please sir, no more tariffs. and kindness fight song, no -- and china's fight song, no u.s. bullying. chairman on the chopping block. top investors are discussing pushing the exit outside of thursday's general meeting. david: welcome to "bloomberg daybreak" on this tuesday, may 21. we have kohl's adjusted earnings-per-share. it is ticking down right now in the premarket, just about 6%. root jcpenney, though, rim -- though, remember that great quarter? it doesn't look like it held up. estimates 5.5% versus

of 3.9%. kohl's also had store sales down. we have comparable sales down for both. home depot came out about an hour ago on earnings. they actually beat, although they did disappoint on same-store sales. they are up about 1% in the premarket. alix: kohl's cutting its full-year forecast, versus jcpenney confirming its view of positive annual free cash flow. both of those stocks taking a nosedive of 8% to 9%. david: they missed their lowest estimate, which is very disappointing. ofe again, the new story is struggling department stores. alix: merck is going to buy

pellet gun therapeutic. that is not to be confused with the workout bike. david: but they were about to go public. this is on the people of an ipo. as you say, a little over $1 billion, but there is a kicker of another $1 billion plus if , so passed certain hurdles it could be $2 billion. alix: is this actually a better deal? david: good question, but obviously merck was interested. alix: retail earnings not so great. we do have a rally in equities, peer risk on. 6/10 of 1%.up by euro-dollar weaker. it is a risk on story in the currency market. euro-dollar down to tenths of 1%. 10 year yield, a teeny bit of selling.

crude up by 8/10 of 1%. we will see how long the risk on is going to stay with retailers in the green -- in the red. they are in the red. david: also got terrorist problems. let's start -- got tariff problems. let's turn to limerick first take. our first -- two bloomberg first take. the proposed additional tariff would be catastrophic for consumers, our companies, and the american economy as a whole. this is to president trump. do you think he is going to listen to this? >> i have to say, this made me smile. [laughter] the world is not going to stop on its axis because footwear is going to get a little bit expensive. this is a much bigger issue with a lot of political ramifications. the theory that the street is talking about it, that both sides would like this to extend

tother for china, essentially see someone like joe biden to negotiate within 2020, four trump, the closer we get to an election, the less opportunity we would have to score a trade agreement, and if it didn't match up to the standard he said it was, it is something you would be critiqued on going into the election. essentially, the longer this goes, the better for both sides. alix: different when you are the actual retailer. tariff hasn't even a been -- hasn't even been priced in for the retailers. gina: you've seen a lot of turmoil over the last several years. there is a structural deceleration in prices, squeezing of margins broadly as a result of online progress, as well as just general production efficiencies throughout the world. quited the footwear note interesting considering these companies manufacture more in countries like vietnam and

indonesia and less in china than they did in the past. just exacerbates existing trends to find the lowest cost production globally, also to increasingly not utilize human labor in the production of goods. we are seeing that accelerate as technology continues to accelerate. these are low-margin business is as it is. they will remain somewhat low-margin businesses. anything in consumer goods production is going to continue to get squeezed, but it is a tiny portion of cpi, a tiny portion of overall spending, so let's put this in perspective. what is this really going to do to the american economy? not a whole lot. vincent: there's been no price pressure in retail consumer goods, especially the clothing sector, for 10 years. this isn't going to make a difference. alix: if you put in the inventory they've stockpiled, that is not going to be inflationary. gina: exactly. we are dealing with excess inventory globally.

it is not just the consumer sectors, but manufacturing as well. frankly, the pressure will be on margins. that is the big thing we have to start to try to handicap. how much compression are we likely to see with margins near all-time peaks? perspective is kind of necessary here, but is it really catastrophic? this inflammatory language is really interesting. david: trade negotiations inflammatory? i'm shocked. [laughter] alix: well, the funny news overnight is that china had its own rachel platt. and by that i mean they have their own fight song. this is playing on the airwaves all over china. ♪ chinese]in alix:alix: basically, this says we are going to fight. cave to theoing to

u.s. basically this is just a posturing tactic. gina: it is. there is a lot a concert over what geopolitical relations between china and the u.s. look like today versus three to five years ago. what will it look like in the future? it has been pointed out, it does seem there is a countdown to the 2020 election going on. this is going to be the tumultuous environment until at least 2020, and they are starting to thing about that. this is a long-term battle, so to speak. you see that in that rhetoric. you see it in the relations. this is tumultuous for the market, which even just two weeks ago, thought that this was something of a resolved issue, as resolved as it could be. the reality is we are in for a long-term period in which this is going to contribute to volatility and uncertainty. david: we actually have a translation of the song now.

isn't this potentially a much larger threat than imposing tariffs from china on u.s. imports? if they really get the chinese consumer to say we are not buying your stuff. vincent: harder to do than you would think. china has yet to really change their economy from an import /export economy to a to mystically consumer driven economy, something they are very desperate -- 28 domestically consumer driven economy, something they are desperate to try to do. everyone is worried about whether they are going to let it go or retaliate in a currency war kind of thing. they can't really afford to do that because it generates too much inflation at home. as much as china once all of etc.,hetoric and war, there's going to be a lot of give-and-take down the road because it really is damaging on

both sides. until we get to 2020, this is still going to be with us for a while. david: whether china or the u.s. is winning this war, the oecd is out with an estimate this morning that the consumer is the real. loser. -- is the real loser. >> we really think that trade has derailed the global recovery that was going david: are we seeing it in the markets, and the real world? gina: the forecast was down in march, and it wasn't necessarily due to trade. i think trade is one component

that has contributed. frankly, tightening monetary policy through the course of the last several years is probably the bigger driver of the ultimate slowdown, that and comparisons to tax over the last year and a half. but certainly this is not helping business confidence. it is not helping planning. this, in addition to brexit, suppressed growth expectations and constrained opportunity to produce greater growth via investment over the last year. alix: but europe didn't get downgraded. who knew? there you go. vincent: give it time. [laughter] among those things you mentioned, debt. the u.s. government at $22 trillion on, and consumer debt. if you look at the overall revolving credit being straight up from the 1970's, and the u.s. equity market following, it says that all of this has really been driven by debt. when the consumer reaches an end game, that is where the real problem is coming from. the trade war hurts, but the larger part of the bigger picture is how much more debt

can we give to the consumer to drive in economy when we are not seeing wage growth? somehow there has to be a trade-off there, and it is just not coming. alix: interesting. thank you guys so much. you can find all of the charts we are going to use throughout the show at gtv on your terminal. coming up, bullying and blackmail. that is what china's ambassador to the eu says the u.s. is doing in trade negotiations. as we had to break, we recap some of those retail earnings for you. kohl's all jcpenney, missing on sales. this is bloomberg. ♪

♪ not afraid of the outrageous challenge, a trade war is happening over the pacific ocean. this is the fight song from china over the u.s./china trade war. joining us now, david kelly, jp morgan asset management chief of global strategy. we can joke about that, but that is a different kind of china. some harsh words overnight from the ambassador to the eu. guest: i admit the fight song is a little funny, but there is a serious problem. what we are seeing around the world is a gross in nationalism. let's be clear, nationalism is a negative sum game for the global economy. the more everyone builds up barriers and their military

might, the worse the global economy will do. it is a very bad sign we are heading down this path. david: we were talking about soybeans and commodities and things like that, but the conversation has really shifted over to tech. we will put up a chart that has showed what happened for semiconductors, the lowest since 2008, the biggest shift in any given day. how much of a threat is this potentially to the united states if we hit tech on both sides of the pacific? guest: i think it is clearly a threat, but this idea of however confrontation works out is not going to answer the question anyway. or lost war will be won in our universities and immigration policy. we recruit the best and brightest tech workers the united states to build stuff here, or they will build overseas. we think about this in terms of confrontation, but that is

really not where the war is going to be won or lost. david: according to president trump, he's saying we can't win that war because there's leakage. essentially, they are taking our intellectual property. they are incorporating it. unless we stop that, we will never be able to prevail. guest: prevail is kind of a weird concept here because by definition, if you invent something, eventually everyone is going to copy it. we should obviously negotiate to a better position in terms of we will not steal this, you've got to have stronger enforcement to intellectual property rights. that is a negotiation the chinese i think would be willing to do quietly, but remember they are a very nationalistic people. if you yell at their face, nothing is worse in chinese culture than losing face. this is exactly the way you will not get them to compromise. alix: and this exactly proves that. the chinese ambassador to the eu. guest: because chinese

nationalism was born and humiliation of western powers who took over chinese ports, the opium war back in the 1840's. the westerners forced very unfair treaties on the chinese on the very issue of trade. kernel ofe chinese nationalism, so why we would think they would roll over in a trade dispute is crazy. david: they are both digging in more and more deeply. , shoulde be braced investors be braced, for a here?hard slog guest: trade wars eventually burn themselves out because they are disastrous. i think when you need to recognize there will be an election in the united states and less than 550 days. when that occurs, the president could get reelected, but maybe he will be less bellicose under the trade issue knowing he is now in his last term doesn't

have to appeal to his base as , or if someone else gets elected president, they might approach this aggressive stance. the marketels like has fully priced a rate cut. there is this rare discrepancy. damage,t is part of the frankly, from ultralow interest rates. companies are earning all of these profits. if you look at stock buybacks, they are enormous. but what are you going to do? put it in a 10 year treasury, a cash account barely beating inflation, and probably won't? i think easy money is continuing to fuel stock price increases even though these threats are real. alix: david kelly will be sticking with us. misses formorning retailers.

more on challenges they are facing, coming up next. this is bloomberg. ♪

reporter: this is "bloomberg daybreak." there's new pressure on t-mobile and sprint to offer more concessions to get their 26.5 billion dollars merger approved. bloomberg has learned the u.s. is leaningartment against the takeover. now the question is whether selling airwaves or another business unit will be enough to change his mind. shares of tesla has fallen or than 20% since and announced a $24 billion capital raise. losses got worst after a once bullish analyst cut his price target and called it a code red situation. tesla shares have fallen nine of the last 10 trading days.

indonesia is underscoring the challenges boeing faces in getting the 737 max back in the air after two fatal crashes. the indonesian government may ground the plane until next year. officials say even after the u.s. clears the 737 max to return to service, they will conduct their own review. that is your bloomberg business flash. david: thanks so much. home depot, kohl's, and jcpenney all out with earnings this morning. all missed on same-store sales. soggy weatherlix, is what caused it. [laughter] david: they are all getting dinged on it, home depot the least. let's talk about the consumer and retail sales. where are we right now in the u.s. in terms of the consumer? guest: consumer confidence is obviously very high, but there are significant challenges. the first is the demographic challenges. born opt tof babies

its lowest level in 32 years last year. -- dropped to its lowest level in 32 years last year. we have these tax cuts, and that pushes up disposable income, but that is done. second-quarter numbers on revenue from the government is clear that taxes are now up year-over-year, so that means you are not getting that benefit anymore. you got those things really dragging on consumers, and that means consumer spending will grow more slowly. i think that is part of an overall slowdown in the growth rate of the economy. you saw confidence crusted on friday. can you read through on that? guest: that particular survey only surveys about 250 people in the first 15 days. the sample has never been big enough to do this job properly, so i take that with a grain of what usually happens is that --eel good

is that people feel good until they are told to feel bad. onto carsanging and houses longer. i think it is a tough environment. david: david: to what extent -- david: to what extent do tariffs affect the consumer? the white lines are the goods that have tariffs on them. is this going to bleed through at some point to the u.s. consumer? guest: i'm not too worried about inflation because the biggest problem with terrorists is that it disrupts business planning. when people don't know what to do, there's nothing. see framework.d that loss in confidence will take away enough demand to prevent big inflation impacts.

i am worried for lower and middle income consumers because they spend much more on goods and imported goods. you tax lower and middle income consumers, and that it's going to make it harder for them to buy stuff. alix: and you have the letter from id does and nike, those retailers, sent to president trump, but is it going to be catastrophic? or is that an excuse for retailers that can deliver numbers. guest: it is not catastrophic, but this is an older economy. if a 70-year-old takes a punch in the got, there's going to be a problem. you have an escalating trade disputes going into the second half of this year. it wouldn't take much more to knock us over into a problem. it is a bad time to have a trade

fight. david: will job creation and real wage growth save us? guest: no, basically. on job growth, it won't cause a boom. we cannot get a boom out of this economy. we don't have enough workers. we are down to a 3.6% unemployment rate. as for wage growth, we are seeing some improvement, but generally not getting paid in this economy. alix: david kelley of jp morgan, thank you very much. aning up on this program, exclusive with bob diamond. this is bloomberg. ♪

alix: this is "bloomberg daybreak." we have a sort of relief rally underway. risk on on the market come up with a caveat. not great retail numbers coming out.

will that way on equities? other asset classes, you have the risk on currencies higher. you have canadian dollar and dollar moving higher. the aussie dollar down 5/10 of 1%. you had that surprise election yesterday, yet nonetheless, the central bank governors says i might actually cut some rates. can you imagine if jay powell came out and said i'm going to cut rates the next couple of months? [laughter] alix: if you want a weaker currency, there you go. david: now let's recap the retail we got, earnings this morning from kohl's, home depot, and jcpenney. all a miss on same-store sale comparisons. a lot of it was attributed us sensibly -- attributed us to its ugly to whether -- attributed

ostensibly to weather. rick agrippa -- ritika gupta is here now. president trump says there is no sign iran is getting ready to attack american forces, would be met with great force. the president has said and aircraft carrier and bombers to the persian gulf. in the u.k., prime minister theresa may faces a showdown of her cabinet today. she is seeking their support for one last push for her divorce deal with the european union. pro brexit ministers and those arewant to succeed may likely to enter the election.

global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. david: thank you so much. reportbut -- an oecd takes up european estimates. with us is bob diamond, former cantor, ceo, and larry who was formerly the chief you china must -- the chief economist and head of research at barclays. explain to us where atlas merchant is going, and how larry fits into that plan. >> atlas merchant capital is investing in financials. our flagship fund is focused on europe and the u.s. we have investments now. we had our investment day

yesterday with all of our investors. have banks or broker-dealers in milan, paris, athens, london, bermuda, and two or three here in the u.s.. larry was the man i brought into barclays in 2003 from the fed, and then jp morgan as chief u.s. economist. he built the research and economics business at barclays. post-limen, lehmanition -- post- acquisition, barclays was number one in fixed income and equity research by institutional investors. getting this guy back to work with our operating companies and help them on the macroenvironment and some of the research issues is just terrific. a great resume. that is really impressive. >> well, the macroenvironment is

pretty important in terms of where you're going to put your investments. i think the private equity space is an interesting space, and very attractive right now, with lots of liquidity and very low returns elsewhere. financial services, it seems to me, you've had banks recapitalize. it's been now a decade since the crisis and valuation is still very low. i think it is a great opportunity, great firm. bob is a great builder of businesses. value.i can add alix: we are getting our signals now. this world is totally different than when you might look at into thousand three, in terms of where the ecb is going to be and how you value a bank stock, based on is it low in the

negative interest rates. how do you do that? clear, i came to bargain this over a dozen years ago. he world is changing a lot. one of the interesting things is even since the financial crisis, we still got the ucb was the ecb waslds -- negative yields. negative rates are not great for banks. instead of getting interest, they are paying for it. the u.s., i don't need to drill anybody how much the u.s. has changed. we are now reversing over 40 years of u.s. led free-trade around the world. in my mind, it has really helped propel global growth, along with the entrance of a lot of local producers, and that is causing a

lot of problems in this reversal period. we see ecb down at the bottom of this chart in negative rates. and you make money in your opinion as long as that is the case? >> that is a damper on any profitability of any financial institution, so we have to start with that. from the years on crisis, the fundamental issue for banks in my mind is they still have balance sheets that are not ready to start lending and to play their role in driving economic growth in lending to small businesses. europe has been hesitant to allow the development of deep capital markets like we have in the u.s. so much of the risk ends up on the balance sheets of the banks. what we look for is can we find institutions like the bank in greece that doesn't have legacy

loans, and if you could find a place to start without legacies and technology, the ability to bring the technology in and develop a technical offering is better than it has been for all of the reasons we know around the develop much of technology. banking can be a good business, but the negative interest rates are a damper on profitability in any financial institution. alix: i do want to point out we have a viewer comment saying congratulations to larry. was a great train buddy. [laughter] off of that, we talk about the negative rates being bad. but what is the demand side for loans? is there demand for it in europe? david: they were hoping that was negative rates, people would start spending more. that really hasn't happened. it is helpful, but it puts a

on raising rates back to zero. what are they doing instead? giving more funds to banks. they've reopened the tltro program. alix: one story was that if there is a trade war resolved, europe will pick right up. that it is all germany, and every thing is going to be fine. larrywill definitely help . -- it will definitely help. would help europe more than the u.s. beo think this will resolved one way or another before we get to an increase on the extra few hundred yen extra $100on the

billion. we are just doing intermediate goods. once you start getting into ,lothing and ipads and iphones that is going to hurt the consumer a lot. i don't think that is going to happen this close to an election year. david: it is also a political and regulatory issue. you look at european banks versus u.s. banks, we didn't capitalize the same way we do in europe. you don't really have the mechanism to get consolidation to go back to europe. can you get done what you want to get done at at this merchant -- at atlas merchant? to theoes back 10 years u.s. they quickly had a process to encourage the banks and really force the banks to clean up their balance sheets. when you look at the situation

in germany with deutsche and commerzbank, the banks have not yet cleaned out their balance sheets. that is the process we need to go through more than anything. the second piece that is a bit political is there is a reluctant to encourage the development of deep capital markets. so much of the loans ends up on the balance sheets of the banks so when there is a slowdown in the economy where there is a volkswagen, it immediately slows down. u.s. banks that are able to put much of that lending into the capital markets, they don't have that halt to their business when some the gets the market. alix: such a great point. thank you. are you going to ride the train again now? [laughter] alix: bob diamond is going to be sticking with us. amidg up, growing angst bochy bank ahead of its -- amid

deutsche bank ahead of its annual meeting. this is bloomberg. ♪

ritika: this is "bloomberg daybreak." coming up later on "bloomberg markets," heyman capital management founder and cio. ♪ ritika: this is "bloomberg daybreak." ceothe first time, sony's has laid out his full longtime vision for the company. he detailed plans for dealing with the big changes in the game industry and an escalating trade war.

he said he's developing a successor to the playstation game console. at the same time, sony is trying to make sure it will thrive if consumers embrace cloud gaming. u.s. antitrust officials have widened investigation of qualcomm. the probe is focused on broadcom's wi-fi and switch chips sales. morgan stanley is making cuts at its london equity business. at least five people have been affected in equity trading and sales trading. morgan stanley's equities business missed estimates in the first or. that is your bloomberg business flash. alix: thank you so much. we turn now to wall street beat. first up, investors want him out. mounting frustration amongst top deutsche bank shareholders that --ows into feature the

shareholders that throws into question the future. watching theosely corporate loan market as it draws parallels to 2008. fed chair powell says this time around, the system is better shielded. david: still with us is bob eo.mond, atlas merchant c on thursday we have a big think it goes i beyond balance sheets. he needs to revive the investment bank, and at the same time it is not making money. bob: i think that is spot on. was, and many ways, a bank built by traders for traders. we have a regulatory environment that really doesn't allow that.

it's been a slow transition, and i think the chairman's big challenge now is how are they going to make money going forward. what is the business model? what is the retail business in germany? what is the corporate business, the investment banking? alix: and who is going to get what? bnp says we are not interested in that. >> acquisition is more difficult, more risky, more challenging in the current environment. in that case, i would say no. we have shareholders that i think would say now. alix: what happened? are i think eventually we going to see consolidation. i was a little surprised that merz didn't go forward. i think you will see domestic consolidation in some of these countries, and i think we need

to see a round of that before we see cross-border consolidation. we've already seen some of the betweenl issues coming italy and germany as well. alix: let's go to brexit, which is kind of related. that is a hot mess. has your base case changed from now since a year ago? bob: my base case is this is crazy. it is absolutely crazy we are in this situation. this is the trading nation of all nations, but it is what it is today. i think the issue right now is certainty. i think the business sector in the u.k. is waiting for some certainty in terms of brexit and the decision, but also who is going to be leading the u.k..

i think those are very important if you see businesses going forward. this isn't about london. london is going to be fine. london is one of the key financial centers in the world, a place where everyone wants to live for a long time. this is about businesses in leads in new york. -- and ins and new york. david: federal reserve chair jay powell said this yesterday. we think of the financial system appears strong enough to handle potential losses. david: we keep hearing about leverage loans. when we saw the ceos of major banks in congress, everyone of them said that leverage loans are a major issue. chairman powell says one of the big issues is we don't know who is at risk.

bob: that is the opposite of what you see in europe. debt, not just leveraged debt, has doubled just since the crisis. there's twice as much debt outstanding today. i think the issue for leverage debt is the average rating is a single beat. although it is hard to prove this, it seems to us that the covenants are getting lighter and lighter. so we are on a trend that we've kind of seen before. on the other hand, corporate's are pretty strong. profitability is pretty strong. so it doesn't seem to me that we have a three or six or nine month period that we have a crisis. david: let me add one other thing, which is liquidity mismatch.

you have longer term debt outstanding and then mutual funds where people think they can get their money back. bob: we seen that report. david: ok. bob diamond of atlas merchant capital will be staying with us. david: in your bloomberg 2 -- alix: in your bloomberg terminal, you can check out charts and interact with us at gtv on your terminal. it is good stuff. gtv . this is bloomberg. ♪

>> despite crosscurrents, the economy is showing continued growth, strong job creation, rising wages, and muted inflation pressures. david: that was chair jay powell talking last night about the state of the u.s. economy. still with us is bob diamond of atlas burgeoned capital -- of

atlas merchant capital. it doesn't sound like cuts right away, even though the market still believes there will be cuts. i say for next move we see is a hike in rates. the economy seems fairly strong. corporate strength is definitely there. my worry is that we need to get interest rates back to a more normalized level. if there were a crisis in the near, monetary policy has been so easy for so long. rates and yield curve so low and so flat. we have spent $2 trillion in spending and tax cuts, so fiscal policy is kind of spent. we know that angst will not be there if there is a credit crisis, so we need to have a more normalized level of interest rates as soon as it's practical. when the economy continues to show the signs that it shows, i still believe that the next move

in rates should be up, not down. david: if you were sitting on the fed, would you feel you could do that? jay powell has talked about that. it we cd saying that the -- the oecd saying that that constrains the ability to raise rates. thati think it is correct we are in a presidential election. the likelihood of a crisis i think is less than you would peacewhen you watch the parts. but i do think we will find our way through this before there is a crisis in trade to come but there is, of course. alix: this is a conversation we would have a year ago and say do you think the u.s. economy can tintin you -- economy can continue to be good. do you believe that is the case? inst: the corporate sector

the u.s. continues to surprise us in a very positive and popular way. we have to watch these other issues play out. the impact of trade wars on imports in the u.s. will be quite dramatic. david: what is the effect on capital investment? bob: if you think about any country where manufacturing is at the heart -- germany is a good example -- they took a big hit in the fourth quarter. people haven't talked about it taylor: germany has -- about it. germany has not recovered from vegetables. so it is countries like germany that i think will be impacted more than in the u.s., but of course this is going to have a big impact on the u.s. alix: how does this feedthrough to investment pieces for you bob: certainty. -- for you?

bob: -- forgive? -- for you? bob: certainty. people want certainty. devaluation of even publicly traded financial services is lower today than it was into 2009. of anybout saying that other sector. we do think private equities is the right place to be because we can make long-term decisions, and don't face quarterly earnings. alix: bob, a pleasure. thank you for joining us. more coming up. this is bloomberg. [laughter] -- this is bloomberg. ♪

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jcpenney, kohl's, home depot all missing on sales. a letter to president trump saying tariffs could be catastrophic. china's fight song. china's ambassador to the eu warning the country could retaliate with a ban on doing business. and the oecd lowers its global growth forecast, highlighting many risks and weakening demand in china. david: welcome to "bloomberg daybreak" on this tuesday, may 21. we've been talking about that trade song all morning long. it is a rousing one. --x: do you know ms. do you platten'sw ms. "fight song" from here in the u.s.? listen to it.

♪ david: i suspect it sounds a little better in chinese. alix: what they wind up saying is pretty strong. we are not going to cave. we are going to fight to an end. that is definitely a different scenario than we are going to tax some imports. david: according to the bloomberg report, they are going to play the national anthem every morning at 7:00 through the end of the year. that is another way in which president trump doesn't have the same command over his entire culture that president xi does. president xi really can control everything over there. alix: president trump knows that, and he doesn't like it. david: can you imagine him saying we would play the national anthem overall media at 7:00 in the morning? alix: oh my. that is the macro backdrop. micro is disappointing retail earnings. you still had a risk on feel in the markets.

s&p futures up by 5/10 of 1%. apparently now is the safe haven, and risk on currency as we go forward. dollar-yen heading a two-week high, and the 10 year yield up by about two basis points. crude getting into the risk on feel as well. but how long is that going to last? say report right now that theresa may is going to set out a new proposal for brexit. alix: is this a fourth one? david: i've lost track. i don't know how you even count them. alix: what could possibly be a new proposal at this point? you know what, i'm out of here. david: one more time. it is like charlie brown with the football. this time it is really going to work. let's come back to the united states. retailers kohl's, jcpenney, and home depot all came in weaker on same-store sales that expected. here to tell us what to watch is

bloomberg's, tundra -- bloomberg's emma chandra. emma: it has been a mixed report this morning. on are down in the premarket a less than impressive report. home depot did beat when it came to earnings-per-share, but missed on same-store sales. we are seeing all three of these retailers miss when it came back to that stage. we are seeing a deeper dive for both companies in the premarket. perhaps the most surprising miss came from kohl's. take a look at this chart. we've got kohl's same-store sales. they fell in the fourth quarter, but they fall in a lot more in the first quarter, down some 3.4%. much more than analysts expected. analysts expected a slight decline of 1%, and some predicting a rise of 1.2%.

it compares very much to the stories we've been getting from other department stores. macy's and walmart reported last week, and we saw their sales do a bit better for both retailers. when you look at first quarter sales, they are backward looking. was thataw from kohl's they cut their outlook. another big headwind coming for potentially expanded tariffs. we are looking at the s&p 500 retail index over the last 11 days, since president trump first tweeted about his plans to expand and raise tariffs. we can see it is down close to 5% in that time, more than a percentage point lower when you compare it with the s&p 500. we haven'tsomething heard kohl's talk about, but we are waiting for that terrific

call this morning -- for that earnings call this morning. walmart last week saying that increased tariffs do to increase prices. we have that letter yesterday from more than 170 retailers warning of catastrophic results if tariffs are imposed. alix: thank you so much. joining us isn't sarah hunt, alpine woods portfolio manager. ps?you want to buy the di guest: jcpenney is a special situation because they are really trying to do a turnaround. it looks a little dire at the moment. that is not necessarily a situation we would be involved in. you have a lot of debt to work through, a lot of issues to turnaround. their outlook for the whole year was great. weather, sobeen bad it is much easier to explain

what is going on at home depot. autozone came out with better sales and numbers, so i don't think it is the same story across all retail. you've got some different issues. i think something like kohl's, you have to look at what is going to go on with wrist of the year. i would have to see where it is from a valuation perspective. i think some of these can be very interesting when they have a miss. david: is it idiosyncratic, or are there patterns? guest: i think you can segmented a number of ways. you can do sort of pairing and higherer income income. we had huge auto sales, so you would think as they are slowing down, all of the partners are going to be in better shape like autozone and o'reillys. it is harder to differentiate a

home depot. closing is tricky. i think that now people are wondering if that is enough, i think that is more detail. alix: looking at the visibility for the rest of the year, kohl's ceo said the company is planning the year more conservatively, and that is not really taking into account any sort of terrace impact. can you talk me through what the inventory management is if we have demand in the back half of the year not holding up. what will this do to these kind of retailers? guest: when you have the threat of a trade war, you have a tendency to go i've had an order before, this is going to happen. this is a very uneasy situation for inventories, and planning for that is quite difficult. the back half of the year was

going to make much stronger, and now you're looking at maybe the front end stronger than people expected, but the back half not so much. i think you've got a lot of things going on here. david: but those things together if you can. you don't want to have too much inventory. same-day delivery. how is that going to work for the amazons and walmarts of this world? will they have to ramp up inventory to make sure it is available same-day? some: i'm sure there are very sophisticated algorithms and software that try to help you manage what the popular items are and how much to keep on hand, but yes, i think that absolutely comp case things area when you have mistakes or over ordering but want to keep something right here, right now, it is very difficult to say. i think it adds a layer of complexity people didn't have before. that ends up being a benefit to people like tj maxx and the resellers. if you make those mistakes, you've got a bunch of inventory

heading to the second-tier group. i'm sure there are some people working on very complicated software to try to make that work. alix: so what do you like in retail, or do you avoid it? guest: i mentioned autozone. i like the people that benefit when people are keeping their cars longer. that group'reilly, has a nice trajectory going forward. i like home depot. you had consistently good performance. it is very difficult to replicate the network. they are in a very specific area. lowe's is not as strong as home depot. they are in a very concentrated market as the leader, and they are getting a lot of things to help them with distribution, and that is helping them right now. david: thank you so much. you are going to be staying with us. coming up, bullying and blackmail. that's what the chinese

ambassador to the eu says the u.s. is doing in trade negotiations. alix: and i'm curious about what theresa may might say about everyone else. the pound had a spike, but now it is lower. prime minister may is setting out a new proposal for a brexit deal later today. this is bloomberg. ♪

china is warning it may retaliate against the united states for president trump's blacklisting of huawei. the u.n.sentative to chinae us a sense of what

might do in retaliation for the huawei action. >> good morning. thanks for having me. in the near term, there have been some proposals about, for example, dumping chinese holdings of u.s. treasuries. another one is potentially they may want to restrict their access to the u.s. i think those are probably more extreme measures that china may try to do. david: one of the things people were concerned about when these announcements first came out of the white house were possible actions against u.s. electronics. for example, really shutting down relations with apple. could there be a reaction within the chinese populace because apple is so popular there? have in think now you

both countries the nationalist pressure ticking up. i would think those kinds of .actics are pretty extreme apple produces a lot of products in china. apple creates a lot of jobs for the chinese economy. i don't really think -- that is not a rational play here. i would not expect the chinese government to go that far. i think the tactics both countries are using is some kind of posturing to try to reach a deal. obviously, the odds of making a deal in the need her -- in the near term are very slim, but i still believe both countries may want to negotiate. alix: that is an important distinction. and we came in today, we had this fight song, president xi

playing the national anthem once a day in china. you also had the chinese ambassador to the eu with very strong words about not bowing to the u.s. you feel that is posture, not trying to be in the u.s.? momentobviously, at this the hearts in both countries are taking over. they are so dependent on each other, their supply chains are so intertwined. i still think both countries want to have a resolution. alix: all right. thank you very much for joining us. still with us is sarah hunt of alpine woods. if you look at the specific damage, take a look at what happened on the stoxx index. it is the semi-index, on track

for the worst month since the financial crisis. that is what you don't want to see. justified? guest: if we get a very big trade war, yes. alix: but for the trade war we are seeing now, justifiable as really big? guest: i don't think so. if the rhetoric on both sides becomes reality, then every time ,e get these big announcements so we've actually put all this stuff off -- we've actually put some of this stuff off already. that the demand really starts to change, and also there's is a huge disruption in supply chains. i don't think that is happening yet, but the semis ran really hard last year and came up when there were also inventory issues in the memory industry. this whole group ran when fundamentals has a not -- when

fundamentals had not caught up yet. the fact that they reversed that is not a huge surprise because they will take a lot of the brunt of this because of supply chains and how interconnected they are. david: let's go back to this really big trade war. one alternative is we really followthrough and say you cannot sell to huawei and telecom companies, and you cannot buy from them. which is the bigger problem? guest: the second one. going through to huawei and challenging a big company in china in a way that makes it glibly difficult for them to do business is going to end up being a bigger problem longer-term than the tariffs. david: doesn't that suggest that we have a bigger problem than you think? u.s. officials say this is not a trade issue. this is a national security issue. be they are not being honest with us come about that would suggest what you would describe as a very big trade problem. guest: the question is can we

take some element of the security question with huawei and turn it into something where we can find some middle ground, where we can say there is a way to figure out some of the security, so therefore we don't have to go so far? that is where people are pushing, and i think that is why this is coming up is a big issue. i think in the end, that is more important because once you start using these things, it becomes a bigger issue not just for the u.s. the u.k. has jumped in. then you have a bigger problem because you are stepping on another company in another country. alix: apple down almost 4% in two days on this. justified or biased? has some issues longer-term in terms of their product cycle. fall in up after a big

the quarter. -- are theice services going to be enough? there are so many things that are specific to apple that it is hard to say. think about how often we change our phones out now. [laughter] david: never. sarah: i know i have the iphone five. thinking about that now that we are not subsidized to the degree we were by the phone companies. we were not willing to change our phones as much, and that was big for apple. once people stop worrying about it, they stop generating a ton of cash. hunt of alpine woods will be staying with us. david: sarah called it.

she said tj maxx benefits when everyone else isn't selling their apparel. alix: you're welcome, t.j. maxx. [laughter] david: coming up another blow to tesla. slashedtanley's case is to just $10. this is bloomberg. ♪

david: time now to look at three companies worth watching this morning. deutsche bank has their annual shareholder meeting coming up thursday. we talked to bob diamond, the former head of barclays, who said they should have merged with commerzbank. >> i think eventually we are going to see consolidation. i was a little bit surprised we didn't see deutsche bank, commerzbank go forward because it was in the best interest of everyone. david: except the employees

being laid off. alix: but you say that couldn't happen. take a look at t.j. maxx, this reporting earnings moments ago. they round out beating -- they wound up beating. they say their gross margin was negatively impacted by increased supply chain and freight costs. i can't imagine that is going to be going away anytime soon. david: the third company we are watching today is tesla. for more, brooke sutherland joins us, as well as sarah hunt of alpine woods. they are having a really rocky patch. and this is coming on the heels of the wedbush analyst chopping his price target. code red. herculean effort to meet duction targets for the back half of the year. you just have this confluence of negative headwinds for tesla.

i think what people are concerned about is the dismal first-quarter numbers perhaps not be an aberration, that you are not going to see second-half recovery that people are banking on. tesla really in the crosshairs of the u.s./china trade war. they need demand to meet these goals, which factor into their ability to fund themselves. if that doesn't play out, that is a real hit to confidence. alix: their 2025 bond is trading at $.22 on the dollar. i feel like this might be similar. we talked about how closely the bond is tied to the stock. if you are a bond investor, you take solace in the fact that the bond is so high. if that takes a hit, you have money coming in the door -- money going out the door.

that is why you are seeing the bonds take a hit as well. david: one of the things we said in the midst of all this, they to other "i've "i-5 projects -- to other projects," as the analyst but it -- two other "sci-fi projects," as the analyst put it. arah: i think the fact that big bowl on tesla is turning around, that is an issue -- a big bull on tesla is turning around, that is an issue. he had some very lofty ideals, and now all of a sudden maybe the demand isn't as strong as we thought it was. there's a big series of changes going on. alix: he still equal weight. this is just the bears case. overall price

target is still fairly high. that still implies pretty significant upside. of course, this is valued richly. it is not like we are in ge territory. this is still a fully valued stock. you just have to see them deliver. david: you had one job, make the model three. alix: and stop tweeting. [laughter] alix: how hard can those things really be? brooke sutherland, think a lot. sarah hunt will be sticking with us. coming up, the pound gains on the dollar on the news that theresa may has a new proposal to get her brexit deal over the line. this is bloomberg. ♪

at comcast, we didn't build the nation's largest gig-speed network just to make businesses run faster. we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity. ♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. alix: this is "bloomberg daybreak." i am alix steel. retailers butr the risk on trade is clear in the overall market. s&p futures up during t.j. maxx crushing it.

not the same story for kohl's and jcpenney. in europe, the risk on rally underway. in other asset classes, it is risk on. the cable rate up .1% and the aussie dollar still lower as the dollar overall in the g10 space gains steam. david: now we have some fascinating breaking news. the wall street journal is reporting boeing official played down scenario that may have doomed ethiopian jet. this is a theory that perhaps the reason the sensor went wrong is there may have been a bird hit that cause the sensor to misunderstand the altitude of the plane. boeing is saying they are not sure that is right, but u.s.

officials are taking it seriously. alix: ethiopian authorities do disagree but they do not have any data to support that. bird hits are nothing new, but it is the fact the sensor reacted badly. david: it affects the engine and that affect the engine efficiency. this did not affect the engine so much as the sensor. a fascinating report. boeing stock is moving. that is why we reporting. it is up almost 2%. alix: we are seeing damage. seeking $276lines million from the company. china eastern. starting to get something in from that. david: let's see what is going on outside the business world. trump says there is

no sign iran is getting ready to attack american forces but he warns an assault would be met with great force. the president has said an aircraft carrier and bombers to the persian gulf and advises iran's leaders to negotiate a new nuclear agreement. china is warning it may retaliate against president trump's blacklisting of huawei technologies. beijing's ambassador to the eu tells bloomberg the u.s. is andged in bullying blackmail and says china will not sit by while its companies rights are being undermined. prime minister theresa may will lay out a new proposal for a brexit deal in a speech. a spokesman says her cabinet has discussed the agreement that will be put parliament. lawmakers have already rejected maze brexit plan three times. 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: thanks so much. about theresae may's speech coming up at 11:00 eastern time. the british pound is extending gains after announcing news she will be announcing a new plan on brexit. we welcome emma ross thomas. what is new that she could say? emma: we are yet to hear the details but the key things are what would say about the uk's future trading relationship or anything on a second referendum. this deal has been rejected three times. she is determined to get this thing up the line. this is the divorce deal so the u.k. can leave the eu. there is already a leadership campaign to replace theresa may. that means it is hard to encourage those who hated the

deal on the first place to get behind it now. the key target is the opposition labor markets, who want a custom union, that has been a red line for conservatives. theresa may has indicated she is prepared to concede on that. the wording will be important. the problem is, as we have reported on numerous occasions, just doing the customs union monopoly enough to win over enough labor mps. as you offer a customs union, you lose from your own site. this has been the problem. she offers on one side and loses on the other. a big group of pre-brexit lawmakers not prepared to budge. david: what vote is she going for? where can she find the votes she needs it at all? brexit votes are probably correct redeemable he lost. probably what she is trying to

do is get the labor vote. cross party talks with labor broke down last week. there were some areas where there was some kind of agreement on workers rights and environmental protection. none of that will get us over the line. we are talking about the customs union, which is crucial for businesses and trading goods and the second referendum. repeatedly said she did not want a second referendum, but there was a hit today that after a cabinet meeting a spokesperson said the cabinet discussed all possible options. that would suggest one of the options discussed was the second referendum. the government is also saying they know there has to be significant new aspects in order to get this over the line. they're promising something new but we have been disappointed in the past. david: we should know more about two and a half hours from now. thanks so much to emma ross thomas. alix: the oecd saying the u.k. will grow 1% but the trade

centers will take a toll. forecasting global growth slowed this year. joining us is bloomberg's taylor riggs. taylor: my takeaway is still u.s. versus rest of the world. we are the only country growing at 2.8% relative to everyone else. the u.s., u.k., and japan will be the countries that the growth slowing as we push to 2020. as we pushed forward to minutes, the oecd says inflator's should rise to 2.2% going forward in 2020. it is all about china. we have to switch over. china's outlook does remain a concern. we know trade tensions are to blame. we have china total exports this year expected to rise to 1.6%. imports rising to 2.8%.

imports and exports in china going back to their lowest going back several years. the key takeaway for me is still the u.s. versus the rest of the world. alix: thank you so much, taylor riggs. next year, china, 6%. maybe would not take a lot to get to the five handle? oecd earlier said the trade war could hit gdp. >> if these measures were implemented in full, as you describe them, you're talking about an impact on prices in the 2.5%that could be depending on the extent of what is being implemented, and a decline in gdp, which could be somewhere between .1% and .3%

depending on whether you go all the way with these measures. david: we welcome bloomberg's economics tom orlik joining us from washington. still with us is sir hunt of alpine woods. do you agree? tom: we are broadly on the same page. we ran various different trade scenarios with our model of the global economy to try to get a sense of how big the costs could be and where could they fall. is that we stick with the 25% u.s. tariffs on the $250 billion of chinese imports, plus the chinese retaliation already announced. on that scenario, we would see inbal gdp down by about .3% 2021 relative to a baseline of no trade war.

if trump follows through on his threat of tariffs on all chinese imports, that amplifies the impact. in that scenario we've been looking at global output down .6%. that is about $600 billion. alix: that is substantial. how do you trade binary risk like this? sarah: it is difficult. the equity markets do not seem to think the risk is there. the market is assuming we will get something done. if you do not, you have real risk in the equity markets. you also have low interest rates globally. you have knock on effects. you have knock on effects with am i going to put a factory here , am i going to make these investments? you have a slowing effect, even if you do not get all of this, just because you have people indecisive about what to do and where to put things.

remorse -- iflso you had the equity markets you will start to hit the wealth as well. sarah: we had a fourth quarter , now everyone was worried you are looking at an outlook that is not that clear. lucky for the u.s. earnings are good. i think you have time, but there is a risk. alix: do you feel like world governments are prepared for the kind of scenarios you model here? tom: the assumption in our modeling is that central banks have a neutral response. they do not respond to higher inflation by hiking rates. they do not respond to lower growth by cutting. the more realistic scenario thinking about what the fed has in terms of options is it we do start seeing growth crumpled,

then we would see the fed and the people's bank of china responding with some kind of policy stimulus. globally, when we look at central banks around the world, there is not a lot of policy space. in china and the u.s., there is still a little bit of wiggle room. if we do start seeing tariffs go up further, if we start seeing investment consumption responding by coming down, our expectation is the fed and the pboc would have space to upset that. david: many thanks to bloomberg's tom orlik reporting from washington and sara hunt of alpine woods. coming up, the sec may be on board but the justice department says not so fast on t-mobile's merger with sprint. we'll discuss concessions the companies might have to make next on today's follow the lead. live from new york, this is bloomberg. ♪

>> this is bloomberg daybreak. markets, on bloomberg kyle bass, hayman capital management founder and cio. daybreak." omberg indonesia is underscoring the challenges boeing faces in getting the 737 max 8 back in the air after two fatal crashes. the indonesian government may ground the plane until next year . officials say that even after the u.s. clears the 737 max to return to service, they will conduct their own review. sony ceo has laid out his full

long-term vision for the company. he detailed plans for dealing with big changes in the game industry and an escalating trade war. he says he is developing a successor to the playstation game console. tryingsame time, sony is to make sure it will thrive if consumers embrace cloud gaming. and employment back climate change counsel is on the agenda at the shareholder meeting. -- how it will reduce the amount of fossil fuels it uses. amazon opposes the resolution. the company announced plans to reduce carbon output. that is your bloomberg business flash. time for follow the lead. this is a deep dive into stories making headlines and moving markets with insight from industry veterans and insiders. today we're looking at the state of the t-mobile acquisition of

sprint, which got the backing of the sec but failed to win over the justice department, with the head of the doj antitrust division said to be leaning against the merger. we welcome jennifer lee and matthew can't german -- matthew. let's remind everyone with the basic problem is. let's look at the overall business. for players and two of them want to merge. jennifer: they need clearance from the sec and the department of justice. they have clearance from the sec, now they need to get through the department of justice. the department of justice will be breaking this up and it does go segments -- into two segments.

isre they will be focused on what to those combined market share numbers look like and what to the concentration numbers look like and what kind of consumer benefits might bring outside of this consolidation? david: those other consumer benefits, particularly 5g, broadband to rural areas, how real are those benefits, how certain? matthew: it is very real and 5g is a big enabler. the sec, one of the chairman's ambitions has been expanding broadband in rural areas. with 5g, they can go out and compete and deliver faster broadband to rural communities. my in-laws in rural michigan can barely get 10 minute -- 10 megabits per second download speeds. they only have one option right now, so it gives them choice.

lower prices and better options is great for rural america. david: that sounds pretty good. at the same time you have the antitrust division coming against a lot of criticism over the application of antitrust in the tech space, saying he has not been aggressive enough. what is he facing to find out how the antitrust apply in this very concentrated industry? jennifer: he has pressure from both sides. on the one side there has been massive criticism about industries becoming too consolidated because the sec has allowed mergers. on the other side, this administration is interested in five key and american advancement of five g and getting it out to rural communities. this is part of the reason the fcc was willing to clear it. he has these competing considerations but he also has the ability to say do the

consumer benefits outweigh the potential for harm? he may be able to get there in the post -- the numbers -- in the postpaid market. ,ith the investiture promise maybe adding to that, beyond what sprint has committed to that, they may be able to get over the line. he may be within his guidelines doing it. alix: the lehman question. question -- what does antitrust constitute? jennifer: i think the big changes happened in the 1970's when we moved to a much more economic-based approach to antitrust. this is a good point. 50 years ago, the regulators may not have looked at these benefits and efficiencies and given those efficiencies wait. what we have done is given much more weight to the net benefits of the deal. looking at the harmon benefits and getting -- looking at the

harm and benefits. david: we are saying we need to get 5g and rural communities, at the same time we are shutting down while way. -- huawei. we are saying you have to get out of the rural telephone companies, are we being conflicted? matthew: it is tough to say because the government will not show us the data, whether or not they are enabling backdoors. if the government is correct, it is important to get them out. even not allowing, but the chinese legislative infrastructure forces them. there's debate over forced ip transfers in china. if huawei is forced to transfer all the data to the government, that is a risk to the u.s. infrastructure. in that regard, plus their new entrants like samsung and cisco that could fill the gap.

matthewennifer read and kanterman. thank you very much. jonathan: coming out -- alix: coming up, more on what i am watching. this is bloomberg. ♪

alix: here is what i am watching. boeing shares moving higher. the wall street journal report says officials think birds may have affected the sensor on the crash in ethiopia. joining us is bloomberg defense analyst. walk me through the report. >> they think the bird may have struck the angle of attack sensor on takeoff and that is what knocked off the sensor. when the system that pushes the

boeing 737 knows lower because it is worried about a stall, when did not get data from that sensor, it was trying to drive the airplane down, tribe the nose down so the airplane would not stall. this could have been a contributor to the crash but i do not think it changes the problems in the system, which it could over control the airplanes so the pilots cannot pull the airplanes out of the stall. alix: that is a good point. a plane getting hit by a bird is nothing new. it was the fact they had equipment that did not let the plane react normally. >> absolutely. any system on an airplane has to be robust enough to take a bird strike on departure. the challenge on this system is it can drive the elevator over hard enough so pilots cannot pull it out of the dive. boeing will fix that in the software fix. the pilots should have deactivated that system. we are not sure they were aware

was on. it needs to be easier to deactivate. i do not think this changes a lot. david: we have two fatal crashes. not one. how probable is it a bird hit that sensor? in engine is a big thing. this is a little thing on the side. how likely is it that in two crashes you have a bird hitting that sensor? >> i have a hard time imagining that in both crashes that occurred. at lion air we had issues around maintenance of the sensor. there could be multiple reasons the sensor gets deactivated and this has to be robust enough to manage that. alix: wise the stock up 2%? >> there might be confusion from people in the marketplace about how important this is. we think it is interesting but does not change the requirement

boeing needs to make the mcat system less aggressive, easier to shut off. there may be people confused. alix: george ferguson of bloomberg intelligence, thank you very much. week there's a meeting in houston to find out how to get things back in the air. alix: and chinese airlines are saying time to pay up. that doesn't for us. -- that does it for us. coming up, pure to hear on a risk -- coming up, peter to hear hier on a risk on day. this is bloomberg. ♪

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