prime minister theresa may gets ready for critical talks with the eu president. we will get the perspective from the spanish foreign affairs minister. ran volatility spikes. investors want deficit neutral. the government needs to find a solution. the truth behind the fed's 180. will the truth be as dovish as investors think? david: welcome to "bloomberg daybreak" on this wednesday. we have cvs reporting earnings. they beat on revenue and be on earnings-per-share for the quarter. guidance going forward below estimated. as a result, the stock is down over 5% now. alix: sequentially, you're on the air, it will be lower -- year on year, it will be lower.

still a relatively quiet day. take a look at s&p futures. they are pretty much unchanged. the cable rate was at a two-week high. .3%.own 10 year yield goes nowhere. .7% despite an upgrade from citi for this year. time for the bloomberg first take. we are joined by gina martin adams and mark rosato. our top story is going to be theresa may. we are waiting for her to speak in parliament. she's on her way to speak with jean-claude juncker this afternoon. care? i as an investor, i'm looking at

this and we are seeing the defections, why should i be caring? gina: there's still this unbelievable uncertainty weighing over the european economy. we don't know where we are going. obviously, the currency is to drivingimportant equity related returns. if you have a hard brexit, the currency will be significantly different from a soft brexit. we just don't know. it is preventing investor flows, preventing performance. there's this albatross weighing on the broader european market. david: is this a situation where bad news might be good news for theresa may? sense, the worse it gets for prime minister make, the more likely they will have to

delay brexit. she wants to stick to that deadline. mark: that is the biggest issue at this point. can they stick to this deadline? the answer is probably no. the customs issues will come back into play. it will come down to the irish border. how did that look? they haven't been able to make a new deal with south korea and with japan on trade. tariffss an issue of coming back in on oil flows. if you think about how these defections are, if you get stuck into these eu customs going forward, you essentially broke down while you are leaving the eu just to begin with. david: we will continue to monitor the house of commons over there. africa,nd story, south the budget was due right now --

i want to show how volatile the rand has been. we have some news on the budget. alix: the budget deficit will .5%n to a decade high for -- 4.5% because they had to escrom. at is that going to wind up being enough? david: they had no choice. they had to bailout that utility. is probably.5 conservative. you're talking a significant investment that will have to be made to backstop. will you infuse cash into a straight bailout or pick up the interest expense going forward to bridge the gap? forward a way to pull some of these new blocks you are looking to sell in the offshore

space? alix: they are trying to find equity partners for escom as well. what does this do for the mood? i think south africa is one component of emerging markets. what's going on in asia is significantly more important. key-china trade being the to it happens with emerging-market equities. with respect to south africa, the equities want growth. last year, they tried budget constraining measures. this is why they have no choice but to bailout escom. if you don't have power, you're not going to produce any growth.

what are they going to do to enhance growth going forward? that is the question. every equity investor wants to know, what are you going to do to stimulate growth? crashad and let the rand so we can see some potential growth and some potential return. fed minutes coming out this afternoon. this chart illustrates what's theg on with the fed, yellow line is the december meeting, this is the january meeting in the red line. because it is back-and-forth, at that yellow line, we are going to raise rates. you back off it and you see what happened. mark: we are going to have to get more color around what are they looking at, how much did the fed shut down impact this, where is trade going? at the same time, what are they

doing to the balance sheet? will we see an adjustment to that? at the end of the day, the balance sheet will be a big question, as well as where these rates are going over the next few months. they are at the bottom of what they considered the neutral rate. alix: my concern is the markets are underprepared for anything that's not uber dovish. gina: this is a really big key. the market went from we are in an endless tightening phase to may be will get some cuts this year. you need to see a lot of detail regarding the fed members' confidence in the outlook deteriorating, their confidence suggesting they will not raise rates this year. thising else is a risk at

point. we have fully priced in no hikes and potentially cuts in the equity market. will we get evidence to confirm that view or not? we've gone from endless tightening on the balance sheet to it's going to end this year. lower, be $500 billion $600 billion lower? will we get those details? that is a big question. i'm not convinced we will get those details. alix: thank you both very much. you can find all the trades we used on gtv . may has beena answering questions in parliament. later today, she will meet with the european commission president for critical talks

over british plans to leave the european union. there are headlines crossing the bluebird sink she's looking for a legally binding change in the so-called backstop. the ultimate outcome will turn on the reaction of individual mappers of the eu, such as pain -- members of the eu, such as spain. thank you for joining us. we appreciate it. watching prime minister may add prime minister at primetime -- minister question time. how important is her political in her in the u.k. negotiations with jean-claude juncker? >> after the united kingdom leaving the european union, it's clear spain will have to play a more important role together with france and germany.

to keep the european union working. we have to look into the future, which is the thing that really matters. david: may be a brexit without an agreement. are you prepared for that? how would you handle that? hope there is going to be in agreement. it's hard to imagine that we will go to a situation where we create damage to each other, especially to the united kingdom. i think we will have an agreement. just in case, we are preparing to face a situation in which we will have to deal with a situation in which for sure we should try to avoid. david: if it's necessary to make some agreement involving the so-called backstop with ireland,

would you favor that to avoid causing damage to both sides? >> the european union negotiator was here yesterday talking about the situation. thence again told us that is something that cannot be changed. explanation,me some understanding of what the words mean. in order to relieve the question marks that some members of the british parliament still have. that's what we are doing now. to clarify the goals of the treaty. know, isy, as far as i not going to be changed. david: one thing difficult for us to understand, the so-called

backstop was created to avoid a hard border between the u.k. and ireland. >> the treaty was agreed with the british government. if they have another idea, they have to come and put that on the table. against the assets to find a solution. at he's trying to do in the name of the 27 countries. if the british side doesn't like it, we wait for another alternative solution. alix: that is the domestic issue in europe. foreign, it is still the problem of will the u.s. impose auto

tariffs? what are you prepared to do to retaliate? what is your willing to do to retaliate -- europe willing to do to retaliate? it's great to see what mr. trump is going to do. alix: you have to have something in your books that will tell you this is what we are going to target. you've already targeted things like jack daniels, for example. things that will impact states with republican senators. what's on the list. some things must be fought by

european trade. europeanon -- the notn trade policy is country by country. it left to be approved by the member states and implement and by the european union commission implemented by the european commission on trade. david: you have elections coming up in your country of spain. catalonia has loomed large in spanish politics in recent days. movements toward separatism, even. the something like brexit read against that election? could it have an influence? >> for sure, it will have a strong influence.

catalan problem, which is a spanish problem, is going to have influence on spanish politics. one of the reasons we are elections, catalonia refused to approve the budget, even though it was good for the catalan region as a whole and spanish society. as they continue putting this on theyegotiating table, don't fit into the spanish constituency, they will have an agreement. i think this is too polarized. one side saying you have the far , which recently appeared

in the political landscape in spain because they have been dealing with separatist movement saying theer side constitution requires we not have it. people will have the opportunity to fix the deal -- something that hasn't happened. david: it will be an interesting debate. that's the spanish foreign affairs minister joining us from madrid. alix: joining us now from baltimore, sebastian page, t. rowe price head of global assets. this is two-month volatility for the cable rate versus the one-month volatility. the spread picking up.

that will encompass the late march deadline. how are you playing this uncertainty? >> there's a lot of uncertainty in the markets right now. brexit is part of it. the march deadline is part of it. trade is part of it. to bes a case to be made long stocks outside of the u.s. mayet evaluator's -- be the earnings differentials between the u.s. and the world have peaked. and the growth differentials have peaked. however, we are growing increasingly concerned with the uncertainty around europe in particular. europe is linked to trade, linked to china. china imports 50% more from europe then from the u.s. -- than from the u.s.. we are taking money out of your

back into the u.s.. ope into thero u.s.. pointlect our starting where we liked u.s. stocks. it's reducing our overweight position versus foremost. not necessarily a safe haven play. it also reflect a growing sense of worry and uneasiness with european stocks in particular. you have the link between china and europe, the fact that china is re-stimulating, but it's not clear the effect of that re-stimulating strategy. lowto that really rates in europe and the banking sector that is waiting for a steepening yield curve and that's not happening. if you look under the hood of that move, we are taking from

value stocks in particular. seeingif we do wind up some kind of brexit resolution the market can stomach, some resolution between europe and the u.s. and china on trade, what is the potential reversal and upside here for european equities? >> there's definitely a potential for reversal and upside when starting valuations pe.attractive, say 13-14 there's always a potential for that. we talk tolocators, investors inside the different strategies that work on stock selection and bond selection. it's very hard to predict the outcome of brexit. it is not worth trying at this point. most of our underlying portfolio we allocate to our neutral weight on the u.k. -- are

neutral weight on the u.k. investors are looking at stocks or bonds they would like to buy should they see a hard brexit. the opportunity may come in that direction as well. alix: sebastian page will be sticking with us. coming up, it is the rand weakening after south africa says the budget deficit could widen to a decade high of 4.5%. this is bloomberg. ♪

rand: ran traders -- traders reacting to south africa's budget. last seen in december of 2017. thank you for joining us. we have the budget out now. give us the highlights. >> as you just said, the finance

minister currently addressing lawmakers. the big story out of this budget is cash injection of 69 billion rand over the next three years. they announced power cuts just three weeks ago of about five consecutive days. the government saying they will inject 69 billion rand into the utility, cutting the current wage flow by 17.1 billion rand, accounting for 35% of south africa's 1.8 trillion rand budget. the fears that moody's will downgraded the sovereign credit rating to junk. what is the prospect of that happening? ministerw, the finance ahead of his presentation to lawmakers today did address reporters and say the national

treasury is having very difficult conversations with credit ratings agencies. the prospect of the potential downgrade by moody's really seeming like it's on the cusp. we will have to see what the rating agencies say after the budget is delivered. right now, the market is not reacting in a way that is heavy with the current budget being delivered. alix: thank you. the story also playing out in the currency market. if you look at the month to date, the rand is the worst performing currency within the emerging market space, despite the fact that we've seen a lot of money flow into emerging equities. still with us, sebastian page of t. rowe price. when do you want to bottom fish something like the rand? >> interesting about emerging markets is over the recent

years, the risk of contagion has gone down. the markets are more resilient in general. they are less linked to a common commodity tracker. there's less systemic risk. at the moment, there's a case to be made to be long emerging-market equities. they are down relative to u.s. equities over the last year. you have a more dovish fed, and lower u.s. dollar and china re-stimulating. whole,s sold off as a there's lots of companies that have less sensitivity to gdp that are becoming attractive to stock pickers. generally speaking, em could present an opportunity. the big risk is the extent to which china will re-stimulate. this is one of the biggest macro risks at the moment.

is china ok stabilizing growth or are they looking to truly run inngs a bit on the hot side terms of economic growth? we are looking at a situation where they are ok stabilizing. there's a clear reduction in shadow banking. the stimulus being done right now is only offsetting that reduction in shadow banking. sebastian page of t. rowe price will be sticking with us. coming up, it is the fed's dovish you turn. u-turn. this is bloomberg. ♪

alix: this is "bloomberg daybreak." it feels a bit quieter today. dow jones futures flat.

european stocks sit right on their 200-day moving average versus basic material and resources, down .6%. glencore putting a cap on-call. cap on interesting -- a coal. that is interesting. the function within government as prime minister theresa may heads over to meet ,ith jean-claude juncker marching toward the march 29 deadline for brexit. it is the 2-10 spread everyone will be watching. nine was the level we had in december. will we see a flattening mood after the minutes? crude off by .5%. march weighingin on the market. viviana is here with the

first word news. viviana: vladimir putin is promising russians will see an improvement in living standards in 2019. putin promised not to make the mistakes of past decades. he unveiled a series of tax breaks at large families. sanders raising a record $4 million on the first day of his run for president. he will seek the democratic nomination again. he upended the 2016 primaries and the candidacy of hillary clinton. saying it is difficult and treacherous to define when a country is gaining its currency for trade advantages. after the great recession, the

u.s. was accused of starting a currency war with its quantitative easing policy. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. david: this news broke just afternoon yesterday. the u.s. demanding a stabilizing yuan. there are ways of dealing with manipulation under current law. stabilization is .ll we are asking for alix: do you want a stable currency and no manipulation or a free market? caps could be construed as manipulation. david: what does president trump want? how much did he talk about china's currency? alix: weaker dollar.

that's the answer to your question. david: they change the fed's message to be more cautious last month. individual fed members have called for patients in considering further rate hikes. >> common sense risk management suggest patiently waiting for greater clarity. the approach we need is one of prudence, patience and good judgment. it would be well served if we paused and were patient for some number of months. david: we welcome now michael mckee. still with us is sebastian page of t. rowe price. i want to start with the weather. we can show you a live shot of the white house because of the show you a live shot of the white house because of the snow. sebastian: the minute you get -- michael: the minute you get a

snowflake, they shut the government down. the federal reserve is closed. minutes atelease the 2:00 p.m. on the internet on the fed's website. there will be no immediate rush of headlines because there's no lockup on this. you will have to read them yourself. david: whether the headlines rush out or otherwise, how sensitive are the markets right now? the fed has moved back and forth. if they a risk that aren't as dovish in the minutes, we go back again? michael: this is a market that will be buffeted by any kind of news within a narrow trading range.

the markets have accepted the idea that the fed is on hold through march. it would take a major new story to get people to think any differently. look into what kind of data we've seen and whether anything will change in the june meeting. for: they will be looking the 180 we saw over 4-6 weeks. it's a number of rate hikes versus cuts that are priced in. the greener it is, the more rate hike cc. when goes red, there's rate cuts. moree greener it is, the rate hikes you see. sebastian: there's an interesting spread between what the markets are expecting, zero hikes, and what economists are

expecting based on surveys and what the dots are showing, which is two hikes. we would side more with the markets. the way to play it is to recognize that a dovish statement, a continuing dovish stance won't do much for the markets if it's what's expected. alix: the market looks so dovish right now, will anything be a disappointment? sebastian: correct. that is what is priced in from the markets perspective, despite what we are getting from economic surveys. there is a risk to the downside here. the fed is so careful and messaging their intentions that is being data dependent. you want to look at what they will say about the balance sheet unwind. at 4.5 trillion in 2015. now, we are at 4 trillion.

we have seen volatility unwind. one of the key things is whether unwind will and/or applause at the end of 2019 -- or pause at the end of 2019. david: i will put up a chart that indicates we had different projections form morgan stanley and goldman sachs and jp morgan. 3.8 trillion from morgan stanley, the redline. we don't have that much further to go. jp morgan at 3.2 trillion. will we get some indication from these minutes about where the endpoint as? michael: i don't think so. we are getting closer to the endpoint because they have formalized their monetary policy

regime, to keep going the way they are going on the top of interest rate reserves -- if you do that, you need more excess reserves. they will have an elevated level, it's a question of how much. suggest recent surveys about $1 trillion in excess reserves. that about $2 trillion of excess reserves -- then you are to $3.5at $3 trillion trillion. the fed is reducing their maturities as they come off. that is a month by month thing. it will take a while for them to get to the level they are looking at. david: some people say it should be a larger balance sheet. you have to discount it for how

large the economy is. sebastian: it's important for the fed to have a large balance sheet, better control of the interest-rate policy. we don't have a lot of buffer in the u.s. real rates are at .5%. it would be unusual to stop the hiking cycle at .5% real rates. people talk about the yield curve inversion and the risk of recession. rates are so low at the moment, you can debate where the neutral rate is, but it doesn't feel like we are tightening yet. the real risk goes back to the fact that in this upside down narrative where bad news becomes good news because it forces the fed's hand to be more dovish, that is not sustainable. you could be closer to a sugar high with 12% returns on the s&p year-to-date. we are neutral between stocks and bonds at the moment.

we are watching this closely. alix: this is the u.s. 10 year treasury term premium. continues to go negative. you need to get paid less to own longer-term bonds. s&p above thes, 200-day moving average. when you square that with your worldview of rotating into the , how do you make an investment decision? look atn: you have to the stocks versus bonds mix and the opportunities. you look at the portfolio as a whole, you look at spreads and rates, the yield curve inverting can be scary for investors but this is a different kind of environment for this inversion. historically lower rates, never had an inversion with rates this

low. you have to play defense in other parts of the portfolio like being neutral between stocks and bonds and considering adding to dry powder in the bond market as well. it's all about balancing the it isand finding sometimes a matter of finding the least bad opportunity, if you will. coming up, west wing worries. why the bank is worried about a default, next in wall street beat. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." the kayne anderson real estate ceo. ."is is "bloomberg daybreak caesars entertainment says it will carefully evaluate suggestions from carl icahn. he wants the casino operator to consider selling itself. he holds 10% of caesars stock. airlines arethwest lower in premarket trading. the u.s. government shutdown will hit revenue harder than expected. they expect move $60 million -- lese $60 million in sa because of the shutdown.

alix: we turn now to wall street beat. deutsche bank's west bank wing worries.t pulling $3.6 billion, the market chaos pumping investors to pull money out of the asset manager. musk hits send to soon. -- hits send too soon. david: turning is now, peggy collins -- joining us now, peggy collins. ubs has been found guilty by a french court of money laundering to avoid taxes. a fine of 3.7 billion euros. they've been offered a settlement. saying no, we will take it to

trial. sounds like a big loss for ubs. bank. a big fine for the it's something they've been fighting for a while. this whole issue of european banks and the money laundering potential scandals they've been involved in as a overhang for -- we've seen a lot of government crackdown over the years and tried to recoup the tax money they said they didn't get. terms, it is 4.2 billion. it is a record. the next closest, credit suisse back in 2007. david: that was the u.s. this is the french. last the bank said "the case prosecution is very evident." wonder where the

disconnect was. of a lot's a backdrop of these governments, not just the u.s. forcing banks to be more transparent about knowing their customer. where's the customer's money coming from? diligence to make sure they were paying taxes on it? alix: the criminal wrongdoings were of a seriously exceptional nature. david: the french government is seeking damages of another 1.5 billion euros. peggy: they may have more to do and fight on that front. the storytsche bank, that crossed here about deutsche bank -- they've had long-term relationships with the trump organization.

deutsche bank thought of extending the maturities of the so they wouldn't have to garnish the president's wages. that: how do you judge when you are the lender of choice for the president of the united states? they were maturing in 2023, 2024. they were nervous about whether to go they would have back after his assets in public. sond: and the president's came out and said there's never this is complete nonsense. alix: i like the timing of that. 2025. that's two terms. stretching that out. peggy: it sounds like they didn't extend it.

alix: these are big numbers. $3.6 billion pulled from gam. europe getting totally hammered by that. they lost the star fund manager as well. i don't know how gam will be able to make it. peggy: one of the problematic things about this, continuing to lose money, 3.6 billion coming out of the funds from clients, asset managers in europe are already under a lot of pressure in terms of active managers in general with the rise of passive. that scale is important for asset managers today. if you are seeing outsized redemptions on the backdrop of having a fight against the rise of passive, that is tricky. david: finally, elon musk back to tweeting. he tweets out that they will

make around 500,000 units. , he says i meant an 500,000.d rate of peggy: it might be good to go off twitter for a little bit. alix: you know how much i love making fun of elon musk. something similar happened to com continental resources. likeords were left off, 12% or something. the ceo said we forgot these words and the stock rebounded. it happens. line: i'm the first one in to say i make mistakes. at least people have looked at it, they reviewed it.

why do you have to send out a tweet about that? peggy: it seems like these numbers weren't too far off. they were saying 500,000 2019.es t in 140 characters, it sometimes is sometimes-- it difficult to be precise. david: maggie thanks -- many thanks to peggy. how the resignations could reduce the prime minister's already slim ruling majority. this is bloomberg. ♪

david: i'm watching brexit. three anti-brexit conservatives

theresa may's tory party. we had some labor members leave the labour party. are we seeing the creation of a center party there? >> it looks like we could be seeing something significant. the labour party mp's stepped away over brexit, they formed these independent groups. now, they have attracted some conservatives to join them. they both cite how their parties have moved to the fringes and in the middleost homeless. does this do anything as a practical matter's in terms of

theresa may quest to get votes -- practical matter in terms of theresa may's quest to get votes? in any were reluctant backing of the government on brexit. she's working with an incredibly slim majority. dup.her partners, the anything that erodes that could end up being important. these were not people who voted with the government anyway. we will have to see what kind of party they form, how strictly they stick together with those other independents. david: we had the prime minister traveling back over to a meeting with jean-claude juncker, trying to come up with a new deal. does this affect her ability to get that done? you want to know somebody on the other side of the table can close the deal. >> the eu may see it that way.

theresa may wants to get a deal done very quickly. she wants to put something before parliament next week to avoid mp's taking control of the process. things, that's less time precious. david: anna edwards reporting from london. alix: coming up, the kayne anderson energy estate ceo -- kayne anderson real estate ceo. how he allocates capital. this is bloomberg. ♪

al: the truth behind the fed --

alix: the truth behind the fed's 180. manipulation or monetary policy? janet yellen says it is treacherous to say a country is gaining the fx market for a trade advantage. space race. china and the u.s. battle it out on trade in the south china sea and space. david: welcome to "bloomberg daybreak" on this wednesday. more news coming out of ubs. $3.7 million fine from the french court. now, there's damages as well. alix: it looks to be a record .ine you're also looking at damages awarded -- 800 million euros in

damages to france in the ubs case. certain individuals are not being found guilty but are guilty. this does not look good. david: if years ago -- a few years ago, the u.s. dealt with this with credit suisse. they've talked a lot about it, clamping down on tax evasion. france really sending a message. mentioned, ubs could have settled. are being the fines rolled down, the judge says the criminal wrongdoings were of exceptionally serious nature. a serious disconnect from what they thought the case was going to be and what actually happened. days when iin the litigated, you don't want to

litigate a case you can't afford to lose. alix: how did they not know that? it will be a question of their internal compliance, how they view things in the company. david: and what advice they were getting from their lawyers. it's a big story. alix: this is eight years they've been dealing with this, the probe and bad press. on one hand, i guess it's good. on the flipside, the number is , over $5 billion. here, you have earnings,eally bad back to the downside. .2%,able rate still down off the two week high we've seen. confusion as to who is and what party now when it comes to brexit.

crude off by .6%. the eia came out overnight and said another level of record production here in the u.s. in march. david: we are patiently waiting for the minutes. alix: are we patient? great joke. david: we turn it over to taylor riggs. taylor: i'm patiently waiting as well. do haveg we do know, we some diverging opinions on the yield curve and some changes on the 10 year yield call by the end of the year. i want to pull up the barclays analyst. they are looking at a flat in her, front end rates -- flattener, front end rates moving higher. jp morgan lowering their 3recast for the 10 year to a

3.20.32 you are seeing a lot of diverging opinions here. you cannot argue where we are in terms of the yield curve flattening. we are down to a 14 handle on the twos and tens. a strategist at pmo said the --0's could fall further they think another rate hike is on the horizon. you could get a flattening if policymakers talk about the risks of a recession rising without changing the federal funds target rate. we are out of 14-5. taking a look to see if we get a low of nine. alix: the 180 from the fed between december and january had to do with patients.

>> common sense risk management suggests waiting greater clarity. the approach we need is one of prudence, patience and good judgment. >> it would be well served if we paused and were patient for some number of months. the wellsing us now, fargo investment cohead of global fixed income and karl lagerfel al rabil. thank you for joining us. calls.taylor align the >> there's a question of whether they will be as dovish as they were in january. are they going to address the balance sheet? from our perspective, the fed just missed a little bit -- the idea that the economy was a little robust. had they walked back that language in december, i don't

think they would have to go so extreme the other way and be so dovish. our expectation is that they will raise rates toward your end -- year end. right now, it is off the table. that auld have message little more clearly. so far toe they gone the dovish side they would almost have to disappoint in these minutes? theye minutes themselves, will probably pick the most salient points that calm the markets to some extent. you have to get in that head of the fed -- there's a pretty high bar for them to raise rates. they are really on hold for the time being. alix: it's not like they edit the minutes or anything. help us with the investor angle.

how do you look at the u.s. economy? al: i think we are in a goldilocks economy right now. may be put themselves in a bit of a box with what they stated previously. they cannot look at things and say let's walk that back at this point. i totally agree that the fed is probably on hold until the end of the year. in terms of making decisions from an interest-rate perspective, i think we are pretty range bound at this point. even when you saw the 10 year go to 325, it did not dramatically change capital improvements from a historical perspective. we are still in a low interest rate environment. toid: go all the way back december when it was going one

way and then they turned around. did you see a valuation and prices -- in ?rices i have long posited that if you cannot make money in real year, you3.25 10 shouldn't be in that business. how quickly was that going to happen? we did not see it ricochet through the real estate market. you saw it more on the public equity markets. alix: george and al rabil will be sticking with us. david: some breaking news involving tesla once again. it appears the general counsel is leaving the company

reportedly for cultural reasons and family reasons. vicewill move up the counsel -- --x: the cultural fit thing it's usually about family. to do it for a cultural fit, that's not so great. was this someone in the c-suite for two months? david: that was the cfo. there was a rotation there. who knows? i haven't been behind the scenes. it is conceivable that elon musk is a bit mercurial. that could be a challenge. you could call that culture. he's brilliant, very successful. at the same time, he changes his mind some. some snarkiness between

the two of us on set today. the stock down 1%. him comes on the heels of missed weeding something about auto production. tweetingelp -- missed -- mis-tweeting something about auto production. coming up, we are seeking stability. u.s.-china trade talks continue in washington. more on that, next. this is bloomberg. ♪

alix: the u.s. wants china to keep the yuan stable.

janet yellen warns this is a treacherous proposition. monetary policy has a systematic effect on the country's exchange rate. it should be available to be used for domestic purposes. we want to be careful not to define domestic policy tools as currency manipulation. resnickth us, george and al rabil. this stood out to me because it's all in the background of the trade talks and how much risk appetite you can take in the markets when this is still permeating. george: there's still a lot of unknowns out there. this adds to the idea of do you want to take on a lot of risk. people have been taking that risk on in january and february. have they gone too far too fast? they probably have. it's time to start widening the lows from a risk perspective. taking some risk off the table in terms of small-cap equities,

putting that on short-term fixed income. saw, the flood into em we you weren't buying that? george: we were not. at not start taking a look taking that off the table? not negative on the market but more towards neutral. david: does this affect your business at all? if people are investing in real estate, do they say i'm getting a little nervous? impact.as an look at how much real estate chinese investors have acquired over the last few years. is it a massive impact? the u.s. remains a safe haven. you are seeing other capital sources and to the u.s. -- enter the u.s. sideld say on the trade

that it's one of those extraneous factors that is essentially a complete unknown at this point. bid ask.have a we know where we stand. david: does that make the u.s. less of a safe haven? the president is willing to get in and mix it up at a moments notice. nervous about you investing in the united states? al: if the u.s. isn't the safe haven, where is the safe haven? i don't think you are looking at europe or china right now. south america? i don't think so. that's the reality. we may not be in a perfect situation but we are in a very good situation relative to the rest of the world. george: completely agree. the gdp figures, we did take them down a bit because of supply chain management, roughly

.2%, but you are looking at a forecast of 2.5% versus germany last week entering a technical recession. from the perspective of where we are globally, we have a good standing here in the u.s. rusnak ande al rabil sticking with us. david: tesla's general counsel is now leaving the company. alix: i don't think i've ever seen dana face-to-face, actually. this, give us a sense of who the general counsel is and thisuch of the turmoil is for tesla. dana: there was this feeling of, oh, great, tesla is finally

stepping up and bringing an adult into the room. it's only been two months and now he's gone. elon started tweeting about production volume again. the new gc is jonathan chang. after arture of dane short amount of time is problematic. it's a washington-based firm -- --a: he is a defense trial there's a lot of speculation. is dane moving to california? he's remaining a partner at the firm. there's always speculation of how long this gig is going to last. it did not last very long. he's justld this be taking care of the business he needed to take care of and then going home? >> they are still investigating tesla. they hired this guy to be in control of the legal team.

the fact that he's going back so quickly is raising a lot of questions for investors. you are seeing the shares in the premarket starting to show that. david: you don't change your legal team in the middle of a major investigation. announce a newt gc joining the company and they leave in under three months. alix: how do you do it? you are in charge versus you need to delegate and have good people around you. al: it's not a good story. you want continuity. there's a fair amount behind this that we don't know. i don't think it's a pretty picture, somebody coming in and leaving two months later. we will get greater context going forward. tesla, just looking at the stock

price, has been incredibly tough on in terms of where the stock trades -- teflon in terms of where the stock trades. it's pretty incredible. i'm not sure we will be talking about this story two weeks from now. alix: if you are a retail investor, you are buying elon musk, you want to buy elon musk. w so mucha turnover in the hopes were that that-- and the hopes were 2019, we would see stabilization. the chief accounting officer left after a short period. that was last august. i get it.

silicon valley is a tough place to work. turnover at these high-profile companies is not unusual. for tesla, it is pretty unusual. this is continuing into 2019. alix: the stock down by 1.5%. expect an ugly 2019 for cvs. the market does not like the news. more on today's bottom line. this is bloomberg. ♪

david: time for the bottom line. we look at three companies worth watching this morning. taking downrlines their earnings because of the government shutdown. it hurt their sales worse than expected. in the premarket, it is down over 4%.

we talked about airlines getting hit because of workers not flying and things like that. america airlines, delta and united also warning of harm to their topline. the weather -- it was cold. therefore, i didn't by my swimsuits -- buy my swimsuits. they did announce a new to billion-dollar buyback program -- $2 billion buyback program at glencore. prices. hit on cobalt they did announce something interesting. they will cap there coal output. coal is a real moneymaker for them. it's a really interesting message to the industry. david: you know this world so

well. is that because they look out and say there will be a limit to how much demand there will be for coal because people are switching to renewables? alix: it's probably something economic for them. they only spend 10% of the capex -- 10% of it makes up their on coal. david: cvs earnings disappointed. we have broke joining us -- brooke joining us. the stock is down substantially. >> the guidance, just really disappointing numbers here. that is sending the baseline low. this is after the massive takeover of aetna. they are taking a $2.2 billion write down after a $3.9 billion write down with the same deal earlier this year.

the price ofg half the purchase being written down. they are really seeing a lot of pressure in that business. that raises questions for me. if you are having issues with a big deal from the past, do you take on an even larger deal with integration risk? competitionure from from other pharmacy -- or is it the government? they are going after pbm's in a big way. >> this is about skilled nursing. you are seeing lower occupancy rates there and bankruptcies among providers. the separate issue weighing on outlook -- to address the reimbursement pressures there, they are moving to a new

pbm model. the idea is to be more transparent, easier to , returning 100% of rebates to customers. it makes me think of the seeing thesue, writing on the wall from economic perspective. alix: and the best teachers -- that raises the question -- and divestitures, that raises the question. democratic lawmakers propose new plans to tax high earners. this is bloomberg. ♪

alix: this is "bloomberg daybreak." a quiet market overall. individual movers are excited when it comes to cbs or tesla

but it is quiet on the whole. dow futures flat on the day. european stocks eating out again. how much continuation can we see? eking outn stocks again. how much continuation can we see? a mixed dollar story. withsa may going to meet jean-claude juncker as people are defecting from the labour party and the tory party. what happens as the fomc minutes come out. will they be as dovish as the market interprets them to be? revises up their u.s. production forecast. the supply picture continuing to dominate the group market. every day seems to bring

a new democratic candidate for president and a new proposal to change how we tax the wealthy. we spoke yesterday with paul romer, nobel prize-winning economist from nyu about 20 -- about whether any of these proposals will affect economic growth. there are a lot of proposals about whether this will boost growth or that will boost growth. i think we need to discount that. this debate is fundamentally about how does a nation arrange itself so everybody feels like they have a stake? david: still is us are george rusnak and our able -- and al label. it seems like we will not have the fiscal stimulus we had from the tax cuts. how does it affect your projections that we will start

increasing taxes on the wealthy? does it help or hurt. >> it does not help. from our perspective a low tax environment is probably the best growth long-term growth environment. david: how is it affect your decisions about real estate investment as you project out? it could help or hurt. george: we have taxable and tax-exempt investors. we have no ideas where taxes are going. the last tax change prior to this one was 1987. i think these are more political talking points than reality. i think if we do change the tax system it would probably be a more modest change. you will not get a bang for the buck saying let's change the top rate from 37% to 41%. let's throw out 70% and zero that catches some headlines. >> interesting from a state

rates,if you look at tax you are seeing exodus and growth in employment in the states that do not have taxes. you are seeing migration, you are seeing job growth, that is stimulating more growth. >> i always say capital will go where it is welcome. the reality is you have competition between states, and we all know who is winning and who is losing. -- a lot of that people still live there but their primary residence is florida. no matter what we will be going with this more populist agenda in the next election as the inequality gap widens. what does that do to longer-term growth prospects for the u.s.? george: it takes it down a little bit. it is not building and investing in the economy. it is taking it away from the private sector. it is not a good growth model going forward. alix: you feel like any of that

is priced into duration in the u.s. yet? george: a little bit. if you look at the yield curve, it is extremely flat. looking forward, we expect that to continue to flatten. the question is that going to invert? standpoint,ion there is no real opportunity out there from our standpoint. you're taking on more risk and not getting compensated. david: at the state and local level we saw different form of reaction to tax breaks with the amazon decision to pull out hq2 after real resistance at the city level. is that having any effect on developers, saying i'd do not get the tax breaks i want good because there will be people with a negative reaction saying the rich are getting richer. >> i do not think it affects developers. governments and municipality should not be handing out tax breaks because what you have is the public sector deciding winners and losers.

in the case of the one we are all thinking about, amazon, you are making amazon a winner and their supposedly all of this job creation. you're not pointing out to our amazon's competitors and nationally -- in new york and nationally. the role of government should be to put in, to provide infrastructure, support, and a competitive environment so private businesses can function properly. david: why are throwing some much money at real estate? it is up overall. this distinguishes different kinds of etf's and rates. the low one that is up the most is industrial and warehouse. apartments is two. why? al: there are a number of different reasons.

youif you look at re-prices have an inverse correlation to interest rates. interest rates go down and re-prices go up. whether that should be the case or not does not matter. whether it is driven by the retail investor or algorithm, it does not matter. you see interest rates go down and re-prices go up. if the 10 year when up 3% over the next months you would see re-prices come back down. alix: to that point, you said when we got to .75 on the 10 year data we got to 3.25 on the 10 year, what is the turning point? turning pointge and i think that is a shift in expectations. in november we were forecasting four rate rises this year and now we have shifted to not one and starting rate cuts next year. down and hasfted continued to flatten. that is a favorable environment

for real estate prices. alix: such a pleasure to have you both on set. rabil and george rustic. david: that he on a hurtado is here with first word news. -- iviana her tonto -- that would mean a reversal on a decade of economic policy. the u.s. asked china to keep its policy stable as part of a new trade deal. that would help ensure a truce would shrink the trade imbalance. vladimir putin is promising russians will see an improvement in living standards in 2019 after years of falling income. in his state of the nation's beach, vladimir putin promise not to make mistakes of past decades. he unveiled a series of tax breaks aimed at large families. goals isadimir putin's

to reverse the decline in russia's population. we have a scoop between president trump and deutsche bank. bloomberg has learned the german lender was so concerned president trump might default on loans while in office it considered restructuring them. deutsche bank realized it would be a pr disaster to go after the assets of a sitting president. the bank decided not to do any new business with him. 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. i'm viviana hurtado. this is bloomberg. alix: thank you so much. back to breaking news. ubs ordered to pay $5.1 billion fine. stock getting hit. taylor riggs has been digging through with more. taylor: we knew it would be a record as long as the fine was more than $2.6 billion. ubs found guilty of money laundering and a french tax trial. helped judge ubs has

clients conceal undeclared assets. we are getting statements from ubs in response. they are going to appeal the french court's judgment. they say they "strongly disagree with the verdict." the bank has contested any criminal wrongdoing. the shares in the market not liking that so far. if you come into my terminal, we can take a look at where ubs is. that is in blue. they are underperforming. the broader stock index in white, that banking index, but still managing to outperform credit suisse. all of the european banks have been in trouble. ubs is just the latest. david: the new space race. president trump sides in order to set in motion a process to create a 's as russia and china -- to create a space force as

russia and china accelerate the room programs -- accelerate their own programs. live from new york, this is bloomberg. ♪

viviana: this is bloomberg daybreak. coming up the next hour on bloomberg -- the open, mohamed el-erian, bloomberg opinion columnist. alix: -- viviana: this is "bloomberg daybreak palladium extending a powerful rally. the metal rising to a record today.

palladium for catalytic converters. the rally is benefiting top suppliers in russia and south africa. in the u k, a regulator report may make it tougher for walmart to complete a merger. the competition and market authorities says it will be difficult to address antitrust concerns caused by the real. and rivalacex united launch alliance will split six military launches. and the air force announcing the competition between the national security launch providers. united launch alliance is a partnership of boeing and lockheed. spacex was authorized for military payloads after must campaigned in washington and the courts. david: time for follow the lead. a deep dive into stories making headlines and moving markets

with the insides from industry veterans and insiders. today we get a closer look at space. president trump signed an order creating a process to create a space force. we spoke with the secretary of the air force, heather wilson, last fall, about why we need a space force. >> the problem we are trying to a dress the problem the president has asked us to focus on is how do we continue to dominate in space because every mission in the military is dependent on it and so is the timing signal for the new york stock exchange and the blue dot on your phone. it enables the american economy and we must remain dominant. david: joining us is brian weeden, secure world foundation director of program planning and on the phone from washington is rob levinsohn, bloomberg government defense analyst. we know a lot about contentions between the united states and china over trade and in the south china sea over islands.

we are also competing with china in space. .ob: that is true a lot of this increased concern over space has been sparked by years ago when the chinese blew up an old weather satellite of theirs to demonstrate they could target assets in space. alix: what does that mean? where is the vulnerability? is it satellites? what does that do on the ground? where will that conflict erupt the most? rob: the satellites are the key vulnerability. they are expensive to put up and they are hard to defend. so much of our military communications, the gps signals which are used to position our military forces and target are weapons systems, our intelligent systems, are highly dependent on space-based assets. when summary takes those out, it is a problem. david: brian weeden, is this

inevitable or is it possible this is the first steps in an arms race in space? it is better to characterize it to a way things used to be during the cold war. nasae tend to focus on the human spaceflight race to the moon with the soviet union. at the same time, we had an active military competition with them and base. both sides -- with them in space. both sides developed during the cold war to potentially take out satellites in the case of conflict. that never happened. after the fall of the soviet union we enjoyed a brief time or the u.s. did not see any other competitors that could challenge as in space. that is what is changing. david: going back to the cold war, is there a way to protect our satellites and defend them or is this more of mutually assured destruction? they will not come after our

satellites because we can blow up theirs. brian: that used to be the case during the cold war because the u.s. and soviet satellites were tied to nuclear warning and command and control. that is no longer the case. the u.s. is highly vulnerable and dependent with its satellites. no one else relies on them as much. there is not that mutually assured destruction. david: we have this military phenomenon the president move forward with yesterday. we also have a big commercial initiative. talk tooss, whenever we him, talks about the commercial possibility. this is what he had to say. >> face is right now of 4 -- space is a $400 billion industry. we believe it will get to be a trillion dollar industry. 80% of the 400 billion of revenues are commercial revenues. that is already a radical change. david: rob, you are a defense

analyst. can you separate the defense aspects from the commercial. as we just heard from heather our cell phones, our gps systems are heavily dependent upon what is going on in space. are these married? the military application with the civilian? rob: that is absolutely true and secretary wilson was 100% correct. when you go to your atm machine or whatever it is, you are dependent on military satellites that are often operated by u.s. air force and u.s. space force personnel. these things are quite intertwined and while they are doing commercial launch, people like elon musk are doing a lot of military launches as well. alix: who is winning? what country is winning? brian: it depends how you define the race.

as secretary wilson hinted at, the u.s. is still pretty far ahead of everyone. particularly in the military case, we have all of these capabilities, gps, intelligence reconnaissance satellites, communication satellites that are pretty far ahead of what anyone else has. what is changing is the relative advantage the u.s. enjoys over everyone else. over the last decade or so, russia and china primarily, but also several other countries have been developing their own military space capabilities, both to be able to enhance their militaries but also target the capabilities of other countries to try and lesson that advantage. david: and we have a sense of the relative investment being made by china and russia versus united states? brian: the u.s. investment is still the biggest. the national security space budget, parts of it are classified, but the overall

budget is about $25 billion a year. my sense is that is at least twice what the other countries provide or are spending on theirs. what they are focusing their investment on is the counterspace or anti-satellite capabilities. that is where they are putting money because they know it there is a conflict between the u.s. and russia or the u.s. and china, it is going to be the u.s. trying to play an away game in their neighborhood and if they can disrupt the u.s. space capabilities, that makes it difficult for the united states to do that. alix: if we follow the money to the company level, walk us out the next 10 to 20 years. how much of an incremental earnings driver can this be for the defense companies? rob: the big players right now are united launch alliance, which is lockheed and boeing, and spacex. blue origin is also getting into

the space and there is a submarket we are seeing of smaller rockets. the defense advanced research project is holding competition for smaller rockets to get smaller rockets up. you cannot defend your satellites well, but if you can replace them quickly usurped the same purpose. there is a smaller rockets market that is growing. dod is trying to encourage that market. there is a lot going on and i think the trajectories are only upward. david: we started by saying president trump had signed an order to start a process. as i understand it needs congressional action to have another branch of the military. is this a done deal or could this get held up? brian: this is a debate that has been going on at least 20 years, back to 2001, when donald rumsfeld chaired report talking about how to reorganize space.

withess react the issue efforts about two years ago that stalled out. it is not a done deal. i will say that what was in the proposal yesterday was the creation of a new space force division within the department of the air force. that does have more support within congress then president trump's original demand, which was for completely separate department that would be on par with the army, the navy, and the air force. alix: interesting. thank you so much. brian weeden of secure world foundation and rob levinsohn of bloomberg government. stay tuned later today with bloomberg's television interview with richard branson. ubs found guilty in a french tax evasion rolling. the bank strongly disagreeing with the verdict that will cost them $5 billion.

more on what i am watching, next. this is bloomberg. ♪

alix: here is what i am watching. ubs ordered to pay a record $5.1 billion fine. the bank found guilty by a french court of money laundering. there are now five convicted ask bankers. joining us, alison williams. ubs not going quietly into the night. walk us through what we know. expect there was a fine announced today. necessarily expect it would go in this direction. it is a sizable fine and could be a headwind but the company has come out and said they will appeal this. to the extent there is a cost to ubs, we are talking months or several years and it could be dramatically reduced. alix: is there any sort of

silver lining. this has been going on for years. does this get rid of clouds over ubs? alison: to the extent they can get these legal issues behind them, that is a positive. there is always a trade-off between cost and certainty. seen a had -- we have similar thing happening with the department of justice case. all the major u.s. banks have gotten this behind them. deutsche bank in credit suisse have gone it behind them so it is a little bit outstanding. alison williams of bloomberg intelligence. thank you much. coming up, bloomberg markets -- the open. mohamed el-erian, bloomberg opinion columnist. this is bloomberg. ♪

jonathan: from new york city for our viewers worldwide. i'm jonathan ferro. the countdown to the open starts right now. ♪

jonathan: coming up, global equities climbing a wall of worry even as signs of a global slowdown continue to mount. fueled by the feds january retreat. the minutes from that meeting released later. and approaching the market for -- and approaching them are spurts -- the march 1 trade deadline. future stable. we go nowhere on the s&p 500. muted price action on the euro. the euro dollar 1.1337. treasury yields up a single basis point. we begin with our top story. the fed pivoting to keep rates on hold. minutes from that meeting may shed light on how long. >> the fed is on pause. >> the fed is called a timeout on hiking cycle. >> it was definitely a big 360. >>