing to sell off, the nasdaq falling. you can see what has been done. that is your 50 day moving average, the blue line. the 100 -- the green line is your 100 day below that. do you buy it? julian: not yet. a longtime has been since the 100 day moving average has been approached.
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more importantly is thinking about it over the term. you have had this psychology shift. there is fear coming into earnings season because you saw such adverse reactions last season. you want to wait until after the midterms because if you think about tech in general, and you think about the controversy around the last election, data privacy concerns, there is no question about the fact that tech, even though you will not have hearings, is going to be in the spotlight. david: there a fundamental issue and that is user growth. , you have seen reports it is not that they are shrinking. they are not growing at the same rate, which is not surprising. your last guest, in talking about the smartphone, that growth number is coming down. it is an issue.
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theinnovation cycle d thing that has propelled tech for 30 plus years. so which is why we are neutral on the sector. we think it is going to have another run before this and ends. -- before this these stocks have higher multiples and that is the handicap. alix: break that down because the out performers like the intel, are youke distinguishing between those groups? julian: you should and the semis have gotten smacked. semis,u look inside the there is a multiple difference between the commodity stocks and those that are more on the cutting edge of development. is one of these times
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and this migration into the communications sector on the part of these higher multiple ines muddies the waters terms of thinking about technology in general, particularly if you are a passive portfolio allocator. we need more clarity and that morepoint, you will have of a blanket buying spot for tech broadly. david: let us do our own rotation into financials. we have bank earnings starting friday. what are we looking at coming up? usian: the biggest story for , i would not say the yield curve, although that would happen. the banks coming into -- the angst coming into jackson hole in august about the potential for an inverted yield curve. token, it is a green
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light for banks to talk about how that interest margins are good, how volatility in the and they would not be a surprise if we saw upbeat commentary from the fixed income trading sectors. this is a fantastic environment. alix: is that enough to offset the conversation on deposit beta? julian: at these valuations, it probably will. isx: do you feel like there more upside to a steepening yield curve with banks then there was a downside to a flattening yield curve? versus somesaw it of the other sectors. that if you saw the curve at 20 basis points, you would've expected a steeper sell up in financials. notan: the data does support that if you go back in the past. it has not been the drag on earnings that the psychological
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perspective would have had you believe. it is not the be-all end-all cure-all. sincenges the perspective money is coming out of the area. is an upside, is it less than it was in the past? there are so many other competitors for banks. of got crowdsourcing, online facilities. can the banks recall all the benefits they could have 10 years ago? julian: the game is different. as a result of the post financial crisis regulatory environment. it hasthe positives is become easier on balance for banks to do business. this is the environment. we saw this yesterday by one of the newer banking upstarts
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r,eigning in their lending standards. that is a function of a rising interest rate environment. is not be there, it way it would have been 10 years ago. alix: the story seems to be peak margins, which is not new. when you're looking through, which sectors are going to have pricing power and how important is that unit of labor cost? and you lookestion at the pressure in the retailing sector over the last several weeks which has had an enormous run and a gorilla in the room says we are going to have dean dollar minimum wage -- to a $15 minimum wage for everyone. there will be negative commentary. on the flip side, if you are an , m&a is starting.
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you saw a deal this week. there are going to be more. there is every reason to believe that energy prices are supported. david: it is great to have you with us. julian emanuel, thank you so much. alix: mr. kaplan speaking at the economic club of new york. he says he does not know if the fed should hike rates pass neutral. the dollar index is off the highs of the session. patientlyout the fed raising rates and he is comfortable raising rates three times from now to june. the question is, what happens after? david: inflation is not going to get away from us. he does not seem to be in a big rest. he also says there is room to run in this cycle, underscored by that steepening yield curve. long endking about the
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of the curve reflecting uncertain outlook. why? why are we seeing rates rally for the 10 year? is it a structural issue, pension funds are no longer buying? david: or all of the above. one less know, he is watching argentina and turkey. alix: who isn't? david: coming up, justice kavanaugh is on the high court. we will discuss what to expect today after that bitter fight. that is next in this is bloomberg. ♪
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hour, up on the next chris grisanti, grisanti capital management founder. this is bloomberg. david: justice brett kavanaugh will hear his first case in the united date supreme court today when it convenes -- united states supreme court today when it convenes. greg, give us a sense of what we should expect today. what will be the same as it has been? >> he will take his seat at the end of the bench, if you can see the court behind me. there has been an empty space there. he will hear arguments today and tomorrow and he will sit with his colleagues. to speake the last when they talk about cases. he will have to open the door when somebody knocks.
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all of those are traditions. david: seniority counts a lot. isre you sit on the court strict seniority level. what will be different? justice kavanagh got here in a different way. greg: very much so. every time you have a new justice, you get a new court. that is even more so this time. a bitter divide over his nomination. last night when the justices went to the white house and listen to trump talk about how brett kavanaugh had been wronged. everybody is going to have relationship building to do. he has got to earn the trust of his colleagues. chief justice john roberts is going to have to decide how quickly he wants to move it to the right. might trigger or not trigger some of that controversy? is there anything hot coming up? greg: not in the next couple of
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days. they involve sentencing for federal firearms violations. some low praia file -- low-profile issues. there is a case in december that will affect donald trump's pardon power. it could mean a pardon undercuts state investigations. cases linedhere are up they could be bigger deals. david: do you think the court might avoid some of the controversial items, like abortion? greg: there is a good chance they will. they almost have to take a case about gerrymandering that will come back. there is a controversy over federal job discrimination law and whether it applies to discrimination on the basis of gender identity.
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both of those are difficult to avoid. you could have issues like the president's effort to repeal daca. there could be things apart to avoid even if they want to. david: thank you. you will be there and i do get to be there. he is our supreme court reporter from the steps of the supreme court. alix: coming up, morgan stanley throws in the towel on its the long treasury call. watching,. am this is "bloomberg." ♪
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see if you take a look at they moving averages. ? 75% is going to be a pretty important level. above that, you're looking at 3.5% on 10 year yields. one of the things that is important is tomorrow's auctions. we have three-year and 10 year bills auctioned tomorrow. if they see strong demand, it could mean we hold this level. given how weak the market has been, there is a risk you wind up with weak demand and higher yields and you wind up being in , up to 3.6%. something else important to note is that most of this move has been in real yield. this is not because people are worried about breakevens. people are worried about supply, faster growth, and larger deficits in the future.
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if the democrats take one of the houses of congress. david: the auction will go stronger because the price is higher. see if is difficult to they market is well set up for the auction. i suspect it is. one of the things that has happened with auctions ever since the treasury department started to increase the amount issued is that they have gone well. you've only had two auctions out of 25 that have been weak. the chances of demand continuing at the same pace is good. that being said, it can change. 10 yeare like 3.25% yields? yield is 30 year approaching that 1% level. if that happens, pension funds are going to get into -- talk to me about that. ira: some people may do that.
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particularly japanese investors. one thing about global yields being low everywhere, if you are u.s.ng to take risk, the looks like a high yielding country. ofyou wind up hedging all your exposure, it turns out that u.s. treasuries, even though they are 200 basis points over jcbs are, are still low. alix: thank you very much. coming up, bloomberg markets, the open. chris grisanti will be joining jonathan ferro. this is "bloomberg." ♪
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coming up, the treasury market reopening, hitting seven-year highs. the imf cutting its global growth forecast, blaming trade tensions and emerging-market stress. the international energy association telling opec to boost output of oil. , negative to take nine points on the s&p. market, the euro-dollar down .4%. printing a after fresh seven-year high, backing up a little. down one basis point. treasuries still under pressure after reporting their biggest weekly decline since february. >> this has been a long time coming. >> we will see more talk. >> yields have been too low. >>
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