wall street banks to check on marketability as he tries to contain fallout from president trump's desire to fire jay powell. investors ask why. shutdown showdown. the government could be shut down until january, as more resignations and unpredictably rattled the beltway. in nowhere to hide. the s&p has its worst quarter since 2008, oil gets pummeled, credit threads blowout. welcome to "bloomberg daybreak." it is christmas eve. merry christmas, everybody. i thought it was going to be quiet. we would come in and have to tape for two hours. washington,out of it was kind of peaceful early this monday morning, but as we know, it has been very busy over the weekend. treasury secretary steve mnuchin trying to calm the markets in wall street. meantime, more questions from the president about the future of jay powell. night, theit last

headline was the mnuchin talks to banks. we're ok. that wasn't a problem, but should it be? look, the s&p futures are inching their way higher, the s&p looking at its worst week since 2011. take a look at euro-dollar, a little higher. the question is where does the dollar go? at 2.78.ear yield is we give $40 billion coming this sincethe biggest auctions 2010. watch that. crude it down .4%. all i could do last week was check the price of crude. what is happening? >> it was a significant move, and it continues to move lower. throughout asset classes, the

key levels are being taken out. >> 100%. that's the question for me. now it is time for a bloomberg first take. we are joined by a bloomberg reporter. welcome, thanks, good to see you. one of our top stories is treasury secretary mnuchin's statement, saying the ceo is confirmed, ample liquidity available, business markets and all other market operations, and he confirms they have not experienced any clearance are margin issues. apparently, that we had to worry about markets not functioning properly. >> what i made of that was this was an answer to a question no one was asking. a lot of analysts we spoke to said the same thing. where did this come from? perhaps he was trying to reassure markets about powell, and instead raised something else no one was thinking about. >> this harkens back to the

financial crisis, where you have the treasury secretary: wall street to say, what do we need to know? what do we need to know? i hope are not in a financial crisis. >> i hope or not, i don't think we are. it's just a plan to give an early christmas present to the markets. like you said, over the financial crisis, things are very regular, and he just called to make sure everyone has enough liquidity, but we are just not there yet. >> do the banks have enough liquidity? >> the banks think they are fine, and we spoke to some of them yesterday. >> goldman sachs says they spoke to the treasury secretary, but everyone else is not commenting or hasn't gotten back to us. they are letting the treasury speak to itself -- the first self. >> what it highlights is the

issue -- did chair powell make a mistake? trump is wondering -- doesn't he have a point? >> the thing that's worrying a lot of people in the markets is that the u.s. has a tradition of an independent central bank. it is supposed to be looking at the long haul economy. is often the case that the president's political affiliation is sometimes not the same as the fed chairs. the point is that the fed is independent and looks at a longer-term economic picture, not being influenced by reelection campaigns. whether the president is right or wrong, the point is that said independence is something regarded as untouchable. >> is often an emerging market interfering in the central bank, not america. we also have a shutdown, expected to go into its third day today.

there is talk we could see lawmakers come back right after christmas. if that doesn't happen, we are talking about january 3 before we start to see any kind of talk on an agreement. take a look at this. this is a look at the s&p 500. what has happened since president trump, despite the dramatic falloff we saw inequities, we have bounced back since donald trump became president. the reason i thought this was interesting, i drove everyone crazy in the morning meeting, but it gives you perspective on where we are. >> exactly. since election day we are about 18% higher, even after the 17% drop we have seen since september. i don't know if it is panic just yet, and the problem is that president trump was very quick to take credit for the rise of the markets, which is fair to a degree in that the tax reforms really did drive fact, but now

that they are plunging he's looking for somebody to blame. this is where jerome powell comes in and others -- the problem is markets are really worried about the political and there's nobody else to blame for that. >> the chart we were just talking about shows a government shutdown and no one cares. this will have 02 no impact on gdp. i was very surprised that the market reaction, they reacted so negatively. >> the point about the government shutdown is it's a reflection of dysfunction in washington. we have had how many shutdowns in the last few years? >> several. we even had a credit downgrade. >> and the problem is, within this political landscape, there's a lot going on. there are resignations, the withdrawal from afghanistan, or from syria, the pulling back of troops. it's just a very volatile political environment.

questions around central bank independence. it is not the isolated shutdown in itself, but the broader picture. >> let's get to our next topic, it all fits in together. look, we have the s&p really heading toward its worst quarter since 2008. remember the financial crisis? take a look. we have seen an incredible selloff, and pretty much every asset class has really been impacted, in almost every equity group within the major stock averages have seen a pullback. where do we go from here? what does this mean? when we talk about earnings, they are coming undone. >> this is important in my neck of the woods. banks are expected to show record earnings this quarter, and at the same time, shares have fallen 20%, more than the equity market. what's important is that people are looking at what's next, they don't care about this quarter because we know it will be strong.

what they care about is when the cycle turns, and that is why banks are under pressure. everyone is saying the cycle is turning. >> are we seeing things turning? >> this quarter was one of the worst quarters we've had. 2018 is still the third-best year on record and we have had close to $4 trillion in deals. next year people are saying there are a few things everyone is worried about, including the financial markets, equity market volatility doesn't help, there's brexit and other uncertainties. when you are coming to do deals, you say what's in and their guilt -- what's a regulatory environment like with nationalism and populism? >> so what is a safe haven? >> it looks like it's the dollar , analysts but again are announcing the consensus trade is that the dollar falls.

but people do talk about that flight to quality -- >> there's also dividend stocks, that's another place you could hide. merck is up 34% this year. >> the nasdaq, by the way, is up 25% with dividends, just to give a little perspective. >> that's a good point. thank you so much, appreciate it. to bloomberg reporters. reminder, you can find all the charts we used on your terminal. we willto g tv , use it throughout the next couple hours. coming up, more on market risks. how do you hedge this market? this is bloomberg. ♪

♪ everybody, this is "bloomberg daybreak." i have your bloomberg business flash. a u.k. telecom company is removing wall way equipment, while police and other emergency responders. it is polling big year from the $3 billion project over global fears that it could enable chinese spying. it has been removing huawei equipment since 2015 when it acquired a mobile carrier, ee, which used if gear throughout their systems. euro next want to take over the company that runs the norwegian stock exchange. the amsterdam-based operator has an offer in excess of $76

million. almost half of shareholders are already behind the deal. euro next is offering a premium of 32% to the company lost closing price from last monday. oil prices are seeing little relief as worries deepened over rising u.s. supplies and volatility in the global economy. this is overshadowing signals from opec that it may extend or even deepen outflow cuts. last week's 11% fall was the biggest vince january, 2016. members of the cartel agreed to reduce production for six months. that's your bloomberg business flash. back to you. >> thank you. treasury secretary steven mnuchin tweeted on saturday, "i president, with the and he says he disagrees with fed policy in the increasing of interest rates in the shrieking of the fed portfolio is a terrible thing to do at this time, especially in light of trade negotiations which are ongoing, but i never suggested firing jay powell, nor do i have

the right to do so." joining us now is our senior white house correspondent. it was an unbelievable tweet. president trump is no stranger to twitter, why didn't he tweak this himself? >> great question. he didn't tweet it himself and he still hasn't. all reassurances we have heard have come from the treasury secretary or from a tepid statement from the white house press secretary. what we understand is that the president is not interested in meeting with powell, or with some additional aids, not necessarily the treasury secretary. the question is to what end. you are seeing the treasury secretary trying to calm the market, investors, all sorts of things, including the performance of the market, including the longevity of the shutdown. but these concerns over his long-term future are part of

that. the president may have decided that he is not going to go as far as he wants, but he has been thinking and talking about it. >> right, exactly. but can he really do anything about it? would it be something congress of have to act on? >> rate. -- right. most people think the president but it cause, doesn't mean the president isn't interested in pursuing it or let it be known that he is thinking about it. he hopes to somehow convince powell not to go forward with planned rises to rates. the question is where does it all and? when any president pursue that? probably not. trump shownt a history of bucking conventional wisdom? sure. but the economy may be different

on other issues, in may be different than calculations on u.s. military presence in syria. the economy is part and parcel the strength heading into his reelection campaign, his leverage against democrats in the house as they take over the majority. if the economy is not doing well, president trump is not doing well, and it's a catch-22 for him, because he feels that powell is undermining his ability to keep the economy on course, and if he did something tremendously disruptive it could make the economic conditions even worse. i think that's why you haven't seen -- it doesn't mean he hasn't been thinking about it. >> margaret talev, thank you. great to catch up with you. steve mnuchin was also busy last night, apparently calling bank ceos. the treasury secretary had a statement out, saying he

confirmed there's ample lending, available for and confirmed they have not experienced any clearance are margin issues. joining us now is a macro risk advisor, founder and ceo. were you worried about market liquidity? where markets not functioning property? >> he should change his name to paulson, change it to 2008, you would think it would come out of the financial crisis. seeking to fire or at least asking to fire jerome powell -- these are strange times and i don't think banks are seeing any liquidity issues, i don't think they are at the center of the storm. there's a coming together of a butof different risks here, certainly the volatility coming from trumps twitter account is a

source of uncertainty. >> why haven't banks rallied? we kept saying we want a higher rate environment and that hasn't happened. >> banks are part of the risk asset complex, in the s&p is down, banks are down. there are a number of things going on, in trump in terms of his instincts about whether the fed is making a mistake, he might not be that far off. >> and that's a fair point. there has been some discussion, folks saying he's not wrong, the president's perspective on what jay powell did. >> there's a growing and legitimate course of investors and market participants that are concerned that the fed may have tightened when they shouldn't have. said policy is not the sort of thing they can change on a dime. it has to have some version of predictability. we know this signals of the bond market are suggesting with the

curve inversions around whether the fed should be going, but i think the fed is left with no choice in terms of policy. you can't just do a start and stop. the next step for the fed is to indicate to markets that it is concerned about the downdraft in asset prices, it is looking closely at the potential that economic statistics are softening and then start to give pivot. the market and the economy are different things. we study asset prices in volatility, and of course those are correlated to the economy, but right now we are seeing one of the biggest divergences, for example, between the s&p 500, its performance, and the purchasing index. it's a 30 year divergence in terms of significance. the markets are saying something about forward-looking growth that economic statistics are not yet able to express. whyalk me through, then,

certain aspect class are getting beaten up. the underlying economic fundamentals may be ok. energy stocks, underperformers. what do you make of that? >> there's a couple things. asset markets tend to be forward-looking, so they are expressing a degree of skepticism that the statistics we see right now are going to be maintainable. saying that the forward-looking growth environment doesn't look as good as what we see right now. and markets often do that, they get ahead of things. the second thing is important, which is flows. the fed has created over the course of its epic easing cycle in support of markets a position for investors where they had to embrace risk. it was really impossible not to, give and how low rates for. now you are seeing the unwind is that, as money comes out of markets, it is bad for the price. when you look at etf flows, the

flows out of things like the hyg, we have seen tremendous outflows, and that is bad for prices. the last thing i want to point to is sentiment. sentiment is very bad, and we should really respect the power of risk aversion. risk aversion can itself be suffering for periods of time, and now people are saying even if i think long-term asset prices will do well, short-term people will sell, and i have to be a part of that. >> especially when there's an option to make money. you said something about the markets questioning whether the growth we are seeing is maintainable, and that obviously it is forward-looking. there is maintainable and then there's bear market in recession -- that's what it feels like the market is pricing in. is that would you are expecting? no. the disconnect between --

i wouldn't say it is too severe. it is very, very significant. do i think we are going into an actual recession? no, they are hard to come by. it could be a rocky road for asset prices, and what we are seeing now is a tactical dislocation -- it isn't in liquid time of year, people were over allocated to risk, especially things like credit markets. a sentiment shift where more and more people are going on tv, saying it is time to raise cash. at the same time, the value of cash is becoming more palatable than asset to own at a time when markets are increasing. it becomes much easier to shift to cash and more compelling. >> the volatility was really led by equities when it comes to asset classes. moynihan,in, brian they talked about the equity

trading business and what they saw. here's what he had to say. >> the equities business is doing fine because the train volumes are up/ so much is straight through that it is sheer volume. we don't make as much money as we do on other stuff. there's not a lot of risk, and by definition not a lot of reward. >> and as you brought up with the investment grade market, high-yield, some banks are offloading their loans because of this environment. walk us through the systemic risk here. even if you say fundamentals are ok, what do you do? > >> systemic risk for me points to banks as the center of the storm -- i don't see that. it doesn't mean they won't do well, but are they at the center of something where they are the source of destabilization? i don't see that -- it doesn't mean they can't be left holding the bag with some illiquid

loans, folks are having a difficult time unwinding. the high-yield markets have essentially shut for december, i don't think there has been one issuer. that's never good for the price of risks. investors are forced to step back in play hedges, even with the mixup. we have been spending a lot of time talking to people -- how do you find an economical hedge? it is difficult to make the case that the vix will revert back to 15 anytime soon, we are in this period of trying to absorb the uncertainty in the markets. >> do you feel like you have any visibility? do you anticipate that a year from now we will be talking about buying opportunity? i'm just looking at some of the valuations and how much they have come down. >> it's a great point, and it certainly could be. the economic data itself becomes

very important. we will get the fourth quarter january andlate start to see the base economic statistics. there'sinly could be, absolutely some more compelling share prices on valuation that they don't buy on valuation alone. it is difficult to suggest that people stepped in and catch a flying knife. people looking at the statement and saying i've lost 15% and one quarter, does that feedback to the real economy? the other thing is rates. mortgages are getting reset, housing affordability is down. >> i'm terrified of that conversation with my mother-in-law. volatility, across asset, how do you hedge? what's the economic hedge? we areably by midyear, really counting the table saying you are supposed to buy call options, this was when the vix was at 10 or 11.

is that 30 now. it's difficult to get excited about a 40 strike call option, you really need an armageddon scenario for that. the price of volatility has embedded -- again, very high, making the cost of insurance expensive. you are supposed to buy puts and fund them with call options. this is the best economical hedge from our perspective. >> good stuff. dean kermit, you will be sticking with us. we are going to look at the credit markets next. where is the opportunity going to be? we will take a look. this is bloomberg. ♪ amazon prime video is now on xfinity x1.

so when you say words like... show me best of prime video into this... you'll see awesome stuff like this. discover prime originals like the emmy-winning the marvelous mrs. maisel... tom clancy's jack ryan... and the man in the high castle. all in the same place as your live tv. its all included with your amazon prime membership. that's how xfinity makes tv... simple. easy. awesome. ♪ this is "bloomberg daybreak." a beautiful shot of capitol hill, where all the action is taking place even though no one is there. a very active weekend for steve

mnuchin, putting a floor under the market for the s&p, but that's not working so far. equity futures are climbing higher, rolling over in the last half-hour. futures are now down by 11, that relief rally we saw, not lasting in the u.s. market. european markets were weaker across the board, european equities up, the cac kick the hardest at 1.5%. you still have some protesters and violence happening between the old vests and pulleys, making french equities the underperformer. it is a mixed currency story, euro-dollar up i .3% as the dollar turned weaker, as the u.s. equities rollover. 14 basis points is where we set. a lot of supply, not a lot of buyers might be in the market yet. you get $40 billion coming out later today. the vick stays elevated, 30 is 1.5% we sit, crude off by

despite repeated efforts of opec saying, look, we may steepen the cuts. they cannot seem to create a floor. >> it just continues to tumble. we should remember, markets are closing early today because of the holiday. that's a look at your markets. let's get an update on what's making headlines outside the world of business. we have the first word news. >> good morning. here's what's happening. the partial u.s. government shutdown continues for a third day. president trump remained at the white house after lawmakers left the capital for christmas, with no sign of urgency to resolve the controversial fight over funding for the border wall. the next vote may not happen until thursday, but the white house budget director is warning that the shutdown could drag on into january. in other news, jim mattis will be out two months earlier than expected. president trump has reportedly decide to force mattis out sooner after the secretary's letter, resignation

making it clear that he and the president are not on the same page when it comes to supporting allies. his deputy will become acting secretary on january 1. he is a former boeing executive who joined the administration last year. the death toll after the indonesian tsunami now stands at more than 280 people, dozens more remaining unaccounted for. the tsunami struck without warning. waves swept across western java in the southern sumatran islands when a volcanic eruption triggered underwater landslides. most of the victims are believed to be domestic tourists visiting beaches during a long weekend ahead of christmas. global news, 24 hours a day and at @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm, camaraderie. this is bloomberg. >> thank you. without a doubt, volatility has been the big market story in the final quarter of 2018, but how

does that impact credit? erik schatzker sat down with the conversation -- down for a conversation in a decaying family office. he asked how credit is sending signals about risks in the market. >> the other thing we have looked at historically his credit. it tends to leave the economy. there seems to be a confidence that this cycle, we don't have the danger we had in the last cycle because the bad stuff, housing, has not infected the banks. it was more done in the high-yield loan market. to me, it's true. it's great that it's not in the banks, because that would probably be a systemic problem and financial crisis, but the economy doesn't really care whether credit is in the banks or in the investment community with high-yield loans. i would argue that if you are on

the other side, you would much rather work your loan out with the bank and you would with some hedge fund manager. i'm sure you read the article in "the financial times" yesterday. the fact that credit is drying up to the extent that it is, and there were all sorts of warning signs, i think the ge cbs has gone from 50 to 100 basis points since september 1. moving,ld indices are leverage loans are down 3%. because weportantly, have had eight years of free money and the kind of excesses pushing people out on the yield curve that created, that the time for caution, you want this bubble to unwind slowly, because if you don't, in let's say these indicators turn red, you may have to do a lot more crazy monetary stuff and actually it

will be more of a problem in terms of someone like me who eventually wants to normalize, wants to deleverage, that's the train i have been on. but this isn't an effort to let it go out slowly. somebody use the term three or four years ago, that this is a beautiful deleveraging taking place. i have no idea what he was talking about. how do you have a beautiful deleveraging with u.s. debt going through the roof at the government level and corporate nonfinancial debt going the way it was? what i'm asking for now is not a cut, just to take stock of everything i have said and wait and see what happens. what i'd really like to think, my business is risk reward. so let's talk about the risk reward. let's suppose i am completely

wrong, in three or four months from now none of this stuff matters, all the financial people were crazy and were panicking because of some technical factor in the market. let's suppose the fed do not hike tomorrow. what is the cost? ok. is,not sure what the cost but there's got to be some cost for credibility, two to three months down the road, when they start hiking again. not a big cost, in my opinion. let's suppose that these economic indicators, the stuff we're looking at, the forward-looking stuff, is right, and we have big potential problems brewing, and that they could be even bigger than we think because there's stuff hiding that we don't know about in terms of mel investment. think about the cost. and if hike tomorrow,

they continue to shrink the balance sheet, $50 billion per month right when the ecb is not offsetting it, that cost to me is five to 10x. office,ecaying family speaking with erik schatzker last tuesday. >> i don't feel bad now. i feel great. [laughter] us.guests are still with this is an area we want to focus on, leverage versus ig versus high-yield. we know that leverage loans have held up, but the withdrawal of money, what have you made of that? >> it's definitely looking like all the rainbows in smiles and ,utterflies we just heard about this chart speaks to what we are seeing in credit. the loans have been the dominant performer for much of this year,

driving a lot of volatility. and when it is rising you want to hedge with floating-rate up until the last month or so. now we have gone under 1% for the year, and you are seeing investment grade falling even further. high yields had been flat for most of the year, and now down to percent on the year. >> when you see a charlie that, what does it tell you? this market, the broader market? class inaster understanding the power, the forward-looking information about asset prices. who wased under soros, named person of the year by "the financial times." he has an incredible philosophy about markets. asset prices themselves not only reflects the real economy but impact the real economy. as money comes out of things --

,everage loans and high-yield that these etf's struggle to meet redemptions, it can get into a spiral, and that is where you get the unlocking of fundamentals and asset prices. it doesn't mean it will last forever, that we should respect the dislocation that can come from illiquidity. if the economic fundamentals do and out to be sound corporate profits don't decline as the market is suggesting, i think there are some good buying opportunities. we just have to respect the fund flows and right now they are pretty one directional. >> what is the risk of the triple b? slowly see a lot of fall or will we be able to handle it? thatdon't get the sense there's going to be a down rate of fallen angels, definitely when you look at the triple b

down segment, if you wean the $2.5 trillion universe and just come down, that's a much smaller segment. obviously there are companies that could be rated higher. we can't rule that out. but to see a massive wave of fallen angels, i wouldn't say but itsensus opinion, would be the consensus opinion that the high-yield market is not equipped to deal with that. >> it's interesting, i was looking at our bloomberg story, , sayingk about bbb's it's creating opportunities. wall street is coming out and saying take advantage, because if the economic fundamentals don't bear out to be as negative as the markets are indicating, it will be interesting to see how quickly people come back, whether the market psychology is strong enough to turn. has got to itself

prove not as bad as the market there a are some market participants, they are calling for the said come in, maybe not in the way that trump is suggesting, but having the fed start to change its body language. and they took it well. that if some indication things continue to trade down, the fed has to say we are watching this carefully but asset prices matter. we have to shift for more palatable asset prices. >> last word to you, what about this is energy? >> high-yield is more sensitive to that than investment grade. i don't know, maybe 15% of that index? oil is 45%, certainly not helping. to a certain extent it is

sliding over into investment-grade. smith, great to see you. happy holidays, thank you for coming in. coming up, more on that call by steve mnuchin. that's coming up next on wall street. this is bloomberg. ♪

♪ daybreak.""bloomberg i met the hewlett-packard enterprise greenroom. coming up, the cornell capital partners. stay with us. ♪

>> this is "bloomberg daybreak." here's what's happening. the italian prime minister says government will be continuing to pursue its goals for economic expansion. in an interview with an italian newspaper, he is vowing the popular coalition will complete its five-year term. thesays negotiations with eu caused the delays in getting the final version of the budget package to parliament. final approval of the legislation is expected for the december 31 deadline. bmw is facing a criminal probe and south korea. investigators have concluded that the luxury car company concealed fire hazards and delayed recalls for nearly 23,000 vehicles. south korea has already find bmw $10 million, in the investigation threatens to prolong in a country that has seen nearly 40 cases of bmw fires this year. "aquaman" made the weekend's

biggest splash at the box office, it took in more than $67 million in the u.s. and canada through sunday. it beat out the "mary poppins" revival and "transformers" prequel. hollywood should end the year on a high note, with box office is up 37% from last year. and that's your bloomberg business flash. >> thank you. we turn now to wall street, where we cover three things wall street is buzzing about. first up, steve mnuchin rings up wall street, calling up the bank ceos to calm market fears. the passive funds shrugged off conditions, taking in about 75% of the estimated $500 trillion for all of 2018. and then, the story that keeps on giving. 1mdb investigation spreading to goldman.

singapore is said to have widened its investigation in the scandal to include goldman sachs. guest --s now, our let's talk about steve mnuchin. it's amazing, he called six of the largest u.s. banks and they are like, weight, we didn't have a problem. >> nothing to see here. this is the answer to the question no one was asking and it's a little unnerving for markets because no one was worried about market liquidity until steve mnuchin rang up the ceos and said something. what's interesting is that a lot of our commentators are talking about the echoes to the financial crisis -- when the treasury secretary is calling bank ceos that's usually not a good sign and a lot of market watchers have asked what else is going on? >> do we know whether or not the banks were calling him? was there any communication? >> they are keeping very quiet so we haven't heard a lot from the banks but clearly they are

letting the treasury secretary take the lead. this comes in the context of the president criticizing jay powell and now he's walking back that discussion. it's unnerving and unsettling for the markets. unsettling. this is a group that was put together in 1987. and he's not done. >> exactly. the echoes of unnerving market here, and not great some of my contacts have said -- this is making a bad situation worse. markets are already rattled. why make it worse? >> let's talk about bad conditions for some, good conditions for others. blackrock and vanguard are on estimated $500he billion going into passive investment.

we have been talking about this story a lot over the last year, some of that passive investing is going into these companies. pegida.g to. -- the on the buy side hedge funds that have made their worst year since 2011. you look at the downfall of the active managers and you see them struggling in these behemoths are gobbling up all of that. but i'm talking to someone who invests -- we love these stories, the more bad stories you get about active managers, the more opportunities they see as the cycle turns. but not an immediate buy-in there's also that argument to be made. >> people are also talking about banks being a potential by -- a 20% decline means there are some people hunting. >> we keep waiting for market

volatility to show that active management makes a difference. >> the headline is that nothing is working. everyone likes health care, but unless you bought utilities, maybe you are a .1% in the last quarter. that makes the case difficult. >> it doesn't make common sense. goldman sachs and 1mdb. i wanted to highlight this article, days of coming out in defending goldman's culture in the aftermath of 1mdb. singapore is widening its probe, there are criminal conversations happening. how bad is it? >> it looks pretty bad. goldman has wiped out its trump bump in terms of the decline in its stock price. it is headed to potentially be the biggest a kleiner in the dow. when we think about goldman sachs and its reputation, we think of it as this blue-chip, slick operator.

this has been a really big hit to its credibility and people are worried. >> there are a lot of moving parts, there are big sovereign wealth funds, there was an intermediary that got connected -- there are a lot of moving parts and there's a lot yet to be known. goldman says it is still behind lloyd blankfein. but in terms of the broader market impact, it's not like he was working on his own. he was happy to put together all these contracts and the money was siphoned off and used for other purposes. that goes to compliance, to governance. those are issues. >> and a lot of people argue that these things cannot just be handled by one individual, especially for deals of this magnitude and size, it has to go through a lot of different checks, through teams of people. that's the question, what was

the oversight? a lot of former goldman partners we spoke to are also concerned. the company tries to make the argument that they are ex-employees, they don't know what happened, but there are a lot of partners that we have spoken to that say i don't like the look of this. >> lloyd blankfein wanted to grow beyond. thank you so much. coming up, the end of the honeymoon. president trump loved take credit for the surging stock markets, but not without the bull run is on life support, is the honeymoon over? that's coming up next. >> and check out tv .watches online , interact with us. send us and ask us a question. this is bloomberg. ♪

♪ >> here's what i'm watching. the s&p 500 since president trump's inauguration, i know it was tough, a bearish market last

week, but take a look in terms of the trump bump. we are up about 18%, 19% since president trump took office, and a lot of that is expectations about tax reform and tax changes, in that certainly gave a lift to the market, but it's a different tone since. >> we've had a lot of criticism with trump and powell, but is he right? is ite is on autopilot -- right to that the markets are reacting like that? >> so why do they have to do it? >> coming up, the take on 2019. this is bloomberg. ♪

♪ >> mnuchin says markets are stable.

the treasury secretary calls wall street banks to confirm liquidity as he tries to contain the fallout from president trump's desire to fire jay powell. investors ask why. shutdown showdown drags on. mick mulvaney ones the government could be shut down until january, as more on particularly rattles the beltway. in some members hint opec production cuts could be extended after oil production suffers its worst quarter. they are hit with the worst selloff on record. welcome to "bloomberg daybreak." i'm alix steel alongside carol massar. good to have you. >> when i agreed to do this i thought it would be mellow. >> i was like chat for two hours, but not the case. >> i feel like we are taking our cues from washington, d.c. quiet and serene this christmas eve. there is the white house. we are definitely watching the markets. s&p 500 futures, the tone has become more negative. would see thed we

u.s. equity market in futures market, and now we have rolled over in the last hour, s&p futures off by a full 1%, spreading the selloff from europe into the u.s. again. euro-dollar moving a little again, the dollar not the safe haven currency of choice today, weaker against most of the g10 currencies. the two-year yields coming at .26%. we get $40 billion of notes issued later on today, resisting the biggest amount of money being issued since 2010. and oil rolling over as well, you wonder if that is spreading to the market, potentially dragging down more. no matter what opec does, they will not pump at all, and oil prices still go down. >> the big story of the terminal today, why we are seeing oil move back, maybe it's just the

economy. >> maybe. >> we will see. let's get an update on the headlines. we have the first word news. good morning. >> good morning. theresa may urging citizens to vote over brexit to come together following the latest divisions over the future of the referendum. in a letter to "the daily express," she said it's time to "put aside our differences and focus on what really matters." she writes that the sooner parliament agrees on the right brexit deal, the sooner britain can focus on key domestic issues like education, home prices, and health care. in other news, in sudan, violent antigovernment protests enter the second week. public demands grow louder for the president to step down. kicking off and investment strike after the army pledges loyalty to the administration. at least eight people have been killed since demonstrations began over a nationwide economic

life -- rising living costs. 280 people confirmed dead and dozens were injured after a synonymy struck indonesia without warning. waves swept across western java in southern sumatra, when a nearby volcanic eruption triggered underwater landslides. most of the victims are believed to be domestic tourists visiting beaches during the long weekend ahead of christmas. global news, 24 hours a day and at @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. back to you. >> thank you. the treasury secretary tweeted on saturday, "i have spoken with the president, i think the increasing of interest rates and the shredding of the fed portfolio is a terrible thing to do at this time, especially in light of my major trade negotiations, but i never

suggested firing chairman jay powell, nor do i believe i have the right to do so." joining us now is our senior white house correspondent and our guest. margaret, did president trump say this tweet was ok to send out? >> well, good morning. certainly, steve mnuchin was not out on his own on this one, but it's interesting that it was not the president himself doing the tweeting. when he feels strongly about something he will just do it himself. but over the last two years i have been aware of many cases where the president, by phone or to his office, dictated what he wants them to say and does it. was we have seen from the treasury secretary is this effort to calm everyone down, nothing to see here. but the fact is for months the president has been frustrated for powell, and for weeks he's had discussion whether there's

anything he can do, and that has been true for the last week or so. i think his best efforts to calm markets, we will see how those do, but even if the president has been getting a lot of advice that he can't or shouldn't do this, he has still been thinking about it a lot. >> it's all connected, but i want to start -- the financial markets and how they stack up in terms of priority for president trump and his team. defense secretary mattis left, the u.s.-china trade talks, in you have the government shutdown. there have been other things. how much goes on in the white house, and where do they rank? markets, when they are doing well, is something the president returns to as a bragging right, or a proof of the efficacy of his time in office. so we are heading into a different season where democrats are poised to take over the

house, it's going to change the political dynamic, but for the andident economic strength the performance of the markets are two things he wants to be able to wave as a cudgel, and if you can't, it weakens his potential standing not just with the voters but his own party, with republicans who will be a minority in the house, and you have a little bit less leverage in the senate because they don't have the house. the ability to hold the market performance has helped him to stay strong and to the extent it has eroded it could weaken him and he is sensitive to that. >> when you look at the news coming out of washington, you look at what jay powell did last marketsw do you see the performing in the next, i don't know, couple months? do we have any visibility with these issues out there? >> unfortunately no. the reality is in washington you

have a massive amount of unpredictably. >> we have had unpredictability since day one. >> but you haven't had it where there has been a synchronized global deceleration of growth, and that's what we are predicting for 2019. for example, the united states fiscal stimulus is starting to slow down, you will see gdp growth decelerate within the european economies, and of course with e.m.'s like china you are seeing a deceleration. you put on quantitative tightening and leadership here in the united states, it seems to be unpredictable when it comes to not only foreign policy but with the federal reserve, which gives investors this level of chill where they will compress multiples regardless of what the back drop in 2020 will be. >> what's interesting to me is that steve mnuchin was busy yesterday because he got called with the ceos of big banks,

asking if they had enough market liquidity, and they had to put out a statement. what you make of that? they have to be worried that market volatility and the selloff we have seen would go there. >> right, and that's the say did anyone figure out the problem. we will see what the initial market reaction is, but for the treasury secretary, a chance to check in with the big banks, the policy really is a factor in china will be able to short people. and then there's the shutdown and the combination of the president's trade policies, the questions about how long the shutdown will last, in the uncertainty about powell that have gone the treasury secretary interest in combing everyone

from investors to agencies to the banks. >> what is going on at the white house right now, and who is the president really listening to? it feels like -- we joke about the adults in the white house, but it does feel like all those individuals are largely gone. >> yeah. this is going to sound like a cliche, the president is listening to himself. advice, but heof also have a lot of advice leading up to the shutdown and didn't take it. he also had a lot of advice leading up to his decision on syria and went the other way. the president is obviously still talking to the kitchen cabinet that he always has, and inside is increasingly relying on figures like mike pompeo, like mick mulvaney, like jared kushner. he is following his own tune, his own instincts,

that he will listen to in the end. any president will listen to their own instincts, but in this case, it is the president making a spur of the moment decision, even after discussions with the team to go another way. >> what can we hear from the administration that would start to calm down investors? would it be a resolution between the u.s. and china? what would it be that would let investors calm down? >> that would help, right? except that we believe the chinese-u.s. negotiations aren't going to go as quickly as the market would hope for. keep in mind that china's leadership holds a handle four aces. it is a state run country. to match their negotiations up with something that is very different from the trump administration. >> and there's all the domestic issues.

the showdown is a lot of talk, but it did rattled markets on friday. mick mulvaney was on the morning shows, and here's what he had to say about the shutdown timeline. >> wednesday is the first day this kicks in. the paychecks, importantly, will go out on the 28. no one is working without getting paid. the paychecks go out on the 20th. the next pay period impacted is january 11. it is very possible that it will go beyond the 28th and into the new congress. >> how big a deal is this? how much of it is a sideshow? >> this does affect hundreds of thousands of federal workers, some of the will be furloughed, some of whom will have to go to work and get paid later. but it does not affect the central operations like the department of defense. what it does is it portends what kind of a year we have and he is going to have the upper hand. that is what you are seeing nancy pelosi and chuck schumer

dig in over what they are not willing to do and why you are seeing the vice president and the white house team behind the scenes trying to find a deal they can cut that the president will sign off on, while the president gives up this my wall or the highway position. >> all right, margaret tebow, thank you so much. our guest is sticking with us. coming up next, oil slump as big oil continues to bet on u.s. shale. more on investing and energy that cannot find a flow for prices. this is bloomberg. ♪

♪ to findrices can't seem

a bottom, their worst quarter since 2014, and opec could extend cuts in may deepen them. oil's latest crash comes at the same time as they go oil bets on u.s. shale. shale is reportedly in negotiations to buy a private permian producer for $8 billion. u.s. shale production is traditionally belonged to the independent players, but what happens when big oil steps in? ♪ >> the sudden cut off of oil from the middle east has turned a serious energy shortages we expected this winter into a major energy crisis. >> this is the greatest challenge our country will face during our lifetime. >> for too long our nation has been dependent on foreign oil, and the dependence makes us more vulnerable to hostile regimes and terrorists. >> my administration will seek not only the american energy independence we have been looking for, but american energy dominance. ♪ >> and we did.

the u.s. just became the net oil exporter for the first time in 75 years, as the u.s. reaps the benefits of the shale revolution. >> we didn't think we had this tremendous wealth under our feet. >> many of us remember the long gas lines and the constant claims that the world was running out of oil and natural gas. >> those images are long gone thanks to u.s. independent oil companies. now big oil is cashing in. >> should big oil be in u.s. shale? >> certainly. haverealize that they rocked the boat, and when the shift came in they've prepared for it. >> for the most part, of big oil missed the first wave of shale development, but now they are all in. >> what makes this so awesome? >> there is quite attractive. it's a very sick section. you don't just get one shale, you get several.

from an exploration risk perspective, it provides a lot more optionality. >> shale scooped up the 600,000 acres in 2012 and is still developing. >> we will put more wells on this patch, right next to each other, in this rig can actually walk, meaning it can lift itself up and move over without having to pull it apart. >> and shell isn't the only one. excellent doubled its permian footprint in january to $6.6 billion. >> the price of the oil markets will go up and come down again. our view is the business we build is for the long-term.it needs to be efficient , low-cost, and effective. we are making sure the pace we go out allows that to happen. ♪ >> and now it's at the core of exons growth, with 38 rigs, the most of any operator in the basin. >> over the next few years, by 2025, we will triple our production out of the permian basin. title,ust look at the

horizontal drilling, it will be five times with our production is today. over $10o caved to pay billion for bhp's shale assets. >> we are very happy with the deal, a part of the huge upside potential. we have a midstream business, and of course we get access to the permian, which is a key part of this transaction. >> the big boys coming in, do they make you worried? >> no, we have competed against large companies, multinationals, forever. >> they have big pockets. >> they do have big pockets, and a lot of times we empty them pretty quickly. [laughter] is hoping to boost free cash flow in a basin with little political risk, shortly time, and flexibility to respond to prices. if they can catch up. >> the majors reconfiguring

their portfolios have a much greater emphasis on the united states. >> do they have the ability to operate shale like you guys? >> probably not to the extent opinion, and imy think a lot of them realize it. some of them made attempts to compartmentalize their companies to where they are more like an independent, and that has worked to some extent. ♪ the newanalysts say wells in the permian could see 30% return at $45 oil. >> the wild west growth in the u.s. is something that will continue. >> this makes big oil critical and answering the question, how big can shale production get? >> that was a look at my in-depth report on the next chill revolution. an advisor on, portfolio management, and our

energy group director over the phone. i wanted to break that down. you take a look at m&a in the permian, it has been huge -- excellent, bp. does that continue? >> maybe. producersndependent don't see a lot of need, they are starting to look at that resource as strategic in the long-term. >> is this a different scenario than 2013 when we had $26 per barrel? has the most active producer in the permian -- is this a different scenario? >> i think so, we think so. there are a couple different cases, exxon has deeper park it's but the other thing we have seen is that the cost structures change materially. $45, $50 crude is not the same

existential trap many of us thought. chart upt had a bar that showed the amount of m&a activity we've seen in the energy sector -- there's been a lot of deals in 2018. what happens in 2019? is there anything left to do? say, it'srd to obviously a pretty challenging market, but from our perspective, we would expected to slow down. three reasons, one is the gap between expectation from sellers and the buyer willing to pay more, challenging on prices falling. interest ineeing the space but there's not a lot of new money coming in. a lot of the big, independent deals we saw last year were not so there's a, strategic rationale. >> do you like energy?

worst-performing group in the s&p 500? >> here's my problem. i think the demand curve for oil and all commodities will continue to shift lower. that will put pressure on oil prices and many other commodity prices. we would be avoiding the sector at this point. because the economy is slowing down. it's not about the supply side as much as the demand curve over the course of the next two to three years. for us, we would be more careful. many of these projects are levered. if the credit market starts to become disorderly, you could also see credit events. >> interesting. that the demand side. you have that coming over opec and then you have potentially more m&a, lower breakevens, more productivity proficiency, and big oil. how does that prevent opec from setting a floor to prices? >> well, it's a question of at

what price. if the floor is $60, $70 -- their ability to grow in a disruptive way i think has been demonstrated. $45 might be the capital discipline, but i think the sentiment at the about-face is a well-made point. >> you will be sticking with us, thank you. line.ow for the bottom we will look at three companies worth watching. pg&e, there are calls from california regulators to potentially break them up, change ceo, do something. who pays for climate change? >> that's the big story, exactly. the other story we are watching his bmw, facing a criminal probe in south korea over engine fires.

that they hadlude fire hazards and there's another automaker -- >> you still have demand concerns, it's like a triple whammy. the third company is tesla. we got another tweet from elon musk. >> and it is helping people. to things are happening here. in china, they are cutting prices. it is the third time this year they are cutting prices, due to lower tariffs in that country. prices are being cut by 7.6% which should help demand. china is there second-biggest market, the first place outside of the u.s. where they will open a new plant. and the chinese market is not going that well so automakers are concerned that the market has peaked. november sales were down by about 20%.

it is still a very important market for tesla. >> a reminder to u.s. buyers that the tax credit dropped online. >> that is a funny thing, orders that should have been in -- far but this is the u.s. tax credit that is being phased out. if you haven't put your orders in and got your money from january, that can get phased out. >> you talk a lot about electric vehicles being awesome, no one wants them. in that you still need subsidies to get them, no matter what country you are at. i'm interested to see what 2019 brings. the flashiness of an elon musk.

>> what's going to be interesting next year is that it will show you a true picture of the demand for tesla cars, both in china and here. do people still work? >> the best-selling car in the united states, that's pretty wild. i think of all. >> that is exciting. >> thank you so much. coming up, how retailers are faring this holiday season. this is bloomberg. ♪

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?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. unstopand it's strengthenedting place, the by xfi pods,gateway. which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. this is "bloomberg daybreak pepco happy christmas eve. earlier was a bit of a rally in

s&p futures. the treasury secretary over the weekend trying to car home the markets. thedow -- trying to calm markets. how seriously you can take the move today is a separate question. as you haveing hit violence still between the yellow vest protesters and the police, permeating through the market. other asset classes a confused dollar story. the euro-dollar up as the dollar overall uses steam in the g10 currency space. 0 spread, look out for supply coming on the two-year today. this remaining elevated crude continuing to roll over. what will create a floor in the market? it has been a week when i was off, too. i have been like, what? and they are like, we do not know. >> you do have to wonder whether

it is a supply story or to -- or a demand story. the demand story we heard earlier, talking with some of our guest -- there is concern about economic outlook. alix: which brings us to the equity markets. overall, what is your take? >> lower term environment, a lot of volatility. you have to be, if you are an investor, flexible. qe, orersal of qe, qt to reduction of interest rates by the federal reserve, could really spark again markets to go higher. that is not in our base case scenario, that is not out of the question. >> feels a little bit like a market tantrum. alix: just a little bit. really short-term trades. >> we are going to continue the conversation. for more, outside the world of business, uma pemmaraju is back with us. uma: treasury secretary steven

mnuchin calling the heads of the six largest banks with the government shutdown in the third day, hoping to calm recent market struggles by contacting those executives. lenders assuring him they have ample liquidity for lending to consumers, businesses, other operations. mnuchin also saying jerome followingob is safe, reports president trump discussed firing him. the former prime minister of pakistan has been corrected -- convicted of russian, sentenced to seven years behind bars after a court finds he has a cumulative wealth through unknown means. his supporters are saying the decision was given without any evidence of proof of wrongdoing and the court ruling will be challenged. he is being probed by the national accountability bureau. partners in israel's governing coalition have voted unanimously to dissolve parliament and call elections for early april. elections were originally set for november, but no israeli

coalition in the past 30 years has served and its term. polls are suggesting a new boat won't produce a big change and benjamin netanyahu woodwind -- would win a new term. news powered by over 2300 journalists and analysts in more 2300 -- in more than 600 countries. gap hasshion retailer been struggling this past year. shares are down as the company struggles with declining mall traffic. bright spot is old navy. it's positive same-store sales have propped up the namesake brand. emma chandra sat down with the old navy ceo. they talked holiday shopping, tariffs, and what the gap can learn from old navy's success. each brand has a great position in the portfolio.

the fact that we are a larger us scale gives advantage. in the industry, that does matter in terms of the investments we can make, our digital platform, or our supply chain, or our marketing strategy. we capitalize on that. emma: is there anything in particular you think old navy does better to get people in store to buy that perhaps cap does not? >> we are clear about who we are and our value equation and old navy. the maniacal focus on the fit of the product quality, the style, and the price -- all of that accommodation -- when we get that right, that is when we win. we really focus on that with our brand filters, and we couple that with increasing focus on the experience our customers have. the store experience, our digital experience -- we really doubled down on new capabilities. emma: another theme this time of year, and particularly this

year, given the earnings reports over the last few weeks, margin pressure -- a little concern with amazon, investors concerned about deals and what higher freight costs might do. how are you managing that? >> we understand focus on margin expansion. we have been happy with our merchandise margins and have been able to show. -- show period over period expansion. online real-time it is a factor, but we have been in the online business for 20 years. the have had the opportunity to put in place infrastructure over that time. . -- over that time period. >> and that helped bring the cost down. looking at perhaps another pressure, when we look at the story economy in the u.s., a lot of people talking about a comforting consumer. there is ameans

tight labor market, with wages going up. is that causing pressure for old navy as well? >> i think certainly the consumer is confident. we pay a lot of attention to customer comments. i start my day every morning reading customer comments, and there is still such price sensitivity. the american consumer has to pay a lot of attention to what is affordable for their household. that keeping the value equation and the price really aggressive has been an important strategy for us, and one of the reasons why we continue to see it. finally, something rolling financial markets at the moment is ongoing trade discussion, trade dispute between the u.s. and china. source aand gap inc. lot of products from china and largely outside of the u.s. is this something you are having to think about at the moment? >> we are looking at it very carefully. the great news is, we have a

very global supply chain. with our scale, we have many options around the world. while china is important from a sourcing perspective, it is not our largest sourcing country. in fact, vietnam is. we source from a variety of places and have the opportunity to shift as needed, as well as look at opportunities to improve efficiencies. emma: this is something you know well. you used to manage the supply chain operation for all of cap. is it something you think is flexible enough? are you already having to make changes to that supply chain? >> we have invested multi-years into a responsive supply chain, adding speed, really being able chase the product the customer is barred for us. that will help us in times like this. that was the old navy ceo speaking with emma chandra. alix: for more on the state of retail, we are joined by rick , from mine -- heltonbine

florida, and dan bartosh is joining us in princeton. rick, how is the holiday season faring? rick: the stores are doing great. consumers are having a terrific time. i think overall, the holiday season will be up around 4.5%. it is fabulous. however, as you know, retail stocks have been getting pounded. that has a lot to do with the terrace situation. i did my own survey running around stores in florida, counting how many labels said "made in china." frankly, the statistics bear it out. 40% of all america in the united states comes from china. 84% of all accessories. our analysts are worried about the future. i know you are doing channel checks.

i am going into stores and feeling like they are not that crowded. >> stores do not seem to be crowded as consistently as in years past. i think that is what you are seeing in the shift to online shopping. doors are either giving a next her discount, or they want to browse and touch and feel. overall, the retailers are still getting a nice set of sales. it is just being split between that online channel and in-store makes. >> who in particular? is it the mall? where are we seeing the outperformance? is it electronics again? buy,retailers like best they are getting a lot of foot traffic in. malls are busy at key times. they were very busy over the weekend. certain stores within the mall were busier than others. categories, apparel is doing well this holiday season. a lot has to do with these retailers changing the mix of

what they have in their stores. a lot of private label. a lot of unique finds to draw people into those stores. alix: fair point. rick, that speaks to you. driving it is tariffs down the retail space, but the discounting too. walk us through how retailers are going to preserve any kind of margin. rick: discounting is no different than ever. retailers prepaid discounts. more of a concern is the switch to on the channel -- monich -- omnichannel, the online returns. retailers work on something called imu and emu. is is initial markup and emu the ending markup. the concern is how we function, providing the characterization, working through all the channels. what is the ending markup going to be? what is the tariff situation going to be, moving forward?

alle frankly, you look at these retail stocks, and they started going down when tariffs dipped in, september 24. 30%.e getting 20% to for people who know what is going on in the stores, the retail market is oversold at this point. it has gotten crazy. alix: we have just got about a minute left. my understanding is you say right now is about as good as it gets for retail. that tomorrow, it will be retail ugly. is that how you see it? rick: i see retail ugly going forward. in a supply chain shift, prices go up. down,ices go up, sales go just get lost. it is retail ugly. >> jen what do you see for the next 10 to 12 months? jen: we have a lot of inventory and focus on supply chains. a lot of retailers brought extra inventory in the head of the tariffs. they need to sell through that. that means margin weakness to

us. we think there will be a solid holiday season, and managing that online cost and the cost of getting rid of all that inventory we think will weigh on margins in the first quarter. alix: rick of american apparel and jen of "bloomberg intelligence." chad, what do you like an retail? chad: i would be in the big box of retailers. i am not allowed to talk right now about individual companies. in the areas, the ones that are more successful -- the omnich annel side i would be looking at. it looks like big-ticket items like houses, as well as autos are starting to decelerate. this is perhaps an ominous signal that perhaps you are going to see consumption growth over 2019 into 2020 perhaps be a drag on gdp. it is utilities, health care,

staples. that is pretty defensive. chad: without a doubt. we have been overweight staples and health care throughout the year. we did enter an overweight position within utilities. we increased our duration within our bond portfolio and moved up within fixed income. we do think that 2019 will be a little more stressful for investors. the real concern here is that there is a mismatch of expectations. you have the fed expectation of 2%, when it% to comes to growth over the long run. and you have the market price around 2.5%. we believe that is going to have to be readjusted down over the next 18 months. >> but no recession. chad: no recession, but a global slowdown will give you a feeling of a recession, and earnings recession will come into play. that is why the market right now

is destabilizing and repricing risk. thank you so much. morganlander of washington crossing and -- advisors. we are looking at the gift card industry. did you buy a gift card? alix: yes, give cash. ♪

uma: this is "bloomberg daybreak." coming up later on "bloomberg barry of crown capital partners is joining us. i am uma pemmaraju.

>> china is cutting tariffs again beginning january 1. beijing will lower import taxes as part of efforts to lower cost for domestic consumers. in a statement today, the ministry of finance said there due tolso be cut tariffs. a technology company is discussing a possible sale of ingram micro. that is according to a statement made to the shanghai stock exchange. not specify aid buyer, but "the wall street journal" is reporting they hope to sell to apollo management for 7.5 billion dollars. that would include $1.5 billion in debt. little relief over rising u.s.

supply and glowing volatility in overshadowingnomy opec's announcement it would deepen output cuts. members of the cartel agreeing to reduce production for another six months. additional curbs could be on the table. that is your bloomberg business flash. alex -- alix, back to you. alix: time for our feature on the future of money, and how the digital world will affect money. our focus is on how consumers are using gift cards as another form of currency. owning me mail -- joining me now head oflackrock marketing. walk us through how much we have seen gift cards grow and how we will see them being spent? >> the gift card market is .rowing at roughly about 2%

around the world, does about $350 billion. in the u.s. in i-17, it did about $113 billion. we expect that to be roughly $124 billion in 2021. the national retail federation conducts a survey every year and asks the most requested gift. for the last 12 years in a row, gift cards have been the number one preferred item. when i hear people talk about retail going down, gift cards are going up. alix: what do you make of that? is that shopping laziness? is it a form of currency? is it easier to take an amex and spend it on food than to pay five dollars for food? alex: i think all of those things. convenience is always a factor. it is easier when you are buying groceries to pick up a gift card and add it to your basket. the second is that the industry

is changing quite a bit. you can personalize gift cards. you can put a picture of your or a pat on at gift card. you can get happy cards. these are one of my favorites. it is perfect for any happy occasion, like a birthday or a holiday. picks from ar category -- happy lady, happy dining, happy teen. the recipient takes from five or six top retailers to choose where they want to go and spend. hasn example, happy teen real cinemas, american eagle, java juice. that is new, exciting, innovative. tension thatthe the person has, and giving a gift -- they could redeem for a sweater, candles. it is a great gift to give. how great a gift cards for

retailers? somebody buys a gift card, does some shopping while they are there, somebody uses the gift card but maybe does additional shopping. i am curious about the payoff from gift card? typically, a retailer sees a list of about 40%. if you have a $100 card, somebody spends an additional $40 on top of the card. the retailer benefit is driving customers to your store. important point. no choice but to spend the gift card at the location you have, and the spend is typically 40% more. there is a big payoff, whether you are a restaurant or a soft or hard goods retailer. alix: thank you very much. happy teen? is that the oxymoron of the year? >> i cannot go there. [laughter] alix: here you go, teenager.

>> i have a teenager. i have to be careful what i say. alix: browse our features and .heck out bloomberg go what i am watching is the credit market and the effect we are seeing on banks. ♪

alix: i am watching the credit markets. my favorite term of the weekend is leveraged loans versus investment-grade versus high-yield. the money getting pulled out, much worse in the last week then high-yield. we know that story. some problems offloading loans. >> like you thinking what we are hearing about the credit markets. they are usually a leading indicator during the crisis. else, buts something

people do not care who is in trouble. it is an indicator of something that is turning down. we want to know about it. alix: banks had about $1.6 billion of unwanted leverage they cannot sell off. it is only 14% of the loan sold in december and this much of the trillion dollar market. what is the ripple on effect of that kind of thing? you wonder if it is the beginning of something, more of a significant downturn. alix: it was a pleasure spending the hour's with you, carol. that is it for "bloomberg daybreak: americas." coming up, "the open." michael purvis. this is bloomberg. ♪

alix: the countdown to the open starts right now. i'm alix steel.

the mnuchin push. the treasury secretary called banks as he tries to prevent fallout from rumors trump wants to fire jay powell. mulvaney warns of a government shutdown through january as closures shoretel the beltway. the s&p has for its worst quarter since 2008. oil gets pummeled. push goes oush -- nowhere. earlier,p by about 1% so it could have been worse. , the dollar losing a lot of steam. the yen taking the safety fx mantle of choice. sevens ands, fives, crude continues to roll over.