be in for stocks. small caps climb with earning seasons right around the corner. miss aftert revenue it cut guidance. is the reason trade or a slowdown in china? german industrial output shrinks raising the possibility of a technical recession. : welcome to bloomberg daybreak. i'm david westin with alix steel. nfib survey out. exceed expectations. optimism has dropped as well. you've got taxes, no stimulus is coming their way again. and their biggest concern is getting employees.

they are running out of employees. alix: i love nfib good we may have had a bottom but what kind of strength will we see in earnings season? are we still in a relief rally or do we have firm bottom signals? euro-dollar pretty much flat. we could be in a technical recession. confidence in europe wound up falling as well. not a lot of reaction in the currency market. they see 3% rather than 3.5%. save haven is a treasury now. and crude up by over 1%. it's the seventh day in a row. sincest we have seen 2017. david: you are on a streak. time for the morning brief. today is the start of the computer -- consumer electronics

show. at 1:00 this afternoon the u.s. treasury will be auctioning $380 billion in three-year notes and we will hear from the world bank on where it thinks global growth is headed. alix: let's get to the bottom question here. this is a chart we are going to be talking about all morning. basically the technical analyst winds looking at momentum off bottoms. what is this telling to markets? beeny be the bottom has put in. we can follow that momentum through upwards. i would caution against taking any one technical indicator to the bank and saying this is it. you have been stanley yesterday's aim think about the bad news surrounding apple. that is likely just the beginning of potential bad news

that we could get. there are many south side firms and shops saying wait until we get further into the earnings season as it kicks off next week so that it's not just your throwing your money in an we could see large gains either which way. david: i like this wide indicator because it's not positioning. how much are people buying in the upswing versus the downswing. i like that it's real money. >> i also agree that we have to be cautious here. there are so many risk factors out there. , the partial government shutdown, clobbered sentiment. we are expecting record profits for the u.s. banks in the fourth quarter earnings season.

we looking at really negative sentiment and i don't think that's going to turn around with a couple numbers or a pretty chart. alix: small caps are finding a base. >> there are positives to look at especially small caps. russell 2000 is on its best start to a year in about 30 years. pretty amazing. many people are saying if you want to get into risk clearly. we are seeing healthier trading volumes. at the same time people are also saying maybe this is reverting back to that trade that people feel safer in more domestic oriented stocks. david: et al. half-empty for you. -- it's all half-empty for you. samsung earnings were

disappointing. down 1.7% in the intraday. this is sort of a pattern with tech. we had apple out with very disappointing numbers. specifically when it comes to smartphones and cell phones. is this a trade issue or a price issue? >> this is the question right now. samsung is a phone maker but also very much a maker of chips and a chip seller. some analysts did say that a lot of the wake demands in the chip sector were already priced into the stock. see further losses after we got the week numbers and what the question really becomes is after apple was this an apple issue. now people are still asking is this an apple issue because apple is samsung's largest buyer of chips. many are pointing out that there's other pc manufacturers

that are not buying so it seems like it's a larger demand issue as well. i'm sorry to be half-empty again. alix: some are starting to look dowemi's because the p is so cheap -- the pe is now so cheap. it's a shock. it's not just apple but also smartphone servers and pc manufacturers that are not buying. these customers just won't accept current prices. tech has been the leader. financials are supposed to take the helm from tech. if we don't get that and we have tech rolling over what else is there in the market? >> we have to bring it back to the macro stuff which is china and trade people have been looking for evidence of how the trade war is going to affect the real economy and real businesses. we got huge examples in apple and samsung.

financials were beaten up last quarter 18% decline in the stock rises for big banks. are really going to need to see some evidence of a bounce in sentiment before the markets recover. analysts say that the earnings are going to be a record in the fourth quarter so why do we have this clobbering of the share prices? investors are very pessimistic. david: german industrial production numbers were really down sharply. it's the third month in a row they are in a technical recession which people were not really prepared for. the markets didn't react that much. >> we keep seeing these week numbers. we look at u.s. futures and they are in the green this morning following through from yesterday's game. have we gotten enough weak economic data?

chinai data in europe and last week that people are starting to price this in. so if we continue to see isn'tss then maybe there much follow-through because we have already seen it. can see the euro come down the second those numbers come out. then we are well off the lows of the session. dollar safe haven rebound story from today or is that a different conversation? >> there's a lot of negativity priced in the euro. germany is starting to show deeper numbers. those are other things to add to the fire. i don't think anyone is super surprised that europe is not doing as well as the u.s. david: what does that mean for mario draghi?

building his narrative on the basis that european growth is going to come through and his going to be able to get out of the markets. question thato narrative. also euro dollar is forecast to be at 120 at the end of the year. alix: goldman sachs downgraded the 10 year yield but only 15 basis point change for the bond. david: how much does that spell back into the united states? how much does europe drag us down? >> the slowdown overseas, when i gets to the u.s. some people have said maybe we did start to see that last week but then you get a jobs number like friday's and all of those worries of a recession or slowdown really go out the window so i think we will have to see more that it

will be interesting as we get into the earnings season to see what executives are saying about the slowdown and how it is affecting our company. alix: you can find all of the on g tve used and more . we will be joined by an equity strategist who says the market technicals finally look good again and he's not alone in that assessment. this is bloomberg. ♪

tothis is bloomberg daybreak the founder of oracle has taken a billion dollars stake in tesla. he revealed the investment in a

filing with regulators. he's a longtime friend of elon musk. last month he joined the board in an attempt to show that directors are providing effective oversight. samsung is feeling apple's pain. trade tensions and the slowdown in china hit samsung's memory samebusiness in the quarter apple reported anemic sales in china. that lets you log onto your bank account is buying one of its biggest competitors. the deal may be valued at up to $200 million. plaid is backed by goldman sachs. alix: futures in the green after a positive finish to u.s. stocks yesterday. momentumng a look at -- this is taking a look at

momentum. does that mean we have actually found a bottom? it's a technical indicator that many look at. have we found the bottom? >> yes and no. i think we see one over the but i still wonder as we move to the rest of the first quarter that we may as well back down and retest the lows or at least get another big tip before we find the ultimate bottom for this move. the s&p got right down to its 200 week moving average of around christmas time. that was incredibly good support in 2016 and 2013 and 2011. since then as you mentioned we had the internals have been much

better. we had the big selloff in the advanced declines were negative and the volume was big but on friday the bounce back came on much better advanced declines. and then of course we have to look at going back to what we saw around christmas time is just the market became incredibly washed out in incredibly overheated. time to workkes out that oversold condition. onstill have to be careful the longer term. alix: does that mean we are going to be in a range bound fiscalwith big swings? impulse is going to be unlikely so we are going to have to stay range bound with no real catalyst? case that i think the range could see some wild

swings. be the big 1000 point moves in the dow's. we still should be pretty wide. the thing for me is fed liquidity. what is going on with the federal reserve? they really haven't changed. a lot of people are saying they are not going to raise rates anymore. they're definitely continuing to shrink the balance sheet at the same rate they were in the fourth quarter. the ecb is tapering back on their qe program so we are going to have less liquidity going forward than we had in the past and that is going to cause a problem. you talk to an earlier segment about investor confidence. the things that really helps investor confidence is a successful retest of the lows.

david: we have been talking a lot about central banks. what about earnings? while we are coming off a little bit when it comes to sales the thing that really is disturbing is the margins. what are we expecting going into this earnings season? >> we have seen earnings estimates come down the last couple of months for 2019. now consensus is around 7% earnings growth for this year. a lot of people talked about how the decline we saw in the fourth quarter was totally about the fed, the trade war, the government shutdown and things like that. the disappointing earnings andon also played a part in

we know in 2017 we had a year where earnings estimates rose throughout the year and that was something you don't see very often. usually earnings estimates go down as you go through the year. you worry that the markets become cheap on a pe basis. how cheap is it really? earnings season is always important but the last earnings season was very important. going to be very important. as people talk about what do margins look like and what does future guidance look like. matt will be staying with us. up samsung posted's first profit loss in two years. we talk tech next. this is bloomberg. ♪

trade u.s. china negotiations continue in beijing with some of the largest tech companies like apple standing the most to gain or toulouse. qualcomm's president said his company is largely removed from the china trade issues. >> as far as our business is concerned we are not really impacted. we are not in a position right now to be providing financial guidance. we are happy with china. china has been a very good story and we expect that to continue to be. webb. welcome now alex it's nice that qualcomm is happy with china. we have had numbers out of apple and now we have disappointing samsung numbers. theyis trade or are

charging too much money and they've got some competitors who are really undercutting them? >> it is sort of all of the above really. they were charging more for their phones they probably might have got away with it if it wasn't for the trade war and the slowing consumer confidence in china which is meant they are more inclined to buy the cheaper handset. it becomes something of a perfect storm for the likes of apple and samsung. david: how big a problem is this really for samsung? i think it's 13% of the gdp of south korea. >> samsung has been hit more broadly by the slowdown in the .emiconductor market the impacts of smartphones has exacerbated the pain. the reason we saw of stocks decline yesterday's it wasn't as extreme as the one endured by apple last week. we saw a lot of analysts cutting their forecast for samsung over

the course of the past few months. that wasn't a particularly new story that samsung was having some trouble. the layering on of the handset .roblem david: the global question is is this becoming a look for business? -- the tour business? prices were going up and up. at some point these businesses become mature and you do get competing on price and market share. >> absolutely. been a secret the smartphone market has been mature for some time. able tove been compensate for those lower unit but forth higher prices a while people have been saying what's the upper limit of what they can do on price and the implication is that have sort of reached it already.

people are increasingly happy with their iphone 7's. i don't need the iphone x generation. the technical achievement they are realizing the chief smartphone are not improving compelling enough to convince consumers to upgrade their phone. david: thank you, alex webb. great articles a in the new york times. the reason apple is not doing well is because your mom. do you want to buy apple here? on a short-term basis it looks very good because it bounced off a key support level. you look at what does this really mean with what they're doing.

people are just satisfied with what their iphone 7 or iphone 8, they don't need the iphone x or i'm worried about consumption and i don't need to buy the new one like i used to when the economy was booming? long-term for a very aniod but you may get opportunity to buy it at lower levels than it is trading right now. alix: consumers in china and india are showing less interest in writing to an iphone. war?uch of that is trade >> that certainly is having an impact. it goes back to the confidence situation. alsonly for consumers but for executives throughout the world. we are getting some positive news on the trade front and that should help the market rally

near term. we are not going to get a definitive agreement this week. industry executives have to pick up capital spending until the wherefirm deal in place they can make sure the deal is working the way it should read uncertainty is a problem in that respect. alix: coming up, germany stumbles. we discussed the health of the european economy coming up next. markets pretty much ignoring it. euro-dollar pretty much flat on the news. this is bloomberg. ♪

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1%. thatax, despite the fact germany industrial output fell. equities on the rise. even the euro did not really have a huge move. euro went down immediately on the news, but now we are flat. i want to highlight geopolitics in turkey. the lira sinking 1.5%. snubbed ay erdogan trump advisor on the syrian roadmap. he says he is not going to meet with him. sayinge the erdogan aide we are not going to meet. everything is fine, the plan is fine. mr. bolton said it would the turks don't slaughter the kurds, and he took

offense to that it alix: he did not consider how volatile the situation was. david: abruptly announced the u.s. was going to withdraw, and then they are not. volatile is the right word. alix: crude is up over 1%. the euroot part of story. watching that as well. david: let's get a look at headlines outside the business world. we have first word news. >> president trump makes his case for a border wall to the nation tonight in a primetime speech on what he will describe as the humanitarian national crisis on the southern border. democrats have refused to give him money for the southern wall. he has refused to pass end theion that would government shutdown. hosn telling the court

he has been wrongly detained. he disputed charges that he failed to disclose income from the sun. the u.k. staging a massive truck see thehe country to impact of a no deal brexit. if a no deal brexit requires custom checks, that could lead to backups as long as 17 miles. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: something i have never heard of before, but dress rehearsal for a traffic jam. let's make sure we know how to do the traffic jam. get all the trucks going nowhere. alix: you know that is called? tr. they are stockpiling vaccines. i heard that over the weekend. david: that is right.

there is serious concern about getting vaccines across the channel to help sick people. alix: will that make people more freaked out about crashing out? is it just optics? david: they could have thought about this a little while ago. this has been going on for a while. this is not a surprise. alix: it is fun to second-guess. david: turning to germany. german industrial production took a big step down at the end of last year, raising the prospect for a technical recession. european prospects have fallen to their lowest in two years. still with us is matt mainly in boston. thatst put up a chart showed this is the lowest industrial production since 2009. what is going on? >> i will tell you why i think the markets are shrugging this off, this is data from november. around that time in late october, the bundesbank and german finance ministry warned

investors germany would suffer through a slowdown in the latter part of 2018. due to some idiosyncratic temporary,t would be transitory. this would lead to a slowdown. i think as a result of that, markets are shrugging the data off today because it is a known narrative. it is something they are familiar with. the bundesbank came out today and said you have to look through this one data point. growth in the fourth quarter will still be solid. i think that is why the markets are taking this in stride. david: as far as we know, is it idiosyncratic, or does it have to do with export and trade uncertainty? >> i think the focus is for q3 primarilyis idiosyncratic. you cannot strip out completely trade tensions and the impact that might possibly have on the german economy.

i think the idiosyncratic factors are amplifying that. you would have to say, you would be brave to say that none of the global tensions we have seen have not had a negative impact on the german economy. germany is a big winner from globalization. with the changes we have seen, this is a headwind for the german economy made worse late last year. rhine levels made it harder to ship stuff. that contributed to deliveries. david: let's go to matt, do you not invest in germany because of the rhine levels? >> and are crazier indicators than that that work. this time last year, everybody loved europe. everybody loved emerging markets. everybody said the euro was

going to go higher and the dollar lower. in thenteresting that first quarter of each of the last four years from the dollar important trend change. what is going on today in the stock markets and currency markets, or they looking past what we saw in the fourth quarter and looking forward? maybe europe is not going to bounce back in a major way, but it will bounce back relative to the u.s.. the dollar has flattened out lately and is starting to pull back. if that is a bigger move, you could see positive for europe, positive for emerging markets and commodities. alix: fair point. i know you are saying this is transient, relative value europe is where to be. if you look at the bundesbank in december, they said the data

would get better, but there is an underlying issue, structural issue that the underlying cyclical trend is likely to be fairly subdued. the soft data starting to roll over, how does that set us up for q1 and q2? >> i think one of the problems is that the data we are seeing now is going to suffer in a relative sense compared to what we saw in 2017. euro area growth and german growth are probably set to continue at or above trend, not like what we saw way above trend in 2017. at or above trend in 2018 and 2019. if you compare it to 2017, it does not look great. if you compare it to a longer-term basis, it is where it should be. i think the ecb is comfortable with that. and: no doubt volatility

confusion will continue. how do you deal with relative value in volatility comes to the u.s. versus europe? where is the biggest risk? >> i think the biggest risk is going to be in the u.s. we were talking earlier about the technology sector. what we have seen in this bounce back, this time last year in february, the tech group really led the way. stocks are not bouncing right now, but that is because they felt so much. we are not seeing that big upside leadership the last time we saw a correction. that has me concerned. i think people should look to be a little more defensive whether it be in europe or the u.s. buy stocks that will pay you to and aith a good dividend record of increasing dividend every year for many years.

with plays will work well this volatility and uncertainty in the marketplace. alix: thank you. staying in europe, january 15 will be the vote for brexit in parliament. cable does nothing in response. u.k. spokesman said the normal stuff, we are not done talking to the e.u. on delaying brexit. we are seeking assurances on the irish backstop. rhetoric has not changed. david: we had this proposal in december. theresa may pulled it off the table because it did not have the votes. they are going to try again. they are not going to be able to change the taxes. that will force them to go out without agreement. i don't understand it alix: she has not ruled out multiple votes. it is not one and done. david: i don't envy her. coming up, softbank is going to invest in we works.

not as much. why you changed its mind in wall street be coming up next. this is bloomberg. ♪ mberg. ♪

>> this is bloomberg daybreak. coming up later today on bloomberg markets, exclusive interview with dave wrecks, eli lilly ceo. this is bloomberg daybreak. yourviviana our time with business flash. shares of the largest online retailer rising more than 3%. $797r market cap is

billion. inzon briefly held the crown early december. takata pharmaceutical completing its $53 billion purchase of shire. to a topsformed takata 10 drugmaker in the u.s. toyota has decided to share with its rivals a safety system that uses self driving technology to keep cars from crashing. the company says the technology has the potential to save so many lives in a should be shared with any company that wants to use it. david: turning to wall street funds irst hedge caught in the pg&e trap.

pg&e has seen drops in its stops, falling 20% yesterday alone. nomura's new salary structure, switching to a merit-based pay structure next year, breaking from tradition of rewarding by age. softbank cancels its plan for a controlling stake in weworks. alix: let's go to pg&e. let's get the basic. five notches cut to junk. hedge funds could have been in it when this was happening. >> what they saw was a stock that had suffered pretty dramatically going to those wildfires. they got in in the fall. these are big names people now. overall outperformance for 2018.

billion liability from wildfires, state investigators trying to figure out exactly what happened in the ultimate liability. the stock went down 20%. alix: just yesterday. david: in one day. >> dramatic fashion. 's position is now worth $128 million. david: isn't this what you get with a hedge fund? it's a gamble. alix: that's not what you get with utility. it is not vol. there have been bankruptcies for regional utilities, not this kind of utility. david: a really good point. it is not what you have always gone with utility. will that change as the risks change for utilities? >> we have all spoken with the ceo of duke energy over the

years. she talks about it being a different world. hurricanes are the natural disasters she has to deal with. one thing we should point out is we don't know, will not know for a while how long they held onto these positions. it could be that some smart analyst said i am seeing signs that maybe we should. alix: it is not a value trap, it is a value hole in the earth. next, nomura. you are going to get paid on how well you do, not how old you are. my goodness. what? it is 2019. >> this is a big deal. it comes at a time when we think our labor market is tight. the japanese labor market, 163 positions available for every 100 jobseekers in japan. pretty amazing. david: it is such a japanese story. to move to merit-based pay away from seniority is really un-japanese.

you talk about labor reform. >> it is not clear this is going to work. the system is so entrenched, and people are used to this for centuries, they are saying we will see how it goes. they are even starting to talk about something that we have been dealing with in this country for a long time, which is going to a defined contribution system for retirement rather than defined-benefit. there are still some vestiges of that in this country. david: mainly public unions, teachers and things like that. what happened, why are they doing this? >> we are not exactly sure why. it is a dramatic change. we know the macro environment. obviously, they are more worried about recession, maybe few small companies, highflying startups. those are wework tenants.

this is essentially a real estate investment in a lot of ways. is funny thing about this part of what is going on is valuations are a little out of control. that always plays in. these startups are valued so high. why is that? maybe because softbank has a vision fund of $93 billion. david: they have been saying they want to go for another $100 billion. might this be a start to give it on that -- pivot on that? alix: four valuations have fallen across the globe due to the equity selloff, is there value elsewhere? >> it could be. when it goes to the point of the vision fund got this was meant to be investment out of the vision fund. softbank invested from the vision fund and on a corporate level. this will now be a corporate softbank investment only. david: that is interesting. >> the reason we have been

talking about the vision fund and softbank is because of the deep ties to saudi arabia. that figures in. that is one of the biggest investors in the vision fund. that has become troubled from a political perspective. david: fascinating. thank you so much to jason kelly. you want to tune into jason every week on business week on bloomberg radio from 2:00 to 5:00 eastern time. the ceo ofn was nissan. lawyer spoke to ms. media about the continued detention of his client. >> even with existing charges, it will be difficult to expect bail to be approved before the first trial. given that evidence and documents need to be examined in japanese as well as english, i

believe it will be at least six months before we go to trial. david: joining us from berlin is our opinion columnist kris bryant. one thing that struck me was the image of mr. ghosn who has been a lord of industry in that courtroom with graying hair, wearing plastic slippers. this is an awful juxtaposition. >> that is true. this is a moment we have been waiting for a long while, approximately 50 days since he was arrested. controllednissan has the narrative of what has been going on. unable to protest his innocence, today appearing in court, appearing a rather more haggard man then he went into prison. insisting all the allegations against him were false. he stressed the good work he had done for nissan over the years

and his loyalty to the company. he put out a fighting performance. he remains in prison because prosecutors insist he is a flight risk. today,in the courtroom he says it was an open secret, i did not keep it secret from anybody. he made a spirited defense. there is an interview in the new york times about 10 days ago with his daughters who say this is corporate politics. this is the head of nissan who did not want the deal to go forward with renault. do we have any sense there is possibility to that? a rationalrtainly sounding conspiracy theory that mr. ghosn wanted to pursue a merger, and people at nissan did not like that plan. it is hard to know if there is anything to it. we know nissan is sticking firmly by the story that these

allegations are correct. renault are sticking by their man. renault.s in charge of the french ambassador in court today left without commenting. for the moment, they are sticking by him. alix: what is the next step? >> i think for now nothing will happen. shares remaint's in the gutter. faces theseosn charges in court and can answer them, we are unlikely to see any movement. for now he remains in charge of renault. very difficult for them to move forward with the alliance with these questions unanswered. renault and nissan at a low. david: thank you for joining us. coming up, day 18 of the government shutdown.

president trump is set to address the nation tonight at 9:00. this is bloomberg. ♪ is bloomberg. ♪

david: i am watching the government shutdown. we'll be watching at 9:00 tonight eastern time as president trump be speaking from the oval office giving an address. he says it will be eight minutes on what he says is a national emergency. democrats nancy pelosi says they want time to rebut, which never happens. they say there will be a lot of also it's -- falsehoods in there. this is the first time this president has had a primetime oval office address. he is making a big deal of this.

i would suspect because he may be laying the groundwork that there is a national emergency. he said he may call a national emergency to build the wall without congress. alix: will he stick to his script? will the ad-lib? he is a performer. david: great point. we've never seen him not ad-lib in primetime. tonight at 9:00. in the next hour, more on the shutdown with democratic senator joe manchin of west virginia. alix: this is bloomberg. ♪ ♪ amazon prime video is now on xfinity x1.

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that's how xfinity makes tv... simple. easy. awesome. alix: calling the bottom. popular momentum indicator says

the low might be in for stocks. climb with earnings season right around the corner. its first-quarter guidance. is the weakness trade or slow down in china? trump's national security crisis. the president will address the nation this evening as the government shutdown enters its 18th day. david: welcome to bloomberg daybreak. i'm david westin with alix steel. we are getting a lot of brexit headlines. the government says they want to vote on the 15th. the parliament says they will figure out tomorrow if they will go with that date. they are supposed to start debate on the proposal tomorrow. alix: sterling, cable around lowe's of the session, dropped on that news of a vote on january 15. i don't quite know what they are voting on. david: i don't think they do. i don't think theresa may does. it changes day today. alix: they have all these

arrangements, taxes. david: she knows they are not going to vote for, but they are going to vote. what are they going to vote on? alix: have you price in that risk -- how do you price in that risk? that: reuters is reporting bankruptcy judgment to finance sears. that has been coming. sears is asking the bankruptcy judge to enter into liquidation. alix: big defeat for eddie lambert. es.id: and for the employe alix: 68,000 employees total. david: it is a terrible situation. it has been a long time coming. alix: it is well past toys "r" us. david: it will affect many parts of the country. alix: ok.

market check? market check. markets, we had that relief rally yesterday. have we hit bottom? s&p futures are up 16 points. euro-dollar down 0.2%. part of that is what we saw from the industrial output from germany, falling 1.9% in november. that could be a technical recession. markets, it does not feel like that is moving markets quite a bit. 10-year yield goes nowhere. over 3%. it is risk on. it is a dollar store. -- story. materially, the crude market could tighten. david: time for the morning brief. today is the start of the consumer electronic show in las vegas with apple in facebook in a different position than they

were one year ago. the u.s. treasury will be auctioning $38 billion in three-year notes. this afternoon, we will hear from the world bank on global growth. on what is update making headlines outside the business world. >> president trump making his case for a border wall to the nation tonight. he will deliver a primetime speech on what he calls the humanitarian and national security crisis on the southern border. democrats in congress have refused to give him money for the wall. he has refused to approve legislation that would end the partial government shutdown. theresa may wants european leaders to save her proposal with a last-minute offer to win over lawmakers. her office says the eu should offer a target date for future relationships to come into effect. tokyo, former nissan chairman

carlos ghosn declaring his innocence in his first public comments. he rejected charges that he failed to disclose income from nissan and passed on trading losses to the carmaker. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. alix: thank you so much. features in the green. technical indicators are signals.buy here is what some of our guests had to say. >> we think 50-50 on the bottom. very good on the possibility for u.s. equities to be higher by the year-end. some of us have said we have seen the bottom. >> we could rally for quite a few weeks even a couple months. not that it necessarily means it is all over in terms of downside, but we are positive. >> we will see more upside

follow-through through the next few weeks. i wonder as we move through the rest of the first order if we will go back down and test the lows and see another big dip. >> there is a bit of danger at this point. i am not bailing out. i am thinking there is a risk of a big decline. i am not forecasting that. i'm saying it is a risk that we will see for -- further decline. >> valuations have come a long. we would say cautious about seeing any major upside. alix: brent, weigh in. bottom? bign december, we had two sentiment blows. if you look historically, there that indicatores

has been above 56. you have a good opportunity based on that sentiment indicator you will have a positive outcome one year from now. the average return in one year is 27%. came in at 27 on december 15. 1973, 53 positive indications. i think you are moving higher over the year. david: that sounds like the markets are overreacting. what caused that anxiety? was there something we should be paying attention to? >>1 fears about the ked'intention -- i thin misplaced fears about the fed's intentions.

said thelen actually fed gets to put the final bullet in every economic cycle. alix: president trump says economic numbers look really good. could you imagine if i have tog-term zero interest rates play with like the past administration? that would be so easy. markets up big. there is not that much more to price out in the market. go2016 you had a lot more to for the markets to get more bearish. you don't have that now. >> if you look at the real feds fund rate, it is essentially zero. in past cycles that had to be above 3% before you had cycles that were too tight. i think this gives them one more reason to stay on the sidelines. >> what about balance sheets? what about liquidity?

if you look at the markets, jay powell was talking about autopilot on the balance sheet. he was saying maybe we might take a look at it. he has not said they are going to change their policy. >> that is what the markets wanted to hear. alix: the narrative is creating market action? >> there was a confusing message, was a gradual or data dependent? those two things are different. he said we have the possibility to back away, and he did so. alix: what about earnings? take a look at where we are in the cycle, over the last month revisions. where is the sector? >> if you look at the market, it is trading 14 times 2019 earnings. alix: you don't know what the earnings are going to be. >> the trade was obviously something else. fed.e and fears of the

i think we get a trade deal that appeases the market in coming months. the market is how the president validates his presidency. play thee china can long game is by keeping their economy going. can playly way china the long game is by keeping their economy going. alternative to a fully negotiated agreement. that is a term. that is what you enter every negotiation with. david: i think of it as my walking away price. let's assume i don't get a deal. i had to justify my grad school price. david: i call it my walk away price. alix: staying with earnings. what is the potential upside?

when you get a trade deal, what does deal mean? >> it keeps people from trading off of things they should not be trading off of. alix: does that mean they put out a joint statement? they say the same thing at a press conference? >> i think it is something the market takes way that there will not be additional tariffs on china. the tariffs issue goes away. david: at that point, president trump has the feel he has enough guaranteed locked in. alreadye the tariffs he has in place. there are the ones he has talked about putting in place. if we come to a place where he says i will keep the ones we have now, but no farther, how does the market react? >> i think it is a positive. the expectations for deal are so low. if you read the commentary, most people say the same things you

are saying, it is hard to get a deal done. of any geopolitical risk, what typically happens is the market has a fit. think about back in the day with tarp. the market had a fit when it was not approved. once you have an outcome the market can price, when you can actually get an outcome that gives you certainty about next month, you can move on and focus on the fundamentals, which have deteriorated some, but largely because of the two things that are going away i just mentioned. david: are we there yet? alix: are we there yet? are we there yet? no. no. david: the tides are turning in tech. the slowdowns for tech giants. if this could be the end of apple's reign. this is bloomberg. ♪

>> this is bloomberg daybreak. there will be a new ceo at metlife, the giant insurer. be tasked with all strength investor confidence in metlife. she is currently president of the company's u.s. and europe and middle eastern and african businesses. ellis is a longtime friend of tesla ceo elon musk. last month, he joined the carmakers board in an attempt to show that the board of directors is providing oversight. mazon surged past microsoft

to become the most valuable publicly traded company. 7heir market cap is now $796 billion. they have been jockeying for the top spot for weeks. david: thank you. the consumer electronic industry is gathering today in las vegas. the focus for apple and facebook is very different from a year ago with samsung reporting disappointing earnings. guest fromour carnegie mellon and harvard law school, co-author of driver in the driverless car. you,nt to go out and ask the ultimate question, are we seeing a fundamental shift in the role of the big tech giants as we go into ces?

>> the innovation is not coming from the big guys anymore. you look at apple, the iphone is 11 and a half years old. that is the last big hurrah. they have to do everything orderly. big announcements. now you have all sorts of amazing technology advancing. we will soon have driverless car is. we will have flying cars, gene editing. virtual reality politics, all these amazing things -- holodecks, all of these amazing things. apple is the worst offender in terms of innovation. david: if innovation is not coming from the big tech companies, what about mainstream companies? what about general motors with driverless cars? >> big companies are acquiring or investing in small companies. that is the way innovation works now. very conservative

in investment. they have not been able to roll out the big products. it has to be worth billions of dollars versus being worth a few million dollars. david: let me ask you where the next innovation is going to come from? is it artificial intelligence, driverless cars, something else altogether, maybe 5g? >> it is going to be all of the above. innovation is not in one particular technology. it is multiple technologies. ai is like electricity, which is now powering a generation of new technologies. everything from medicine to computing to self driving cars. everything is being powered by artificial intelligence. you have to combine these technologies, meaning getting people from different disciplines together. large companies are organized in divisions, groups that focus on particular technologies.

innovations come from the intersection of technology. differento do things to break the rules to innovate. alix: what does that mean for you? does this create a buying opportunity for apple long-term? >> luckily, i get to put that off to somebody else to pick individual stocks. i think the apple issue is a chinese issue. i don't know that it is a china macro issue. i think it is a pressing issue. you mentioned the iphone being 11 years old and not much innovation. perhaps there is more competition. that would be my outlook forecast. i believe that sector gets the biggest part of its revenues from china. david: let me ask you a geographical question. for the last many years, a lot of innovation has come out of silicon valley. will come out of china? is it shifting somewhere else altogether?

>> innovation is happening everywhere in the world. country,e no other india is right behind it. you have innovation happening in latin america. the cost of core technologies has dropped to the point that anyone can afford them. you have startups all over the world that have access to the same tools we do in silicon valley. the innovate just like we are. getting back to apple. iaple missed out on the ind opportunity. they price their iphone so high, people cannot afford it. they lost the indian market. china was lost long ago for other reasons. what is interesting is a company like microsoft reinvented itself. now you think of them as the second-most valuable company in the world where they have a lot of innovation. is there an opportunity for old tech to become new tech? >> microsoft is very smart.

he focused on the enterprise, the midmarket. they were able to create a solid business. what if apple acquired tesla? you could take elon musk and let him do the innovations, and apple would get into new industry. they would get into electric cars and ai. they have a lot of cool ai tools and solar and all these new industries. apple could be building our tunnels for us. they would do it in a more sensible way. that is the sort of crazy acquisition strategy they need to have. they need to think out of the box to think about innovating like crazy. david: thank you. great to have you with us. coming up, the value of the

dollar. urging dollar tree to increase its prices. that is coming up in today's bottom line. this is bloomberg. ♪ bloomberg. ♪

david: time now for the bottom line. first, i will put chinese carmakers who reported disappointing sales and projections. they are down substantially. they are down a little more than 11% in the stock market. you have softening demand for their cars. competition.f great wall reported increased sales. ly is reporting disappointing sales. alix: how much of that is going to be china and the global slowdown, and how much of that is specific?

i am looking at pg&e. superlly, you get their downgrade, cut five notches. stock was hit. what will have to happen to this, or -- this company if they have to declare bankruptcy? will they break up the company? in which case each area will have to shoulder some possibility for wildfires and natural disasters. do they wind up selling the natural gas unit. if they get cash, what does that leave them with? about they are talking breaking it up and maybe putting natural gas off to one side. who is going to run it? who is going to own it? alix: who is going to pay for it? taxpayers. solomon joins us now. this happened yesterday. we had some activist interest. took a stake in

dollar tree. they want dollar tree to look at divesting family dollar, which dollar tree bought three years ago at the urging of different activist investors. the other key thing starboard is looking at is they want to look at raising prices. right now it says everything for one dollar. it is primarily in suburbs, caters to middle income buyers looking for tickets. they have kept that one dollar threshold. they say, what about inflation? things cost more now. they brought up trade tensions and how that is adding to shipping costs and material cost. that is going to make that one dollar threshold harder to hold onto.

dollar tree has been doing well but family dollar has not. that subsidiary has been struggling. i think they bit off more than they could chew. same-store sales have been down at family dollar. these problems were pre-existing before the acquisition. you had poor product makes, neglected stores. dollar tree thought they could turn this around. they have not been able to get their plan is more renovations. i think starboard is saying save your money. alix: if you want props for a theater show, it is the only way to go shopping. opinion, thank you very much. coming up, pipeline of pharmacy deals. this is bloomberg. ♪ is bloomberg. ♪

i am a family man. i am a techie dad. i believe the best technology should feel effortless. like magic. at comcast, it's my job to develop, apps and tools that simplify your experience. my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. alix: we found a bottom? we are seeing some volatility after yesterday's rally. we have a triple digit rally for futures.

the story in europe, you have outperforming despite german industrial production rolled over in november. we have euro area confidence coming in. it's the weakest in years. is strength.market you are seeing some weakness on the currency front. the euro-dollar is off. i did want to highlight was happening with the lira, a big jump. it continues to fall. that militaryt officials are trying to slow an exit from syria the president trump had talked about. there was lots of drama about who is meeting with whom. it's creating turmoil in the market. david: president erdogan thought he'd gotten a really good deal. tripadvisor said i'm not sure that's a good idea. alix: president trump tweeted

about the fed, i want low rates. fed, i want low rates. david: president obama got low rates. i want what president obama had. it's time to fight it was going on in the business world. will make therump case there is a humanitarian and national security crisis at the border with mexico. or himuld set the stage to declare a national emergency. this is crucial. it could allow him to build the wall without congressional approval. the federal government has been partially shut down because of the stalemate over the wall. the irs will issue refunds to taxpayers, even if the shutdown extends into filing season. that may reduce the pressure to make a deal to reopen closed agencies. you in past refunds -- shutdowns, it was barred from refunding money.

will have a statement around the negotiations. china has made concessions to u.s. demands since they met last month. negotiation's want a mechanism to ensure the chinese keep their promises. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. david: thank you very much. we were worried about the chinese talks. the president has tweeted that they are going well. that's the tweet. he should know. if they have a statement, it's a good sign. letter we got from the white house after the g20, they were not similar. certain things were left out of the chinese press release. if there was a joint to medication, if they sent the same letters in the same words. they are trying to have a

quarterly review, they get together and say did we make progress. that makes sense. we want to turn now to health care. we are a week into the new year and we've seen to huge acquisitions in the pharmaceutical industry. yesterday, eli lilly will buy luck so for a billion dollars. welcome drew armstrong, who oversees health care coverage for bloomberg. i see you could use some help. drew: they seem to be involving oncology drugs. the pharmaceutical industry for the last year or so is been sitting on big piles of cash. .hey wanted to do something they need to refill the pipeline, they have problems to solve.

valuations have been too high to go out and buy assets. there been some big pullbacks in the market. that's made some of those things must cheaper. -- much cheaper. we try to get some deals done. some valuations were too high. we have had these two big deals. we think there are probably more in the offing. we are heading for a time of transactions happening. things are lining up in the direction of money available, the need being there. all uh is a coming to a point where people are willing to bite. alix: we are hearing both sides. on the one hand, you have the ceo. >> my appetite is strong for that type of asset. base is $16 trillion.

we gave 17% for next year. that does not include north carolina. the business is strong. sayingou have the ceo historically big deals have not worked out. if you look at the track record, there is a limited number of large transactions because it's hard to integrate large companies. drew: i think you see some skepticism on the market. bristol-myers, there is a lot of negativity around. the stock dropped 15% after the transaction was announced. trading, they not are $10 short. we are at this point. there is some doubt about big deals. bigave the room to do a transaction.

looking at these assets in the pipeline, even though they like to go out there and remind everybody they can do anything they wanted to. there is some skepticism in the market. aside, iol-myers thing think there is an appetite to go out and do stuff. there has been a lot of new companies out there. we have seen a number of ipos. we will see more action. david: should an investor get nervous? there is a lot of cash burning a hole in your pocket because that's when deals get made that may not work out. to execute it is a different thing. brent: cash is still available and valuations are cheaper, that rang in my ear. some point, it becomes ridiculous and they are doing deals they should not do. they are not there yet. add on to what david

was saying, every person we have onset said they want to be in health care. brent: it was one of the sectors that worked out last year. i think the valuation is premium to the market. going to have economic growth and we're not going to have a recession in 2019. david: when was the last big deal that was done that really worked out big time, the way they hoped it would. brent: if you want to look at the big blockbuster deal, you look at gilead. it brought them the hepatitis c drug. the flip side they put themselves in the blockbuster paradox of huge revenues today, they will go away quickly if they mess with that success. a dealllowed up with that people are skeptical about the same price tag, going after an experimental oncology company. they tried to change their

company. with all of these deals, you were making a big risky bet on what the future is going to be. the more you spend it, that can be a risky thing to do. alix: thank you. tune in today for more interviews from the jpmorgan health care conference. we will hear from the ceos. turning small business sentiment, you have owners more reluctant to expand and a weakening economic outlook. as sentiment falls, it's been confusing. they underperformed in the last few months. there was a nice rally yesterday. his is helping find a bottom in equities? good morning. the big question you're trying to figure out now is you had our 12th negative year. in 10 of those previous 12

declines, you had quite significant returns in the following year. it's been over 21%. the only time you did not have that rebound was in 2008. we had a bear market in small caps. december was terrible. i think the market is quite instructive if you have a long-term outlook. alix: valuations are highlighted. you need to cover small caps. they had a more nuanced take yesterday. >> we like evaluation center. we think there are some fundamental challenges. there is a debt problem. margin expectations are coming down. small caps lag. this is well-known. it's priced in. francis: for a while, we were talking about how risky small caps were. that was a big push.

they'll uh and was a big part of it. valuation has been solved a little bit with the decline from last year. the debt burden is not. we talked about this before, 50% of small cap debt is floating-rate debt. that can be dangerous. it goes to active management. find companies and are not leveraged. i think you will find great opportunity going forward. david: what percentage of small-cap companies have debt service? francis: i'm not sure off the top of my head. it is bigger than you might think. the last number we heard was 20% are zombie companies. the past three years, they borrowed money to hit their debt. at the end of last year, it's surprising high number. one of the things you will see more and small caps in general is higher volatility, which i think is a good thing.

you had very little volatility in the nine months of last year. it's great for long-term investors. you will see a more normal environment. the economy seems to be ok. let's get into individual sectors. it's not only the debt, it's margins, for the rolling over of margins in small caps as well. what has the best pricing power? powerss: they have more in pricing than you think. wage inflation, wage pressure, was companies have been able to pass on. we find opportunity in the decline in more reciprocal companies. ,f you look at the average off their 52 are tied. at the decline is very broad based. alix: to that point, earnings are still going to grow.

feel like that is baked in? francis: who knows with the market is going to do. our job is to find good businesses. from my perspective, there is a lot of news priced into the market. alix: have you seen capitulation? francis: i think you've seen it in a bunch of different ways, in different sectors. i think there is opportunity. david: thank you so much. it's always good to have you here. the government shutdown stretches into its 18th day. joe manchin from west virginia joins us. this is bloomberg.

david: we are into the 18th day of the government shutdown with the president addressing the nation tonight. after he suggested he might go ahead and build that wall without congressional authorization, calling a national emergency. we talked to jeh johnson if that's a good idea. that authority was not intended for something domestically concerning our southern border. when i used to tell young lawyers of the department of defense is if we misuse and stretches beyond its intended interpretation, congress can take it away from you when you really need it. david: welcome senator joe manchin from west virginia. he is a member of the appropriations and intelligence committees. it's good to have you here. let's go to what i talked jeh johnson about yesterday.

the declaration of national emergency. could congress take away the power? joe: that's a valid point he makes. you can only cry wolf so many times. they will look at that very strongly. it will be fought out in court. right now, we've got a hundred thousand people who will be getting a paycheck. we have hundreds of thousands of children who won't be getting food. this is unbelievable that we are going down this path because we've become to an impasse. the best way forward, i would tell everybody listening, is let's have a vote. let us vote on immigration reform, which gives $47 billion to secure the border and get rid of the people who came for the wrong reasons and got here the wrong way. let's give a pathway to people who came here for the right

reason and want to be productive for our country. we did it in 2013. 68 democrats and republicans voted in favor. the borders were totally secured. that's port of entry, that's more agents. that's drones and technology. that's more sensors. you have been known to have a pretty good relationship with the president, one of the best for a democrat. him, is raise that with their openness to making a bigger deal rather than a smaller deal and getting past it? joe: i would think he would like a better deal. the overalllly like immigration reform bill we did in 2013. it's a hard base he has, the hard right. they don't care how you got here or the reason you came.

that's amnesty if you get to stay, even if you were working your way through, even if you get in the back of the line and never committed a crime. if you paid your taxes. if your children are serving in the military. they just didn't care. i think the president would step out of that. to get what he needs, i am for border security. i voted for it before. right now, there has to be a fix to the problem. it's going to continue to and reoccur if you don't fix it. this will be a reoccurring problem. david: and reoccur if you don't fix it. this will be a reoccurring problem. david: there is a lot of talk the basin his concern for the base. is this an issue about getting --lected or is the house they would probably go for an overall immigration bill. does he have the support to put

aside 2020? senator manchin: i would like to think we will look at it. do we fix the major problem? back many many decades. no one has been able to fix that because we have not taken a tough look at what the problem is. we have people here who are not going to be rounded up and sent out. everybody is just letting it go. finality toave some this and move forward. the dreamers, docket, that's a way forward. i think he has been seventh-inning toward the dreamers who came here through no fault of their own. they have been productive. they serve in the military. give them a chance to really enjoy full citizenship. that's all we've asked for.

the full immigration reform we did in 2013, it put $40 billion to secure the border. if you get rid of the people who are committing crimes and being a detriment to society, get them out of make sure they don't get back in. you have to have a secure border to do that. from west are virginia. you were the governor there. there is a fair amount of that base who live in west virginia. are they more concerned about people coming across the southern border or getting the government back up and running? ,enator manchin: west virginia president trump has the strongest support. almostwest virginia by 43 percentage points. that's a good bellwether. once going to happen, he will test the patience of people and

the support they have when their children, when the food stamps stop. when the basic things they've been counting on for support and necessities of life, when they start being hindered and cut back, that's what people will start to say this is personal now. immigration is not a big issue in west virginia. we do not have a lot of migrants. ondo have people that rely visas. we need good workers to do them. they been able to do something in a very civil and law-abiding way. now they are being detrimental to the survival of their business. they are threatened. speak are starting to out. we will see where this goes. i think it will be very harmful. david: it's always helpful to

have you with us. that was senator joe manchin of west virginia. we will have coverage of the address to the nation tonight at 9:00. up, the winning streak since july 2017, more on what i am watching. check out all the charts throughout the program. this is bloomberg. ♪

alix: i am watching oil. this is the biggest rally of 2017. we were worried about 30? now we are at 50. you have saudi arabia around 7 million barrels a day. they assume there will be a cut for january. sediment was so negative. how much of the back end was

technical hedging? david: we've got to worry about the global growth. we will hear from the world bank today. alix: we start to hear more tweets from the president. 49 is better than 80. david: i forgot about president trump in the price of gas. he tries to intervene when it's getting too high. alix: there are questions about iran. they have a couple of more months buying what they need to buy. countries like south korea are buying iranian oil now. they will buy now before they can't later. david: the exemptions on the sanctions were temporary. what happens with those rolloff? alix: they have to keep going. they will be dealing with that in april.

also, when you look at equities of oil, they have been moving in tandem. you look at the 90 day correlation, it really surged. what sleeting what, i'm not sure. you can guarantee that oil will have a nice pop. david: very well done. alix: that does it for bloomberg daybreak americas. coming up, the opening with jon ferro. the rally we see continued over from yesterday. the dollar gains, the yield continues to flatten. this is bloomberg. ♪

jonathan: the countdown to the open starts right now.

coming up, trade talks in training day two in beijing. the president says they are going well. is hittinglowdown demand for memory chips. sliding for 12 straight month. good morning. futures are up by .9%. we have gains in the s&p 500. dollar strength has raised some of the dollar weakness. treasuries are stable in and around the u.s. tenure. investors are feeling better about trade talks. >> optimism. >> i'm cautiously optimistic. >> we can't be too optimistic. >> these agreements are never done early on. >> talking is better than not talkin