iphones. -- 53% margin its in its service business. jay powell must balance slow and global growth -- slowing global growth against the u.s. economy. u.s. trade representative robert lighthizer and the chinese mice premier meat -- vice premier meet in d.c. david: it's all about earnings. alix: check out alibaba. they had a 41% rise in quarterly revenue. they had a slowing online retail business. it was them expanding into cloud computing entertainment. the retail segment not as good. at&t: i can relate that to earnings. their landline business is going

media and their wireless services are making it up. they met on earnings-per-share, a little light on revenue. , not everything in china is bad. apple, not so much. alix: apple had terrible numbers out of china. $5 billion in revenue. markets don't care. you can report any earnings for the fourth quarter and the stock will still go up. out, butarnings coming the market was so beaten up, estimates were so bad. not a lot of movement anywhere

in the bond market. crude up 1%. a broad commodity rally underway. david: time for bloomberg's first take. us. abramowicz is back with we will put up some summary of what exactly apple did. chinese revenue down 4%. lisa: apple is showing that it can live beyond the iphone, sort of. a lot of the services still dependent on purchases of the iphone. if you still see this deceleration and decline in iphone sales, at some point, services will become a harder sell. i found it really interesting, you talk about alibaba deriving income from their content, apple

wants to also get into media and get more heavily into the content side of the business. i find that very interesting. how will they compete with the netflixes and disneys of the world? alix: it's really interesting to see the why behind the rally in earnings. s&p versus estimates, they pretty much converge. that means all the bad news was priced in. guy.you are not a stock you're a bond guy. firstly, i think the bond market investors really liked the yields where they were. assets that have come off, they are more fairly before,han they were

and now, if you were a bond investor, you say you think the economy will continue to slow this year but not reach recession levels, similar to 2.5% on the seven year seems fair. therefore, you wind up buying. the strongest auctions where the front end like the two-year. the fed will be probably done for a while. the markets are not pricing much. we are pricing five basis points this year. close enough to zero that the bond investors obviously like that. alix: which brings us to one of our top stories. what jay powell said in the press conference. you went from december, the outlook not fundamentally altered, to the minutes, which it said the committee could afford to be patient.

deteriorationhe of how powell -- ira: we will continue to get that incrementally more dovish fed. we will have a press conference, but none of the other bells and whistles that go around the press conference. dotconomic projections, no plot. jay powell will be able to explain exactly this transition from a relatively hawkish fed down to a neutral fed. the fed has to acknowledge the fact that we have leading indicators rolling over. with the exception of the job market, a lot of other indicators are starting to roll over. david: in the last news conference jay powell did, he moved markets. it was the balance sheet. what's going to happen today on the balance sheet? preset path not a

but the fed wants to continue to reduce the balance sheet. at some point in the future, we might have to do more quantitative easing. at the same time, it's not obvious to me what the actual path through the reduction is. it's more the excuse than the actual move. analysts don'tnd understand what the implication is for markets. addressed --een have not addressed what size the balance sheet needs to be to maintain the money in circulation. is it $3.5 trillion? we are almost there. says it has to be 3.5 trillion dollars to maintain the functioning of our system. david co.ing to talk yesterday -- david kotok

yesterday -- sheete think the balance could get down another $600 billion. we will be evaluating and we will stop when we see market friction. say do you look for to there's not enough money in the system? the fed funds rate will trade above the interest paid on reserves. you will see higher volume in the fed funds market because people will be demanding these reserves. neither of those has happened yet. once you see that, that's a figural that the said has to be signal that the fed has to be done. david: the u.s. china trade negotiations start today down in washington. the man who president trump says is more knowledgeable about china than anyone else. they have obviously come here

to try to educate the american side on what is low hanging fruit versus what cannot be negotiated. they will try to draw this line. david: he expects the chinese will do this. it's going to be things like soybeans. some things are not negotiable. lisa: the problem here is what is xi jinping's external reputation, especially after huawei? while way and the timing of the charges, the criminal charges against the company, that has thrown a kink into these negotiations, making it a state cause, the chinese saying lay off company and the u.s. saying this is a criminal investigation. alix: soybeans versus huawei. lisa: it is a tough one.

alix: ira jersey and lisa abramowicz, thank you very much. back: we have theresa may for prime minister question time. there is mr. corbin, her opponent. directionth on brexit -- go back over to brussels and renegotiate. she has to go back over there. she says it will not be easy. they booed her in parliament. they are tough. alix: they did. after a pretty solid run, it did decline yesterday. david: a lot of volatility. alix: overnight volatility. lackluster earnings? we don't really care. more on the why, next. this is bloomberg. ♪

taylor: this is "bloomberg daybreak." i want to take a look at the shares that are rising. whirlpool was down 5% and then ended up the day almost 10% up. revenue and earnings per share missed estimates, but the company sang their 2019 tariff costs will be the same as 2018. g tv , we are taking a look at apple. a 4.5% decline in revenue. shares up 5% today. this provided a good entry point into the stock. all the concerns about china, slowing growth, not hitting

apple it is heart is what was already baked into the share price. 3m shaking up the global concerns as well. they cut their forecast amidst the midpoint estimates. all the slowdowns in china already baked in. it is a defensive stock that continues to outperform in the economic downturn. said, stockylor prices may be holding up a bit better than we thought. it's not because earnings are beating what the analysts predicted. fewer companies are beating estimates than any time in the last two years. to explain what's going on, we welcome the national holdings corporation chief strategist. what is going on? >> usually, we get used to this cadence of 90% of companies beating estimates, 60% beating on the revenue side. all of a sudden, that has come

to an abrupt stop. this is the quarter when we didn't have the economy slowing down. sometimes, these things happen faster than analysts can catch up to. -- we wille are 30% end up with something like the average number of companies beating. it should be shocking to us that at --many companies be we have earnings going from 22% growth to 16 or 17% growth. but we thinkdcard, it will be 16% growth. alix: it is hard to find the right pe because there is so much uncertainty. we are pricing in an earnings recession that's not to happen that's not going to happen. not goingon that is

to happen in. >> yes, we will see earnings slowdown. think the s&p 500 is about $170, down from $182 in september. right now, we are trading at 15 times that. times, you get to 2800 and the s&p -- in the s&p. what takes that bull case away? things we can't control. the pace of things with china -- we have a 90 day truce. if we get to the end of that and things do not escalate, i think that removes a headwind. a lot of business investment was not made at the back end of last year because of things with china. do the markets estimate

that headwind being taken away? >> they have obviously come here to try to educate the american side on what is low hanging fruit versus what cannot be negotiated. they will try to draw this line. david: there's some stuff they will give us an some things that are just fine and some things they won't give us no matter what we do. art: they will make the trade gap will wait. -- trade gap go away. they will buy from somebody. is where can we goal post to? our lighthizer and ross trying to destroy a program that's been going on for 10 or 20 years to

transform china from a country that produces low-end goods to high-end goods? what is the endgame here? i think it is somewhere in between the trading with each other and china saying we will stop stealing your intellectual property. the easy part is already done. the low hanging fruit has already been picked. now, we need to figure out how we get into china structurally. this is hurting our economy, hurting the administration's performance. let's cut a deal. david: coming up, we are more than the iphone. that is what apple is saying and investors are convinced, apparently. this is bloomberg. ♪

alix: apple showing investors it

is more than just the iphone. butne revenue fell 15% areas allsay other growth -- saw growth. you,ple-choice for irwin. is it because of short covering, looking through the chinese numbers -- >> i think it is a combination. about q1 for the first time in more than a decade. given initial guidance, the market probably believes it is a trustworthy one. i think the margin for services is quite impressive. for long-term holders, the shift from product to services can be

a good thing. david: how much can they grow that? the margins are extraordinary, 63%, but how high is the sky? >> there are a few services that margins.-100% that's almost a royalty based. today ison aggregate about 13% of sales. it's not the only part. it is moving in the right direction, but it will take a wild to motivate the markets to tous on that -- a while motivate the markets to focus on that. alix: what would motivate you to change your rating on the stock? stock, we downgraded the we explained we were bullish on north america. i don't think the china thing is

over. in had china being down 27% one. -- in q1. it's a question of time for them to deal with issues in emerging markets. or, it could be the stock being lower here. saying the shares are fairly valued. alix: thank you very much. i still have not bought my new iphone, by the way. david: at some point, i'm going to buy it or you. -- for you. alix: ok. david: still with us, art hogan. let's talk more broadly about tech. for the longest time, it was the leader. now, it is underperforming. art: you have to break technology down in a couple of ways. there are parts of technology that are now under regulatory oversight.

those are the folks we've trusted to keep our data safe. when you think about social media names, that continues to be the case as we head into 2019. with the democratic house of representatives, there will be more trips to capitol hill to talk about what you are doing with our data. companies that are older in technology but in transition, microsoft, some of the old school technology names are doing well. alix: you see that reflected in earnings estimates. if you are looking at it as a bifurcated market, is that priced incorrectly? art: i think it is priced inorrectly -- priced correctly. the multiples in technology are reflecting less than that.

i think you will be safe in technology. i certainly think health plays into that as well. health care is a bit defensive has a lot of growth. growth.as a lot of david: there's also things like india. do they have to cut prices? art: you have to offer something that will fit that society. alex has not bought her new phone yet and it costs $1100. of, ok, what is it that i can make cutting edge enough to be attainable alix's 5 can be refurbished and sold there.

alix: when you look at the overall market in terms of positionings shaking out enough that shaken shakenhas positioning out enough? art: people still believe this gets worse before it gets better. there is a belief that our estimates for earnings for 2019 have not come down enough. i think we are under positioned. if you look at the money flows we've seen for the first month of this year, we have not seen the tip over into etf's and mutual funds. david: the thing that makes them worry -- it is hard to sustain that. periodu need to spend a of time exactly where we need to spend that.

that becomes the area of resistance -- it is a battleground in the s&p 500 at that point. it's about how much time we spend at that retracing to the middle point. alix: old tech still has exposure to china. does that were you? does that worry th you? art: we will be less concerned. alix: coming up, powell at the podium. the chairman expected to preach a message of patience. this is bloomberg. ♪ this isn't just any moving day.

this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving... simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. alix: this is "bloomberg daybreak." a rally underway. 119.es up willive earnings, stocks

most likely rally by the end of the day. miners outperforming in europe. will that supply be sustainable? watching what's happening with brexit. theresa may facing off with parliament. the cable rate off .3%. overnight volatility quite extreme as well. the 2-10 spread about 14 basis points. gold, hello, eight-month high. david: people concerned it could turn around. $5.48.s-per-share, $28.3 billion. this is always lumpy because it depends on when deliveries happen.

bad --growth is not so maybe global growth is not so bad. market moving up nicely almost 25% now. -- free market moving up nicely -- free marketw re-market moving up nicely almost to 5% now. alix: lockheed saw the same thing yesterday. they still had a strong quarter. david: some good news coming out of industrials. let's get an update on what's making headlines outside of the business world. viviana: good morning. theresa may heads back to brussels to renegotiate the most

contentious part of her brexit deal. once madeof commons to -- wants made to change the backstop -- the european union warns it won't consider may's demands. the u.s. and china resume high-level trade talks in washington. the two sides are far apart on .ey issues huaweil charges against not helping the mood. the most extreme cold in a generation. the u.s. midwest gripped by a deadly arctic deep-freeze. in some cases, temperatures plunging to 20 below. they are suspending mail delivery to a large part of the region.

global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: i've been out in -20 weather. it is not pleasant. alix: i went to northwestern. i was a theater major. -- int to lake michigan had a turtleneck, sweater, a coat, two scarves -- david: they might go to -50. they are not delivering pizzas, that's for sure. the federal reserve will announce its latest rates yesterday. on jay powell be and what he says that his news conference afterwards and how many times he uses the word

"patience." >> we have the ability to watch patiently and carefully. we can be patient and flexible. it gives us the opportunity to --patient and watch and see you can anticipate that we will be patient and watching. david: he is consistent. we welcome carl riccadonna. art hogan still with us. enough, i't patient have your piece in bloomberg -- fed patience. carl: we could take the december meeting statement and that messaging and it works in the current environment. markets are not going to tolerate that. if you are an economic cheerleader, markets will read that as turning a deaf ear towards signs of financial markets during, maybe economic

strain. the fed needs to provide some clarity in that regard. the challenge for them is to signal this is not the end of the tightening cycle. the next move from the fed will be a hike. if they are too dovish on the economy, people will totally expect the next move from the fed will be a cut. they might have to really have a communications challenge later this year to reshape expectations. alix: what will make markets want to take more risk here? art: carl wrapped up what jay will have to say to thread the needle today. when we think about this messaging, the wall street journal drop a store yesterday saying taking it off of to the endr coming of the quantitative tightening sooner is a little reckless.

the fed talks about the balance sheet at every meeting. expectation,e some hey, when do you start reducing the size of the balance sheet? i don't think they know. started at $800 million and we got up to $4 -- started at $800 billion and we got up to $4 trillion -- carl: also the composition of the balance sheet. what do you do to get rid of those mortgages? what is the risk profile and maturity profile of the balance sheet? there's an expectation in the markets that there will be something in this regard. if you look at the minutes of the november fed meeting on december fed meeting, it doesn't look like they are ready to finalize the conclusion. it will be a big debate.

i don't think they are ready to put the final think on the paper -- ink on the paper. david: he can't pull a mario draghi say we need to discuss it . we know they will discuss it. patient. we will get back to you. we are getting close to understanding how we want to wind up this program, but we are not quite there yet. look for it soon. stay tuned. alix: patience. stay with bloomberg tv. we have special coverage of the fed decides. that begins at 2:00 p.m. eastern time. reporting a after fourth-quarter earnings that beat moments ago. >> the beat all the way down the income statement.

full year revenue and earnings per share topping estimates. billion. expectations were $107 billion. you will see 900 commercial plane deliveries. since october.el billion in a backlog of orders -- airbus extending their gains. we will have more, next. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." coming up in the next hour, , binky chadha. apple may scale back or abandon plans to make cutting edge tv screens at a facility in wisconsin. that could undermine promises to create 13,000 jobs there. president trump hailing the project for bringing jobs back to america. and thumbs speeding up plans to launch its own pharmacy benefits upager -- anthem speeding plans to launch its own pharmacy benefits manager.

the former nissan chairman has been in a tokyo jail since november after being arrested on allegations of financial misconduct. he says nissan executives were trying to prevent the carmaker's integration with renault. that's your bloomberg business flash. alix: not my fault. you guys did it to me. david: it's possibly right. alix: there was a power struggle. three things wall street is focused on this morning. --ending an offer to join mounting legal action against the spanish bank. down, wants to slow it driving down costs by cutting jobs.

how it's making them a better and stronger company. interview thisn it was all very nice. >> andrea is a great professional. we've known each other for years. the board came to the conclusion that the amount socgen would have to assume for his buyout was something that was not right for the commercial bank. david: that sounds very civilized, very grown-up. is preparingndrea legal action. >> this is an amazing story. it feels like what's underneath what she just said is the board realized once the public found out how much we would have to pay this guy, they freaked out

and said we cannot do it. david: he says i have a letter from you saying you will pay me 50 million euros. too ugly inwould be terms of publicity. it would be tod o ugly in terms of publicity. >> this whole idea of deferred compensation and who knows what when and those figures are able to be pushed out and they are massive. career, youyour have to get paid. david: i suspect it was not disclosed to ubs how much deferred comp there was. 20 years from now, we will pay you a gazillion dollars. alix: that is in the blocked out, redacted footnote.

our second story, socgen slimming it down in terms of investment banking. the cuts could come in the investment banking unit. >> i feel like we are at this moment where the european banks are trying to decide what they want to be when they grow up. , that is a more dire situation. even barclays, does have this existential question looming over its head. ,avid: according to the piece it's not across the board. derivatives, we will double down on that. fic is not delivering. i cannot make money without you

-- i can not make money without you. alix: will this be good for goldman? >> are you going to have eggs who are-- banks specialists at one thing where customers will say this shop is really good at fixed income or this bank is really good at dealmaking? alix: why am i going to go to all these different places? pay them a lot in deferred compensation. david: the one place you can go wear isll your athletic under armour. kevin plank sat down with david rubenstein. he was very bullish on his

company. they had some troubles and now hope to come back. 2010-2016, every great brand to a crossroads -- will come to a crossroads. process hash that made us a better and stronger company. david: when i talked to him for ago, heo -- four years was much more brash than that. >> this company has gone through some tough times culturally. this is an incredibly competitive business that has changed a lot. the competitive set has changed dramatically. people are buying apparel in a different way and they are buying different things. alix: the consumer preferences

shift. athletic wear, i will wear whatever is the cool thing. or is it what people are buying and they missed the boat? >> with the rise of lululemon and others, the athleisure thing, that isa a place where under armour did not get as fast. nike is a constant innovator. david: there's always a hot new thing. time,atime -- under armour was that. catch the full interview with tonight atplank 9:00 eastern time.

up, a ge company without the ge. what it means for them going forward. check out tv . clickn watch is online, on our charts and interact with us directly. this is bloomberg. ♪

isx: what i'm watching baker hughes and general electric. simonelliith lorenzo -- i sat down with lorenzo simonelli. >> they are going to have an orderly process of separation over the next 2-3 years. we had the agreements that have been announced.

we started the process with the november secondary offering. we are working closely with the business division. alix: those agreements you guys announced, how long are those for? does it change? >> there are a variety of different agreements. you look at the aspects of equipment supply, they are therefore long-duration -- are there for long-duration. the joint venture we've created with power and the supply of the arrow derivatives -- aero derivatives, that is in perpetuity. that is something that is key. alix: does that mean if you are ge and make a cool discovery in

aviation, you will still have access to that technology? >> yes. alix: at the same pricing? >> there's an element of fixed pricing and margin transferred on the cost. all of that is agreed and we have a good place to continue leading in the industry. alix: when the merger happened, there were talks about cost saving and synergy. >> we haven't come off our synergies topic. look at the cost synergies we announced when we did the deal, it was $1.2 billion. we remain on track. we've been updating on a steady basis. we haveok at 2019, replenished the pipeline. our commitment remains the same. you: if i'm a customer, sell me a piece of ge equipment,

it can still go through you the same as before? >> the new commercial agreements take all of that into consideration. we are the oil and gas business. when you think of a piece of equipment, it's not as simple as taking a piece of equipment and saying this goes into gas -- there's intellectual property, extra added elements we put into that equipment. alix: vendor financing you've been offering, where is that? does that have to shift if you lose any access to ge capital? >> ge will make its decision. decide to go down a different path, we have the optionality to go down that path as well or go find other providers. we want to provide our customers, our vendors what they

required to remain within the industry and remain with us. alix: you can still provide vendor financing. >> may be i'm not at liberty to say. we know all of the processes. we will retain the capability we have today and continue to offer the same capability. alix: more of my conversation with him throughout the week. i found that fascinating. there's a lot more ongoing connection between ge and baker hughes than i realized. part is geirst having a stake in baker hughes. the other is them finding a way to spin off their oil and gas unit and merge it with baker hughes. company is still combining, that still has a synergy. david: it raises the question of

what ge has left -- alix: blowing up 6% after reporting fourth-quarter earnings that beat estimates. bowling -- bowling -- boeing up 6% after reporting fourth-quarter earnings that beat estimates. industry, 16% sales gain. that offsets the blow from the 737.ry miss on the chadha.p, binky ♪ the latest innovation from xfinity

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it's a now there's one store that connects your life like never before store. the xfinity store is here. and it's simple, easy, awesome. and the army taught me a lot about commitment. which i apply to my life and my work. at comcast we're commited to delivering the best experience possible, by being on time everytime. and if we are ever late, we'll give you a automatic twenty dollar credit. my name is antonio and i'm a technician at comcast. we're working to make things simple, easy and awesome. alix: apple's life after

iphones. the company announcing 63% margins in its service business. powell's patient put. growth versus -- weighing slowing global growth versus the u.s. economy. lighthizer and the chinese vice in d.c.meaet david: welcome to "bloomberg daybreak." below freezing temperatures and more cold to come, but nothing compared to chicago. it is now -20 out there. they are talking going down to -50 windchill. alix: colder than antarctica and siberia. wind, it is so brutal.

hopefully no one is going to work and everything is shut down. david: mcdonald's out with their earnings. eps.beat on there revenues were a little light. overall comp sales above estimates. in the u.s., a little disappointing. alix: u.s. comp sales coming in a bit light. they did wind up having to spend a lot to upgrade their franchises. they had to change up things like all-day breakfast. they had to promote to get people in their stores. david: they brought in a new ceo and turned it around with a lot of things you just talked about. they've certainly made a lot of progress. the: in the markets here,

earnings -- boeing up 6% in the premarket. shock,exit uncertainty volatility overnight. one basis point higher as we wait for jay powell. crude up 1%. a broad commodity rally led by iron ore. mcdonald's, u.s. comp sales coming in light. the ceo trying to highlight the global sales boost. he says they are looking at a 14 s of growingquarter comp sales. global growth coming from the u.k., germany and australia.

i will continue to sift through. a 15% increase in quarterly dividends as well. $25 billion in 2019 -- boeing and anthem crushing it on earnings. boeing revenue and eps topping estimates. they are increasing their quarterly dividend to 7%, $.80 per share. they are launching their own benefits manager. let's end on apple. iphone sales lost ground in china, down about 27%. they are replacing some of that revenue with the services sector, a higher margins business. saying that should top

$500 million by 2020. cloud services up 7%. want to bring in mike olson, piper jaffray's senior research analyst. he has an overweight rating on apple. glad to have you with us. it seems to me the tale of two stories. one is disappointment with china but then upside in services. obviously knew what happened in the december quarter given the release the company had given in early january. the focus was in the march quarter guidance. march quarter guidance was relatively fine versus expectations. it was better than feared. ande look at the guidance, was 3% below consensus on a was 3% below -- it

consensus on a revenue basis. china has stabilized. that is the focus going forward. david: this has been a growth stock. it's not nearly where it was last september or october. where's the growth going to come from? do it or do they have to look to india? >> that is a good point. we have to focus on what the potential growth is from here. opportunityat what there is -- services is the big opportunity. services coming in at a 63% about 500 basis points from what we saw a ergo.

ago.w a year david: how large a percentage of total revenue of apple do you think services could become? teens,t now, it's in the it will end up being in the 20's at some point. probably in 2020. we do think that will become a more important part of the business. it's growing three times faster than the core business. higher,in is materially 38% for the overall company risk versus that 63% for the services business. anticipate there will be some weakness in china. i don'ttioned before,

think the company would provide guidance they think is overly aggressive. whatever weakness they are seeing in china they've already baked into the guidance. ok. should be relatively services ision for that we will see services continue to grow over the next few years. david: that is michael's enough olsonjaffray -- michael from piper jaffray. alix: joining us now, binky chadha. you will still see growth in the s&p. not as much for tech. what is baked in? binky: the broad theme across , there is basically too much slowing priced in. the fact that earnings are

slowing is completely unambiguous. on the moree bullish side on the economy. things have slowed a lot more than we expected. theme runs tech, across the entire market, much more was already priced in. rally oneeing a relief the individual stock level. measures, the worst earnings season we've had since 2011. control a well choreographed earnings season. earnings beat in the fourth quarter of 2008. beat of to a typical

3.5%, the average company beating at 2%, we haven't seen such a low beat since the fourth quarter of 2011. look atwo, you individual company performance, it's below average. look at companies that are actually beating, the relative performance is off the charts. average company beating has outperformed the market by 2.5%. david: we have an earnings season coming up that was the worst since 1931. where do you end up? we overcorrected in the markets. where does it come back to? binky: what i would emphasize right now, we are in a relief rally phase.

what is priced in is very bad. the earnings way of looking at it would be the markets priced at current levels for -5% growth. we are getting a headline number of 15%. the underlying earnings growth looking forward, 10% of that will come from the cut in the corporate tax rate lapsed in q1. market variables like the u.s. dollar and oil prices can have big impacts on the short run, but not telling you too much about underlying earnings growth. we see underlying earnings growth at 3%. we see significant slowing from 11% from the first three quarters. earnings will slow

further in q1 but they should then stabilize and start to move up. david: still a positive number, even though it is a smaller number. binky: much weaker than we expected. we get a flat or negative number for q1, some things are baked in will takethe dollar up a lot more in the first quarter. headlines out of mcdonald's, taylor riggs is with us. you mentioned u.s. comp sales coming in a bit light. global growth sales coming in a little over the analyst consecutive4 a lot of the global

growth coming from the u.k., germany and australia. $2.3capex about to be billion -- it looks like it should have been around $2.5 billion. theye debt side of things, say their debt balance will be higher. they are announcing a 15% increase in their quarterly dividend. increasing the cash return to shareholders in the three-year period to $25 billion. all of this moving the stock this morning. david: powell at the podium. the fed chairman expected to preach a message of patients today -- patience today. this is bloomberg. ♪

day.: it is fed everyone looking for where the fed is heading. michael mckee is down in washington for the news conference later today. binky chadha still with us here in new york. give us your preview. you are the one last time who asked the question about the balance sheet. michael: people will be a little disappointed if they expect anything that will move markets. on the right side, he will be careful, stressing the idea of fed will be patient. he will suggest there is no imminent rate hike on the horizon, which is what markets want to hear.

because of the way the fed would want that disseminated, that would come in a statement. if we don't get anything in the statement at 2:00, you won't get anything from jay powell. don't look for him to make a whole lot of news today. he will be cautious in his outlook. david: if they don't put it in the statement and he stands up in front of all of you, you will ask him about it, he can't deny that they talked about it today. michael: a little like mario ah, we talked about it. they are getting to a point where they will have to make a decision. it's not today. they need a certain level of reserves, they have a certain

level of cash liabilities on the balance sheet. you were somewhere around $3.5 trillion. -- psychology comes into it. do they say we are going to do it at this point and the markets assume it is a done deal and immediately trade on that? psychology enters into how they make the announcement as well/ that's as well. -- how they make the announcement as well. december revised down just a touch. the whole point is that we still an employment world that is ticking along and doing well. numbernts i would make, one, we think fed rate hikes are off the table.

june, weinues until could have a debate about why these events came about. i would ask about the administration and the equity market. found -- we have a pause. if you think growth will , they are striking back and so are the fed rate hikes. they have no reason to nudge the market in one direction or another. the trick and the challenge will be how to keep it a nonevent. it is an important question that everyone is talking about, getting these strong labor market numbers. historical factor, rates

are very low. it's important to keep in mind certain things lag, certain things lead, certain things are contemporaneous. the market provides a window for other things to happen. it's really reflecting paths to strength. i don't think there's that much confusion about that point. says theyky chadha don't want to move the market. at the same time, the way jay powell moved the market last time was he said we will keep doing exactly what we said we were going to do. michael: you've already heard how they will do that. the same language they used january 4 in atlanta. we are looking at the data. until the data tell us we need to move, we will be patient, sit

here and observe. they want it to be a nonevent. this would have been a nonevent if jay powell had and change the rules and said we will have a press conference every meeting. the rules andged said we will have a press conference every meeting. 20%.ber 24, the s&p fell after the press conference on the 19th, at fell another 7% and then rose 7% before the january 4 meeting. did powell really have an impact? did the fed really have an impact? it's hard to make that case. alix: michael mckee, thank you very much. binky chadha sticking with us. the fed decides at 2:00 p.m. eastern time. boeing soaring on earnings,

cracking $100 billion in sales for the first time. more in today's bottom line. this is bloomberg. ♪

david: time for the bottom line. three companies worth watching this morning. an iron ore mining company in they've had to cut back on production quite a bit. it is cutting back on iron ore altogether. ore comes from australia or brazil. alix: you will get that iron ore somewhere else. at supply crunch may not be permanent. mcdonald's came out with u.s. comp sales missed estimates.

they spent all that money remodeling stores. now, the stock is pretty much flat because international is doing well. david: it will be curious to see how they did in china. the last story is boeing. that stock is soaring right now after reporting a record revenue -- increased comp sales. this is a really important story. we are not talking about going specifically -- boeing specifically. what does it tell us about the global economy? binky: it is a more mixed picture than what is being priced and. as long as we are not in , we need a number of things to fall in place, but the

baseline view is that growth is taking a pause. belong -- be long especially in industrials, which have been beaten up in the trade war. alix: if boeing gave these results last quarter, would you have been as optimistic about cyclicals and industrials? began in theatdown third week of may. and decembermber accelerated this relative underperformance. unless you are going into recession, it doesn't make any sense. alix: where does that leave value? binky: you look at value versus differently, we tie the performance of value in

terms of the aspect of value that should perform to the stage of the business cycle. i would argue we are late in the business cycle. you want to focus on cash flow based measures of value. price-to-book will do well if you get big positives, but that's because of the beatdown. alix: binky chadha of deutsche bank will be sticking with us. coming up, the u.s. and china resumed trade talks in talksgton -- resume trade in washington. what to expect from those discussions. this is bloomberg. ♪

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kind of gain in the market. dow jones futures up almost 200 points. european stocks mildly higher. the mining stock in europe adding a nice boost as vale will have to interrupt about 40 million tons per year of its iron ore. take a look at euro dollar. cable also using ground. flat on the day despite questions about brexit. 14 basis points for brazil. gold losing luster. it is still right around an eight month high. we are looking at the treasury refunding data could -- data. david: coupon sales are unchanged. they are increasing tip selections could they will sell $30 billion in three-year notes and $27 billion in 10 year notes. alix: it sounded like going into

this this would not be a huge it is how mucht more the treasury will have to buy. the cbo is looking at record deficits. david: approaching $1 trillion in deficit. it looks like they will be selling a $4 billion in long-term yet -- long-term debt. alix: the 10-year, the three-year, that is unchanged from the last quarter. no increases for that. david: it does not look like it. alix: they will increase tip options in february. that was expected going to the market. deutsche bank still here with us. this story was we were going to have so much supply from the treasury that he will have to have these higher rates. what happened to that? >> there are two ways of thinking about the rates. one is what is the fed going to do? the market has now taken out the

rate hikes, very modest positive . 25% probability of a 25%. mainld argue that is the reason rates have come in. from a demand and supply point of view, there is little doubt less andfed is buying the deficit is bigger. one of the points on the debt market that gets forgotten is we did have a bit cut in the less and the deficit is bigger. corporate tax rate. lessrations issued a lot last year. this will not lapse in the first quarter so the game changes as we go forward. we also have a slowing growth which has to be factored in. david: you will be staying with us. right now what we are monitoring is the willard hotel in washington, d.c. where the chinese delegation led by the

vice premier is staying. they were expected to leave at this moment. we are try figure out if we can find pictures. there is robert lighthizer. progress, amake trade agreement before the march 1 deadline. an additional tariff. we will take a live shot outside the willard hotel in washington, d.c., pennsylvania avenue could -- pennsylvania avenue. this is not the delegation. alix: we have no idea what this is showing. we think there was a woman who fell down. you see people trying to get into that van. we will monitor what that was going forward. nonetheless -- david: this is outside the willard hotel where the chinese trade delegation has been staying. they're about to leave to go to negotiations with robert lighthizer.

to help us calibrate our expectations, we welcome deborah lehr, vice-chairman of the paulson institute. thank you so much for being back with us. deborah: my pleasure to be here. david: help us calibrate those expectations. the issues have been described as low hanging fruit in terms of buying more goods, on the other hand more difficult things like intellectual property. debra: i think there are difficult issues on the table. for the chinese to make purchases like soybeans, that is easy, more difficult for the questions they go to the core of the chinese economy. addressing state owned enterprise and the role of the state in the economy or certainly the communist party in the economy. those go fundamentally to the chinese system. enforcement will also be critical.

it is about making sure there are mechanisms to make sure china is implementing those. in terms of intellectual property rights, we have been talking about intellectual property rights for 20 years. the key is the chinese have been putting measured it -- measures in place. they have called in governors to tell them they need to be stepping it up when it comes to enforcement of intellectual property rights. these are long-term issues that need to be addressed. talk aboutnt to intellectual property in particular and whether there are some things that are not on the table for the chinese side. with a man from the hudson institute who knows china and president trump says he listens to him above all else on the question of china. this is what he had to say. come here to try to educate the american side on what is low hanging fruit versus what cannot be negotiated.

they will try to draw this line. david: will they tried to draw a line and how will that work with robert lighthizer? deborah: as michael points out there are issues that are low hanging fruit. the purchases are easy for china. coressues that go to the of the chinese system, like the role of the state in the economy , are the ones that will be more difficult to negotiate. that is where we will have the real challenges, not only today but going forward in our trade relationship with china. meid: china -- you have told china says we should open up our markets in a certain way. they say they're working on that. we can talk about how hard or fast they're working. there are some issues we do not -- they do not agree there is a problem with. we accuse them of theft of intellectual property. are they denying that happened at all? deborah: they have admitted there are issues.

what they've been denying is that tech transfer as a requirement of market access and for jointuirements ventures and the need to transfer technology there. these are more difficult because they go to core priorities of what the chinese are trying to do. huwei issue -- the is a good example. you have a chinese champion that is the equivalent of apple, ibm, and microsoft rolled into one. the chinese are very proud of it even as they call it a private company. now we have arrested one of their top executives, not just going after the company itself, but one of the individuals. it is a different path than we took. it has done a lot of attention in china because the chinese look at it and think it is though thoseen

that have an understanding of our justice system realize it is going through and in the zte case there was a case that the company needed to be punished because it was violating u.s. law. when the president stepped in and said it could be considered as part of a trade deal, and made it seem like the arrest of the cfo was political. is one part that would imply china would dig in its heels deeper. we are seeing a lot of profit downgrades from chinese companies as they are struggling. there are 20 companies who say their earnings will fall short of forecasts. they need a trade deal, to. the chineseah: economy is slowing. it is still significant growth on a 12 trillion dollar to 13 chile and dollar economy. their biggest opportunity, the united states, is not as welcoming as it was to chinese investment and products. we are starting to see, going

case where huwei there are now telling their suppliers to seek alternate markets besides the united states, we are starting to see chinese companies having to me choices as to where they source there -- having to make choices as to where they source their product. i think chinese companies will start to feel the hit. that is why we are anxious to have a deal. early in the trump administration there were various reports that the chinese had a tough time figuring out how to negotiate with president trump. at this point is the biggest challenge is getting to a deal that feels acceptable, or is there still a challenge they're not sure who is running the show. do they understand robert lighthizer? deborah: i am not sure if they understand him or not. after this long of negotiation, it is clear what the issues are and what needs to be addressed. is there a player -- is there a

clear definition of success? that is not been articulated publicly. china is still trying to understand what the white house strategy is. definitely the outlines of the deal are there and it is no excuse from the chinese they are not clear what they need to do. david: deborah lehr of the paulson institute coming to us from washington. binky, what you make of the u.s./china trade dispute? binky: i think it has a huge impact. i would argue the most likely event is an agreement not to escalate. i think it is a bit unfortunate that various issues have gotten intertwined with the trade issues, you can make the argument we could've not of

gotten one without the other. it is made everything complicated and some of those issues, it is very difficult to resolve them quickly. alix: in the short-term? still -- we have another month, so we need some give on the other side i think the slowing in china is related to other things and not coming from the trade side yet. it has to do with the composition of what we are but the tariffs on. i do not think the pressure is as strong before them to do so. they would like to get growth up regardless of what is causing it. that would help. alix: we have to leave it there. good to see you. chada of deutsche bank.

coming up, ge's efforts to offload assets and debt. this is bloomberg. ♪

>> this is bloomberg daybreak. i'm 50 on a hurtado. -- i'm viviana hurtado. coming up, former u.s. treasuries representative in beijing. lead.time for follow the a deep dive into the stories making headlines. the insight from and to see veterans and -- from industry veterans and headliners. we are taking a look inside ge and whether asset sales will be

enough to save it. >> looking at ge, what is the vision? where does ge go from here? vision, a smaller, streamlined ge focused on power and aviation and to reduce debt load. landryceo john mack announced plans to offload $20 billion in assets, selling off the transport and distributed power businesses. >> we are moving to a much smaller corporate. >>'s successor lar -- his successor larry culp doubles down, considering selling nearly half the state in health care. >> he has adopted the strategy of selling everything not nailed down. >> ge needs the cash to reduce $100 billion in liability, a number that dorks the company's cash flow. debt, issue is how much

what recourse, what about the liabilities these lawsuits and government investigations, the unknown of how debt -- how much debt there actually is. ,> the company short on time with more than $18 million of debt due in 2020. will asset sales be enough for the conglomerate? >> ge is a tremendous institution. they have the ability to sell off pieces of business. alix: joining us now is a senior analyst. and a long-term holder of ge. and brooke sutherland, bloomberg opinion columnist. set the stage for the asset sales. think it is clear ge needs to raise cash. ,t has a mountain of liability some of which we know about, some of which we do not.

said there aredy about 15 billion short of the reserve they need. that is likely a conservative estimate. we expect that to rise. what they laid out going to give them enough cash to offset liabilities or do they need to do more? they raise that cash without selling things they want to keep? >> they are selling things they probably want to keep. they are fire selling the remaining ownership of acres use . they modified the -- of baker hughes. they modify the terms of the rail. and then the health care business is a cash generator. it is an important asset. it is a jewel in the crown and they are selling it because they need to. any othere there options as opposed to getting rid of these assets? do they have a way of getting the cash they need?

ge is riding a fine line between too much debt. the stock could be in trouble. i think they are doing what they are forced to do, raising as much money as quickly as possible. the rail deal almost looked like a backdoor equity capital raise. we still think they will have to raise equity capital even after the health care, rail, and baker hughes deals are finalized. they still could end up with $150 billion of debt. alix: in case you've not guest, john is playing the bear side of ge. michael, you are the long-term shareholder. why are you sticking with it? michael: there are two scenarios, the general market scenario. in the fourth quarter they went down with everybody. we also think about it differently. we look at it like a sports franchise.

we have a new owner that came in, we have these players, some of which are good and some of which we want to trade. i do not think we will know what franchises they should have sold line.three years down the if you look just at aviation and health care divisions of ge, they are worth over $10 a share. that means the rest of the company is worth a negative dollar. let's say i understand they are selling some of that off. at this point, for this company to continue to grow their earnings with the new leadership, we look at it as a long-term hold. john: here's the problem with that. they are selling health care but the shareholders do not get their proceeds. the original plan was to send 80% to shareholders. if you look at what they did with respect to the rail deal, they are probably retaining and it is all about the transfer of wealth to credit holders and not shareholders. is a positive credit.

in the short-term that helps ge shares. longer-term, once the businesses are sold they are sold and they stop this mountain of debt and other liabilities. they have negative cash flow once you get rid of these other businesses. that is the problem. alix: you call it the value of the aviation business. you worry that business gets hamstrung? once you get rid of health care you are left with power problem. can you invest in aviation to the extent you need to? and i think it is a classic reconstruction of a big conglomerate. you look at what apple and jpmorgan did. you look at what all these companies are doing. right now is the time for them to get right. you have a new leader who so far has proven himself. i think we will continue to see it. if you look in the markets, these are the companies people will fall back on in volatile times. they are so big. they have so many different

business models. we look at it generally and you look at it as such a specific case. john: i would also point out restructuring their power business will be problematic and take many years. 30,000 workers in europe, you cannot get of workers that quickly. too many plants out of four. to do thist restructuring. david: isn't ge using a lot of cash between restructuring and paying interest on their debts. service is waybt above its peers. how long can they afford to do that? michael: they do not have a long time to do that. until they months need to figure out a way to turn the company around. i think they realize that. that is why they are selling off some of their assets. they may keep 10% to 25% of

certain assets they thought they would keep none of. i believe that with the restructuring and the growing of new businesses, i think the power business is a long-term growth business and i think we will see this happen in the next six months. brooke: with the six-month timeline, is that how long you give larry culp or do you have more patience? michael: we have more patience and our analysts have more patience but there will be a microscope on him. david: sounds like the harvard business school case study. michael: it definitely will be. john inch and michael bapis and brooke sutherland, thank you much for being here. coming up, i'm watching companies earnings after the bell. that is next. this is bloomberg. ♪

david: this is what i've been

watching. it is tesla. here to take us through what we should be looking at is bloomberg's taylor riggs. taylor: one key thing i'm looking at is the pricing of the model 3. $45,000.uan has around he wants to take -- we know elon musk has around $45,000. he wants to take that down to $35,000. elon musk has said he wants to be positive for cash flow and profitable in both q3 and q4. he managed to do that in the third quarter. we have to see if that continues into the forecast for 2019. stay with me. there were concerns they were being priced out of the debt market with yields being priced -- with yields topping 8%. the good news is there cap is asian has improved in the third-quarter, up to about $3 billion as it dropped to a low of just more than $2 billion in

the previous quarter. taking a look at the cast position, -- the cash -- model 3. david: there is a huge bond that comes due in march and they have to get their stock price up substantially or they will have to pay. 900 and $20 million. -- $920 million. alix: no pressure. he is busy flying around in his jet. alix: how many miles? david: 150,000 miles. , jonathan ferro. this is bloomberg. ♪

,onathan: from new york city i'm jonathan ferro. the countdown to the open starts right now. ♪

jonathan: coming up, it is federal reserve decision day during investors looking for chairman how to emphasize patients once the u.s. and china sit down for high-level talks. tech stocks get a boost from apple results ahead of earnings from facebook today and amazon tomorrow. in the markets, 30 minutes away from the opening bell. futures positive. up on the s&p 500. yields up by a single basis point on the 10 year. optimism the apple story, apple up by 5%. it is decision day for the federal reserve. the market expecting a patient approach. >> central bankers have turned to the easing side. >> the market has a much more contained outlook for the fed. >>