china. the u.s. has the upper hand in trade talks. talks break down between republicans and democrats over immigration as the u.s. heads towards fridays shutdown deadline. grows as the u.k. limps towards brexit. david: i'm david westin with x.i we have brexit, we have shut down. alix: it is like the third iteration. david: she is going to stand. alix: she is going to stay. we are seeing a little recovery. s&p futures are up six points. next dollar story. bondsory last week was everywhere. crude off by 1%.

we have a monthly report coming in over the next few days. it will be interesting to see the supply and demand story. frank's flash crash. david: why? lack of liquidity in asia. alix: and japan is on holiday. that is supposed to be on -- the safe haven currency. singeri did not see fat anymore in this. alix: it is a little early. david: time for the morning brief. continue ine talks beijing today. day primes the minister theresa may has set for another vote on her brexit plan. there is increasing speculation that might be put off until

later in the month. friday could bring another partial shutdown of the u.s. government if talks between democrats and republicans cannot resolve the dispute over border security. we will be getting earnings from nissan, marriott, marathon, pepsi, and the list goes on. alix: coke is coming out with its first flavored beverage in a long time. that is exciting. marty schenker, bloomberg chief content officer. we have the u.s. and china trade talks. hase is speculation trump told negotiators to get a deal d to market an en volatility. to agree tolined concessions. is that the tactic this week? >> it may well be. trump wants to get a deal done with china.

the question is what he wants to accept in terms of structural changes with china. david: what makes me nervous is complacency. the markets assume nothing dramatic will happen on march 1. something will happen at some point. what if they are wrong? that is basically the view the deadline is a macguffin we can use to advance the plot, and nothing will actually happen. i take the idea that if you do anti-china on your bloomberg terminal, you are reading stories about made in china weakness. it is a matter of how much you want to press. vantage versus how much you need your advantage versus how much you need a win. david: we have the acting chief of staff to the president mick mulvaney over the weekend. >> he cannot sign anything they

put -- they cannot sign everything they put in front of him. there are some things we cannot agree to. government shutdown is still on the table. david: i left on friday thinking it is all going to be fine over the weekend. with thehigh anxiety shutdown looming on friday. this is coming down to the democrats seeking to impose policy changes on the trump administration, which they want no part of. david: it is not about how much for the wall, it is how many beds we're going to have. , but ity seem trivial is not. the democrats are trying to rein in the trump administration's immigrantsw towards in this country who have broken no laws.

they think limiting beds will limit the administration's ability to apprehend and important. >> people are hedging around the march tariff deadline. more and more with the shutdown story, blame the weather. q1 is becoming a complete right off in terms of reading the u.s. economy. slower tax return, there is no reason to doubt the u.s. consumer and labor market at this point. i think people will be willing to throw the q1 data. backloggedre still from that 35 days of shutdown. >> if there is another government shutdown, the lack of data is going to affect how people plan. could stallexit, it

spending by companies because they are unsure where things stand. alix: what confuses me is what is happening in the market. the one story is a lot of money coming into global bonds and out of u.s. equities. that is a global growth story. you still have money leaving e.m. >> it has been very difficult. i think the start of the year was abroad people getting into risk. e.m. was at the forefront of that. it started to move into high-yield and now duration. it does seem to be a less risk on move in terms of global flows. there is still that expectation that as you get these bad chinese headlines, they have to stimulate more, and we have to start seeing it soon. alix: fair point. barelyhe u.k. economy growing in the fourth quarter. it is up 0.2%.

things we would have expected like weaker pound, we did not see those things. >> we did not. we did see the reduction in capital spending for the fourth consecutive quarter, the biggest streak since the financial crisis. it is this uncertainty over brexit is having an impact on the u.k. economy. it is spilling into the data. david: is it spilling into your? -- europe? it is not just a u.k. problem. levered.k. is a trade economy. the slowdown in global trade is affecting it acutely. what i like about the bad u.k. growth we had a revision last week that moved the market that you did not

expect. whatever optimism about global growth, we might have gotten that washed out. alix: i wonder if this creates an upside risk overall to the global market if you get something with china, shutdown do wee, brexit plan c, have upside potential? >> certainly, but you are being incredibly optimistic. alix: it is monday. you have to be positive. >> it is just as possible those things descend into chaos. alix: let's leave it there. thank you, marti. you can find all of the charts we just used and more on your terminal. you can save the charts, gtv . the clock is ticking for a trade deal with china. be reachedement before the u.s. more than doubles tariffs by march 1?

this is bloomberg. ♪ ♪

>> this is "bloomberg daybreak." asla has been upgraded to buy. the price target is being raised $330.0 from the electric car maker should enjoy more stability in 2019 due to a calmer demeanor from ceo elon musk and more reliable production. economy shrinking by 0.4% in december alone, the biggest dip since before the vote to leave

the european union. economists warn of a recession if no deal brexit occurs on march 29. china is adding to its gold reserves again as signs point to slowing growth and trade uncertainty with the u.s. the pboc increased gold holdings for the second straight months after going more than two years without adding to its hoard. world's top producer and consumer of gold. that is your bloomberg business flash. david: thank you. china is back to work after the lunar new year. although holiday was -- s up 8%, that is the slowest increase since 2011. thank you for being with us. give us a read on china's economy. we have this additional data

point about holiday sales. it seems like most of the indicators point to slowing. >> yes. this is meant to be the time of year when retail sales, the annual weeklong holiday for families to get together, they go shopping, eat out together. what we had was a confirmation that the consumer side of things is in a slower growth phase. it is still relatively robust growth, but slower overall. last year, we saw car sales contract in china for the first time in three decades. underway, itets reinforces that sentiment among china's consumers is somewhat subdued due to the slowing domestic economy and the trade war. david: it is not that we just have regular indicators, but it

feels like every day some new form of stimulus from the government. is there any indication that is taking affect? >> it has been piecemeal. it has not been the old playbook that we are familiar with. they have not opened spending and debt on infrastructure spending. they are slowly gaining traction. we have some figures this week in terms of new credit in the economy. they will be crucial to indicate whether or not they are gaining traction. with have inflation data at the end of the week. that will be a good health check in terms of where factory prices are heading and consumer prices and what that indicates in terms of underlying demand. right now, there have only been somewhat tepid signs that the stimulus is working. that is why economists say they may have much more work to do. david: thank you for your

reporting from hong kong. alix: all of this could leave china in a more vulnerable position heading into trade talks. there is speculation that trump has told his negotiators to get toeal done to put an end recent market volatility. to awould put an end historic restructuring with china. joining us is peter tchir. good to see you. who has the upper hand? peter: i think it is about even. both countries are struggling a little bit. china has the ability to create stimulus. it makes sense for both sides to come to some agreement. i think it will be a little heavy on commodity trade and light on intellectual property protection. the market is not fully pricing and how important it could be. alix: if you are priced into

negativity, you will not look at the upside. a bloomberg article coming out and saying to large chinese borrowers missed payments this month. how vulnerable is the credit market in china? peter: the credit market is vulnerable. we have seen it on the consumer side. what we have noticed is something that is happening in the interior and not in the port regions. it is not all trade related. at least get the trade stuff out of the way so they can focus on internal problems. david: how much of the trade is related to their ability to stimulate? that is an alarming amount of debt. peter: it is not a problem at this stage. they still have a lot of foreign reserve currency. on enoughorking projects. i think china can work its way through that. it is problematic, but not as problematic as a country in europe with no growth potential. david: how much of that debt is

held by native chinese and how much offshore? peter: i suspect most of it is held by native chinese. it is still a government controlled economy. they have that ability to make people take the losses that they want, which helps them make it through it. alix: come inside the bloomberg. these are companies that have exposure to china. the price is the white line. the blue line is the forward earnings estimate. that has come down a little bit. where is the upside? peter: the upside is people can discount a lot of negative news if we get a trade deal. a lot of the impact is tariffs. there are ways around it. when they started hitting in the summer and fall, companies moved shipments around. as it goes on longer, we are really feeling an impact on earnings and growth from

tariffs. if we get a trade deal, it is put behind us. when i talk to market participants, we are baked in a trade deal of some sorts will occur. no one believes it will be that significant. i think that is the real upside surprise. longer-term, one of the goals of the chinese government is to have other people outside of china participate in the local bond market. where are we in that process? peter: i think it is limited success so far. people are looking, they pay decent yield. they have a growth story. it is not a credit problem at the sovereign level. in two years, that is what we will be talking about. it is much more interesting than jgb's and bunds. alix: last week was a completely different story. uy bunds.by

it is it -- is it a buy duration call or risk? peter: people are no longer buying puts the way they were. buy the long bond. get some sort of protection. we call that risk parity light. they are not using it just in the traditional way. 80-2 it is something like 0. david: how confident are we that we know what the debt situation is in china? peter: i don't think we know anything. that is one of the problems with china. everything is kind of fudged. we just have to accept that. listen, their whole goal is to

become the world's leading economy. to do that, you need debt that is traded in public. everything they have been doing has been on a clear path going back 25 years. alix: that is why the money flow into the chinese debt area has been muted. would you want to buy this monster move into e.m.? peter: i think it is overdone right now. you will get some benefit from the trade deal. i would because his. i think it has played itself out. they went into the dregs of society in the summer to doing really well. david: peter tchir will be staying with us. buckling under the strain of brexit. u.k. 2018 gdp growth was the weakest in six years. more on that next. this is bloomberg. ♪ ♪

david: the brexit drama continues. the british economy is showing the strain. numbers out this morning showing the weakest annual gdp growth in six years. the economy actually shrinking in the month of december. still with us is peter tchir. would you buy gilt? gilt.: i would not touch there is too much uncertainty. i would avoid gilt. david: how much of this affects your overall? -- europe overall? peter: i think it affects europe, asia has its issues. the ecb seems to be handcuffed with brexit. is not theing bunds trade. it never works out. peter: i was long italy.

italy was taking the right steps. i actually think the italy story is a long way from playing out. i think we will see some convergence. it will be more italian yield coming down. david: you see upside in italian bonds? peter: i do. this whole move away from austerity, austerity has not worked. maybe you spend more. try to get that economy going. as the ecb starts stepping back in, there is a good chance. the banking sector makes me nervous. i think that is going to continue to come down. people have overestimated the problems in italy. there are issues, but we will get through it. david: do we keep overestimating the problems in europe? spain is having a crisis with their budget. what about spanish bonds? peter: i think that is the path. you have to look for those

opportunities, maybe when it is overbought. i think they were oversold in september. italy bonds have not recovered still. everybody wants to remember the big short. we can blow this up. that is not what is going to happen. you are going to see this grind. the ecb are going to intervene as necessary. alix: does that mean you want to bet on safe china? i think the germans are going to avoid that. that is why i like what is going on outside of germany. that is one fear i have. right now, it is easy to blame a lot of the woes of the auto industry on tariffs. i think there is some over purchase and saturation. we need to clear up the trade wars to know how bad autos are.

david: how much of it is directly related to global growth? peter: i think it is a lot of it. in china, growth is slowing. in the u.s., we had cheap financing. that is going away. another reason the fed it should not be hiking. we have to because this. autos do drive a lot of the economy. that is something to keep a close eye on. alix: peter tchir will be sticking with us. looking at cracks in the credit market. some forecasters seeing a bumpy ride in 2019 despite a dovish tone from the fed. that is next. this is bloomberg. ♪ is is bloomberg. ♪ this isn't just any moving day.

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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." i am alix steele. happy monday. we are doing a little better in the equity markets. s&p up 7. i want to highlight the mining

stocks in europe. china is reopening. classes, theasset sinceeing its best rally february 2017. euro down about 0.1%. the yuan seeing its worst drop in a year. the german 10-year yield is up. two-ten spread is up 17 basis points. crude is down there a two-year low. you have global growth concerns apparently. the dollar is going to be stronger. you'll see a selloff in the longer bond market. that makes no sense to me. david: global growth will be a concern. we are looking outside the business world with first word news.

ofthe u.s. is accusing china playing tricks. american -- as they tried to assert free navigation rights. a foreign ministry spokesman did not say whether the move would impact trade negotiations. north carolina congressman walter jones has died. he was known for his independent voice and voting record within the gop. he was the only republican to vote against the tax overhaul. he said it would inflate the deficit. he also called his early support of the iraq war a mistake. he entered hospice care last month. he was 76. talks to avoid a new u.s. government shutdown have stalled this morning. over the weekend, border security negotiations broke down. lawmakers may offer stop gap

funding to keep the government open past friday's deadline. without a deal, many federal agencies would shut down again just after a record 35 day closing. 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: can you believe we are going to do this again? alix: i kind of can. in the beginning, the press gets crazy. the longer it goes on, the more you ignore it. david: 35 days last time. the stock market did just fine. alix: once we passed the longest on record, we heard it was going to affect the data. what do you think is good to happen? last-minute deal? david: my best guess is no, but it will be a short shutdown. that is a wild guess. alix: you basically have the

market going for wild guesses. the question how oil permit into the credit markets. high-yield versus ig, the best performance in years. continue? on the one hand you have a fed put. on the other hand, you have continued growth issues. peter went from bullish to mildly bullish. why did you change? peter: we had such a good rally that a lot of the chief business is over. we have to be careful. we called to 19 the year the debt died. this is a year corporations are going to focus on their debt and conscious of how much debt they take on. you are seeing deleveraging. you are seeing anheuser-busch, they issued a lot of bonds and took a lot of bonds out of the market. we will see companies focus on

their balance sheet. that will be good for stock prices. david: how much of this depends on what the fed is up to? ofwe are still seeing a ton refinancing activity. verizon over the weekend announced a new tender offer. at&t announcing with have increased the dividend. we're also making debt reduction a top priority. ge as well. this is right. this is going to be a massive focus for companies this year. alix: some articles on bloomberg ung loans int the h the market that they had to price below par. is that something to pay attention to? about howople talk loans are a point of concern in the credit market, there is concern right now, but people .et so hung up

you are seeing the banks still have difficulty. we are having difficulty still getting them up even with data returns and better pricing. if this is the year of debt reduction for corporations, what does that say about versus equity? there is less money to distribute to equity sure hobos. -- shareholders. deal, wethout a trade are going to see some headwinds for equities. he will not see as much balance sheet activity. it would be very company specific. bbbof the reasons we like bonds. bb bonds are a little overdone.

if money comes to the high-yield market. last week was one of the biggest weeks of inflows on record, a lot of it goes to bb. bb is more expensive than bbb now. what we haven't told in the past is don't worry about leverage because rates are so low. what changed? rates have not gone up that much. can they invest the cash somewhere else and get more money? >> that is what we are worrying about now. what are you doing with this money if it has happened for acquisition purposes. it really is the perfect time to do so now because the fed is on cause. -- pause. you can keep borrowing in the near term while the rates are

temporarily at this level. alix: let me flip it. goldman sachs has been indicating strong balance sheets forever. they are reversing that. it is not as good because you are going to have a fed put. you are not come to hike is much. as much. to hike is >> there was a 20% to 25% differential. some of that is going to close. some of those companies were overly punished. ge got below seven dollars. it is around $10 per share. the punishment is going to correct itself. budweiser has rebounded. i think it is going to be more a catch up that people have overly punished these stocks. >> something i have been talking

to bondholders about last week is maybe the reason for this deleveraging is that some people on the stock equation are seeing how this is impacting the share price. it is backwards thinking. saynever as a shareholder to us. take care of your bondholders. ay stop beeing so nice to us. taker of your bondholders. these pressures are compounding. peter: that is right. having too much debt hurts my stock price. i'm going to reduce debt to get my stock price up. it is that simple. once stock price was hit by credit, they adjust. david: that is smart. how do i diploma capital? where do i get the most return? i worry that i cannot deploy my capital to get a higher return

to pay my debt. >> maybe companies are starting to rethink priorities in terms of who are we going to take care of now. we have been doing so much for the shareholders in terms of acquisitions for growth and dividend stock buybacks and leveraging activities, maybe it is now time to bring it back in. microsoft arend generating immense free cash flow. comfortablen how your shareholders are and what you have done in terms of leverage. it is not universal. it is helpful for those companies that were in trouble. alix: does that pressure ease if the fed does not hike anymore? peter: you hope it holds their feet to the fire. takenies can now advantage, cleanup their balance sheets.

the fear is everyone forgets that brief december and november, and it comes back down the road. >> the demand side is there for longer security. we are seeing foreign investors come back. that is positive. japanese insurance buyers are supporting the long end. david: thank you for being with us today. coming up, college endowments at a record. which schools raised the most money. that is next. this is bloomberg. ♪

>> this is "bloomberg daybreak."

hour, up in the next china team leader. ♪ this is bloomberg daybreak. otago.viana before signing a lease for the building, the developer rebuilt lower manhattan after the 9/11 terror attacks. it started on the foundation that did not continue without finding a company to anchor the space. on tower wise to begin to now since it will not be completed for at least two years. a $200ck has attracted million investment from blackstone. start trading to in june. qantas says record-breaking

threat flights from sydney to london are reaching closer to reality. they hope to launch the service in 2022. boeing and airbus are preparing proposals for longer-range plans to make the trip. the london flight would top singapore airlines flight to new york by about 1000 miles. alix: we turn to wall street beat. first up, we talked about that blackstone blackrock rival started by michael phelps attracted a $200 million investment from blackstone. they banks in the u.s. and the u.k. are at a crossroads as the u.k. prepares to leave the eu. for the ninth straight year, u.s. colleges reached a record in fundraising with almost $47 billion.

david: searching for yield, i guess. joining us is jason kelly. let's start with that story now. we have the former european credit chief for blackrock getting a ton of money from blackstone. is that surprising? >> it is surprising a little bit. we are talking about it because you know this is going to be the most consumed story on the bloomberg today because two names we know well, blackstone and blackrock. many people forget they have a long history themselves. blackrock started in blackstone's offices. larry fink working for steve schwarzman at one point. if you have a good name and can make a good pitch, you can still raise a lot of money for a new hedge fund. david: they are raising a ton of

money. it is going to be one of the largest in london. it is generally thought to be hard to do right now. >> you have many more people starting in much more modest circumstances from a hedge fund perspective. $200 million from a single investor is a lot. alix: keep in mind, january was a great month for hedge funds. they were up 2.9%. you weed out the bad and make room for returns. it is u.k. versus u.s. banks when it comes to brexit. u.s. banks want as much connection to your as they can. -- europe as they can. the u.k. says no. >> this is interesting. this is clearly one of the most fascinating aspects of brexit going forward because this is going to affect who is where, who does well, and it comes at a time where european banks are

still trying to get their footing. u.s. banks doing pretty well. the u.s. banks are saying, just tell us what the rules are. maybe we will be in london, frankfurt, paris. we will figure it out. the u.k. is saying, great. another disadvantage. david: the u.s. banks are saying we will move to frankfurt or dublin or whatever. it is harder for a london-based bank to move. alix: they will be subject to eu rules and will not have any say in making those rules. david: that is part of a larger problem. that is where theresa may is leading them. we will comply with all of your rules and give up any right to have a say. alix: it is the norway agreement. david: right. >> the u.s. banks will adapt to whatever comes. david: where you want to be is investing in college endowments.

over 12 months, $47 billion. not hugely surprising is harvard. there are some you would not think of. university of california san francisco is number five. ucla is number four. >> big public universities in california, that was surprising to me. university of washington not far behind. it is the usual suspects. jon hopkins out there. that number will be a little different in the upcoming year owing to one specific large gift from michael bloomberg. you see yield a little further down -- yale a little further down than usual. stanford, as we talked about last year, the number one business call for bloomberg businessweek nationally and internationally. they are still leveraging that silicon valley connection. david: stanford you expect.

i look at university of california san francisco, they had a big move. they had one family foundation that is really committed to the university of california san francisco. it make a difference when returns get harder to come by? >> it certainly will be. this is raising money from donors. we will see what these managers are able to do with it. when you are bringing in that much money if it becomes that much more important who is managing it. david: there has been an enormous wealth creation in this country. it is showing up. people say i have a lot of money sitting around, and i will give it to my alma mater. >> these are the schools folks are being true to. david: jason kelly, you want to tune in to him on bloomberg radio from 2:00 to 5:00 eastern. legall get jeff bezos'

options in his auto with the national enquirer. alix: watch as online. click on our charts and graphics. you can ask is a question. this is bloomberg. ♪ ♪

david: this is what i'm watching today, the tablet battle between jeff bezos and the national enquirer. the lawyer for the national enquirer's parent company going on abc to deny any attempts to blackmail jeff bezos. professor, thank you for being here. why isuestion i had, this extortion? this is not about money. extortionhe federal

statute, you have to demand something that is money or a thing of value. could this allegation by jeff ofos that ami was acting out a lyrical motivations, could this political motivations, could that be construed as a value?f david: this is a different story because this is not the first time ami has been investigated. they had an agreement with the prosecutor saying they would not do this anymore. how stupid would they have to be to do this again? >> they took a tremendous risk in in gauging in this threat -- in gauging in this threat with -- iengaging in this threat with jeff bezos. they are already on the hook for that felony.

find theysecutors have committed further crimes, they can be prosecuted for that original felony. southernu work in the district office. that is legendary. why do they think this is important enough to go after? >> ami is part of an ongoing investigation into who else in the trump organization -- the southern district has made it clear that they don't think hen was, was acting -- co acting alone. alix: if there is an investigation and it is found that ami did violate the former deal, what does that mean? >> it means they are almost certainly on the hook for prosecution for campaign finance

violations. alix: is it criminal or monetary? >> that is a crime. that is a felony. for a person, that would be up to five years in prison. for a company, that is a fine. in that can be fatal -- indictment can be fatal to companies. they took a tremendous risk. the southern district prosecutors are looking into this. david: how important would it be for you to get evidence? unless you comply with us, cooperate, we are going to go after you. been. packer must have willing to cooperate so far. clearly they were important to building the case against michael cohen.

it is questionable how much more they need from ami and pecker. if anything were to go to trial, they would need witnesses and documents from ami. it is unclear how willing they are to take up these investigations. they may still need people from ami, including pecker. alix: coming up, fidelity had a strategy will be joining us to break down shutdown china trade and what it means for the market. this is bloomberg. ♪ is bloomberg. ♪

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china. apples china problem. againstany loses ground huawei. the clock ticks toward shutdown. as welcome town this monday february 11. we take a look at the white house. hillare on capitol negotiating to avoid a shutdown. the president is going to el paso this weekend. the big rally. the make america great rally about the border. if the shutdown talks go again. whose fault is it. the first time it was president trump. is it the democrats. david: president trump said it was his focus first on. if it comes down to bets are not sure the american people will say it is worth shutting down

the government. alix: there is more to it. it doesn't instill a lot of confidence. in the markets we are seeing a rally continue underway. the doubt have is seventh straight up week. seeing some upside follow three as s&p futures around highs for the session. the dollar gaining steam to the upside. the dxy seeing its best rally since last february as well. you are seeing a little selling on the market with duration with the acceptance of what is happening in italy. crude is up 06%. it feels like a headline for global growth concerns. we are around a two week low. we will see how things keep strengthening because of that. david: time now to focus on the week ahead. culinary trade talks began in beijing today ahead of the high-level talks coming up thursday and friday this week.

thursday is the day prime minister theresa may has set for another vote on her brexit plane. friday could bring another partial shutdown of the u.s. government if talks between the regrets and republicans cannot resolve the dispute over border security. we will get earnings from a whole of companies including nissan, marriott, credit suisse, coca-cola pepsi and the list goes on and on. this can look at what is making headlines outside the business world. president trump is expected to sign an executive order today that will direct the u.s. government to prioritize spending on ai research and development. a white house official says it will counter china's ambitions to dominate the sector. the order does not outline specific funding goals. it will push ai training for the future workforce that could see disruptions due to technology.

kim jong-un is less than three weeks away. north korea has made little progress towards giving up its nuclear weapons. the company also continues to of eight sanctions. president trump says a halt to missile testing shows his denuclearization plan is working. it is unclear what the u.s. might have to offer in exchange for a long-term deal. theresa may is trying to buy yourself more time to renegotiate her brexit agreement. sending a letter to jeremy corbyn offering further talks after he proposed the february 26 deadline from may. may is promising parliament further opportunities to have a say over what happens next. day onnews 24 hours a air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david: thank you.

forctations on friday were a resolution to the budget impasse. sign everything they put in front of him. there are some things we could not agree to so the government shutdown is still on the table. the big problem is this is become an ego negotiation. this is not over substance. negotiations are still going on. there are good people on this committee. i have confidence. i hope and pray we get a deal. 5.7, heor not he gets will do whatever he legally can to secure the border. david: from boston, we're joined by the nice chisholm, fidelity had of sector strategy. welcome. let me pick up on what senator shelby said, 50-50.

what are your odds. >> the arts effectively doubled. at the end of last week, only 30% odds of government shutdown. given this in past and new issue , the dynamic when it comes to immigration beds, this morning, we are saying 60% odds of a government shutdown at the end of the week. david: less time was 35 days. do they have the stomach for a long shutdown. >> here is the silver lining. i think it will be a short shutdown. there is still lingering pain from the last one, both politically and practically. there has been actual progress in terms of the negotiations on the hill. i can tell you folks want to make sure the tax refund season can proceed as planned. in other shutdown would hinder that. alix: are you looking to hedge against the shutdown on friday? history,hen you study

you can see it has inconsistent impact on the market and sectors. you can divide it into shutdowns that last longer and are associated with the debt ceiling. what we saw during the fourth quarter was a very sharp and severe sense of rotation that .ed defensive sectors iat is one of the reasons why think we did not see any downside to the original shutdown. i think it highlights to investors that you have to be concerned that there are consistently other things that have more predictive power than the government shutdown. i think that defensive valuation might be one of them. what does this say about the relationship between the president and congress going forward. what does that mean for

infrastructure and debt ceiling and things like that. this is not really solely a shutdown issue. i think it is indicative of the legislative brinkmanship and crisis government that is going a dominate the next year and half. it is also the nafta replacement will, which is going to be up to speaker pelosi as to when she will put that on the floor and what she will ask for. these are the deadlines that will drive the remainder of the year. we should be used to it in the shutdown context. alix: you are looking at the valuations and with the overall macro in the u.s. means. is there a playbook to be learned about what that means for the u.s.. does that give you cause for caution. denise: there are a lot of cautionary events we could name. the issue we saw from a data

perspective that i saw during the fourth quarter were very rare symbols. sensitive sectors like finance and technology. rare signals, but when you study history it shows you the proportion of probability of outperformance of those cyclicals and higher market returns associated with that. i think you have to be concerned as an investor to think that all of these things we are bringing up may actually be discounted by the market if history is a guide on these signals that we saw. history" itabout tells us about -- history and what it tells us about divided government? government, sod you do less. maybe that is good for investors. whatat reminds me of senator mccain used to say, it is always darkest before it is pitch black.

this is a partisan battle the next year-and-a-half that is going to feed into the next battle the presidential election for 2020. all the issues we have talked about are really trying to frame that upcoming debate on the 2020 campaign trail. about thet your point sector strategy. is that going to be affected more by these macro issues. i think what we saw last your was advantage to small caps. we are back at par. i am not seeing a big deviation in terms of what leadership might be. that we will get more from in a second. thank you. you will be sticking with us. close to 70% of the s&p companies are out with earnings. we will take a look at the sectors that are seeing the biggest beats so far.

this is bloomberg. ♪

>> the numbers underscore the scale of the iphone makers treat from the world's largest mobile market. while weight cemented its top vision in the country after its shipment rose by 23%. at $900 million. they are a provider of administration services for corporations. morgan stanley says it will pay about $14 and $.42 per share in

cash. 43% higher than their closing price on friday. gross domestic product in the u.k. increased by 0.2% last quarter. it shrank in december. the biggest dip since before the vote to leave the european union. economists are warning of a recession if no deal brexit occurs on march 29. that is your bloomberg business flash. david: thank you. 63 companies will be out with earnings this week. >> it is all about getting defensive. the defensive companies are suppressing to the upside on topline earnings estimates. you have utilities and health care earnings beat. materials and financials are

seeing less of a topline surprise. surprisingis is not if you come into my terminal. getting a lot of companies lowering guidance downward. .5 and below the long-term average of .6. if you stick with me, a lot of what this means is for valuations we have in blue the trailing p/e ratio coming back up to fair value. the cyclicals are still not performing as well this season. discretionary industrials financials trading at a 20% discount. alix: thank you. about the names reporting this week. you have coke, fannie mae. denise chisholm from fidelity.

if you take a look at cyclical, are we in a value trap? denise: you talked about revenue surprises. an data i looked at from earnings surprise perspective, i look at the data and categorize everything. what i am seeing on earnings basis is defensive sectors are surprising by 1%. cyclical sectors are surprising by 4% on average. i see that not translating into the earnings level. where you are seeing deceleration, we are shifting back from a rare environment last year where earnings expectations were coming up throughout the course of the year. we are shifting back to what is typical in history. down, andar hi, come you beat by an average of 2% to 3%. you say, is that deceleration a bad thing?

more often than not, it is not a bad thing, it is just a thing. we are down to 5% in 2019 on the year. that deceleration has come from a variety of perspectives. some in defensives and mainly in energy and to a lesser extent materials, what is interesting is numbers have not come down in some of the cyclical sectors like financials that have remained steady. there is a wide range of what numbers have done over this earnings season. it will be interesting to see how things turn out. what do you do with the financials versus the energy if you are looking at an earnings outlook. is that a good time to buy financials. >> interesting. they look different to me from a cyclical's perspective. if you have a cyclical rotation,

which i do think we invade be in the midst of an 2019, you have a cyclical pick. --ancials are at a 60 year and earnings growth seems to be accelerating. those things together give you 7% odds of outperformance in the next 12 months. energy performance looks different to me. at theperformance looks high end of its long historical average of return valuation. i think there is further downside based on the knock on effects of a decline in oil of 30% last year. david: if you can, take out of that earnings equation the fiscal stimulus in the u.s., tax .ut denise: we will be laughing them in the next quarter.

that is where we see taxes and what it has meant. in history, it has usually been the gift that keeps on giving means that tax cuts and up stimulating animal spirits and continuing from an earnings perspective. that would be in line with history that we are still seeing solid earnings growth this year. alix: what does that mean for industrials and consumer discretionary? denise: consumer discretionary, you have relative earnings growth support. we actually see from a consumption perspective pretty good signals in terms of the consumer on a go forward basis. industrials again completely different the have and have not terms of valuation with no earnings growth and earnings growth without a lot of valuation support. a lot of the indicators i am seeing just can stay strong over the course of 2019. earnings look a lot like financials to me. cheap on a relative historical

basis with relative earnings in a position to accelerate through this year. david: what about health care? kate did well last year. is it expected to do well this year? denise: it did. i can tell you what i expect i saw mixed signals with health care. we had a very rare and sharp defensive rotation that took health care to some of the highest relative valuation levels i have seen on a trailing basis certainly. and a ford basis as well. i think that reevaluation with the potential again when you talk about value traps i think about valuation plus potential margin deceleration into deterioration. when i look at the data in the overall health care sector they have a headwind that is not like the consumer staple sector where margins have decelerated. from cycle to cycle.

now you have violation being quite expensive with this interior rating trend in margins that we are not quite sure is over. the risk for health care is neutral to potentially negative this year. utilities or defensives in general, if you want to add defensiveness can you. denise: i think you always can. defensives have a place in everybody's portfolio. do threely want to things, they want total return, protect the downside, or they want income growth. defensive sectors have a big role to play. downsidee afraid of returned with a basket of defensive sectors, you can protect yourself from downside and give away some upside and generate modest returns and income growth. to the extent that that is your primary focus, i think defenses have a role to play in your portfolio.

david: coming up, apple shipments drop in china while huawei tightens its grip on the market. that is next in today's bottom line. this is bloomberg. ♪

david: time now for the bottom line. this is where we look at three companies with watching this morning. i am watching boeing. news in lighter of that line air crash. reports from the wall street journal that they're going to delay that at least until april because they cannot agree with regulators about what needs to be done or how extensive the fixes need to be. alix: awesome. i am looking at apple. here is the report saying that the chinese domestic smartphone market contracted almost 10% in the final quarter of last year but apples market share declined at twice that pace. it was not just them. it was also xiaomi.

it was part china import huawei being awesome was basically my take away. david: and cost-cutting. . alix: there is also that part of it as well. that is not going to be good for apple. by thise are joined acquisition coming up decision forces. explain it. >> it does not sound particularly sexy but it is a very profitable business that adjusts margins in the high 20's. significantly higher than what you see across the rest of the portfolio. this is not a company that does a ton of acquisitions, especially not they acquisitions. this is the biggest for the company since 2007. it signals a strategic shift in

the way it views its portfolio. the last one was train. against a lotng of speculation about whether we may see consolidation in the hvac sector. that has led to speculation about whether we might see more deals in that space. david: are they going further into a business they are already in. >> they are. they had this hvac system that i was talking about. that is also the hvac system you put in your home. there has been speculation about whether you might see them merge with johnson control and ingersoll-rand merging with lenin's international. me getting bigger and the

industrial side of this business raises questions about whether that is the focus point going forward and whether that is going to be prioritizing these investments and thing about some deals for the hvac side of this business. this is a fairly specialized business. that helps you in terms of getting those higher margins. they are also fairly good at holding onto price. they should be able to take care of that. thank you. the clock is ticking for a trade deal with china. can the agreement be reached before the u.s. doubles tariffs by march 1. this is bloomberg. ♪ this is bloomberg. ♪

alix: this is "bloomberg daybreak your coat optimism in the equity market. you did have a solid rally in the dow jones last week, the

best weekly rally since 2017. minors in europe continue to hang on. inood rally in iron ore china. the dollar continues to be strong. the question would be why good if we are worried about global -- the question would be why. if there are concerns about trade or macro, you think the dollar would not be the beneficiary. david: the fed has said they will not increase interest rates. that should not strengthen the dollar. alix: an excellent point. closed, i dopan not get -- david: for a minute. alix: very true. david: let's get an update on what is happening outside the business world with viviana hurtado. viviana: talks to avoid u.s. government shutdown have stalled.

over the weekend, border security negotiations broke down in the dispute over immigrant detention policies. lawmakers may offer a stopgap funding extension to keep the government friday. without a deal, nine federal departments would shut down again just weeks after a record 35 day closing. this morning, china is accusing the u.s. of playing tricks on the eve of high-level trade talks. according to reuters, two american warships sailed through waters claimed by beijing in the south china sea. the chinese navy worn off the u.s. vessels as they tried to assert the navigation rights. a foreign ministry spokesperson would not say if the move was expected impact negotiations. two chinese borrowers missing payment deadlines. group has not returned money due to bondholders. an energy company failed to

honor restructured debt payment replan last week. global news, 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in over 20 countries. interesting is china has been trying to help companies, especially small and midsized. you look at large companies and you wonder why the government has not been able to back something in a more efficient way. david: they could if they wanted to. they want to stimulate the economy, at the same time they're concerned about credit. they have said that. alix: you think they would let that go for a smaller company? david: they are not in default. they are delinquent. alix: if you're a market participant and a market perspective, you have to have a market perspective. week i sat down with the

ceo of meritor and i asked him if china was impacting their operations. space,a we offer highway construction equipment, mining equipment. there the market is stable. it is up from where it was several years back and we are converting effectively. alix: the stable mean it is not rising anymore? what we saw into 2018 as we look ahead to 2019. it is a good market for us. how do you -- alix: how do you grow? is it m&a, is it partnership? >> there are ways to get into the on highway market. wen we talk about on highway talk about your traditional over the road trucks. that is the bulk of what our businesses in most of the other geographies. china we have been a small player in that, in part because we've not found a profitable entry point.

is there an opportunity to enter that market with our product in a way were we can generate a profit? if not, we'll stay away from that market. we think the dynamics in that market are changing were customers are becoming more cost probabilityd centric as opposed what we have seen in the past. alix: that is more of a longer-term opportunity. what do you think the best way to go about doing that? kevin: it is longer-term but it has the potential to be shorter term because we are seeing more of a focus on total cost of ownership. one of the things they are now starting to demand is higher quality axles. when you look the actual market, it has historically been low-quality. if you look at the availability canigher quality axles that reduce the total cost of ownership, there is not been much supply in the market or demand for that type of roddick. we -- for that type of product.

we see a mid tier of the market developing that is starting to demand that and that is a product we can offer. that is a near-term opportunity and can contribute to some of our new business opportunities as we look ahead. alix: when you do a u.s. china you get resistance to being a u.s. company trying to sell goods in china? how does that affect that goal? kevin: it has not. our manufacturing operations in china, that is where we have a 60% ownership in a joint venture. we are supplying domestically into that market. alix: joint ownership, did that work for you? kevin: it has worked well in this instance. this particular joint venture, we control. we own a 60% stake. our partner is our largest customer.

it has always worked well for us. we're looking at the right structures as we look ahead of competing in the on highway market. part of myis interview with the meritor cfo. can there be a 60% ownership for a u.s. company and china? i don't know. david: china is encouraging things like that to avoid the trade tension, but it is refreshing for the ceo saying it is about the market and how much quality you're putting into your axle. alix: i wonder how many other section -- other sectors you could say that for. time, tradee same negotiations are back on the table in beijing. a hedge fund manager has written a bloomberg column advising president trump to hang tough. we have come too far for trump to take the easy way out.

joining us is amy celico, the albright stonebridge group principal and china team leader. she was previously senior director for china affairs. still with us is denise chisholm. how much pressure is there on china? denise: china is certainly feeling that pressure giving its own domestic market slowing we are seeing intensify this year. washingtonessure in and beijing to come together and make a deal. , sincellenges to date this 90 day process began on december 1, we have not seen a lot of concrete progress in making the kind of deal that would be long-lasting and substantive. sides isenge for both a looming deadline of march 1. do we accept a short-term deal

and maybe progress outposts in the coming months or do we delay until we have a more comprehensive set of agreements? that is what they are talking about in beijing. david: why don't you answer that question? if you were there now, what would you advise? getd you take what you can or go for the more fundamental structural changes, which no doubt will take time. this is the opportunity to get to those structural issues that of been a challenge not just for this administration, for about a decade. you are at china continuing to grow, but not opening its market as much to foreign players like the cfo we just heard from. he has a 60% stake in the jv he has in china. that is not possible in many sectors of the economy.

what we are looking for in this ustr,if i were still at is trying to come to an agreement on those structural issues preventing a level playing field for american companies in the market. i am not sure it is feasible to achieve those kinds of structural issue reforms by march 1. we need the chinese government to partner with the u.s. government on this. potentially we could have purchase agreements, which are very important to u.s./china trade. to get to those structural issues, it might take longer than march 1. alix: what does that mean for companies with exposure to china? the white line is performance. we have seen a rally through december as trade hopes kick in. the blue line is earnings estimates. ceos are more worried about china. what you do about that? denise: interesting.

there is a lot of concern in the markets over chinese stimulus. is it working? there are concerns they are pushing on the strength. history, if you study stimulus packages, it has not tended to work and you've not seen any impact on the measures i look at like industrial production acceleration. affect duringee the 12 to 18 month. -- during the 12 to 18 month period. those stimulus measures they enacted, we might be in a situation in 2019, where if history is a guide, we might see an acceleration through 2019 at the same point where from an asset class perspective emerging-market stocks have d rated and are the cheapest they have been in 20 years on some of

the indicators i look at. david: amy, you mentioned market access issues. the chinese have opened some in financial services areas. the big one is intellectual property and allegations of theft by the chinese people. is there any realistic possibility this administration could get that done? that is not something the chinese government admits is happening. when i talk about a lack of a level playing field, that is right. it is not just the market access and barriers on investment restrictions. foreign investors and chinese companies are treated in the market and the theft of intellectual property as a top concern of this administration, as well it should be, as is the concern over forcing foreign companies to transfer technology as a cost of entrance to the china market. ip theft. forced technology transfer.

requirements to localize data in china. these are the structural issues the trump administration is looking for progress from the chinese government on. it is very difficult to measure that kind of progress. the chinese government will change its foreign investment order, we hope, to encourage foreign investment in the market. it is will demonstrate taking foreign companies concerns over ip abuse more seriously, it is challenging for the chinese government to demonstrate progress. this week in beijing, the u.s. side in chinese side are talking, not only about what they can agree to, the u.s. side has made it clear they want verification measures. talking about how do you prove to us you will improve ip enforcement and punish those who steal intellectual property is going to be difficult for the chinese side to demonstrate concrete progress on that. that is with the u.s. side is looking for.

amy celico of albright stonebridge and degrees chisholm of fidelity. vale dammath of the collapse continues to play out. this is bloomberg. ♪

viviana: this is bloomberg daybreak. coming up later on balance of power, gregory dots , former u.s. -- the former u.s. nuclear regulatory chairman.

this is bloomberg daybreak. tesla has been upgraded to a by. the price target is being raised to $450. in a note written to clients and analysts, says the electric carmaker should enjoy more --bility thanks to a colmar to a calmer demeanor from elon musk. says -- the ceo hopes to finalize plans by the end of the year. boeing and airbus are readying proposals for the longer-range jets needed to make the trip. it will spend 10,600 miles. the london flight would top singapore airline service to new york by about 1000 miles. china isore market in surging. this as traders return to the

fray following the lunar new year. avestors caught up with supply crisis driven by the deadly dam burst in brazil. 70 million tons of supplies. that is your bloomberg business flash. follow thefor a lead. a deep dive in the stories making headlines and moving markets. today we are going to stick with iron or and dig into vale. the resulting volatility in the iron ore market. joining us are a mining analyst who has a 13 dollar price target on vale and michael widmer. how much upside is there to iron ore? it depends on how long the operations will be off-line. hown where you stand, given

much times we see on the market and how tough the present government is, i think above $100 per ton through the coming weeks is feasible. alix: when you take a look, edward, adware -- at where vale is trading -- we could see new regulation in brazil. rd: i think it is early to be making that distinction. there is still a lot of noise we can expect in terms of headlines and discussions around what the restitution cost would be. i think the market will be for the around vale time being until we have clarity on those factors. david: at work how much does politics figuring? this is the first test of the head of the country. doesn't he have to be tossed on this? at work: it is an interesting

question. he was campaigning on legislation, a pro-business mandate. this is a test for him. he is being positive. he is largely holding the reins. to follow up on what he was elected for, you would expect good things -- you would expect for things to become much more liquid in terms of the business environment. -- how hew he reacts reacts is still somewhat unknown. part of the conversation because ofl be ok iron ore prices. low inventory on iron ore. particularly copper shrinking and shrinking. what is the other metal most explosive the tiniest supply in the market? michael: if you're looking right

now, the one we have had the deepest deficit would be nickel. there was some concern there may be an impact because vale is a big nickel producer. the other commodity not affected so far by anything happening in brazil is copper. inventories are quite low in the market. alix: when you take a look at potential regulations or the when ittransparency comes to getting rid of mine waste. does that put stressed on the global supply of any of these commodities? michael: the miners are probably much more cautious going forward and i've a strong feeling that mining dams will remain a focus. the issue they have now seen in

so far as unfortunate it relates to a particular type of dam that other countries would not have sanctioned for use. it is ao some extent competition between brazil and australia. what is the chance this will have a longer term affect in decision managing brazil versus australia if they have to clamp down on the way they treat this mining/? -- this mining? edward: i think it is possible to see a fair amount of disruption. there are only around 88 dams in brazil that are constructed using the method. most of those were no longer in use. vale's or in the process of being rehabilitated. if managed correctly, the dams should be safe.

regulators will be looking at things more closely. if we look at the news last week, where one of the -- refused to endorse another of vale's dams. that can have implication in terms of production. alix: i was talking to a hedge short vale.ut is that the right kind of trade from where you sit? edward: rio is a potential beneficiary of this. higher iron ore prices are good for them. they are the lowest cost producers in the world. there are a lot of other businesses i think are attractive. i am more cautious on bhp

because it is oil exposure. it does trade iron ore, but they do not produce. thank you both very much. morgan stanley builds on attracting younger clientele. more on watch -- more on what i am watching, next. this is bloomberg. ♪

alix: morgan stanley, a deal, $900 billion, buying solely them capital. a play on stock plans for corporations. it gives them access to corporate clients and a direct lens into their employees. it helps the stability of wealth management. david: it is not directly to consumers. it is through the corporation. alix: a stock plans through the corporation you work in. i think it is interesting they

are making this acquisition to broaden that out and going more for my 401(k) stock plan versus the high net worth individuals. david: that is an interesting move for morgan stanley. i think more and more the ultrahigh net worth. alix: everyone seems to like the diversification. that is it for bloomberg daybreak. , hsbc global equity strategist. they take a look at the market with equity somewhat underway after the best week of gains for the dow since 2017. the dollar continues to grind its way higher. this is bloomberg. ♪

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government shutdown on the horizon. talks over funding for border security breaking down. a march deadline fast approaching. robert lighthizer and steven mnuchin heading to beijing. chinese markets reopening following a one month shutdown. 30 minutes away from the opening bell with futures positive up point 33% on the s&p 500. yields up two basis points to 2.66 on the 10 year in the dollar on a day winning streak. more on that a little bit later. we begin with trade talks front and center good >> this is a substantive issue. it is a economic as well as a psychological issue >>. >>we cannot get overly bullish.