powell put live in well. says theyjay powell will react appropriately to expansion. the market debates timing. equities surge, yields pop, dollar drops. did powell really light a fire under the market? in the imf lowers its china gdp outlook as trade is a wild and linchpin for growth. we will speak to peter navarro later in the next two hours. david: welcome to "bloomberg daybreak." i'm david westin, here with alix steel. president macron is speaking on the 75thmoration of anniversary of the d-day invasion's. alix: then president trump heads to ireland later on today. he's going to have a short chat

with the prime minister of ireland, and they are going to talk maybe a little golf. david: and ultimately he goes to normandy tomorrow, where the invasion happened. earlier the president read from a prayer that franklin delano roosevelt read to the country after the invasion over the radio. are: in the markets, we seeing a rally continue from yesterday. by about 7/10e up of 1%. yesterday was the biggest jump since january 4. tech financials really leading the way. euro-dollar pretty flat, although finally, we get the dollar selloff over the last few days following yields lower. a little bit of buying on the margins, but the question for the markets, have we seen a reversion to the mean, or did chairman powell change the

game yesterday? david: markets certainly reacted around that time. alix: for did we just go too far? david: maybe. it is time now for bloomberg first take. awa.re joined by luke k let's start with fed chairman jay powell had to say yesterday that perhaps triggered the market reaction. not know how we do or when these issues will be resolved. we are closely monitoring the implications for economic willok, and as always, we act as appropriate to sustain the expansion with a strong labor market and inflation near our symmetric 2% objective. david: what he's talking about watching iswe are the trade tensions. did president trump get the fed he wanted yesterday? luke: he's kind

of pushing in that direction. a couple press conferences ago asked, heowell was pretty much punted on it completely. they've really been stressing patients, but patients is almost a commitment to inaction, to a certain extent. patient was very conspicuous by its absence yesterday. that does suggest they are moving closer to the market view. at the same time, they are not signaling any alarm about the economy. alix: let's talk about the market view for a second. if you come inside to bloomberg, looking at fed funds futures for the end of this year and into 2020, the blue lines for 20 are pricing in rate cuts. what is interesting to me, is at was powell dovish enough?

the market is inviting jay powell to a rate cut party, but no one is really sure if he is going to show up. the expectation has been building over the last few months. jay powell opened the door, and we have forward guidance for the future. alix: let's get to what happened to the markets yesterday. you look at s&p, nasdaq, dow. you just move we have seen on the upside since january 4. move we haveugest seen on the upside since january 4. luke: it is amazing how widespread the move was. not just in stocks, but also in credit, in both high-yield and ing. it does look like a corroboration move, but also, let's set up the context and the backdrop heading into this. s&p 500 and nasdaq came into

tuesday oversold for the first time since christmas eve. the longest oversold strength has been -- oversold streak has been four. i don't think you can overplay the extent to which the potential gop walked back and potential countervailing force to the president on mexico had an effect. the only one that was even was low vol.an. 4 that is really just pure risk on. i don't know how long it lasts because it could alter on the headline. david: and that is the point, turning on the headline day-to-day. tech was selling off so much, and then came roaring back yesterday. : that's right. we are starting to see people bailing out on bets on the dollar. we had a lot of dollar bulls

over the last few months, and now we hear them starting to say maybe we should get out. alix: i also wonder if that is a little different than what we would normally see with yields and equities. the yield kepts going down and the dollar was going up. anh: i think the key point is people were holding onto the strong dollar trade for a while. lots of general speculators were getting into it, and now people are starting to get ahead of that trade and sell out of it. david: what does this mean for global growth? we had reports overnight from imf and global bank. the world bank took down europe especially, but overall the since3/10 of a point just january. that is pretty substantial. luke: it is quite amusing because again, you see that forecast coming from europe. if you needed people to tell you the european economy was going

to be week now, you've completely this the boat and all of the traits associated with this. beyond the trade war and the flight to safety we have off of headlines, there's been a very fundamental flight to safety if you look at the economic activity, inflation economics across the globe still in negative territory. essentially, there's a lot of fundamental reasons to think where we are in bonds might be reasonable, just based on the economic outlook. alix: fair point. pmi's,f you look at the we saw it is not great across the board. there are still issues, whether it is new orders, whether it is sentiment. you have italy now in conflict with btp's.

lananh: you've got australia and may be india cutting rates as well. risks are firmly skewed to the downside, so we are worried about a tumble in business confidence come out about the escalating trade war. there's plenty of reasons for investors to be cautious as we go ahead. we had a bounce in the last few days, but there are plenty of storm clouds on the horizon. alix: cool. nguyen ands lananh luke kawa, thank you. . stay with "bloomberg daybreak" the next hour. the check out the charts we used and browse more features, go to gtv . managementasset life chief economist will be joining us. this is bloomberg. ♪

♪ kailey: --viviana: this is "bloomberg daybreak." is signaling they ,ill keep seeing rapid growth also raising revenue projections for the fiscal year. the high-end was better-than-expected. france says it will back the proposed merger of renault and fiat chrysler. fiat must offer the government guarantees on jobs and local headquarters. renault's board meets today to consider the deal. trade tensions between the u.s. and china are escalating. ford's mainng

operation there. it iseek, china said investigating fedex for what it called wrongful deliveries. that is your bloomberg business flash. alix: thanks so much. open to rate cuts. that was the signal for fed chair jay powell, who says he's keeping a close eye on the fallout from the trade war. chair powell: we do not know how or when these issues will be resolved. we are closely monitoring the applications of these developments for economic outlook, and as always, we will act as appropriate to sustain expansion with a strong labor market and inflation near our symmetric 2% objective. alix: powell's comments were surged by -- were followed by a surging risk on sentiment. joining us from toronto is frances donald, manulife

investment chief economist and head of microstrategy. is that a fair line to draw? frances: absolutely. powell did not push back against market pricing, and tides trade policy and fed policy together, something that economists have been doing for a couple of weeks now. he's effectively laid the groundwork for a cut. he's open to a cut through a fed communication channel, but whether they go to that probably depends on trump's next move. david: i wonder whether he is getting expectations up too much. even as he was talking, we had the president of mexico saying maybe we will resolve the mexican problem. we had republican senators saying they would not back the president. frances: that's exactly right. ,e almost have a binary outcome and incredibly difficult environment to be generating fed forecasts. the messaging i've been sending

to anyone managing money is you are either going to get a trump put, in which trump does de-escalate trade tensions, or a fed put, in which the fed be proactives to moving forward. alix: is there also something like a dollar cap? not only do we have the dollar rolling over, finally following yields, but we also have elizabeth warren yesterday saying she would use new and existing tools to create quality american jobs and promote american industry. we should use more aggressive tactics like actively managing our currency value. what do you make of that when you tie it with the talk of the fed from cuts and low yields? frances: no markets want to hear that there are going to be adjustments to fx policy. for now, i continue to be a dollar bull.

how the ecb responds this week is also going to matter to that u.s. dollar, and of course, where trade tensions had next -- trade tensions head next. that is probably going to keep some sort of tailwind behind the u.s. dollar. david: this is one thing that elizabeth warren seems to agree with donald trump on. alix: who would ever have thought you would make that statement? [laughter] david: that's exactly right. asy agree on a weaker dollar we go into the 2020 campaign, and the fed is not inclined to raise rates, which might support the dollar. so what's wrong with the dollar? is the rest of the world that bad? frances: most central bankers around the world are capitulating, so those rate spreads are still going to be supportive towards the u.s. story. as we look at trade tensions and activity,eriorating

the u.s. remains the cleanest dirty shirt in this environment. cutting is already priced into markets. the u.s. dollar still seems like the near bet. alix: when you take a look at where the market is versus reality, if the market is already pricing in cuts, if the fed does do anything, what is the effect actually going to be on the market and the economy? frances: if they move towards a cut, it is already in the markets, which is why i would be fading this move we've seen in the bonds. of ave about a 50% chance trade escalation in which you do not see cuts moving forward. i'm willing to take that bet and say this is a story not priced out for now. david: let me play the relationship between the fed and trade policy the other way around. is there the equivalent of a hazard here, in which the fed says we have your back, mr. president, on loosening up if we

run into trade problems, the more incentive there is for the president to get tough on trade and not resolve it? frances: the fed is watching the outlook, and this is one of the reasons why it is difficult to move in september if they are going to cut. they are going to need concrete evidence and several months of data to show that their outlook is deteriorating on the inflation front and probably the jobs and output front as well. if they are going to move, it is probably going to be later in q4 when there is evidence to back that claim that a cut is required. alix: companies aren't going to automatically now stop hiring and cutting wages. they still have to produce, right? how long be you think it takes before companies have to make different business decisions? frances: very sorry, i think i lost the feed. i can't hear the question. alix: can you hear me now, frances? we will get back with frances

and fix her feet in a moment. david: and coming up -- fix her feed in the moment. david: and coming up european bond yields are rising. we will get reaction to that, next. alix: under terminal, check out gtv . question orus a reach us on twitter. tv . this is bloomberg. ♪

david: it's time to find out what's going on outside the business world. viviana hurtado is here with first word news. viviana: president donald trump says there is always chance of a war with iran. the president made the remarks on a wide-ranging interview with itv in london. the only thing the u.s. can't do, trump says, is let iran have nuclear weapons. republicans are pushing back on to putnt trump's plans tariffs on mexico. lawmakers are threatening to override a veto if necessary. u.s. senator kevin cramer of north dakota says senate republicans are weary of tariffs. today in normandy, u.s. army rangers re-creating one of the most dramatic moments of the d-day invasion 75 years ago. they used ropes to haul

themselves up that jagged cliff you see right there while elderly veterans, some members of the greatest generation, and others watched. the original journey was undertaken by army rangers seeking to destroy german guns atop the cliffs. fewer than half of the 235 soldiers in the assault were fit for battle just two days later. 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. david: thanks so much. the european commission took the first step towards disciplining italy today for running too high a debt. it how he sets responded in kind. still -- italian assets responded in kind. still with us is frances donald from manulife. this has been a storm brewing between the european commission and italy. it is just the first step. is this signaling something yet

to come in italy? alix: i think we are still getting on -- still working on getting frances back. we've known this is coming, but i think the question becomes how far does this actually go. salvini doesn't seem to have any issue, and during european parliament elections, it felt like he came out with somewhat of a mandate. david: his party did pretty well. there is something of a shakiness in the government. at the same time, it is part of a larger issue about fiscal stimulus in europe. the ecb has done what they can do for the most part, but italy is saying that is what we are trying to do. alix: if we take a look at the pmi's, we have a graphic that shows the different areas. in spain, for example, new business growth at the lowest level in five-and-a-half years. france only saw a moderate rise in new business activity. germany, a drop in confidence and future output. ab the headline numbers can be

seen as positive. below the surface, it feels like a lot of uncertainty. if you don't grow, how do you get a loan from the bank, and how to the banks grow in that vicious circle? david: in italy, the feeling for the middle class is that they have been left behind. a lot of the money they want to borrow is going to increased wages. they are increasing the benefits to people don't have as much, and if you're going to be elected, you want that. it ultimately reflects back on businesses because we have that kind of uncertainty and agitation. in fairness, they are doing it for understandable reasons. alix: when you leave it to the banking sector, for example, until you have some signs of consolidation, how can you do any of those things? how can you increase wages and hire people when you have so much fragmentation there's a great? -- so much fragmentation? there's a great article on the bloomberg on this.

david: that goes right back into the populist argument. consolidation is a good idea because we can do it with fewer employees, but they lay off a lot of people. that is may be good for the banking and business sector, but what does that do for the employment sector? alix: like, maybe later you can hire and that will be ok. david: that was called the trickle down theory back in the reagan days. i'm not. sure how that worked out alix: you can tell with -- i'm not sure how that worked out. alix: you can tell with mario draghi in particular, that is really going to put him in a very tight corner tomorrow, no matter if he wants to tow the line and not do anything drastic. how can the central bank do anything different than what he needs to do? david: we seen mario draghi surprise people in the past. at the same time, there's another thing which is the end

of his term. he's coming towards the end of his term, so why now? let the next man or woman handle it. alix: exactly. the backdrop is going to be the global growth downgrade from the imf and world bank. coming up on this program, we have an interview with robert federal reserve bank president. we are seeing some buying in the dow and the nasdaq, the biggest since january 4. italy -- [no audio] little bit of buying in the backend with a cell over in btp's -- with a sell over in btp's. this is bloomberg. ♪ the latest innovation from xfinity

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it's a now there's one store that connects your life like never before store. the xfinity store is here. and it's simple, easy, awesome. alix: this is "bloomberg daybreak." -- we had thatth monster rally yesterday.

we are seeing some falls today. the european commission coming in and saying, italy, we have to talk. bdp yields up by 10 basis points. still seeing some buying coming into the market on the margins. 2.12 is where we print. the question for the dollar, what did fed chair jay powell mean? what does it mean for the dollar index, now alone the 50 and 100 day moving averages? will it finally grind lower along with yields. it had been holding up. we now head over to chicago, where bloomberg's michael mckee has an exclusive interview with dallas fed president robert kaplan. michael: thank you very much. we are talking with robert kaplan, president of the dallas federal reserve come of the 11th district in the fed set up. thank you for getting up early and joining us this morning on bloomberg tv and radio worldwide.

got to start with jay powell. wall street took his comments as opening the door to a rate cut. do you think that door is open? robert: i think it is early to make a judgment on that. we are going to be very vigilant about understanding these heightened trade tensions, see if they feed through to the economy, most importantly see if they persist. i think it is too soon to make a judgment as to whether we might or might not taken action -- take an action. i would rather be patient and let events unfold. michael: wall street economists over the weekend basically joined the consensus that you are going to cut rates. you've been in the watch and wait camp. what would tip the balance for you? when would you think you need to make a decision? robert: i would need to see some evidence that there is a deceleration, or further deceleration, of the economy. growthxpected that would slow from 2018 to 2019,

but we are still seeing above trend, a tightening in the labor market, and core inflation still around 2%, so i would need to see some evidence that there is a worsening in those trends. we may well see it. i am on watch as to whether we see a further deceleration, but that is what i am watching for. michael: what is worse, cutting to early or waiting too long -- cutting too early or waiting too long? robert: it depends on where you are in the cycle and what our stance is. my own assessment of our stance is we are in the neighborhood of neutral right now. if we were to cut, that would be me making a judgment that we need to add stimulus to the economy. that might ultimately be a judgment i need to make, but on the other hand, if you have a restrictive stance and decide to cut, that is something

different. or if you are highly accommodative, that is also a different judgment. we are pretty much in the neutral setting, and the question is, should we be adding stimulus to this economy? that is a question i'm asking. i'm open-minded about it. i think the risk to the downside in the last five or six weeks has increased because of these heightened trade tensions. i'm watching carefully, but that is the question i'm going to be asking. michael: they say that the federal reserve decides when to raise rates, but markets decide when you're going to cut them. how much pressure do you feel from markets right now? robert: i spent my entire career in the markets, as you know, and i've learned that markets can change on a dime. for example, there's been a dramatic change in the markets since may 1 come of last five or six weeks. as we've seen, you can see a dramatic change in the different direction over the next five or six weeks. for example, what is happening

to the treasury curve i think is very much in response to heightened trade tensions. some of those tensions could be reversed in the next several weeks. i've learned to watch markets, but i don't want to overreact to what they are saying because they can change on a dime. michael: what are ceos in your district telling you about what they see in the business climate , and whether they asking you to do? -- and what are they asking you to do? robert: the biggest issue for businesses today, there is a high level of uncertainty. businesses are using logistics and supply chain arrangements heavily to remain competitive. they don't have much pricing power. technology and globalization have limited their pricing power, so they are using some of these other techniques to manage their costs. what they are seeing is a lot of

uncertainty as to how they are going to be able to do that. i think these recent threats against mexico have further put more uncertainty into their minds, so what do businesses do? what they are telling me they are doing is be more careful, hold off on capex, so i think this is having some chilling effects. cost ofbusinesses' capital is historically low, access to capital is historically high. only the homebuilders are not as sensitive to policy settings as all of these other uncertainties and managing their business. michael: you mentioned the mexico tariffs. no district would be more vulnerable than yours. what with the impact be on your district, and on the national economy? robert: by our estimates, we are probably 1/3 of u.s. trade with mexico.

texas is the largest exporting state in the united states. we've taken a number of looks at it. i don't want to throw out statistics because i am still hopeful that there won't actually be followed through on these tariffs. the reason i am hopeful if this is a very different trade relationship than the one with china. ans is substantially intermediate good relationship with allows companies to manage their supply chains, be competitive, and it has allowed north america and the u.s. to take share from asia. as opposed to the trade it isonship with china, so overwhelmingly in the interest of the u.s. to have a strong trading relationship in north america with mexico, and to some extent canada, that i don't want to go too far expecting we are going to do something that is going to further jeopardize that relationship. it is so clearly in our interest to have a strong trading relationship with mexico.

michael: we have seen the impact , as you say, in uncertainty. how do you think the mexicans would react? you speak to their policymakers a lot. toert: we are very close senior officials there. over the last two years, mexico is the one country in the world that is fighting an inflation problem. they've had a very volatile currency. they've raised their domestic interest rate substantially over the last couple of years. i think there was hope that there would be some stability with usmca. this further puts volatility in their currency, makes it harder to manage their economy. we see slowing in economic growth in mexico. they are actually slipping. they've got a new president. there is uncertainty with that. it is a very challenging time in mexico. michael: putting it altogether, what impact has there been on your economic outlook for the rest of this year?

robert: our forecast for the year still is in the neighborhood of 2%, 2.25% gdp. it could be a little higher, a little lower. still think we will in the year in the neighborhood of 2% core inflation. havenk these recent events raised the risk to the downside, so i am much more vigilant. i am much more cautious about how events are going to unfold. the question is, are these tensions going to persist? and if they do, they are likely going to have some negative effect on our outlook, but i think it is a little too soon for me to make a judgment on that. we are on heightened alert as a result of these tensions. michael: you are in chicago for a conference on the monetary policy framework. is the framework broken? robert: i think our framework is working reasonably well. there are a couple of big

issues, though, we have been talking about. one is inflation has been running for the last eight or nine years, for a lot of that time, below our 2% target. i think a lot of that has to do with technology, technology enabled disruption, global trends. should we be revisiting elements of our framework so that we can be more confident that we are meeting our 2% target and anchoring expectations around 2%? the other issue related to that, as well as companies have performed over the last number of years, there are a number of underrepresented groups that have not fully participated in this recovery. that may be due to educational attainment, other impediments that make it harder for them to join the workforce and stay in the workforce, and i think running a somewhat hotter labor market may help those groups get in and stay in, and create

somewhat more inclusive growth in this country. i think that is another issue we are actively talking about. michael: can you generate inflation? if you cut rates, would that raise inflation? robert: you've heard me say policy has anetary pretty potent effect on the cyclical aspects of inflation. tightness of the labor market, other elements, the cyclical elements. the part that might be a little less susceptible are the structural drivers of technology , technology enabled disruption, globalization, which are limiting the pricing power of , improving the negotiating leverage of consumers, making it harder for businesses to raise prices, even if they have wage increases. i think this dynamic is one we just need to take into account as we thing about monetary policy. michael: is there any

suggestion, and there have been many made for policies you could adopt, that you find intriguing or interesting? robert: i'm open-minded on all of these proposals. nominal gdp targeting, inflation averaging. i think the key for me is do we want to come out of this framework review saying there are two or three new factors we want to take into account or update our framework, for example, to take into account average inflation over a period of time? it is one thing to take those factors into account. it is another thing to make those a rule that would bind future actions. ourselvestant to bind to future scenarios that we can't predict, but i am in favor ourltering and updating framework to take a few additional factors into account, which i think may serve as well

in meeting our mandate. you are worried the fed may have raised expeditions for what will come out of this conference and disappoint the market. robert: i think it is a healthy thing to do a framework review. i don't think it should be a one-time thing. i think it is something a good organization does regularly come butt but -- regularly, because we haven't done it in a long time, i think we may raise expectations. we have to balance how we are going about this. michael: robert kaplan, thank you very much, president of the dallas federal reserve. david: our thanks to michael mckee. terrific interview. -- ider if he backs off wonder if he backed off a little bit from jay powell, saying we should be in neutral until the data really changes. alix: i also have to wonder if that is coordinated to relax the markets a little bit from yesterday in that powerful

powell rally, or if we are actually seeing some dissent in the fed as to what they actually need to see for a rate cut and how they are monitoring that. david: he said we are skewed to the downside in the past few weeks, without a doubt, and still said they are expecting 2% 25% gdp.n and 2% to 2. alix: the question is, do they wind up overshooting? and if you have a trade resolution, then you have this huge spike in inflation and asset prices, that is a huge concern. david: that's part of the problem. how do they plan policy when it can change day-to-day? alix: for now, the markets kind of rally. david: so far, so good. coming up, a celebrity u.k. managermand -- money

takes to youtube to say i'm sorry. more on that next. this is bloomberg. >> i'm extremely sorry we had to take this decision. we will keep our investors informed. we will use this time to reposition the fund. ♪

viviana: this is bloomberg date -- this is "bloomberg daybreak." coming up in the next hour, charles evans, chicago fed president. ♪ we turn now to wall street beat to cover three things wall street is buzzing about this morning. ewst up, deutsche bank management division -- two dws

management division says there are no eyes on deals at the moment. fund manager neil woodford takes to youtube to offer his apology. -- and the ftc is set to approve newcomer commerce rules for brokers. reporter: ideally they would like to move forward with deals, get acquisitions moving across the table, but talks have been difficult, so what do you do? we seen a shakeup in higher management. isever, the ceo of dws saying he wants to play an active role in the consolidation of the asset management industry. there's no doubt about that. david: in the two are linked.

it is easier to get your ratio up if you are consolidating. it is easier to fire the new guys been the ones you have been working with. reporter: at the same time, the ceo says he wants deutsche bank to become a top 10 management firm. a quick way to get there would be deals. hopefully, at least they are hoping, they can get that done. for now they have to look at other areas. alix: i tend to think pricing. let's take a look at woodford. neil woodford went to youtube to apologize after closing is fun to outside investors -- his fund to outside investors. >> we felt this was necessary to protect your interests. we were seeing a lot of outflow in the portfolio. we thought the prices we would be able to achieve in order to meet those redemptions would be disadvantageous for our

investors. so again, i'm extreme we sorry we've had to take this decision. we will keep our investors informed. we will use this time to reposition the fund. when it is appropriate, we will open the fund so that you can buy and sell as normal. alix: what is with these guys going on youtube and saying they are sorry? sarah: really somber, but i guess they are just trying to show the investors they do care. they understand your information and trying to do what is -- your frustration trying to do what is in your best interest. david: but sorry for what? how's he going to be different going forward? alix: i'm sorry we are in liquid assets. sarah: there's nothing we can do. [laughter] least he is saying he will keep the investors up to date. we are trying to do what is in your best interest. at least it is something. it is not just silence.

david: the fcc is expected today to vote on a new rule about is something, but not nearly as much as what was being done under the obama administration on a fiduciary role. many people feel they are not going far enough. sarah: that is the concern. this says that brokers have to act in the best interest of widemers, but there is opinion on what best interest means. david: i've never heard this, that they will protest at the sec all dressed in red. sarah: -- at the fcc all dressed in red. sarah: they are trying to mckay statement. [laughter] -- trying to make a statement. [laughter] sarah: banks are pretty much for this new rule. david: a lot better than what

was going to be. sarah: right. finance firms are happy with this. aarp protests qamar they all over 65? -- aarp protests, are they all over 65? sarah: i believe they are sending people in their place. [laughter] david: coming up, senator elizabeth warren suggests actively managing the dollar to help the jobs market. i am watching what 2020 presidential candidates are saying on the campaign trail. that's next. this is bloomberg. ♪

david: this is what i want campaign promises -- this is what i'm watching today, the campaign trail promises. with me is marty schenker.

elizabeth warren is talking the dollar down. she would pursue an agenda of "economic patriotism using new and existing tools to defend and create quality american jobs and defend american industry." one of the things she would do is "more actively managing our currency value to support american manufacturing." marty: it is interesting. if donald trump said this it would be a hair on fire moment. how can you use the dollar to affect policy? it is very interesting. onme" did that cover elizabeth warren. she has the policy for that. she's definitely the candidate who has the most definitive answers for policy issues of all of them, and she's getting some credit for it. she's moving up in the polls. alix: what i find fascinating

here, if you are a dollar bull, you have to look at the campaign and say, anyway you slice it, are we looking at weaker dollar policy, whether it is the president or a democrat? marty: that is the stance you have to take. a lot of, there is time before 2020, and there is real concern about weakness in the economy. david: the one thing that seems to be coming through with the ist democrats is it international corporations. bernie sanders is showing up at the walmart meeting because he believes there should be a worker on the board of directors. marty: i'm sure the hourly worker would love getting put on the board of directors of walmart because of what they get paid. true that u.s. corporations have become the

whipping boy of the campaign trail, and this is going to as long as it seems to resonate with voters. i'm not sure it really does because it really boils down to how it affects individual households in their everyday lives, and i'm not sure that they are able to make that equation work, how attacking walmart helps me. alix: who is not a whipping boy this campaign season, banks. they finally got out. david: although warren likes to get around to that, too. marty schenker, thanks so much. alix: coming up in the next hour, peter navarro, assistant to the president for trade and manufacturing policy, will join us. don't miss that. . this is bloomberg. ♪

♪ the powell put alive and well.

fed chair jay powell says the fed will act as appropriate to sustain expansion, setting up for some cuts. the market now debates timing. is there a reversion to the mean, or did powell light a fire under equity markets? and the world bank cuts its global growth forecast, and the imf lowers china gdp outlook, with trade the wildcard and linchpin for growth. we will speak to peter navarro, assistant to the president for trade and many fracturing policy. david: welcome to "bloomberg daybreak" on this wednesday, june 5. we are really looking forward to talking to peter navarro. he's really the man of the hour, considering what trade is doing for the white house and the world. alix: and as time goes on, the more his voice is made to heard on china, mexico, etc. david: in the meantime, over in europe, we had these continuing commemorations of the 75th

anniversary of d-day. there is the president in the background, the queen elizabeth ii in the foreground. that is being salivated by france, the united states, and great britain -- being celebrated by france, the united states, and great britain. alix: in markets, a continuation of the rally yesterday, strongest since january. the dollar index sitting at key levels, the 100 day and 50 day moving average, but now seeing a little bit of strength come back into the dollar market. you're seeing buying on the back end of the curve come but the real action will be in italy and bdp. crude not participating in the equity rally, down by about 1%. president trump has said he wants the fed to consider his trade actions in setting rate policy. it appears he may be having his

way as fed chairman jay powell said yesterday he's keeping a close eye on the fallout from the trade. chair powell: we do not know how or when these issues will be resolved. we are closely monitoring the implications of these developments for the u.s. economic outlook, and as always, we will act as appropriate to sustain the expansion with a strong labor market and inflation near our symmetric to present objective. david: markets react ash our symmetric 2% -- our symmetric 2% objective. david: markets reacted yesterday. we welcome now jp morgan head of u.s. rates strategy. we've been asking this question today. is it fair to say this was in response to jay powell? is that why equity markets reacted the way they did? >> i think yesterday was a perfect combination of those comments and the fact that we were tactically very oversold in

the markets. i think the markets used that as an excuse to respond to that oversold condition. i do think it is a bit of an over interpretation of his comments, similar to what we saw in november 2018, when he made some comments about the position relative to neutral rates, so i don't know that we are out of the woods yet on this move. alix: the yield story is a little different. thecall on the 10 year, latest is likely to have negative effects on business concerns. that leads to your right call for this year, alex. we charted that for the two-year. you are looking at near 1%, and for the two-year looking at 7.5% . how confident are you that we will get there? alex: we cut our treasury forecast based on our economists taking down our fed funds forecasts 50 basis points for

the year. think the rationale for them had been in the context of weakening economic data, it seemed like it was coming increasingly difficult for the fed to maintain and hold some sort of outlook. add to that the shock of the mexican tariff proposal or action that the president announced, that seems to increase dramatically the probability of the fed not only cutting rates, but it is sort of bifurcated. it feels that if there were some sort of resolution to this, be the fed -- to this, maybe the fed doesn't get as aggressive. if we were to go between june and october 2 the full amount the president has proposed, that could actually push rates much lower than what we have. david: doesn't that make your life much more difficult? there are two paths here that

are quite different. yesterday we saw president lopez have thisying we will resolved with mexico. ,f you don't have that happen how much difference does that make in your projection on the yield? alex: not only is it wider, but in the event there was some sort of resolution like is being talked about, you still have the lingering impact of the president taking a fairly unexpected and significant action against one of our largest trading partners. that in itself is a challenge. alix: so walter, if the story for equities is we are oversold, are you selling risk?

are you looking for value? what are you doing? walter: i think you have to be balanced here in your approach. if got to play some offense and defense. monday and tuesday in the markets this week are perfect examples, where you have the monday selloff in the tuesday bounce. i think you look for some idiosyncratic ideas that maybe don't have exposure to trade. you look for some ideas that may be are more durable, like the five e -- like the 5g build that will take years. let me just make one quick point. the issue for companies is not their cost of funds, i.e. the fed cutting rates are not. it is what the cost is going to be tomorrow. if we can get uncertainty wiped out around the trade issue, that would go a long way to gain the market higher. david: do you have a sense that if all of the tariffs went on

chinese imports and there were tariffs on mexico, what would it cost overall? walter: we've heard this from companies already. it depends on the industry, of course, as to how severe that would be, but it would be a significant hit to margins and a downgrade to earnings for the s&p overall. a resolution, get you said it was binary. just how far can yields actually see capital flow coming back into our assets? be clear, we had been seeing risk related pressure on yields lower for some time. there were calls for an insurance type of cut to deal with lower inflation. i think to the degree that this manifests itself in business confidence and activity, we are going to see that play out over the next few months. i think that is why we are not looking for the fed to take action in june or july, but

rather respond once they actually see the data in september. in that interim, i think the bond markets could recover. yields could come up higher from where they are. but i think that that lingering sentiment is going to keep them relatively low. david: walter todd of greenwood of jpl and alex roever morgan, thank you for being with us. stay tuned with a conversation -- stay tuned for a conversation with the chicago fed president in the next hour. to peterwe speak navarro, assistant to the president for trade and many factoring policy. live -- and manufacturing policy. live from new york, this is bloomberg. ♪

david: tariffs on chinese imports, and maybe now on mexico as well, has led to much of wall street now projecting lower growth and the possibility of recession if things continue. the president of the world bank and a former member of the present's economic team -- of the president's economic team said, "there's been a tumble in this this confidence, a slowdown in global trade, and momentum remains fragile." joining us from washington is peter navarro, assistant to the president for trade and manufacturing policy. thank you for joining us. as you take a look at what is going on here, if things continue as they are headed right now, we will get tariffs on mexico, which the president has said, as well as increased tariffs on chinese imports. what effect do you believe that

will have on global growth? peter: forgive me, but i think the wrong place -- but i think that is the wrong place to start the argument. i think it is important for your view is to understand the problem we are trying to solve here. we had essentially a business enterprise south of our border that involves narco traffickers and human traffickers. are 100,000 illegal aliens transiting from the southern border of mexico, heading from places like san diego and el paso, and imposing over $100 billion worth of costs on this nation. we have a system in mexico of that basically encourages this traffic. what president donald j. trump is doing is shifting the cost to mexico so that they will deal

firmly with this problem, and that's what we're focused on now. we believe that today will be a good day for america and mexico. we are having high-level meetings with the mexican side. the important thing here is to get this problem solved. i would remind everybody watching this show that the american economy, the trump economy, is very strong right now. i would say to you that the tariffs that have been put into place have had zero impact on inflation. they've encouraged a tremendous amount of investment in the united states. most of the burden on the china tariffs have been borne by the chinese. i think that talking about with the world bank may or may not have said about what our growth rate would be really is misdirection for the people who watch this show. the trump economy is solid. david: ok, so let's get back in

the right direction. question that there is a substantial problem with people coming across our southern border. the question is what we do about it, and who pays the price. , the republican senator from texas, said overnight that something has to be done about the border, but we should not be charging the farmers and the workers of texas, which is what will really happen if we impose tariffs. where do senator cruz have it wrong? peter: the problem we are facing is a national security issue. congress has an application to ensure that we have secure borders, and the legal immigration that does occur should be merit-based so that when we have immigration that is legal into our country, it is to the benefit of both our society and our economy. congress has failed as an institution to deal with that issue. what president trump is doing

withhis policy is dealing national emergency, a crisis at the border that threatens both our economy and our national security in a way which incentivizes both congress and the mexican government to deal with this issue firmly. this is what we hope. the president has tried every possible avenue with congress and with the mexican government, to no avail, and this is a firm step, i think. it is a brilliant stroke in terms of approaching this problem. if you look at this simply as a business enterprise south of the border, it is a very lucrative enterprise, and it is a public-private partnership in the sense that you have the narco traffickers in the human traffickers, and then you have government officials making a lot of money. there is a system of checkpoints that runs south to north to the united states that are supposed to stop a lot of this activity,

when in fact a lot of corruption takes place and it continues. we are trying to explain to the mexican government that you have to bear your share of the responsibility in this. in terms of what needs to be done, there is a three-part solution. we laid it out very clearly. the most important thing is for the mexican government to take the asylum-seekers. right now we have a strategic game going on by which the human traffickers educate people that they want to take a lot of money from to move north of the border, tell them here's your script come across the border, ask for asylum, you can stay there. we've got to break that cycle. simplycan do that if it takes those illegal aliens that are trying to game the system. guatemala,people in el salvador, and honduras find out they will be in mexico rather than the u.s., that will stop them.

the southern border is a 150 mile border, as opposed to our border, which is 2000 miles. ands a border of guatemala mexico that is defined by a number of natural and artificial chokepoints, so that traffic would be much easier to stop there than once it gets into mexico, so we are asking them to do that. grandween come on that conveyor belt of 100,000 illegal aliens every day, they need to crack on that. it is buses, trains, rail. it is big business. david: i assume that has been conveyed to the mexican government. agreement iget an june 10 and avoid that deadline. peter: i am confident that mike , ustr andb lighthizer secretary of state, and others

including president trump have signaled very clearly to the mexican side what needs to be done. i believe mexico is sincere about wanting to do something, but the problem the mexicans have faced is that there's just a lot of money being made on their side of the border on this trafficking without bearing any cost. president trump is going to impose costs on them unless they act, so therefore they will act. alix: peter, and i mean this with all due respect, your title is the director of trade and manufacturing policy. you have basically been talking about national security. companies come on our show and say we are going to have to raise prices, that we are very scared about these tariffs, particularly when it comes to mexico and their supply chains. the markets were very surprised. you saw extreme selloff since they were announced. what is your tolerance for market selloff and rising prices you wind ups if

continuing to impose tariffs on national security issues? peter: i think you are probably aware before i joined the white house, for years, over a decade, my job besides being in academia was to assess the markets from a macro point of view. i'm very bullish right now because what president trump has done is change the game. right now we are taking a strong measure which will change the mexican calculus anyway -- calculus in a way which will actually get a solution on our southern border. that is what we need to get to, and that is good for the markets. in terms of the impacts for the tariffs, this is a textured question. of the chinantext tariffs, i've heard so much blather about who pays for that. the vastchina bears

majority of the burden of the trump tariffs, and they do so because they select fewer exports. they are forced to lower their prices. level the chinese state that they have left investment because of the tariffs -- they have less investment because of the tariffs. the president is trying to get the chinese to stop attacking our economy with things like forced technology transfer and intellectual property theft. the mexican issue is a national security issue. i think everybody agrees that this is intolerable. you cannot have 100,000 people every day moving south to north into this country. an ignominious record last week when one million aliens walked over from warez into el paso -- from juarez into el paso in one group.

that is unfathomable, but the american people need to have this information and the cost that legal immigration -- the cost that illegal immigration imposes on this nation, and they will support the president. david: think you for spending time with us today. that is peter navarro, assistant to the president on trade and manufacturing policy, coming to us from washington. alix: we have data out unemployment. we only added about 20,000 jobs in may. you are seeing yields move lower as bond buying continues to come in. i also want to point out what is happening with the dollar. yields are going to be lower, and this is the point i wonder. you are not a direct line, but the fear is that at some point the job market rolls over, and there you go. david: it certainly tease up the friday jobs numbers. certainly the markets are going to be looking awfully hard at

that to figure out whether or not things will be turning over in terms of the trade issues. alix: in terms of outlook and wages and what that winds up