inversion angst. global bond yields drop. gamble.s the rare earth ecb's new bank warning. the central bank vice president's has downsides are prominent and negative interest rates aren't to blame. david: welcome to "bloomberg daybreak." it is another day of extraordinary storms across the midwest. alix: and flooding up in yonkers? david: and much worse in the midwest. in arkansas they had enormous floods that won't even peak for a week. alix: looking at kansas, too, really getting hit as well. we talked about this earlier for the markets. it is affecting the oil market because pipelines and refineries

are starting to get shot in. that is distorting some data as well. david: those inventories have gone up as a result. we are just not getting the corn planted. alix: half of what we usually are at this time of year. oh my god, look at that. we will be watching this and any updates on the weather, as well as commodity prices over the next couple of hours. in the markets, it is a story of the bond market. you are seeing some risk off here. trade escalation really front and center. 1.11.ollar right around oil getting really hammered as well. yesterday in the bond market, anywhere you look, five years over in spain now negative. unreal. david: i think the technical term is running for the hi lls.

at 10:00 this morning, we get the fed manufacturing index. afternoon, $32 billion worth of seven your notes. today marks the opening of disneyland's new star wars galaxy's edge attraction. tickets for the opening event sold out in two hours. i'm a huge fan of the original, but you are a fanatic. alix: i just love them. no one likes the ones they just made, but the recent ones? really good. build 141 billion to acres of rides and experiences. you can even get a lightsaber upwards of $200. happy birthday, david. david: walking around in stormtrooper costumes, right? for me, the hollywood studios

part, they never got that part of the park to work. they are going to turn it around and make it the star wars part, and it is going to work. i have no doubt. alix: the millennium falcon ride, that's all i'm going to say. whole we could spend the two hours on star wars, but we are joined by gina martin adams and michael mckee. mike, as you know, the ecb came out with their biannual -- semiannual financial stability report. device president of the ecb talked with matt miller earlier. this is what he said. >> the outlook is much more challenging that was -- challenging that it was, and this has an impact on financial stability. the impact this could have on bank profitability, and

simultaneously there are risks to bloomberg growth and european growth that continue to be built to the downside. david: things are a little rocky right now. michael: it is funny. you were talking about those tornadoes and storms in the midwest. it is like those sirens that go off. the ecb was planning to normalize this year. they wanted to start moving rates higher. that is not going to happen at the moment. today.unemployment rises the sirens are going off a little bit in europe. the stability report talked about italy and its debt, pushing back against the idea that they would underwrite any of italy's debt. the european commission telling italy you got to clean up your act. bizarreat's what was so that they specifically said negative rates are not to blame why banks are bad. gina: to me it just seems like more of the same.

we've been dealing with negative rates in europe off and on for several years. flash back to 2016. we had vastly negative rates across the continent. the difference now is the u.s. yield curve is an inverting. we have this trade war starting to emerge between the u.s. and china. that is weighing on global growth sentiment. two or three years ago, it was really exclusive to europe, as well as the commodity meltdown. it is different this time, but in a lot of ways it is more of the same. for years we have been contending with poor debt situations. we have been dealing with negative interest rates. we have been dealing with how do we drag the european banks out of this malaise. it is just another year of europe in the doldrums, as far as i'm concerned. alix: what is also the same is

china threatening rare earth exports. that is also like the playbook from 2010. here's the big picture. 80% of u.s. rare earth supplies come from china. this is a weapon china used in 2010 when it comes to japan. you had a short-term spike in stocks, but then nothing really happened. is this a big deal for the u.s. are not? michael: this is a nuclear weapon for china. 80% of the rare earth used in the united states are of chinese origin. we use to mine them, and then we stopped. they are used in just about everything manufactured in the united states, particularly in automobiles and anything with an electric motor. if china stops or raises the prices, this could really hit u.s. industry very hard. david: even as we are talking this, china to coordinate stabilizing growth reform,

accelerating agriculture, so what we have here is basically come on the one hand, we are going to protect our own economy. gina: this is the big difference between 2018 and 2019. 2019 has been a year in which china has made every effort ,ossible to reinflate growth and now clearly a bigger national policy recognizing that 2018 was a really rough year and they are not going to skirt through this without doing something to reinflate the domestic stability. it is very clear the export market at the u.s. is going to be less gross than it has been in the past. it is clear that european growth prospects are also somewhat limited. there has to be some source of stability. they are going to try to reinflate the domestic economy. david: back to those sirens he referred to, it is the bond market across the board this week. you can see people are just

running into bonds across the board. this0 year down to 2.24 at point. look at the german bund. michael: we talked on this show for months about whether all the risks of the trade war repriced in, and clearly they were not. they are pricing it in right now. people are beginning to take seriously the idea that whatever you think of donald trump's trade policy, it is changing the global economy, and in negative ways that will have repercussions for a long time. we are beginning to see people talk about the idea of a global recession ahead, and you are starting to see people price that in. they are looking for places to go. you run into the problems of if the german economy is slowing down, that is a safe haven. what is happening with the yen and the dollar are the places that are getting strength at the moment. alix: why didn't utilities and consumer staples outperform?

gina: i think what is happening in the bond market is not what is happening in the equity markets globally. equities are only down 5%. haven't even had a 2% down day. there's no evidence of panic in the equity market. all of the panic is showing up in the bond market, which is very interesting. there is clearly a flight to risk-free assets, a flight into bonds, but no clear evidence yet of a flight out of equities, specifically out of u.s. equities. we. are down 5% we had -- we are down 5%. we had a really orderly selloff so far. i think the market is having trouble figuring out how much done said -- how much downside there is when all that has happened so far is a tariff on imports plus a lot of other news with regard to import costs. now this rare earth news, which we had before in 2010.

2010 wasn't a particularly difficult year for import cost pressures. i think there's a lot of give-and-take going on in the equity market. really, how damaging is this to gross? that is a big question we have to work this waste -- we have to work our way through. alix: let's leave it there. michael: in the deadline coming up for the tariffs this weekend. alix: there is that. gina martin adams and michael mckee, thank you both very much. you can find all the charts we used and more over the next two hours. go to gtv on your terminal, browse the features. check it out. coming up, beijing signals that it may weaponize rare earth in the trade war between the two countries. we will discuss. this is bloomberg. ♪

david: china sends signals overnight it might use its dominant position in rare-earth's to its advantage in the trade conflict with the united states. curran.me now enda how serious would this be? nda: pretty serious. we've had a lot of rhetoric in today's state media making it clear that this is a potential tool for them. the used a very rare diplomatic phrase that we did warn you in advance about this issue. u.s.'ss 80% of the

source of these minerals. they are used in everything from electronic cars to wind turbines, so it is a real threat. if they can get some kind of a progress towards a deal, the idea is this threat might be taken off the table. right now it is a very real one, and it shows that china does have the capacity to fight back. david: overnight united states did not name china as a currency manipulator. in the united states that was taken as a sort of all of branch. is it taken that way over in china -- a sort of olive branch. is it taken that way over in china? enda: the international community doesn't consider china a currency manipulator. they didn't go much further than that.

it is all adding to the dimension that this time around is the trade negotiations are happening, we know that the currency is on the table and that the broad idea is the u.s. doesn't want china to deliberately weaken its currency. in other words, currency manipulation may well be part of any trade agreement. there hasn't been any action taken for several years, so there is less focus at the labeledhether china is a currency manipulator. what role itis on does play in a trade agreement if there is one over the coming months. david: thank you so much for joining us. that is enda curran reporting from hong kong. alix: i imagine china is like, you are right. we agree. [laughter] alix: joining us on set is art hogan. we are looking at an s&p down below 2800 here. we have seen the last three days , we come up higher, we close

lower. how much more downside for the equity markets? this has beenlike happening for a long time. been pretty orderly, 1% a week drawdown, in a situation that has completely reversed itself. newon't have any real information until the end of june's -- end of june, so this is how the market is trying to calibrate how much risk we should be pricing in. does that square with what is going on in the bond market? the bond market has been a little more urgent than the equities market. when using about where i can go to keep my money safe, unfortunately that is u.s. 10 year, and that inflow of cash is going to draw down the yield on

the 10 year, and that is where we are. there's nowhere else in the world you can go. alix: they would have to sell it to defend the yuan. we will go more deeply into bonds, but staying on that theme , this is the function grr . consumer staples is the worst performer. explain that one to me. art: it doesn't take very much for this to be a counterintuitive move. doctors -- semiconductors got crushed yesterday. this going to be those days where things happen that just don't make any sense. over the course of the last five weeks, those three defensive dividend earnings had outperformed the broader market.

yesterday was just not one of those days. david: we're looking at a real prospect of an increase tariff on the remainder of imports. what would be most hit by that? art: the problem with the next tranche is one of $20 billion of that is consumer facing. all of us are going to feel that. right now it is out there. farmers are getting hurt. technology companies will have trouble. it is all of the things that don't necessarily affect us every day. we will wake up and find out that a big chunk of what we know that comes from china is going up in price. that will make it real for a lot of people. on the consumer technology front, it is mostly handsets and laptops and things of that nature. that really makes it real to all of us. have a national push coming into a 2020 election cycle. i am not sure that is something that stands up for a long period

of time. alix: you sound much more measured, like maybe there's no more bad news. where is the opportunity to buy within the equity markets? art: the most oversold, i think, has been semiconductors, but it is probably too early for that. but if you look at the markets in general, financials and energy really get completely washed out. here's the interesting thing. energy, the etf, is higher than the one on utility, which never happens. it makes no sense. at thisf i am looking market, saying what are the two sectors that are most washed out and have little or nothing to do with this fight, it is energy and financials. alix: energy would be a big pill to swallow. [laughter] alix: coming up, u.s. 10 year yields the lowest since

september 2017. spanish 10 year at a record low. this is bloomberg. ♪

alix: reading the tea leaves for the bond market can be quite a dangerous thing. risk aversion driving yields to multiyear lows. u.s. 10 year now the lowest since 2017. with us still is art hogan, national holdings corporation chief market strategist. what is this telling you? art: there's a lot of uncertainty in the world. when that happens, you tend to get defensive. it is certainly happening with japanese yen and the u.s. 10 year. it is happening in the u.s. dividend darlings. but the 10 year is the largest liquid market, and when you look

at the yields around the world, there's nothing that compares to it. it is still 200 basis points more than just about every other liquid sovereign out there. alix: part of that is the inversion of the yield curve come of the yield curve, the three-month 10 year. this is the lowest inversion. withinat 12 basis points 2011. retrench? think we've had inversions where there hasn't been a recession. we've never had recession without an inversion. as a signal eight is not perfect, but it is perfect looking backwards. we've never had an inversion where it meant anything in the whole number was less than three. there's 12 basis points difference between the 90 day on the 10 year. 2.02.s still

the problem is we haven't had 10 years of global central bank intervention in the fixed income market and bond market. there's a lot of things we've never had wrapped around this, and we know it is not perfect. i would rather look at the leading economic indicators. when that rolls over, i think that it's going to be a better interpretation of the fact that a recession is on the way. david: the long end of the curve is not really telling us what demand is going to be over the longer-term. what you are saying, i think, is that the technicals do not reflect demand going out. art: i think that is very much the issue, and the long grade of the curve is perhaps telling us our fears going forward are justified, or it is not going to be out that -- it is not going to be that radical out there. we are talking about more tariffs, and yet the long assay

and we don't think there is any inflation in the near-term. there is that divergence again. we are looking at perhaps three rate cuts. that is what the market is starting to price in. how mispriced is the market? art: it is amazing to me. i can believe the chance of a 25-point cut. there's a 50% chance of to cuts. when you go out for -- of two cuts. when you go out further, what has to happen is this becomes a mutuallywn out destructive trade war. if the economic data gets worse, they will certainly make a move. i think the market always gets out in front of the fed and generally gets it right david: we don't know if there -- gets it right. david: we don't know if there is

going to be this long, protracted crate work -- protracted trade war is not. art: right. like an attorney from now, the g20, and it really isn't. if they think they've done enough saber rattling, let's sit down and talk. alix: art hogan of national holdings corp., thanks for being here. coming up, it is the ecb's return to normal policy. the vice president says it is harder now to get back to normal. this is bloomberg. ♪

alix: this is "bloomberg daybreak." risk off, risk off is the theme in the market. s&p going below 2800 as we open up. european stocks getting hit

hard. basic resources getting hit even harder. in other asset classes, very much a similar story. yesterday, a flood into the bond market. 12 basis point negative, the lowest we have seen in years. dollar-yen also a little lower. crude is now off almost 3%. it is going to be very hard for any equities to catch a bid. you can imagine what that will do to the high-yield market. david: it paints a single picture. it all fits together. alix: you wonder what is reacting to what, and how much of it is going to be idiosyncratic. is it really the trade tensions? globally, that is not so good. let's get an update on what is missing headlines outside the

business world. viviana hurtado is here with first word news. viviana: an ethiopian airlines pilot warned the carrier of dangers with the boeing 737 max 8 months before the fatal crash. they revealed the pilot told the airline more training and better communication were needed. he was concerned after an lastesian 737 max 8 crash october. white house national security advisor john bolton says there is no reason for iran to break the 2015 nuclear treaty unless it is trying to build atomic weapons. bolton was in abu dhabi to meet with officials from the emirates. he also said iran is almost certainly behind attacks earlier this month on oil tankers in the gulf. there has been a rare outbreak of tornadoes in the u.s. over the last month. ofecasters logged reports over 500 twisters. they are flattening communities

throughout the u.s., and the severe weather has hit areas stretching from the rocky mountains to the mid-atlantic. yesterday was the record 12th straight day with reports of at least eight tornadoes. 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 viviana hurtado. this is bloomberg. alix: thank you so much. and yes, the damage, people losing their houses, how horrible it is, it is tragic. it is quite tragic when it comes to farmers as well. we have a really interesting chart that shows planting. if you look at it versus the five-year average, the blue bar is the five-year average, the orange bar is where we are as of may 26. corn planted is like half of what it was. soybeans planted, theme situation. spring wheat, very similar. if you can't plant them, prices will soar, but you also won't have the crop to actually benefit from that.

that will be a huge risk going forward. david: this is not a one-off as well. problems have been exacerbated by trade, and know you have these weather problems. alix: and it also impacts harvesting. if you have floods, you can't get at it. there's a lot of pain there. david: and it will express its way through the entire system for some time to come. we turn now to europe. the european central bank released the results of its semiannual review this morning. matt miller sat down with the ecb vice president to go over the highlights. >> the environment of financial stability in the euro zone is more challenging to us. i think that has to do mainly with the slowdown of the economy. have an effect on bank profitability. risksaneously, there are

twoloomberg growth -- european growth that continue to move to the downside. this is the main element of difference we have. but the process of monetary policy has continued. ve more started to gi importance to forward guidance. we have our reinvestment policy. we announced the new round of refinancing operations. and thenue to do that, process of normalization continues, but the outlook is much more challenging than it was, and this has an impact on financial stability. matt: is it time to sound the alarm?is it time for another whatever it takes moment as we see bund points,rop to -16 basis as we see yields fall to the lowest level in two years? guest: in 2012 we had these

famous words, whatever it takes. of you look at the spreads spanish bonds and german bunds, and that is not the situation we have. now the situation is totally different. we have a slowdown of the economy. this has been reflected in bond yields. that is why we have negative bunds. for the the situation is totally different. the economy is growing at a slow pace. it is going to be slightly above 1%. there are a lot of downside risks, but these are related thely to situations outside borders of the euro area. i think that is something we have to take into consideration.

war: obviously the trade between the u.s. and china, brexit. there are sovereign risks inside the euro area as well, and climate change, interestingly, was when you highlighted. i wonder about trade, though. when you watch what is happening between the u.s. and china, aren't you worried about the short to come trade war between the u.s. and europe? guest: i think that now the focus is on china and the u.s. i think that the main risk is so far, we have seen some announcements of increases in tariffs, but the real risk could be escalation towards a sort of full-fledged trade war that will be extremely detrimental to the global economy, to the european economy. matt: have you seen in the past few weeks that we are a much

there? guest: i hope that at the end of the day, common sense will prevail. the incentives are there to reach an agreement. i would hope than it agreement will be reached. if that is not the case, that for the global and european economy. david: that was bloomberg's matt miller speaking to the ecb vice president. alix: joining us now is martin gilbert, standard life aberdeen vice-chairman, and former co-ceo. thank you for being here. last time we talked, we didn't touch on europe. when you take a look at what is happening in the bond market, what is happening in portugal ?nd spain, what do you think martin: they look very overvalued compared to emerging market bonds, but it is a flight to safety at the moment, even in europe. david: what about european financials? a lot of what the ecb talked

about was european financials and why they are having such a hard time. martin: i think for various reasons, banks are having tough times, largely may be of the domination and the investment banking market of the big u.s. banks. shareholders are questioning whether the banks should be an investment banking at all or whether they should revert back to the more profitable domestic banks they have or cards or whatever. i think that is one of the things, plus the very tight margin on rates. overvalued,he banks or are there some bargains there? is it worth investing in european banks? martin: i think they look pretty good value. seeing definitely we are them being held back by their

banking activities, basically. do you need higher rates to want to actually go buy the banks? martin: not necessarily. think it's got to manage their businesses better probably. i think the big issue shareholders have with them is whether they should be as heavily into investment banking as some of them are. but most of them have very good either wealth management businesses or domestic banking businesses, which is where the real value in some of these banks are. david: basically, they should be managing their cost better and opening up their balance sheets. are some people doing that, and are there really some political concerns? we talked about deutsche bank and commerzbank. you get do that.

-- people in germany said you can't do that. martin: the situation in germany is unique, as you know. have to look at their cost base. they have to look at the nonprofitable assets on their balance sheet. that is where shareholders are expressing concern with some of the banks managers. alix: when it comes to the ecb and what other action they have come up talk about tltro's for banks on the cheap. one is that is the big bazooka -- one thought is that is the big bazooka. the other is that demand isn't really going to be there. which do you think is the issue? martin: i think the low growth is really what is hitting the banks as well as the moment. as the vice president of the ecb just said, growth is just about at 1%. we need to see a bit more growth

in the euro zone. david: are we going to see fiscal stimulus? martin: i am not convinced that they can do much more. i think we now have to trade our way out of this or grow our way out of it. alix: what kind of fiscal stimulus would be needed? it feels like there is not the political will to do that. martin: i don't think there is political will, and i am not convinced there is much more firepower they can throw at fiscal stimulus. now runnings about the businesses better and growing. david: how much pressure does that put on the political constituents in europe, whether at the european union level through parliamentary elections, remember states? or memberr states -- states? martin: the recent elections

showed the populist movement is not as strong as people thought, so it showed some movement in the political situation where we have the brexit party doing so well in the elections. alix: the six dale brexit party. party --x-day-old exit the six-day-old brexit party. [laughter] alix: when you look at what is going on in the bond market, do you want to go out there and borrow for cheap and invest, look for value, search for yield? or do you need to retrench because it is saying something about the global economy? martin: i think you've got to look at opportunities elsewhere from european government sovereigns. i would look at emerging-market sovereigns. when i look at which funds are selling the best in the u.s. at the moment or globally, it will be emerging-market sovereign, emerging market bonds where there is value and real returns.

india, china. the sort of markets. alix: martin, thank you for stopping by and joining us. martin gilbert of standard life aberdeen, thank you very much. --ing up, jamie dimon says and as we had to break, we have retail earnings out. in particular, abercrombie & fitch down a whopping 14%. it missus comp sales estimates, coming in light. david: 1% as opposed to 1.4%, and their losses were much less than what was estimated. alix: maybe that is going to be a tariff story. 's boosted their full-year earnings forecast of $3.40. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." coming up later today, manny roman, pimco ceo, and dan ivins and come up him so -- dan iverson, pimco cio. ♪ viviana: this is "bloomberg daybreak." postingporting goods first-quarter earnings that beat estimates. expected them to fall. netflix threatening to leave the state of georgia if a new law threatening abortions takes place. the streaming video service produces several shows there, including "stranger things" and

"ozark." huawei has gone to court to get off of that u.s. blacklist. sayshinese telecom maker it is unconstitutional, arguing it stigmatizes the company and its employees as tools of the chinese government. that is your bloomberg business flash. alix: thank you so much. we turn now to wall street beat. we cover three things wall street is buzzing about this morning. first, goldman adding three more members to its seniormost governing body. google's ceo says no to more stock. saysp morgan's jamie dimon wells fargo was irresponsible to announce their ceo's departure without a succession plan. david: let's start with this goldman story.

three people added, one of them a woman. reporter: you say to any 5%, i say still only seven women. the interesting about her is her background. she comes from a trading background. talent hasvesting taken over the roles at the top banks. she has access to steven mnuchin and a lot of fed board members. 25%, i will take that. [laughter] david: remember all those bank ceos when they said, could you have a woman succeed you. they are moving women into more senior positions, so at least in the mix. it is happening fast. a lot of people are blaming the pipeline. rates 50-50ake top

-- the top ranks 50-50? alix: didn't jp morgan just make the switch? david: they did. idea is they would give them both a different type of experience so they took over -- so if they took over as ceo, they would have a bigger backbench. sonali: exactly. alix: bloomberg learned that sundar pichai hasn't received an equity award and doesn't like the optics of how that looks. sonali: how often does that happen? alix: never? a ceo ever sayes don't pay me? usually companies are bending over their backs to pay their ceo to get the talent on board, but he says he is very tired of all the drama surrounding the

job right now. he is described as very nonconfrontational, and has been dragged up to washington at a time when pay equality is a big deal in the technology industry. david: really smart and wise on his part. the same time, 500 $50 million in equity rewards he's received, so he's not going to go broke. alix: he also has a private security detail. let's put that aside. david: let's go to jamie dimon, who spoke out yesterday and said he thought wells fargo was irresponsible for not having a successor when they moved away tim sloan. sonali: not only did they not have a successor ready, they did not even have a search in place. david: which is pretty amazing. sonali: a lot of people said it was regulatory pressure. jamie dimon says the regulators are not going to make banks not have a succession plan.

he said a couple of weeks ago he's afraid of losing his top deputies. ,e's lost a lot over the years including charlie sharp, who now runs bny mellon. some of the people on the candidate list include marion lake and gordon smith. david: there's a long list of people who are candidates for wells fargo. a lot of women. alix: and who is going to want to take that? he's not wrong. why didn't they have some kind of better backup plan. sonali: and you've got to wonder if the cost keeps going up by the day. you've got to attract somebody to come into a turnaround story. david: i will take the other side of that, that it is easier to take over something that is broken and fix it. alix: if you can fix it.

tim sloan couldn't fix it, right? david: and he was an insider. alix: so you come from the outside and fix it, but still. take the warren buffett stance and take a non-wall streeter completely. david: don't miss our exclusive interview with james gorman tonight on bloomberg television and radio, live at 8:00 p.m. new york time. coming up, asia's city states beat the united states. singapore and hong kong dethrone the united states as the world's most competitive economy. we look at the reasons, which includes education. this is bloomberg. ♪

david: today, i'm watching competitive economy. img comes outthe

every year with the ranking of competitive economies. the u.s. fell to number three this year, beat out by singapore and hong kong. number two is hong kong and both, and singapore is number one. a lot of it has to do with how much they spend on education, and the number of skilled workers. basically, if you are a work i knew get laid off, where do you go? david: it is a big problem in the united states. we talk about income inequality. we don't talk as much about education inequality, which is a big problem. i talked to a leader in this area in the united states, and this is part of what he had to say. >> you here today this term achievement gap or opportunity gap that speaks to what lower income students have been able to learn and the schools he students have

been able to learn in the schools they've been in compared to higher income students. notes that they united states is not the top. we are losing a lot of kids along the way. alix: is this something on a national level we can solve, or is it going to have to be state-by-state and city by city? david: he said education has to be directed at the local level, but supported ultimately from the top. alix: looking for to that. david: you can do nine to that interview at 9:30 eastern time. alix: this is bloomberg. ♪ the latest innovation from xfinity

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global bond yields dropped as a portion of the u.s. yield curve inverts the most in more than 10 years. ecb's new warning. the vice president of the central bank says negative interest rates aren't to blame. david: welcome to "bloomberg daybreak" on this wednesday, may 29. we have some retail earnings out today. the basic theme is it depends on what is coming next. alix: totally right. david: you see very different reactions in the premarket there. fitch says we are not going to grow at all. alix: there is 0% for sales in the second quarter. david: a narrow miss in the last quarter, but it wasn't much. alix: a lot better in terms of earnings than we thought it was going to be. their margins were pretty strong. they had better operating margin environment.

their operating loss margin improved. but not enough. it is about those sales. david: you are tinted to say that the markets right now are so concerned with what happens the second have you -- you are tempted to say that the markets right now arc so concerned with quarter.ens the second if you have companies warning on the back half of the year, it is bad news. david: people are not so sure about the second half. alix: let's get to the markets. it is a rough day out there. s&p futures below 2800, a really severe risk off in the commodity market, down 3% for oil. all of that causing a rush into safe havens, in particular the bond market. gold not benefiting that much from the safe haven move. it is going to be about yields, down in the u.s. by four points.

neared -- near unit of lowood it -- near negative low when it comes to the bund. today marks the opening of disneyland's new star wars attraction.e a fair number of people around here are pretty excited about this. alix: you can make fun all you want. david: it is not just you. [laughter] alix: our producer has her tickets. david: she's going. can buy a lightsaber that could be as much as $200. this is not your kids toy. this is serious. david: and you can get that blue milk from the bar. alix: that would be super fun. can't you hook us up, david? risk aversion sending investors into bonds. taylor riggs has some of the details. taylor: i am going to kick it

off by looking at australia and new zealand. take a look at my terminal on gtv . australia fell below the rba cash rate for the first time since 2015. new zealand 10-year gilts going also to ash 10-year gilts going also to a record -- 10 year yields going also to a record low. japan 10 year now negative nine basis points. since 2016.est in the u.s. it is really all about the inversion of the yield curve on the three month tenure. you are at -12 basis points, nowhere like the inversion we saw before the previous recession, given the low inflation and structural issues with qe. you really need to see that go to -20 basis points before we start to get nervous about a recession. nonetheless, -12 basis points certainly something that catches a ride. david: thanks so much to taylor

riggs. directionwe welcome investments head of capital markets and institutional , and richard weiss. somebody is nervous about something. richard: the fundamentals are just not there. we have a global economic deceleration, lackluster earnings, and an inverted yield curve. i think the market is nervous about the second half of this year. we had a lucky bounce in the first quarter, in part from the tariffs, in part from the change in monetary policy. from that respect, i would've want to buy what? richard: i am not sure you are running into gold at this point, but there are some safe havens. you can manipulate sector rotation, possibly get a little

more. possibly the markets are undervalued and you can get a better earnings yield. it is time for active management, no question. david: where are people running? guest: in the short-term term, i think we have a bear sentiment, but i think there is some positive upside and some opportunities to come later in the year. we do see a little bit of that sector rotation. we see some of the defensive names like utilities and staples, and even health care. we actually see a lot of people going in and capitalizing on the short-term moves. alix: you take a look at treasury positioning, i read that you have seen shorts building in some of the treasuries, too. do you look at this as a short-term blip, or a big

commentary about global growth? sylvia: there are definitely some issues. global growth is slowing down, but corporate earnings, although decelerating, are not stopping. jobs are still fairly stable. i think that the longer term if we get this uncertainty on trade wars out of the way could provide some bright opportunities in the future, but we see short trading in equities now. we see people shorting semiconductors. we see a lot of flow into short flow etf. for else do you do now short-term tactical traders? it is a great opportunity to benefit. david: where is the global growth coming from this morning? richard: primarily china, at

about a 6% real rate, and the u.s., the proverbial cleanest shirt in the deer the laundry pile, which we've been for some time now. 2%are coming in around economic growth. next year, 1.8%, 1.9%. that is going to lead the develop economic world. a lot more downside to upside on those numbers. the last economic consensus has ratcheted back both the and theal possession income numbers, so we definitely haven't found the floor yet. inx: all of this playing out terms of expectation for a fed cut. we look at december fed funds futures, and basically three rate cuts now.

you noticing in terms of investors playing this trend? sylvia: we are talking about this, and saying maybe there would be one rate cut, and now there's a 25% chance of three rate cuts. i think they start to reallocate their portfolios to some defensive names. i think they project that perhaps there is a slowdown in this is a warning signal, and at least take some of these portfolios and reallocate. but i am not completely bearish. richard, you sound like you are. -- you are. [laughter] is that reasonable? richard: just to be clear, we are not anticipating a recession in the near future. we are not expecting a beer.

we are not positioned for a bear market. we are not sure cash is going to get here this year. we are still neutrally positioned. we're not running for the hills at this point. david: i think the markets were somewhat shocked on may 5 when president trump tweeted out that we would have more tariffs on china. what if president trump says have got to get this trade thing behind me and we did get a deal of some sort that would basically put this behind us. how much of that would take the risk out of the market and allow the market to take risk on? richard: you create a problem and then you fix it. we get a short-term pop no doubt because it has been weighing on the markets on a minute by minute basis according to his tweaks. but the economic fundamentals aren't there, so even if we were to magically repair all of our

trading relations with china, that still doesn't guarantee smooth sailing for the equity markets. the fundamentals out there. alix: we are going to dive more into that. jude and sylvia are staying with us. coming up, we did you been deeper -- we dig even deeper into the maybe not so sensitive environment. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." t-mobile and sprint may attempt boost mobilerepaid regulators.ease

qualcomm began trying to undo a crucial antitrust ruling. the chipmaker asking the federal judge who declared its business model anti-competitive to put her ruling on hold. that would give qualcomm a chance to appeal. locum argues the ruling could have consequences for the mobile phone industry and national security. shares of the world's largest steelmaker fell the most in two they arenouncing cutting production in a european plant because of weak demand and rising imports. the u.s. has been very aggressive in shutting out foreign steel, but europe has been slower to respond. that is your bloomberg business flash. alix: thank you so much. yields on the move. the 10 yearre -- treasuries the lowest in 10 years. it would come inside the bloomberg at the< -- at the

function, this is what you've got. how do you interpret what happened yesterday? sylvia: i think yesterday woman the market opened, we saw some sectors reviving themselves a little bit and they pulled back throughout the rest of the day. i think it was much ado about nothing. low liquidity, low trading, low action in the market after a halliday weekend. we have utilities and staples fund. those are up 7% and 2% month to date. we haven't seen much sense the announcement of china trade tariffs. the factor there, the flows are if things turnn, more positive on the china side, i think we see that shift going the other way again. david: is it time to get into

defenses? richard: possibly. clearly tech and real estate are the leading factors so far this year. i am not sure they are overvalued, but that is a real bet on interest rates going forward. we and defensively position for some time now. we recommend equity income funds. toket neutral funds waiting take advantage of the spread between the sectors is possibly a way to go. sylvia: if you take a will it trade, a relative weight that is one that is working well. alix: that should be good for small caps, right? wind up seeing if the u.s. is the best house on the street or the dirty laundry, whatever. [laughter] theory, if it continues this way, yes, small tos stops have less exposure

international tariffs. we are not there yet. i think they will continue to have someplace to look. david: valuations are cheap because they have gone down. richard: yes or. [laughter] david: you think they're going to come back, though. >> relative to large stocks. it is not a search for yield environment? that is not how your interpreting this? what does that wind up meaning for credit spread products? that is a different conversations then a year ago. david: it is, and i don't think we are completely there. i think it fixed income is very because it seems a lot

safer what is going on with equities, but i would argue you still have some good equity opportunities in this market. there are opportunities to buy p. the di if you are a long-term investor, you have to make long-term decisions. the market will start pulling back and we all caved to defensive names and things like tactical, i you are think it depends on what type of investor you are. short-term we are bearish, but medium to long-term i don't see the recession this year. that means equity markets still have some opportunities. david: what about an earnings

recession? there was a lot of talk about that in the first quarter. it looks like we dodged that. meanwhile, for the second half of the year, what about earnings? richard: murky at best. first quarter we have something like 1%, to present a earnings growth on average. part is reviews were negative on balance for the s&p, and that is a warning sign. how do you eke out more warnings -- more earnings growth? very much in an earnings recession possibility maybe overall than an over now it -- then an economic recession. alix: if you are a ceo, what you do right now? you're going to want some visibility for the back half of the year, but don't have it. i would diversify if i

had that luxury as a ceo. certainly we do as investment professionals, stay or get diversified. i think it is the only safe way downwarda sideways or spiraling market. david: sylvia jablonski and richard weiss will be staying with us. coming up, boeing says it is making clear and steady progress on its 737 max 8 airplane, buttoning out of says it will be a couple of months before they were supposed to fly in. this is bloomberg. ♪

david: time now for the bottom line come over relook at three companies worth watching this morning. renault has now said they are going to have a meeting next week where they could approve the merger being proposed by fiat chrysler. nissan still in the wings, and

the ceo saying it could be positive for them. alix: could they go it alone or eventually merge with a different kind of company? david: as you remember, they didn't even want to merge at all. alix: and it was a power struggle to begin with. i am taking a look at the rare earth companies. i wanted to highlight the ones in australia. a big move higher over the last week or so, and particularly last night as we heard that potentially china could prevent any exports to the u.s. of rare earths. 72% of the world output. australia produces 20,000 tons a year. australia is the runner-up, so there is that. bloomberg intelligence says the u.s. could help make up the shortfall. they said it would be more expensive david: as i understand -- could be more expensive. .

they have a lot more resources, but still. david: the third company where watching is again boeing. us.ke sutherland is joining i don't know what is going on. boeing's public commentary has really been that this is in the hands of the regulators, but there's all these reports leaking out about what they are telling their customers and suppliers. the latest report is telling one of their top customers that we expect this up in the skies by july. there have previously been reports expecting supply to ramp up production by december 2 the accelerated rate. airhave the international train sport associations thing they don't expect this to be approved for another 10 to 12 weeks. pilot then there is this

who give a warning before the epo been crash -- before the ethiopian crash. brooke: which is really interesting. he says we feel like we need more training, we are not accurately prepared to handle this system. said is they did not call for time in a simulator. if european airlines had a simulator that did simulate what this flight control was that is thought to be a factor in both of these crashes, i don't know havewere -- that it would made a difference, but it is another something that paints this picture. who is responsible for making sure these pilots can fire these airplanes? is it the airlines, the regulators? is it boeing? alix: i would say yes to all of those things.

sylvia jablonski is still with us. do you like boeing? ofvia: i'd use to before all this, but i think this is a massive pr disaster for the company. boeing is big enough that it could be the faa or the airline, but i think that boeing is big supportou would .heir client what we see in the short-term is that errors best and defense names is ticking ahead. it is down five to 4%. i think there's a big pr issue here. investors are worried about how they are going to fix it, how it is going to cost. if the plan is they are back in the sky by july, i think that is a little scary until we hear of

revolutionary about some of these emails. gina: i think it just -- gina: i think it just creates more confusion. ie you prepared to --brooke: thinking at just creates more confusion. are you prepared to fil fly on these planes? thank youd: -- alix: very much. coming up, the ecb vice president says the job is harder for normalization. this is bloomberg. ♪

alix: looks like an ugly day developing in the equity market. a gap in s&p futures.

europe really getting hit. france the weakest equity market as all -- of all. weaker demand in the country. in other asset classes, is a rush to safety in the bond market. the currency market goes nowhere. dollar-yen flat. the per continues to invert -- the curve continues to invert. german ten-year hold steady. crude continuing to move lower gear. wti off 3%. that will also be a weather story because you want up having all of those floods, oil cannot get out. david: you explain this to me this morning. i thought whether -- i thought the weather, oil. alix: it cannot get anywhere. -- now let's get

an update on what is making headlines outside the business world. viviana: there has been a rare outburst of tornadoes in the u.s. in the last month. the new york times forecasters reports more than 500 twisters in an area from the rocky mountains to the mid-atlantic. yesterday was the record 12 straight day with reports of at least eight tornadoes. does not want roy moore to run for the u.s. senate in alabama again. roy moore falling short in his 2016 rice against him regret doug jones to finish jeff sessions term. he was dogged by allegations of sexual misconduct. butroy moore once a rematch the president says he probably will not win. joe biden coming out with his first detail policy initiative. tripleen wants to federal funding for schools serving low income students. he is also calling for universal prekindergarten for three-year-olds and four-year-olds.

he says he would increase funding for special education programs. 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. david: interesting that vice president biden decided to go to education as his first policy initiative. something we have not heard much from president trump about at all. haveing to teachers who more money than schools that they would like to hear. it is addressing a big problem. alix: you and i were talking this morning. --that the answer question is that the answer? david: when you get all the students it skated, not just the ones -- all the students educated, not just the ones you get a rich private schools. >> that kind of person that once hard work and wants to give themselves a great education, that type exists by the millions

and lower income and middle income communities in america. they are not recruited now by top schools, but they are there, with the intellectual ability, the great, the heart, the stamina to make it count. when you fill your student body with students are invested come everybody benefits. david: this is what he did at franklin and marshall. he tripled the amount of pell grant students at the school and they over indexed in honors. he is saying a lot of those kids will work hard of the ticket more seriously. reason why many people say to do not have free college education. david: they will not be as invested. you can turn into that full interview tonight at 9:30 eastern time. let's turn to your. the ecb will release the results of the financial stability review. our colleague matt miller sat down with the ecb vice president.

we go over the highlights. we believe low profitability and low valuations have nothing to do with negative interest rates. it is much more structural. it has to do with excess capacity. legacy assets. cost to income ratios that are higher than the competitors in other parts of the world. [indiscernible] much more structural than monetary policy. the monetary policy implemented by the ecb has been an important helping hand in order to have a recovery. behindcovery has been many of the positive indicators that the banks have achieved in

recent times. recovery hasthe been quite instrumental in terms the number of loans from the european banks. it is also behind the recovery of the demand for credit. these are the developments banks have to take into consideration. things are not looking as bad as they have been. but if you look at the biggest economy in europe, german banks would dream of a 0.55% rise to book ratio. they are nowhere near that. half of that is what deutsche bank trades at. what can you do as the regulator to improve the stability? a supervisor takes care of the solvency of the banks.

solvency is guaranteed if you look at the capital ratios of these banks. they do not have any liquidity problem. the main element of concern is profitability. profitability has to do with concrete measures that should be taken by the banks. cost,r to reducing disposing assets that are not profitable enough. this is the kind of thing they that -- the do supervisory task of the system. alix: joining us from frankfurt is bloomberg's matt miller. what was another takeaway from the interview? matt: the interesting thing is he named four risks, downside

risks to financial stability and those were the trade war between the u.s. and china, brexit, sovereign debt issues like we are seeing pop up in italy and climate change. i thought it was fascinating he named climate change. it makes perfect sense but you do not hear it often from regulators for financial watchdogs that they're starting to zero in on this and pay attention. not only is at the cost for insurers as natural disasters increase, but the economy gets hit hard when you try to switch over to a less carbon intensive industry. for example, we saw last year the entire auto industry get backed up with these new regulations and everyone is happy we have new regulations and we are trying to save the planet, but it screws up the production line and that causes trouble for the financial stability of europe.

alix: i'm glad you brought that up. did you get a sense there is anything the ecb can do about the problems they highlighted? matt: i asked if they would think about green finance. you know they have these long-term loans in place that they are now on the third round of to try to help the banks. i thought you can do the same thing to help the environment. .hey're not quite there yet they are looking at it and starting to pay attention and advising financial institutions on these risks. as for now i think they feel that is sufficient. alix: bloombergs matt miller, great to see you. still with us on set is sylvia jablonski and rich white. when you look at europe, what do you see? as lackluster as things are here, and may be there, certainly in the eu. value trap is a good way to put it.

valuations are attractive but the fundamentals are not there. we prefer the u.s. over developed europe. betweenhat is the line a value trap and a bargain? sylvia: i think it is a value trap. they are too far gone in terms of what they can do to turn things around. if we have a perfect storm of china tariffs, they have major political issues, they of brexit , they of the italian budget have the italian budget deficit, i think it is negative rates coupled with budget deficits. i am u.s. over international. alix: come inside the bloomberg. european bank stocks are having the worst month since june 2016. what would you need to see for it cannot be a value trap? richard: economic growth at its most basic level. was worth than an inverted yield

curve? negative interest rates. no yield. we need economic growth. we need earnings and positive interest rates before we get excited about developed europe. nevermind the overhang of the eu. sylvia: the growth target went from 1.1 to 1.5, then the eu came out and slashed germany projections. that is a big issue. david: germany projections particularly. how much is on the shoulders of germany? sylvia: a lot of it. if we had optimistic futures in germany we could turn things around quicker. until that comes, it will be a dead weight. alix: why is it if you get a u.s. china trade deal that will be upside for the u.s. market but not the same for germany? richard: short-term it will be upside for u.s. markets. more global impacts, i don't know. alix: if we do get a deal, how

is that filter through the europe? richard: tangentially, through the u.s. our net imports will rise and we will have healthier growth in the u.s. and we will import more from the u.s. well. david: sylvia jablonski and , thank you both for being with us. coming up, a revolution in the shipping industry. how ibm is using technology to further is reach and a supply management. ibm global industries senior vice president joins us next. this is bloomberg. ♪

viviana: this is "bloomberg k."break

coming up, pimco ceo and cio. i am viviana hurtado with your bloomberg business flash. dick's sporting goods posting first-quarter earnings that beat estimates. the chain raising its outlook for the full year. sales analysts expected sales to fall. court to getne to off the u.s. blacklist. the chinese telecom equipment maker telling a judge the ban is unconstitutional. huawei arguing it stigmatizes the company and its employees as tools of the chinese government. netflix is threatening to leave the state of georgia if a restricting abortions takes effect. produces service several shows there, including stranger things and ozark.

the legislation is set to become law next year. that is your bloomberg business flash. alix: i find that interesting because that is where companies have the power is to move their business. there are some shows being process are in the going to go to abortion-rights groups -- the profits will go to abortion-rights groups. david: as we have the social issues coming to the fore -- when netflix does that it raises questions around the country of should we be thinking about something similar. alix: then they look bad and the pr. it isch is going to be cheaper there, i get good tax breaks, i have to keep producing their. -- keep producing there. something similar at the disney company with respect to same-sex marriage. bob iger said we're going to give full benefits because we have so many employees.

it is not just the pr, you can have 100,000 employees subject to this and it sends an important message to employees. that is a good point. -- alix: that is a good point. david: time for all the lead, a deep dive in moving markets. today we will take a look at blockchain. to transform the system for international container shipping. ibm announced two additions to its blockchain platform which publishes shipping data across the world. we welcome bridget van kralingen, senior vice president and a global industries bloomberg intelligence senior analyst. explain what it is. is that what you are doing? bridget: we announced yesterday -- more thantion

50% of the volume of the containers of the world shipping industry will be on a blockchain we have developed in collaboration with merck. this means full transparency and a massive paper exchange. david: given the size of the market -- $4 trillion worth of goods shipped annually, 90% of global trade. me, 20% ishat struck for administrative costs. bridget: that is correct. an average shipment takes about 200 document exchanges between the multiple parties. the world economic forum wastetes it is about 20% from inefficiencies in the supply chain. the technology of blockchain allows the multiple parties to store the records and advance the records as the shipments move. this means less wait times. carriers and shippers never the goods are and it means things can be cleared a lot faster, all

leading to a bigger inclusion in the shipping industry's. alix: talk us through some of the industries. how much can a shipper save? >> that will be the interesting thing is blockchain is ruled out. -- rolled out. the shipping companies will save money. this is one way of bringing them up. the true question a lot of people have within blockchain is who will play for that. will it be the shippers? will be the carriers? there are a lot of questions in terms of who will pay for that. it is going to, save a lot of money and reduce a lot of back office work that is currently being done by humans, which is prone to errors and the blockchain is supposed to prevent those errors and save money and reduce fraud. david: what is the answer to lee's question? who will pay for it. bridget: the whole system will

pay for efficiencies. rather than having to influence 2200 documents that occurs once by putting your data on the blockchain. the second thing, which is important and why we are starting to see the blockchain technology for enterprise scale in terms of what ibm has been building for our clients across numerous industries is there is a level of security, a level of speed and efficiency and it is easy to set up these networks. the difference is the solve problems no one company could solve on their own. shipper, do ia pay some percentage of the value of the goods to ibm for using the blockchain? how does it work? bridget: all of the participants pay a small amount to the blockchain. david: a percentage of the value of the shipment? bridget: it is a flat late -- a

flat rate according to volume. it is a very minimalist amount and the railway the blockchain works is by many participants in the network and by the fact that those participants have a reduced cost. another example of this is we have a blockchain in the consumer and retail industry which tracks province and sustainability of food, building construction -- in conjunction with the industry and allows food to be tracked and recalled. that it has such an economic paybackd the other big is that for many of our clients, they are looking at the idea to have sustainable consumable presentation. very powerful for consumer province and sustainability. alix: a large part of that is you pay to stay on the same

platform so you have to get these users in. what is the feeling of shippers? do they want to all go in together on a blockchain platform? is it slow-moving? in 2017-2018 there was a lot of hype around blockchain. with the announcement we heard network,ining merce that provides a lot of consolidation in order to work. the reality is that like a lot of shippers, this might be an extensive -- an expensive thing to use blockchain. then there's the question of who owns the data. they have to get on to the mscware and talk to the ibm blockchain system. alix: there is a cost for shippers. a great conversation. happening in the commodity world. bridget van kralingen of ibm and

lee from bloomberg. the u.s. 10-year-old -- 10 year yield hitting the lowest level since 2017. more on why am watching next. rubber bloomberg users, you can interact with us at gtv . keep up with all of the analysis and save for future reference. this is bloomberg. ♪

alix: here is what i'm watching -- the bond market. risk aversion sending investors princetonining us is interest-rate strategist. when you look at the bond market, is it a positioning thing? what you take it as? >> speculators are still short treasuries and other sovereign debt. they are in the midst of covering a lot of that. it is about the fundamentals. it is about the idea there is not going to be a lot of inflation.

you have seen this entire move because inflation expectations have come down from 2% to 1.7% in the u.s. over the last couple of weeks. that is a big move in inflation breakevens. alix: how does that translate into the overall bond market? which area of the globe has moved the most? we can say lowest since 2016, 2017, where is the most action? ira: the u.s. is one of the biggest movers. if you take a look at germany, they have moved 20 basis points, we have moved 30. everything is correlated in terms of government bonds but the u.s. being one of the higher-yielding countries means there is more demand for treasuries compared to a lot of other assets. what we have to keep in mind is that when you hedge all of your currency risk, one of the things you notice is these bond yields are much closer than just looking at the out like -- at the out right field levels. once you take all of the hedging

accounts you do not get as big of a bang. in other out -- alix: areas you've seen the two-year ahead of the fed funds rate, does that have to force the fed's hands? ira: it does not have to. i think the fed will look at the fundamentals. right now the market thinks the fed will use interest rates. alix: going to be fun to watch. ira jersery of bloomberg intelligence. thank you very much. coming up on bloomberg the open, jonathan ferro is in pimco in newport beach, california. this is bloomberg. ♪

jonathan: risk aversion fueling the global bond market rally. where best to be then in the capital global bond market investors. we are live from pimco's global

headquarters in newport beach, california. this is the countdown to the open. ♪ jonathan: coming up, pimco unveiling its outlook over the next 16 minutes. --are speaking with pimco's allocation, will be speaking to aaron brown, and on global credit. finally, later today, we'll be catching up with pimco's cio, dan iversen, and ceo manny roman. so much look forward to over the next couple of hours. 30 minutes away from the opening bell in new york. good morning. let's get you price action. futures -.6% on the s&p 500. dollar strength in the fx market.