blaming jerome powell for the selloff. factory closures. ,nd trumps dinner date president trump and xi jinping meat. meet.kudlow -- larry kudlow there is a good chance of the deal. >> welcome to bloomberg daybreak. tiffany is out. .t was ok on the earnings alix: it was ugly. japan comparable sales were up .ust 2%, versus 9% the u.s. coming in at 5%. >> the chinese were up over estimates. alix: gross margins were up.

anyway, you can get me that christmas present. the take away from yesterday is the markets did not reverse the rally on monday. that was the takeaway. s&p futures up by a 11. euro-dollar flat. there is not much market movement. the 10 year yield is 3.05. up,ct bidders are showing so we will see how we handle it going forward. crude not going anywhere. it's all going to be g20 for whatever asset class. david: it is g20. now it is time for bloomberg

first take. we are joined by peggy collins. and by ira jersey. we have to start with the fed, with the president and the fed, because president trump said in not even a far, i'm i am nott happy. blaming anybody, but i'm just telling you i think the fed is base." how does jerome powell respond to this. >> when donald trump nominated jerome powell, we all said jay is a mainstream guy. he has gotten along with the committees. he is not an economist. he is not a dove. he has done what we expect.

the fact the president is not happy with him is not a surprise. has not happy with anyone who does not do exactly what he wants to do. i think jerome powell will say this is why we have an independent fed, so we don't have politicians making monetary policy for the country. alix: buenos aires the gm factory closures. looking forward to jerome powell's testimony, yesterday, a , someago, some rate hikes further gradual adjustments. gradual policyas accommodation. talk about parsing some words. >> they are giving themselves some room. the market has priced in a rate hike in december. we have seen jerome powell are makingriffs

business pullback a little bit in terms of research and development. rates are not all bad. for the first time in a long time for boomers in this country andey are seen rates coupons on the bonds go up and saving rates at banks going up, so it is not all bad for everyone. david: you are a student of the fed. is it right they are increasing their optionality, some room to do that? especially nows, that we are getting towards the end of hikes. we talked about this natural real rate of where the fed funds rate should be. is uncertains it where it is, but the consensus , plus or fomc is three minus, so one hike in december

is a done deal. next year.o two more gets them to that level. they have to prepare the market. david: president trump is a busy man. our second story is he will meet with president xi jinping in buenos aires. larry kudlow had something to say about what might happen. >> in terms of the much discussed meeting, it will be a dinner meeting between president trump and president xi and representatives from both sides. it will be bilateral. i want to mention what the president told us a short while ago. in his view, there is a good possibility that a deal can be made. david: a good possibility a deal can be done. he went on to say these are conditions come issues, they --

conditions, issues, they have to clear these things. that eachnteresting one walks out of the dinner and says, we make progress on what i want. it will be interesting to see. a lot of people are expecting something good will come out of this meeting that the markets made like him a but they won't get everything they want. alix: in terms of market participants, paulus or -- pause or in the trade escalation? >> any resolution good or bad for the u.s. or china is probably good for risk assets. there won't be more aadlines that would generate significant amount of photo till the and uncertainty. get to one reason why we pick swings in the market around this uncertainty.

we don't know what the outcome will be. any outcome is better than not knowing. alix: fair. does that explain why we are seeing the bid for treasuries? that is part of it. has happened is the reason why treasury yields went up just because of growth expectations and supply, so real yields moving up, not inflation expectations. ,ver the last couple of weeks inflation expectations are coming down, slower growth in 2020, and all of these things are bad, and oil is a large part of that, so we'll having this bear market currently is impacting people's expectations for inflation over the next couple of years. 100% all about oil. alix: theresa may taking prime minister questions in parliament. sterling getting closer to

neutral, a nice move today. the news is that maybe we won't have a second referendum, maybe parliament gets the vote and at their own amendments to the deal. come on? >> one of the things i thought of this morning is theresa may must be exhausted. alix: i know. >> it has been since june 2016 this has been going on. it does seem like they are getting close to a deal potentially. each time we turned one direction further towards a deal, there is a setback. the financial services companies and employers have moved on like brexit is a done deal and taken their jobs and moved places inrs to other europe, so there has been cause-and-effect already. david: theresa may with prime minister's questions right now. she said the brexit deal is the best available for the economy and jobs.

ira, use a market still like uncertainty. it is getting less certain. alix: the markets like that. that is so confusing. david: in a sense she sang i gave it my best shot. you have a better idea? go for it. >> this is u.k.-specific. brexit is no longer a systemic risk for europe or the global economy, but it is important for the u.k.. how would this affect the premier league? how will this affect american players? we heard news there would be an american player going to the premier league. can they get their visas? are they going to be subject to different rules because of brexit? partoking about the soccer of it, but financial services and multinational corporations that want to operate in the u.k. world's growth did

not need this right now. we needed a fully operating u.k. with europe. there are so many distractions. it's not like everything is on eight cylinders. >> europe has a lot of things that are uncertain. italy is uncertain in terms of its budget. in u.k. was the solid leader europe in terms of certainty being uncertain, so it is weighing on the continent. alix: and spain apparently now. frankfurt, paris, spain. that's not so bad. thank you. great to see you both. you can find all the charts we onl be using on gtv your terminal. coming up, more on donald trump's renewed attacks on the fed. r guest will join us next. this is bloomberg. ♪

>> this is your bloomberg business flash. denies he passed on his personal trading losses to the automaker. it is the first public comments since he was jailed on allegations of financial misconduct. $50ay have passed on almost million in losses on the derivative contract to deutsche bank is considering a shakeup. the chief regulatory officer in the head of operations for north america may leave. authorities have expressed frustration with the bank's efforts. holiday shopping this year may be one for the record books.

9 million fewer american shop in stores or online over the weekend and spent less than last year. it highlights how shoppers took advantage of holiday sales that began earlier. that is your bloomberg business flash. david: today is the day we hear from fed chair jay powell when he addresses the economic club of new york. yesterday in a washington post interview, president trump left no doubt what he would like to hear when he said, "i am not even a little bit happy with my selection of jay powell, not a little bit. i'm not blaming you look but i'm telling you i think the fed is way off base with what they are doing." welcome back, francis. the question is, does president trump have a point? should be fed the rethinking its rate hike path? >> the fed has a mandate,

stabilization and full employment. , so it's is around 2% hard to argue they are deviating. if he markets are looking continues with the dovish tilt, pause.s a possible david: let me put up a chart that goes to the question of inflation. buthey are back up to 2%, they're not going much over 2%. the san francisco fed were not sure you can maintain 2%. again, mike president trump have a point? important common came yesterday. he said we will use our data dependency, models, and quite a bit of judgment. we know the data that is coming

in and have a good sense of the fed models, getting a sense of that judgment component and the inflation component, geopolitical risks of a financial conditions come and that is what will be most important today. alix: the big conversation was is not using the word "some." some policy number position was needed, and yesterday he said just gradual policy normalization. the interpretation was that was closer to neutral. was that a real conversation? but is oneabout it, word the determinant of how we will price the fed in 2019? no. we will base it on data and inflation expectations, oil, geopolitical risks, and the outcome of the g20. claritin was dovish -- cal

rida was hawkish. david: everyone is more -- >> everyone is more hawkish. plot says three. there is a divide between what markets are expecting and what he member of the federal reserve is thinking. there has to be some closure of that gap. david: an indication you might be right, yesterday, someone who was in the fomc, and this is a cautionary word this is what he said. >> the fed needs to be more aware of the risks that are the continued recovery. what i believe is less important than the fed articulate to everybody what their view of what is going on in the economy

explain how they will filter the data which they are dependent. david: two things. one, they have to be more aware of the recovery. second, tell us what data you are looking at. let's talk about financial conditions. this chart has white lines showing the rates going up. the blue line's financial conditions tightening. yellow is worldwide. is that something the fed should be paying attention to? >> they should. we are looking at what is the powell decision-making function. we are still in a new relationship, trying to figure him out. the fomc is allowed to change on these factors as well. were trying to get a sense how much do geopolitics and financial conditions matter. i expect they are watching all these factors, but the place too

much emphasis on one would be a mistake. are 50-50 onlly their calls for banks. some see four. morgan stanley sees two and the pause, then some see four and 2020, and another caesar cut in 2020. -- sees a cut in 2020. what do we make of that? is great, because that is how you make money with an out of consensus view. that is the determinant of those who say the fed will have to pause or stop after march or june. the 2020 recession call is split between those who think we fall into two quarters of negative growth. from my perspective, it doesn't

matter. that is a risk off environment. why can't the sugar high from the tax cuts sustained in some capacity? >> it could. we have to see the evidence in the data. one of the biggest problems is to failure of capex re-accelerate. that would be the key to unlocking the 2020 narrative. to argue 2020t has momentum headed into it, particularly with oil falling. celebrateicult to >> when oil prices are crashing. there's also an election in 2020. will be sticking with us. prime minister theresa may is taking questions in parliament.

we will discuss the odds of her deal passing next. this is bloomberg. ♪

alix: prime minister theresa may just told parliament her brexit deal is the best available. she defends her agreement against the opposition. the agreement is almost too close to call. a survey by bloomberg sees 55% chance british lawmakers will reject the accord. what are your scenarios? be an unpopular opinion moment, but i have trouble thinking about this topic, and less you are trading u.k. asset specifically. sos is relevant to them, this is a sideshow to much bigger issues related to the g20 , the fed, and jerome powell. is the fact that

is just one more thing, the straw that breaks the camel's back. it is one of several issues. hurts globalm growth, but it is another one. >> we are spending a lot of time trying to figure out if europe will pick up. it has the most capacity to provide an upside lift in 2019, but there are distorting factors, brexit, italy, car manufacturers, so if we could take away these distorting factors, we would have a clearer view. before all this happened -- david: before all this happens, we need fiscal reform, labor reform, and instead we are worrying about brexit and italy and other issues. ,> it takes away from the idea how are we going to save the

2020 growth narrative? china? we don't see evidence. could it come from europe? that is mostly priced in right now. any fallout got priced in in 2019. alix: it brings into the narrative central bank to purchase or convergence. after the rate hike decision meeting said if the economy moves into excess demand and stirling were to depreciate at a time of supply being , that is a situation where you would expect that monetary policy would be tightened. basically you crash out and stirling depreciates and we have to hike. what is your narrative, convergence or divergence? >> it is still and emergence mode. when you compare most developed

markets, most developed markets are still growing above potential, the u.s. is so much farther ahead than the rest of the world coming years ahead in terms of normalization. what is possible is we reach 2020 and see of global recession and the u.s. is the only central bank that achieved some form of normalization. alix: just in time to cut. you will be sticking with us. hitting the brakes on automobiles, trump threatens to remove gm subsidies. were on that next. this is bloomberg. ♪ -- more on that next. this is bloomberg. ♪

alix: this is bloomberg daybreak. not a lot of action in the markets. it is about powell speaking today. we are seeking a follow-through rally from yesterday with the news we did not give up again's

monday. futures up 125. european equity stocks up 3/10 of 1%. auto stocks down. will we see more auto tariffs on european cars? that is a new question. like i mentioned, not a lot of movement. 1%, if parliament is allowed to vote on amendments of the brexit deal, that calls to question the ability of a second referendum. 10 year yield goes nowhere. you have a seven-year option that comes out later. oils steady as she goes, david. more amendments are good? david: we are going back to square one. what do you think? alix: anything is good. anything is bad. we nailed it. david: let's find out what else

is making headlines. good morning, m up. >> -- the democrat mike sb with a --espy with an unusual small margin. her victory gives republicans an edge in the senate. president trump has renewed his .ttack on jerome powell the president told the washington post he is not even a little bit happy with his choice to have the central bank. president trump said rate hikes -- stock market declines and the gm's announcement it will close factories. president trump reignited fears of higher tariffs on $26 billion worth of vehicles made in the eu the president put off his threat. with b&w onting --

a 25% tariff. global news 24 hours a day, on-air at tictoc on twitter, powered by more than 2700 journalists and analysts, in over 120 countries. this is bloomberg. david: let's stay on the subject of cars. there is an auto show going on and we caught up with the u.s. ceos about what is going on on where they are building cars than what is coming up in china. you see the market decreasing in china for the first time in 20 years. of can see the ups and downs who is doing well in china and we have a strategic plan as in the united states already. solution. find a we are looking forward to the next year, another record year in china. david: i am not sure that is music to president trump's ears.

gm is doing well in china. people are moving production to china. alix: that is the long game. that is the point. they are not going to move factories here if in the next 30 years, the only place they need to sell cars is china. david: look at the demographics. alix: it is the same conversation when it came to gm, when it came to their subsidies. david: take those electric vehicle subsidies away from gm. there is a legal question. alix: joining us from london for more on that is colin mccaig are --mckeager. can he take away federal subsidies for gm? for --he take them away specifically for gm or the industry overall?

it is hard to envision federal tax policy that zeros in on one company so that looks hard and i am not clear on what mechanisms he would have to use. on the bother -- brother question for eliminating it overall, the strange effect is it might not hurt gm the way he is envisioning. gm is about to hit the cap for the amount of vehicles it can sell. about 200,000 they can sell, they are about to cross that even today. they sold 197,000 last month. they are about to cross that threshold on the grass -- tax credit is going to face them goddess of what president trump does. alix: to that point, electric vehicle sales have been rising. walk us through more about what that cap is. how important are these subsidies to buyers? colin: after and not all maker hits that 200,000 cap, it starts

to face down. gm has been one of the leaders. most of the automakers have a lot of room so they will get the federal tax credit while gm and tesla would not. that would create an uneven playing field. there are efforts to extend that tax credit but it is unclear whether those will pass and those credits are important for buyers. where we have seen tax credits cut, sales drop dramatically. eb's are getting better. they are getting more cost competitive. battery technology is getting better. eventually that will mean they can stand on their own two feet. now they are dependent on subsidies. cutting them would set the industry back. talking about china, one of the segments growing in china is the electric vehicle segment. that is leading to investment from automakers seeing that is a

big growth market. and batteries as a place you want to make them. thank you very much for joining us. david: president trump told the washington post the fed was partially to blame for gm's decision to close but the effect of his trade policy seem directly linked -- to the conditions. china's chief economic advisor said he was hopeful president trump and president jeevan think could make progress. >> in terms of the discussed president trump and president xi and representatives, i want to mention what the president told us a short while ago and that is in his view there is a good possibility that a deal can be made. still with us, frances

donald. president trump came to office saying i am going to bring manufacturing jobs back. now it seems he is going the other way. him to getway for back on track for a trade policy? >> 2020 is one of the most important catalysts over the next 60 days. it could be a turning point for the u.s. dollar. everyone agrees the u.s. dollar should be weakening over time because there should be downside pressure on the currency. we are waiting for a catalyst. it we saw a u.s. dollar weaken, that could be good for the manufacturing. that would be an indirect way this meeting could support that. continuingmuch of a strength of the u.s. dollar is because of trade concerns? frances: it is a part of the story.

the other element at play is the u.s. to virgins in growth from the rest of the world. the u.s. is one of the other -- only major economies accelerating. it is ahead. the federal reserve is tightening more aggressively than most central banks. it seems the diversions story is priced and -- well priced and we are waiting for the moments when markets are capable of saying it is time for the rest of the world to catch up. the u.s. starts to slow and converges with the rest of the world. alix: it feels like when you have oil rolling over having a disastrous month, the latter scenario may be front and center. take a look this is. to five and 10 year breakeven. they are wiped out. you are going to hear from putin, trump. what is your base case? i am spending more time

talking about oil than i would have believed. rates are falling. if you look at breakeven falling off a cliff along with oil price, 32% is something like 40 trading days. not just for inflation but it changes the dynamic. the capex dynamic. we are doing recalibration. also, for that rate story. oils falling could be bigger than the 20 or powell when said and done. alix: what we have not seen as a transition mechanism in 2016. nothing like we have seen before. what is different? frances: a lot is different. one element is how quickly this has happened. and the expectations it may have

been temporary. 2016 andnt market from 2019, is as we transition from late cycle to in cycle, we're going to see more volatility across all assets. it is going to be a prop as a development. we need to get used a rapid moves across equities and currencies. it is a different paradigm. alix: thank you so much. it was a pleasure to have you. coming inng goods, $.30 a share. they revised their outlet for the full year in terms of earnings. david: it is a flip of what we have seen with other companies. what we did last quarter was not so good but we are optimistic for the future. others said we are not sure of the future. alix: they did have improvements in gross margins. that is a good thing for dick's

sporting goods. up, a up cap -- coming potential exit next in wall street. this is bloomberg. ♪

emma: this is bloomberg daybreak. chief up, our guest the u.s. economist. this is bloomberg. david: we are going to turn to wall street beat. drum gets defensive, speaking out for the first time

since his arrest. past personal trading. the magazine publisher searches for a new ceo after announcing the merger of its national operations. there are rumors. deutsche bank's regulatory setback, it comes under pressure to fix internal compliances. i did not hear about that. with front andrt center. we have not heard a lot but now we have heard a little bit. he wanted to downplay his compensation. he did not want to get in trouble by the company and denied reports he used the company nissan to offset losses. >> this is the first time we have seen him come out and say something about allegations. a lot of company ceos have deferred compensation plans.

it is like a charged 401(k) but you are to test supposed to disclose it in filings and people understand how much you are due to get and how that competence your overall compensation package. it appears he did not disclose it to be extent the company new. he had personal trading losses he somehow put into the nissan books. he denies the regulations required him to report. they ares sell mike accusing him of using company funds for personal benefit and that has not been described in detail. david: a second story i am sayingted in, they are we are going to combine international operations. stepping down as

soon as they find the ceo. and winters is the best-known a --anna wintour is the best-known person. here, -- hasy always been the place that has unlimited budgets. they are cutting back on cost. they are trying to go into the new age of magazines in terms of online and how to get in body and and trying to combine the units globally in order to make that easier to do on the cost front. i had to look up how long she has been there. it is 30 years. that is quite a brand. swayertainly has a lot of and it is recognizable around the world which is an important asset. alix: is this devil wears

product? we should get that movie. deutsche bank is looking to replace a senior executive in the u.s. and consider changing staff. we do not feel good about our compliance that much so we are going to shakeup management potentially. peggy: deutsche bank seems like they cannot get ahead of this regulatory front. it is incredible how they are still under pressure for a delegations -- for allegations of contributing to money laundering. they feel like they need to shakeup the executive suite in order to provide competence. david: i do not know what is going on but it raises the question is the problem fundamental in the bank? you have to change the way your systems work. alix: why do this now? >> it seems like there is a question over whether you improve you know your customer

log and that has been around for years. the fact they are still struggling to have that in place is a question. alix: so many thoughts, always great to see you. out artificial intelligence is proving useful in spotting insider trading and matt winkler has a piece of buying chapters. welcome back to the program. tell us how this works, how we detect insider trading. matt: we know there are things called algorithms. at bloomberg, we have algorithms that can detect unusual activity. that is what they are meant to do -- in the options market. it is a great place, low-cost to speculate on all kinds of things . what the algorithms at bloomberg the is just before some of

big merger deals this year enable market, there was unusual options activity. the headlines that come out from bloomberg news look an oculus when you see them until you read them carefully and say -- the options activity is 20 times what it should be for this period. this is abnormal. it is sophisticated and nefarious. we -- nefarious. david: we have the capability to do that. do we look for those things? matt: we do and all i did was take pieces in the puzzle. put them together. one of them is hard for navigator -- hot for navigator. hartford navigator. all of a sudden, the month preceding, when there was no record of a deal in the works, suddenly the options market

exploded. like you have not seen in years. we get closer to the day of the announcement and the activity is there. the stock market. on the surface, everything looks normal until you look at the options market and you get the announced deal and you see people triple money. that was one among several deals this summer. they are had the same pattern. david: what about the sec? matt: the sec is a customer of bloomberg so it can do what bloomberg does. this is something that regulators can appreciate as well. david: this transparency should discourage insider trading, in theory. matt: the more we come to understand how it works and read the other rhythms and read the news stories that come out, this

is why news people should be loving artificial intelligence. this makes our job easier and more exciting because we can look at these innocuous headlines and say, well this is a great drama unfolding and we can report on this and this is the combination of human intervention benefiting from artificial intelligence. alix: it takes into account there was no neuter -- news articles before. -- start to get immediately, you saw the options market exploded. the companies at the time did not say a word. there were insiders in that instance. ok, a great piece. thanks for being with us. coming up, anthony kennedy speaks about money and politics with david rubenstein.

this is bloomberg. ♪

david: this is what i am watching. david rubenstein airing tonight, sits down with anthony kennedy. they are talking about citizens united. that is the case when the supreme court struck down camping fineness. obama said it was a mistake and justice samuel alito said that is wrong. serve --hat he said to to defend with the supreme court did. kennedy: we have to address this another way and put the voters, if they see money they can vote against the candidates if they do not like it. rubenstein was david interviewing retired supreme court justice anthony kennedy.

it is a big issue. this came up when president trump resized the judge in california, and they said president obama criticized. alix: we make a lot of pay about about a president, but it is not the only one. david: justice kennedy said we were not limited. alix: right. you can watch that tonight. coming up, sarah hunt will be joining us getting her topics for 2019 is forecasts range from 2400 to 3000 on the s&p. this is bloomberg. ♪

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the words some from his speech yesterday. trump, dinner date. xisident trump and president will meet for dinner saturday. a zero market return. fidelity once of no return potential for 2019. 2400 to 3000 on the s&p. david: i am david westin with alix steel. president trump is headed to -- he loved to hate. he gave us an extraordinary interview where he focused on the federal reserve and said he was not happy with jay powell but among other things he said i am doing deals and not being accommodated by the fed. they are making a mistake because i have a gut and my gut tells me more than anybody else's brain can tell me.

alix: that might be my favorite sentence i have read. i want to feel secure in my gut that i could not care what anyone else says. david: if you wanted a self-confident president, you got what you want. alix: in the markets, equity rallies. we do not get that gains so we are not in a -- scenario. futures up by 4/10 of 1%. there is not a lot of movement happening in any class. euro-dollar weaker. yields in the u.s., up by a basis point. we get a lot of supply coming on from seven year and two-year floating rates later today. softer as the dollar gains more. it feels like the main event, powell, g20. david: you are going to get

economic data, including the second rate on gdp followed by new home sales. -- 11:30, you are going to get the bank of england support. at noon eastern, jay powell will speak at the economic club in new york. at 1:00, $32 billion in seven your notes are going to be auctioned but the u.s. treasury. let's get another let -- get an update with first world news. emma: cindy highsmith one reelection. witheat democrat mike espy a you -- an unusually small margin. her victory gives republicans a 53-47 edge in the senate. president trump suggests he may cancel his planned meeting with

vladimir putin with the competition with ukraine. he tells the washington post he is waiting for a report on what happened. he planned to meet at the g20 summit in argentina. retired justice anthony kennedy knowledges political fundraising is a problem but defense --defends he cannot keep companies from -- he spoke of the david rubenstein show. >> we have to address it some other way. if they see money coming in from the campaign, they should vote against the candidate if they do not like it. full interview tonight on the david rubenstein show. that is at 9:00 p.m. on bloomberg television. global news 24 hours a day, on-air at tictoc on twitter, powered by more than 2700

journalists and analysts, in over 120 countries. this is bloomberg. alix: thank you. fed chair jay powell speaks later today. the fed needs to be more aware of the risks that are posed to continue to cover. ofelieve of less importance that, the fed articulated to everybody what their view of what is going on in the economy is. explain how they are going to filter the data on which they are dependent. >> i am sure they will focus on what they need to do. jay powell and the rest are going to stay the course. to flow and set that means the fed can go to what we call a more data dependence emote next year. best guess is they will hike one or two more times next year.

>> the fed will pause but we get a hike. we do not see three or four hikes the fed projected. >> the fed is walking in a dark room and trying to feel its way through. alix: it is always fun when that happens. joining us is sarah hunt, strategist. i will start with you. >> i think jerry -- jay powell has an opportunity to seek in a knowledge we have had slowing data and market volatility and the federal reserve needs to take that into account. he will reiterate what -- said yesterday when he said we are data dependent and jay powell will say the same thing. it is preparing the market for the fact they are going to hike in december, but will they high get all next year and it is going to wind up being dependent on how the economy shapes up. david: sarah, german powell has to be -- chairman powell has to

be careful. if he says, we are going to deposit? -- pause? surprised tod be hear something given the back-and-forth rhetoric with the white house. when there was more aggressive language, such as we could go over the neutral rate because we have been under it for a long time, people bought the fed might get aggressive. that seems to have backed away and i would not be surprised if it seems more measured in that it is not one of the other if we think inflation is running away. we are going to have to do things. it is going to be balanced. given the fact the equity markets had a rough november and october, everyone is going to want to be careful so they do not put something out there that looks like it could have a reaction. it has gotten less aggressive. alix: steve mnuchin was trying

to find a way out for the fed. we reported he would talk to the bond dealers and said -- what if there is balance reduction? -- balance sheet reduction? ira: the fed is saying we are going to continue to hike but stop with the balance sheet. i think it is likely they go the opposite way. there have been questions because of technical issues that some are suggesting there is not enough reserves in the markets of the fed balance is having a major effect. it is other reasons. it is more technical than that. my view is the fed balance sheet will run off another $700 billion before they do that. there is no way we can no where the tipping point is. david: i want to ask a different risk. it might be a better deal with rates. is there a risk about who is driving the boat?

in hemnuchin might call does not get to make that decision. we thought we knew who was running the boat. we thought it was the fed. sarah: the market is a part of this. what interest rates do is not just what the fed does that what the back end of the curve does. the flattening of the curve had people concerned. it flattened s'more. of what theissue fed can do him a sword and. where that goes is telegraphing something about what people's expectations are that has to be taken into account. alix: the other part is the transition mechanism. it is the oil part, not only in the breakeven but bloomberg strategists. it is hard to his give idea relative to underlying fundamentals and if that gap closes, it could provide a transition mechanism for the fed to market estimates of the neutral rate to market. what do you think?

for oil is important now different indicators. it is important for what is going on with inflation breakeven. the fed is going to look at that. and i put out a piece a couple weeks ago noting that when you get equity moves along with oil moves, that is tended to the sign that the fed is going to stop. it might not stop a -- right away. but it does give them ammunition to say, the market is telling us something. maybe the economy is not good. we have to be cautious. the fed has to a knowledge that in a couple weeks and jay powell might balance that today. alix: thank you. sarah hunt will stick with us. behaveup, will be market like a bull or bear in the year ahead?

how do you make a market call? this is bloomberg. ♪

emma: this is bloomberg daybreak. scherzer falling in the pre-markets. comparable sales missed estimates. said there was lower-than-expected spending. they have been trying to reposition itself to appeal to younger shoppers. -- has reinvested concerns. sales projections for the fiscal year beat expectations. the cofounders said he sees several years of economic expansion.

stocks are higher. a former chairman denies he passed trading offers to the automaker. he was jailed last week in japan on allegations of financial misconduct. almost $50 million in losses. that is your business flash. for: investors prepare 2019. fidelity warning of no return potential and various banks for the 2019 forecast. they are split across the board. goldman sachs, morgan stanley. still with us, sarah hunt. where do you fit into that disparity? sarah: probably somewhere in the middle rather than either ends must you get major change or shock. you are going to see -- i was listening to home depot's third quarter conference call and they

mentioned with the tax cuts, people did not change withholdings. there is still spending that could come into this year on the consumer side because people have tax benefits coming but they did not change what they were doing. in the scheme of things, if you get good customer spending, it is not terrible. people are worried about earnings change more from the cost side going up in less revenue growth, but you could end up in a middle road a must to get a bigger problem or people see bigger shots coming. oil prices helped. david: that goes to earnings but what about the price-earnings ratio? the price-earnings ratio has gone down much faster than the s&p value which is the white line. earningse not getting where they used to. sarah: this ties into what happens with the fed.

december is baked in. we are going to get a stabilization. that declining p/e ratio in terms of what people are willing to pay could expand. a lot of what got us through the market is the expansion of ratio as opposed to changes in earnings. we got earnings growth but the ratio came down. we are flat. alix: in that scenario, what leads? what do you like? ira: -- sarah: there is an aspect of being defensive. google did not do much this year. google is almost flat. it has had movements but you are going to see some looking at what has got reasonable growth coming and what is reasonably priced. a lot of stocks were priced for perfection and that is what you saw come out of the market. there is defensive growth aspect to that.

reasonable even though we have a divided congress. you are not going to see a change in military spending. people start looking for those combinations again -- i have got growth and or there was a secular story behind it. the highfliers -- they are going to have to put up growth numbers -- good growth numbers. sales have come down because people fear if that growth is going away, why are we paying so much? david: how do you position yourself for an uncertain president trump? he wants growth. he got growth from the tax cuts as well as spending. if he sees growth coming down, who knows what he might try to do? sarah: trade is going to come back to being the most important aspect. if we are getting into a trade war, no matter what you do you

cannot convince businesses to spend if they are afraid. david: let's assume he is not seeing losses. since be is not doing well and it is not reverse trade. ballot back. to declare victory and retreat. how would the market react? sarah: we came away with agreements that were not necessarily agreements. the likelihood of the market reacting well to anything that looks like a not problem is good. that is where you have higher targets and what the essence be is going to do. there is some way that is not going to get in the way if you could have reasonable growth. alix: what is on your shopping list if we see upside? if the outcome is positive? sarah: some of the industrials that have been beaten down could be an area you want to look. if people worry that is a place people will go, you see huge

sector rotation in this market so even though the market is flat, there are sectors that have been beaten down. the financials. that is someplace now where there is concern. david: sarah hunt will be staying with us. coming up, you closer plant, you lose your subsidies. this is bloomberg. ♪

david: time for the bottom line or we look at three companies worth watching. we're looking at tiffany's. they did all right on their earnings but they had to sales problems and their -- is down. that is over 10%. it is not good. you pointed out china was the only place they were up. japan was terrible.

usually, the price change on this date is 5%. 10% is an outlier for tiffany's. what do you like and retail? -- in retail? stocks likeave seen t.j. maxx come down. is someplace where you have got decent growth going and the height and is hard to predict because a couple months ago, tiffany's had fantastic earnings. these are high-end, seems to be now where it is difficult to predict. the low-end you see cost squeeze because you have transportation and labor costs. those are areas where you see growth. and model like t.j. maxx has got an interesting blend and that is someplace you can see blogger growth for a longer time. earnings fell and it

raised their full your revenue at $100 million at the low-end, $60 million at the low -- high-end. they are getting price target raises. and also billings growth with 27%. that is a good number. david: their stock is up on the news. as you pointed out, it has been a rocky wrote. -- road. what is going on? you are having a lot of earnings reports another quarter. amazon, taking down growth everybody had been extrapolating into the future. that scared people looking at a valuations. -- evaluations. they are not cheap. people are willing to pay anything for growth when they felt like the entire economy was going. what they are willing to pay for growth is something people start to worry more about. david: is there a risk in

salesforce? it has been a growth company. they have been buying the growth and paying for the growth. is there a danger they become --whatf a toro company and part do you start making money instead of growing? sarah: that is a question for the large companies. of a one thing to grow 20% small base, it is harder to continue that. if you buy it, people look at netflix and say -- they are paying for content and at some point, they are not generating enough cash. people start to look at it eventually but they want to see nice growth. that is where companies are in the in between stage. -- twois general motors days ago they announced a major restructure, laying off 15,000 employees and saving $16 billion. president trump said he may stop

subsidies for gm electric vehicles. let's talk about gm. they are going through a fundamental transformation. they have got tesla breathing down their neck. what you make of automotive's? sarah: you have had to work for years where they have been pushing out all the stops. you have drawn for demand. there was this long story about the death of the internal combustion engine and we are going to move to electric. you are going to move but not as quick as people expect. those technology changes take a long time. we do not have the infrastructure to support them yet. though these things together. a lot of them bought stock at a time when it looks like things were going to stay good and i you have that period where you have to invest a lot of money because you need technologies. you need them and you are in a place where the consumer is tapped out on the automotive site because you have had that strong sales.

that is a tough place. alix: how do you play it? do you look for the tech companies these guys are going to want to buy? opportunitiesre in the supplier side where you are more on the technology side. when the industry goes down, it is difficult to the market to differentiate and they do not too. you feel like they are getting to a bottom before you pick around. you end up with good values because cars are not going to go away. welcome the center for automotive vice president. you specialize in automotive labor. let's talk about the job. give us a sense. a that the number or is there larger number because there are other supply shops that have employees that are building things for those companies? assembly has one of the

largest job multipliers of any industry in the country. there are the jobs tied to supplying clients. those of the ones who make this elal or the parts -- the ste or the parts. there are jobs associated with the plant, trucking jobs, maintenance, and plowing the snow. even jobs on wall street in madison avenue and then there are jobs where employees support with their income with their paychecks. david: is there a rough calculation, if it is 1400 8000 in the g.m. plant, how many could it be in the larger economy? kristin: there is a to 10 times more. david: in fairness to general motors, is this a thing the government would have one of

them to have done before they went into bankruptcy? there is criticism they did not act fast enough. are they doing what they did not do before, and that is react to the market? they cannot win. they cannot do it fast enough and they do it too fast. there has been writing on the wall for this for some time. general motors was running for of their assembly plants on one shift. atembly plants have to run 80% capacity to be profitable and one shift is not 80%. are 3 million units of underutilized capacity in the auto assembly sector in the united states and a million of it is general motors. they had to do something. david: does this take care of the problem if they get this done for the future? given the capacity is taken off-line and give the projection what the sales would be, does this get up to the 80% number?

kristin: i do not think so. because they planned has been unallocated, necessary language with -- under the contract, does not mean they will not find it way to place investment and the new product. the last time we saw a competition for general motors' investment there was three plants in the running. only one closed and the other two got product. spring hill -- james hill closed. the others remain to make product. those allegations were made at the beginning of the upswing in the cycle. we are at a plateau is not a softening in the market. it depends on what other products general motors has to make. alix: president trump was not a fan of this, threatening to withhold subsidies. what is the likelihood this decision can be reversed? houston -- weekly -- how quickly

can something happen? kristin: the first opening shot in a long negotiation, not just with the union but local government in canada, the provincial and federal governments about -- what are the communities and workers willing to do to secure investment? what different deals can they be given an incentives? this is an amazon kind of worlds. if you are looking to make a big investment, you see how much people are going to give you to make their investment in their community? thank you. center for automotive research for vice president and sarah will be sticking with us. futures are positive. dow jones up almost by 200 points. soft but we see more tariffs.

asset classes, not a lot of movement happening. getaspect classes, we supply coming on the seven-year. a lot of movement in treasuries. losing a little steam on the downside. those numbers coming in so the third-quarter second read of gdp was back in my with what we saw. , personalt 5% consumption lowered to 3.6%. a quarter on quarter basis coming in letter as well. regional inventories is a fun one. 9/10 of 1%. that is going to be tricky. were you buying ahead of tariffs? head of january? -- ahead of january? david: they are building inventories. the question is what is causing that?

is it the anticipation of tariffs building inventory? alix: we are waiting for the latest read on trade balance. it comes in more negative here. $77.2 billion. worse than expected. you had september revised lower as well so no doubt the headlines, for lots of conversations that could happen today. joining us from his office in new york, barclays chief u.s. economist. in the studio, sarah hunt. michael, how does this set the tone for the weekend? you are on point for inventory accumulation. easy frontrunning of tariffs whether that shows up in retail. it would not be surprising if trying to push things of the door, we brought it in before tariffs head. i am not surprised. the trade deficit should continue to widen.

half for aere was a framework agreement between the u.s. and china to reduce immediate attention around tariffs -- tension around tariffs. there is incentive for both sides. i am not sure what the probability is they won't -- both want to find this path. is -- a hold path still? i do not think anyone is expecting a great deal coming out of this dinner. michael: i would interpret anything that comes out of this as a short-term agreement that reduces tensions. it is likely to include some agreement for china to buy more exports, probably in the areas of aerospace and agriculture. , -- in an exchange exchange, you would avoid ramping up tariffs or they will

go into effect in come down of certain benchmarks are hits. that is essentially the type of my construct. how much detail do we come out of this? or is this a gentleman's agreement to execute? what we want to see is details and that would give us an idea of how serious the sides are. alix: sarah, how do you hedge? the markets are telling you, because they are not moving up. it is hard to take a position. you know there is some binary outcome. if it comes out negative, the market has weakness. , ait comes out positive positive trade alignment telling you the market wants to go higher. i could see some sort of straight. you cannot be on invested but you have to be defensive prior to this to make sure you do not end up -- people start to worry

about trade and that is where that balances. michael, you have done work on if the trade war continues to go forward. we might load gdp. if you look ahead to the weekend, do we need to see a pause and where we are to avoid worst case scenarios? or does it need to be a dialing back trade tensions? a pause is enough. the more we progress down the lane of tariffs from china, the more you get into consumer oriented goods. the products we have placed tariffs on now and to be intermediate products. you cannot avoid the fact that at some point, you're going to hit consumer products that go directly into the consumption bundle. if there is a detente, we holdings that current levels. both costs would not

materialized. holding the line is enough for my point of view. david: these things do not happen in isolation. general motors is going to be in his mind. and more important, the factory workers -- he promised those people to come back. how did that affect his psychology in how he deals with president xi? he might say i am going to protect soybean farmers. you say look. this is a problem for us. it is going to be a problem for you. you look at some people taking manufacturing out of china. it is not just the problems for the u.s.. it is a also a problem for china. it is a net loss if we do not come to an agreement and that is a net wind if we do. given where we are now, people are starting to change behavior. one would hope that is where we don't both sides because you see

both economies and china has got its own economic issues to worry about. they do not want to see a powerhouse like the u.s. slowdown dramatically because they have got a lot of stuff they need to export. you want to see -- we have to put this together. to your point, we have been talking about 2020. you see the banks coming out with their forecast, perhaps rates cut in 2020. david: more specifically, president trump mentioned ohio. ohio is critical to his plans to be reelected. michael, really it is a question with -- forget about gdp. what as its can he best developer -- he best deliver to the wretches in ohio? --hael: given this tragedy the strategies he has put

forward, you will hear more of the fame. this is an example of how we are losing on trade and other countries are allies taking advantage of us on the trade front. i do not think the message changes. having this issue with gm come up immediately in advance of the 20th meeting, it could make them more on edge. a little more concerned. it may make the hurdle higher but the message would be more of the same. inneed to be more aggressive protecting the american worker against these unfair trade practices. to wrap that up, if there was pressure for trump to get a deal, what does that do to the sugar high economy? can that extend longer than economists had been thinking? i do not think you have to rely on a massive capital

spending growth to argue the expansion can go on longer. you pointed the household and say there is more than tax cuts at work for consumer spending. wealth effectsle at play. we are adding jobs. gasoline prices fell a bit and previous revisions so we have more savings on balance sheets they could grau -- on if they need to. avoiding a tariff fight with china would protect the consumer and that front. you could argue a detente on trade could allow the recovery to go on longer than people expect. both, thank you so very much. it has been great to chat with you. you have the second third quarter with gdp coming in. wholesaleteresting is inventories up 7/10 of 1%.

the question is -- what does tariff have to do with all that? david: let's find out what is going on outside the business world. i'm a? --emma? emma: the president told the washington post said he is not a little happy with his choice to head the central bank. president trump said rate hikes will see stock market declines after gm's announcement it will dismiss workers. president trump will begin -- bring a rare commodity with president xi. the president's top adviser, larry kudlow says the white house is hopeful for a breakthrough but willing to impose more tariffs if talks do not use progress. the swisshas learned

bank originally planned for the spanish capital from london, madrid is expected to be the legal base for the majority of credit in the you global news 24 hours a day, on-air at tictoc on twitter, powered by more than 2700 journalists and analysts, in over 120 countries. this is bloomberg. david: madrid? we have heard about dublin but i have not heard about much -- much about madrid. alix: i am a banker. i do not want to move. people want my talent. me?hey will need --woo is that an incentive to keep working? david: part of it is cost. it is cheaper. levity is a big deal.

alix: we're going to take a look at investing in africa. a mariner investment group and what his firm is doing. this is bloomberg.

emma: this is bloomberg daybreak. coming up, jonathan gray's blackstone president and ceo -- c.o.o.. this is bloomberg. now to your business flash. deutsche bank is considering a management shakeup. bloomberg learned the chief regulatory officer may lead -- leave.

pimco pricedrned the $3 billion sale of five-year bonds and it was not cheap for the italian banks to close the deal. the unicredit bond is more than seven point it percent compared to similar bonds in january. trade, merchant banks got worse in the third-quarter. they lost $41 million, bringing losses to the year $136 million. one of the most high-profile wall street's jumps into the -- galaxy holding. alix: what is interesting is the why behind it. inaxy digital says they are a lot of volume. it is not front and center but

no one wants to be in it anymore. david: remember we had that chart that showed bitcoin was worse? something that struck me about this, it has gone down. the fair value of its digital assets, $91 million and they have a cost $173 million. alix: there is a gap they have to work out. david: it is time for our weeklong series, the race for africa. a look at the developing climate in the world's second-largest continent. we take a look at payments. tomorrow we're going to look at the u.s. china race for resources and today we are looking at loans in africa. alix: the bank secured $1 billion to enable investment in infrastructure and development across africa. the transaction room to run is

the largest investment of its kind and will enable the bank to make money to lend infrastructure projects. joining us now, our guest. how you freed up my -- money for the african development bank to free up the structure. >> we took exposure to jr. --hunior front of risks. the bank is making important infrastructure loans through africa but once those loans have been made, the risk reduces. what we do on behalf of our institutional clients is we took exposure to a legacy portfolio with seasoned loans and so doing we were able to help the bank the loanapital against

book and it has the ability to redeployed that capital in a new and. david: were you able to pick and choose which owns you are going to put in the portfolio and what criteria did you use? >> we focused on loans that were performing. it was important to the bank the portfolio be representative of the general overall portfolio and overall, the bank has had a experience in terms of recoveries. alix: how much risk did they take on? is a billion-dollar portfolio and the bank's retaining the first 2% of losses. a multilateral institution absorbing the next 50% of risk. million of losses and the bank has the senior expos are on the portfolio above a guaranty of the european commission. what has made this transaction magical is essence be

demonstrates -- the s&p 500 demonstrates great leadership. and has recognized the improved weight. that is how they are able to make traditional ending. david: what do you need to happen for the economy for that to make sense? what kind of growth rates do you need to see? andrew: bear in mind what we are investing in. we are about essential infrastructure projects. energy plans that provide a significant portion of electricity for the countries they are located in. bridges provide the means for going from one area to another. these are things on the edge of economic growth. these are core essential infrastructure that make africa work. , the way we think about it, the youngest continent. and afd be under

hasdb, under the president -- over the course of the decade. alix: what countries? andrew: the portfolios we have invested in his spread across it hundred countries. africa is a big place. six times the size of the united states. we have exposure in southern africa. david: where are the biggest opportunities in africa? andrew: the way we think about this investment is it is one of a series of possible investments with the multilateral development community broadly. ,he g20 meeting happening now what they are focused on is

urging institutions to begin optimizing their balance sheet and use the resources wisely. the african development bank is one of the large real mbd's but we at mariner are focused on providing a solution that only for the african development bank but other development banks around the world. reconstruction developments, all of the alphabet soup of institutions is in one way or another figuring out how to respond to the g20 call for greater private sector precipitation -- per dissipation and to reduce -- participation and to reduce dependency. alix: how do you know the money is going to go where it needs to go? corruption is rampant in parts of africa. andrew: that is an issue. investing with an institution like the african development take we feel like we are standing shoulder should --

shoulder to shoulder with one of focused significant and institutions on the continent. the bank is mutually owned by all 54 governments of africa as well as many others around the world. we own more than 6% of the bank but so does france, germany, the the procedures that multilateral development banks bring to their -- not only for ensuring their borrowers have high levels of integrity, that there activities have high levels of integrity, but also the loans they make our catalytic in terms of creating additional economic outcomes in regions where they are located. that is at the top of the agenda. yesterday was her second on impact investment. as aink of this

significant impact investment because it is giving the bank the tools and needs to stimulate meaningful growth on the front lines of the economy in the most important and growing markets in the world. alix: thank you so much for joining us. will report.e fed this is bloomberg. ♪

alix: i am watching central banks. the fed is going to publish his first financial stability report today. they want to highlight risks, potential risks to the economy. you have powell speaking around 12:00. the bank of england is coming out with its own financial stability report. david: we know they are going to say, if the deal is this way, it

is going to be this way. alix: the government had a report already that said the u.k. is going to suffer a major economic hit over the next 15 like,and the party is yeah. definitely a lot of pete. a lot of stuff coming up today, particularly fed powell. for daybreak america, coming up, supermarkets with donovan pharaoh -- bloomberg markets with jonathan ferro. this is bloomberg. ♪

>> the countdown to the open stance right now.

coming up, the dinner schedule, the president of the united states and china meeting argentina on saturday. president trump suggesting there is a much bigger problem than trade. federal reserve chief under pressure as he arrives in new york city. 30 minutes with the opening bell in new york. of 4/10 of 1%. really muted price action going into the main event later. atlds unchanged on a 10 year 3.06 percent. euro-dollar is unchanged as well as 112 when 88 grade we are counting you down to chairman powell with a concession of the arms observable. >> we are creeping toward neutral. >> we are getting much closer to neutral. >> we are getting towards what people would describe as neutral. >> we can sit back and probably be me