with the u.s. is off the table. and a rush into safety. treasuries falling around 2%. gold surging to a six-year high. where you go when defenses get expensive. in the real-life "game of thrones." deutsche bank fight for survival under higher costs and poor performance. david: welcome to "bloomberg daybreak" on this tuesday, june 25. most people fleeing to safety, but not so much in pharmaceuticals. 45% premiumllion, a . abbvie buying allegan. david: all they say they are going to be -- although they say they are going to be accretive.

alix: peak accretion greater than 20%. those are pretty staggering numbers. david: they are paying a premium of 45%. alix: we are going to keep following this and what it means for other health care in a day -- other health care m&a. in the markets, sb futures pause until the g20 -- s&p futures pause until the g20. the dollar hit a three-month low yesterday. 2%.ds did dip below now we are back about that. crude a little softer. it feels like a teeny bit of a risk off on the margins, but nothing extreme. david: a lot to digest. go to the morning brief. at 8:30 eastern, we get u.s. new-home sales data for may. throughout the day, we hear from a range of said speakers, starting with jay powell, williams, bostic, and parkland.

bullards then-president will be on bloomberg radio and a conversation with kathleen hays. the best treasury will be selling $4 billion in two-year notes. at the bell, we will get fedex earnings. let's turn to bloomberg first take. we are joined by mark cudmore and romaine bostick. there have been quite a few develop its on iran overnight. yesterday, president trump saying we would go right up to the ayatollah khamenei. futilenians said "the sanctions against the iranian leader and chief diplomat mean the permanent closure of the diplomatic path of the government of the united states." that doesn't sound very good. maine: no it doesn't. iran had pretty much closed the door on this diplomat a path. we had abe there a couple of weeks ago. we had the foreign ministers of

several of the countries that have gone to try to work out some sort of diplomatic solution , and so far nothing. whether this pushes them to the don't think it moves where iran was prior to this. and the farther you push them, when there is a negotiation, to give up what they already made. mark: there's a risk that when there is nothing to lose, they can take more drastic action. this is a marginal story until it escalates. alix: we are seeing a rush into safety. you see the two-year right around 2%. point belowt one 2.07. safety?a rush to is this still a dovish central-bank global story? mark: i think it is still about the central-bank story. these banks are all going to

probably impose qe later this year. europe in particular has been japan if i'd -- has been japan-ified. of course, there's a little but of hedging ahead of g20, but i think that kind of move but pullback ahead of g20. it's had a good run already, so that is probably more for longer-term investors. david: when did the kitty markets -- winded the equity markets figure out that is probably not good news? romaine: i'm not sure they have figured it out yet. the other issue is bonds pay right now. barclays index is up something like 5% of the year, which is incredible return. a lot of people were trying to play both sides of the fence. what's the floor calls out, who knows where people are going to be? david: let's turn to the other

big story this week, the g20. president xi and president trump. we heard this morning in a talk with francine lacqua in london about what lies ahead in the china trade situation. we get past trade, i think it is clear that there is a broader design to see china contained in some way. i think we will move into a chapter that covers technology, and maybe a bifurcation of technology and technology standards. david: i found two things interesting here. one is when we get past the trade, then we will deal with china containment. my understanding is the chinese don't like to be told about containment. wars arehink the opium the thing they stressed a lot when they signed bad deals with the u.k. around hong kong, etc. i think there's a long history of china not liking to agreeing

to these kind of treaties that show they are conceding to foreign powers. that is very clear now that china wants to be seen on equal footing to the u.s. it emphasized that repeatedly i thick this is going to be an ongoing issue. david: the question is what happens at the end of the week. romaine: this is why it is so hard to price and what is going to happen. honestly, anything that comes out of the g20 is going to be a much more incremental step in a much longer dispute between the u.s., china, and the rest of the world. alix: we also went from trade war to tech war. i'm wondering if banks are getting wrapped up into that, too. we heard we will potentially see some sanctions on chinese banks for violating north korean sanctions. that is bad timing for all of this, or good timing. it depends on how you look at it. mark: is this a story with legs? it is probably more marginal. there are other reasons to be concerned. but the specific banks angle is

just another marginal bit in the story as opposed to being a major driver. i think much more concerned at the moment is the rising stress in the credit market in china it is going beyond the banks, moving to the smaller, midsize banks. alix: it also raises the question of can u.s. and china separate the trade issue from other issues at the g20. mark: i don't think they can. alix: it makes everything a lot more complicated. mark: which is why i'm more pessimistic. i don't think it is priced in equities at all. i think people are trading since the -- i think people are trading on the idea that we don't need to play the negative story until people realize there are no more concrete stories. alix: thanks a lot. appreciate it. you can find all of the charts we are going to use over the next two hours at gtv on your terminal. coming up, it is more on geopolitical risk and that rush to safety.

we will talk to jp morgan asset management's global market strategist. we want to talk about our big deal of the day. $63 billion, 45% premium. buying by -- abbvie allegan. accretion greater than 20%. this is bloomberg. ♪

♪ viviana: this is "bloomberg daybreak." there's a big transaction in big pharma. abbvie agreeing to buy beaux-arts maker -- to buy botox maker allegan. the price represent a 45%

premium over allegan's closing price yesterday. abbvie is bracing for the end of patent protection for the world's top-selling drug humor drug humira.lling the tide is turning for h2 asset management -- for h2o asset management. the firm backed by not texas -- seend by natixis has investors withdraw money. that is your bloomberg business flash. alix: thank you so much. geopolitical tensions simmer ahead of the g20 meeting come up bringing a global russian to safe havens.

gold rallying to the highest level in six years. dollar-yen dropped below 1.07. -33 basis points in german bunds. joining us in new york is david lebovitz, gp morgan asset management global market strategist, and linda dussel in pittsburgh. before you know how to invest, you have to understand why it is happening. is it happening because of central banks? guest: there's a pretty difficult expedition priced in with what respect to what the fed and ecb will do between now and the end of the year, but despite the dovish pivot we have seen from central bankers, there is still a concern out there that economic activity is softening a little faster than the hard data is leading us to believe. if you look at pmi's and survey-based measures, they have softened up quite quickly. it has not come through in the hard data yet, but the bond market is deftly a little spooked. david w: if you look at the

equity markets, you would not think we are heading towards a recession. why are the equity markets so bullish given what is going on in debt? linda: the equity markets are basically pricing and that there is no recession on the horizon. bay at least, and maybe even is going to cut interest rates. i think the markets are just awash in liquidity. certain measures of liquidity are up dramatically year-over-year, even as of the end of last year. i think that's why all manner of assets are rallying. bonds and stocks, gold, bitcoin, you name it. alix: i guess the question becomes where is the next leg of the rally? i was talking earlier on utilities versus technology. here's what he had to say on some valuation. >> you're are seeing investors uncomfortable about paying the

expense of defensive's and paying up for it. they are also uncomfortable chasing technology. uncomfortable blowing value encyclicals because they think it is not at the end or very near the end of the cycle, so it is a little too late. alix: so what do you do? what do you rotate into? linda: actually, i disagree. i don't think we are near the end of the cycle. i think people out there are looking for income. yield.e chasing for many people out there have thought for some time now that because our economy was so strong, interest rates would go up. the bonds in the u.s. have not been cooperating. we are now at 2% on the 10 year. it does not change the vast majority of aging boomers who need income, so they are looking for the safety, but mainly the income that you can get from these high quality dividend oriented stocks. as been arguing that we are not near the end of the cycle at all , just simply in the back half.

that makes us want to go for growth prospects, and that would include technology. david w: when i hear linda say there's an awful lot of liquidity in the marketplace, that makes me think prices go high. where are there opportunity where you think prices have not gone up too high? david l: i would agree investors are hesitant to embrace value, but sectors like financials look particularly cheap on a relative and absolute basis. the interesting thing about owning the cyclical value stocks is they have a little bit more income than the average stock in the benchmark, but not so much that they are beholden to what happens with interest rates taylor: by trying -- with interest rates. by trying to balance that profile, i think you still participate in any future upside. david w: what about financials in a world where the central bank may go lower? we typically think we need higher interest rates to help the financials. linda: i agree with david on

that. we like financials at federated investors very much, too, which is odd because you generally would buy financials at the early part of a cycle and avoid them later because you fear an inverted yield curve, which would suggest a recession. i see no evidence of a recession on the horizon. if we are right about that, you should see our you to care of -- our yield curve steepening. that would be good for financials, but furthermore, business is good for them, and they are just not expensive. alix: we did see after the fed that steepening. we have seen analyst after analysts lowering their earning estimates, yet keeping their target for the s&p the same. how do you reconcile that, and what is your call? david l: i think you are seeing a belief that when the central

bank brings down rates for the markets brought down rates for the central bank up until this point, investors will be willing to pay more for a dollar of earnings. i think a lot of people are looking at the broader macro environment where rates sit, and saying i think the economic growth story may not be as robust. you and i were talking can percent earnings growth next year is a pretty high hurdle for the market to hit -- were talking 10% earnings growth next year is a pretty high hurdle for the market to hit. i would be much more focus on where there are growth opportunities as opposed to looking at the valuation story. david w: taylor: -- david w: jp morgan says earnings growth will actually be close to 5%. what is the market pricing and for earnings growth going into 2020? linda: i think the markets may 170.st a little below

it is really tough at this stage to see what you should expect for 2020. just a slowdown in growth. we think that is reasonable. that used to be below consensus. consensus is coming down a bit. i think that has a lot to do with slowing down of growth, but getting some solid housing numbers very recently in the consumer in general, i think we to earningsxposed estimates may be to go up in the second half of this year. alix: what part of a weaker dollar will be part of that story, linda? linda: the weaker dollar would be good news for multinational corporations. i really don't think we should bet that the dollar is going to go particularly stronger or weaker. we really don't even need that so much. we just need the consumer to continue to be in a very good mood, and just keep on spending. i think that gives us a 2% gdp

growth rate here in the u.s., and then our earnings estimates for this year are not heroic at all. david w: what about the dollar in terms of u.s. equity earnings? if the dollar continues to weaken, that helps u.s. corporations get a lot of their income in foreign currency. david l: it obviously helps those big multinational corporations, but are would ofue those are at the center what is happening with trade negotiations. does a weaker dollar provide some offset to a potential escalation from this juncture in the trade situation? we are of the view that we will see some resolution at some point down the road, or at least not a further escalation with respect to trade. i think you need to be a little bit cautious on those globally exposed names. it is unclear that growth outside the u.s. is ramping up anytime soon, particularly with manufacturing in the doldrums, which is a bigger driver for economies outside the u.s.. ofid w: david lebovitz

jpmorgan asset management and linda dussel of federated investors will be staying with us. coming up, the maker of humira agrees to buy botox maker facesan as it cancer and other diseases. this is bloomberg. ♪

ared w: shares of abbvie trading lower as allergan shares surge after the two drugmakers announced a $63 billion deal. abbvie agreed to buy the botox maker. joining us now is bloomberg intelligence director of research for emea an senior pharma analyst. thank you so much for being with us. did we see it coming? why does this deal makes sense? doesn't, actually it and we didn't see it coming. what we are dealing with here is exact what abbvie says in their press release. this is a financial transaction.

they are looking for enhanced cash flows, and obviously they are not paying all cash, so in terms of debt financing, i'm sure they worked out how they would do this to keep that rating come of it in the end, this is a financial transaction. these are the exact sort of deals that in the past people have said haven't really worked out for the farm industry. david w: does it help abbvie diversify its portfolio of pharmaceuticals? it needs to add other drugs. does this give them a leg up with allergan? sam: they get allergan's drugs, so they get into that business. at the end of the day you could see them buying a whole host of companies that would have added products in the areas they don't have, but i just don't think the market really likes financial driven transactions like this. abbvie does have a problem that

it has to deal with. it knows for a fact that its product humira is going to see severe competition, especially into 2023, when competition in the u.s. comes. this not beat about the bush here. that is an $18 billion, $19 billion product. it is very difficult to deal with that. this is the way they think they are going to manage it, but i don't think anyone expected this kind of deal. alix: now the conversation shifts to teva and other pharmaceuticals. was this a necessary offensive move? sam: frankly, i don't see many other pharma companies that have the same sort of patent cliff, for want of a better phrase, that they are facing. celgene in bristol-myers was one mistakesmade a few along the way in developing its lead drug of evo -- its lead , but there are at least

different areas of business that they are in. here there is no obvious synergy, and there aren't any other companies we see the have the same sort of cliff that could try to do the same financial engineering as abbvie is trying to do here. alix: i like how you tell it how it is. fazeli oflie -- sam bloomberg asset management -- of bloomberg intelligence. with a still is david lebovitz of jp morgan asset management. i think it all comes back to the idea that businesses are still a bit nervous about the outlook for growth. they are not really willing to invest as we seen. capex is contracting in the second quarter when all is said and done. they are much more comfortable

going out and buying somebody else that has a proven product. deals going on today made a more -- today may be more financial driven, but we think this him m&a is going to continue. if you look at private equity activity so far year to date, add-ons and platform creation have been it clips and buyouts, in the financials and health care services in particular. alix: and i'm sure 2% rates don't hurt. david lebovitz of jp morgan asset management and linda dussel of federated investors will be sticking with us. coming up, we take a look at fedex's earnings and uncertainty with trade. this is bloomberg. ♪

alix: this is "bloomberg daybreak." happy tuesday. nothing is really happening. s&p futures hold steady. european banks are down 6/10 of 1%. i think part of that has to do

with 10-year bund yields at a record low. at one point we had -33 basis points. now we are at -32. in the u.s. we dipped below two, now a little bit above two. maybe it is a central-bank situation, dovish by the long and. however, there is a risk off within the equity markets and in the currency market. 1.06 --en broke below dollar-yen broke below 106. there are repercussions for g10 and emerging markets. david w: analysts are weighing in. let's find out what is going on outside the business world. for that we turn to viviana hurtado, who is here with first word news. viviana: iran called you u.s. sanctions against its supreme leader "futile," and warned they have permanently closed the past

to a dip a medic solution between -- close the path between a diplomat solution -- closed the path to a diplomat solution between the two countries. to the west bank now, where palestinians demonstrated against trump administration plans to raise tens of billions of dollars to help their economy. they call it a "snowdrop" aimed at getting them to give up their goal of an independent nation. it is a move that would rock the relationship between the u.s. and japan. bloomberg learning president trump recently spoke with confidantes about withdrawing from the long-standing defense treaty with the japanese. he reportedly thinks it treats the u.s. unfairly. other official say pulling out of the treaty is highly

unlikely. this week, president trump heads to japan for the g20 summit. 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 w: so the president decided things were a little too quiet around the world, no issues on his agenda, so let's take on japan and our mutual defense pact. alix: is it really about that, or about cars? david w: it could be. that is a subtle read of it. that it is not even stephen, as it were. we are ignoring the fact that we couldn't -- that japan didn't have a military after world war ii because they couldn't. we saw this in the strait of hormuz yesterday, when he we the only ones making sure the tankers are safe? fairpoint. david w: a review makes perfect

sense. alix: or it could be about cars. david w: you're right. that smart -- that's smart. fedex is going to be reporting fourth quarter -- going to be reporting fourth quarter earnings after the bell today. for more on what to expect, lead lees cow -- what to expect, covers the freight industry for bloomberg. they have some real issues with china, as china says you are disadvantaging our huawei stuff. how big is the china problem for fedex? reporter: fedex is facing a lot of headline risks now, whether it be china or amazon or even their integration in europe with their tnt acquisition. people are expecting about 6% eps growth. think that's what people are going to focus on.

real.headline risk is if it hits the blacklist, it's become -- it could become a real impact on its business. as it relates to amazon, we think that fedex and ups have a couple of years until amazon is really a competitor. right now we think fedex an ups have the opportunity to turn the table on amazon and grow in the fulfillment section. amazon does control a large percent of the market, but there's 60% plus of the market that amazon does not control. david w: david w: they've lowered the bar some -- david w: they've lowered the bar some on expectations. downexpectations have come around 20% over the last six months, so the bar is pretty low. we have seen some positive development in europe in terms of their integration with tnt. they are lowering their costs, increasing their transit times, which is all good for transport.

part of theee that business go well for earnings expectations to come up. alix: do we still read into fedex as to the health of the global economy? lee: yes and no. fedex has underperformed the market. they've underperformed ups. they are trading at a pretty big discount to ups and the broader market. but when you look at the volume part of what they are seeing, it is really about volume. the domestic economy is growing, albeit at tepid levels low 2%. europe is struggling a little more. there's growth, but it is slower than what we are seeing in the u.s.. smith'sy with fred commentary on what is the what -- on what is going on with the overall economy. it has to do with all of the three major risks we talked about. integration, concerns over amazon, and noise from

china. david w: doesn't ups have the same concern with amazon? lee: they do, but right now they do not have the chinese concerns. they do not have an integration issue with a major european acquisition. that is really going to drag on margins. margins in their express business are low to mid single digits. alix: thank you very much. still with us are david lebovitz of jp morgan asset management and linda dussel of federated investors. i know you think we are in the back half of the cycle, so should transport to be holding up when all they have done is rollover? linda: they should hold up, and i imagine they may come back. one of the biggest concerns here globally for transportation would be china, and i don't think people talk enough about the fact that irrespective of the trade situation and tariffs, they are slowing over there fairly dramatically, and we can't say for sure how much

because we can't necessarily trust what they say their growth rate is. but they are the second largest economy in the whole world. if all of their stimulus measures can't get the gross back, then we can concern ourselves with the global recession even if the u.s. doesn't fall into that. that wouldn't help transports at all. they would normally be an early cycle play anyway. alix: so that leads me to small caps, and perhaps they should be outperforming, but that is not the case. take a look at this chart, the ratio between the russell and the s&p. that doesn't look to me like a good sign for the u.s. economy. david l: know, but when using about what is going on in the world of smaller companies, there are a couple of points to hone in on. the first is that if you look at where we are actually seeing wage pressure and companies have difficulty hiring, it is much more on the smaller end of the corporate spectrum. it is not a big business problem. the other point is if you look

at the composition of the russell 2000, something like 20% of those names have negative earnings. i think small caps are kind of a tough sell given the lack of stability and balance sheets and income statements which are kind of inherent in this asset class. david w: one way to look at where we are going is to look at the equity value of transports and small caps. if we look at the three original philadelphia, and new york, they are down substantially, all three gauges of regional fed factory operations. does that give you some cause for concern? is definitelyt concerning, and evidence of the back half of the economic cycle, but remember we are really a service led economy in the united states. small caps are generally an early cycle play. normally when you worry that you

are at the back half of the cycle, you go towards large-cap stocks. that would be natural, but small-cap stocks are really rather extensive right now. we particularly liked small-cap growth here at federated investors, and that really wouldn't be affected by manufacturing ism's, per se. it is more the growth of biotech's, for example, that look good to us. david w: on the services versus manufacturing, services are stronger, but still, services pmi's are softening as well, aren't they? linda: the economy is definitely softening. we were growing around 3% last year, and around 2% to 2.5% this year. we really would love to see a jump start getting going. i think the fact that you are getting wage growth is good news. the fact that you are still fully employed is good news. i think david made the comments about small companies having trouble finding employees, to the extent that the employee base can get there and get those

jobs, that they can have the skill sets. this economic growth can keep on going and there will be no recession insight. better second half. alix: what does that mean for consumer staples versus consumer discretionary? discretionary is an early cycle play. we are talking about automobiles, for example. they are slowing down in terms of the number of units being bought. we think housing looks very interesting. that is a consumer play for sure. staples are your safe haven. they will always be there with the income that we need. i think they can both be used, but for different reasons. david l: when i look at the defensive parts of the market, and the way that the sovereign bond market is priced as well, i have a tough time getting excited about those types of assets. you have investor expectation that the fed is going to deliver three rate cuts between now and the end of the year, and i just

don't see that happening. when you look at valuations in government bonds, more defensive parts of the stock market, if those three rate hikes don't come through, investors are going to be disappointed and things are going to move the other way. while rates probably aren't headed back to 3%, the path of least resistance is higher. david w: we haven't talked about g20 and trade recently. what happens if there is something approaching a rapprochement in osaka? linda: the market is expecting that the two leaders will agree to carry on discussions. kicking the can down the road would be just fine with the stock market. if they can come out and say anything that looks like a win for each side, i would think that you would expect a market melt up to occur. of course, if they storm away from the bargaining table, you will see the market turned down very dramatically. the markets should now be on hold for a while since we had such a strong june as we wait

for that eventuality. alix: do you feel like the market has re-rated for a lower for longer neutral rate? one thing we have learned from the fed is that the neutral rate keeps getting lower. do you feel like we have fully priced that in? linda: i think that we have. i'm one of those who disagrees with the expectation that we will see three rate cuts this year. i'm hoping that we see no rate cuts this year, and i think that the market, if this were to occur, would say, oh my gosh, we do see either a recession on the horizon or there is a big problem with global central banks. everybody going further negative, and there is a financial crisis concern. i am rooting that neither one of those will be the case. david w: linda dussel and david lebovitz, thank you very much for being with us today. coming up, a real-life life game of thrones. how garth ritchie's rise within

deutsche bank plays into the bank's culture. alix: and if you are heading out to your car, don't forget bloomberg radio is heard across the u.s. on sirius xm radio and on the bloomberg radio app. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." coming up later today on bloom, republican senator tim scott of south carolina -- on "bloomberg republican senator tim scott of south carolina. alix: today we take a moment to celebrate how hollywood is capturing the world of finance, as well as politics. i am personally interested in the recent dramatic reading of the mueller report by some

notable actors. here's a clips at what i might call political theater. >> 10. 10 acts of obstruction. act one. >> back to. -- act two. >> three. >> four. >> five. >> six. >> seven. >> eight. >> nine. >> 10. >> that is what i want from you. honest loyalty. >> mr. mueller did his job. when we do ours? alix: that just made my morning. david: wow. it feels like "euripides." [laughter] alix: it was in a riverside church. david: and do you know who built

riverside church, ironically? john d rockefeller. alix: we are getting this documentary about goldman on amazon prime, then you have this dramatic reading. you need a dramatic reading of the mueller report? didn't we kind of live this? david: i genuinely want to know what they think they were accomplishing. do they think they will get them to impeach the president? forcibly art? -- or simply art? alix: i was cracking up for like half an hour. this made my day. david: i want to know bob mueller's reaction to that. i'm guessing he did not think when they were writing those words that it would get a dramatic reading in a church. alix: feel it in your soul. i love it. david: we are going to turn out to wall street beat, where we cover three things wall street is buzzing about this morning. first of all, the real-life "game of thrones" at eight bank. according to those -- at deutsche bank. according to those familiar with the bank, the environment is

rife with favoritism and backstabbing. management had $4 billion loss just after three days of clients running away from that fund. and geneva welcomes facebook's libra. despite criticism, it is welcomed with open arms in switzerland. .oining us is sonali basak you are part of the story that wrote the "game of thrones" and deutsche bank. so why the comparison? --sonali: the reason we wrote the story is that garth ritchie, who's had a mere york -- who's had a meteoric rise at deutsche bank, his position is now potential he in jeopardy. there's a lot of tension now between a lot of different players about what the future of the bank should look like, but also who should be leading it. this morning alone, it was

reported that the headed equities might be on the way out. -- the head of equities might be on the way out. david: some people say he's a really good manager, but if you look at the performance of his unit, it has not been that good. alix: and as we learned from "game of thrones," it is all about the lan ester -- about the lannister money. alix: the reason people --sonali: the reason people really like him is he's considered an honest broker. while people around him working into various scandals, deutsche bank is obviously in a lot of legal issues, he's somebody that every ceo contrast. alix: what has been the reaction so far to this? sonali: i think we are pretty spot on. [laughter] sonali: i hope you all read the story because it does describe him in a really interesting way. he is a south african, which is also a different thing in a bank that is very german. david: i liked that his first

with a set of binoculars on the trading floor, changing the prices. natixis is our second story, what they are trying to do to try and keep from suspending trading. sonali: we talked about how they maybe made the right moves and started to mark down the value of the bonds. however, we have seen three days of outflows. this story is really amazing. this fund had a meteoric rise with almost a decade worth of inflows. to see the herd mentality start to show, there's more people on the way out. alix: so "game of thrones." sonali: it's a dramatic day.

[laughter] alix: let's get to our third one, and that is facebook. as we had regulators and politicians come out and say libra, this cryptocurrency, no, no, no. the swiss -- no, no, no, the swiss not so much. sonali: banking is very important to switzerland. obviously the home of ubs, credit suisse, private bankin g. we had people in the u.s. and former ecb officials be very critical, but switzerland is saying is it a positive sign y at switzerland can pla role in future banking. alix: maybe libra is a safe haven. go by that and get out of the swiss franc. sonali: this is at a time when there are serious issues for some of the swiss banks right now from cross-border

transactions. david: i wonder how that reads against exactly that question. well, maybe we can get into that business because this is one we are struggling with a bit. sonali: it is certainly controversial, especially at a time when regulators around the world don't know how they feel about this. alix: love it. david: thank you so much. coming up, smoothing strained relations. nissan says it is going to put more effort into mending its relations with renault. alix: act 11. [laughter] check us out on gtv on your terminal. you can ask us a question, and reach us on twitter as well. this is bloomberg. ♪

david: nissan has been having its annual general meeting over in tokyo, and one of the issues is the relationship between

nissan and renault. part of the reason it has been strained is because renault owns a lot more of nissan than nissan does of renault. more things that came out of this, renault said this. we are willing to take it down to 34%. nissan is saying we would like it down to 20% to 25%. it is not just between the two companies because the idea is if they can reduce that, then maybe nissan will back a deal with fiat chrysler, which is the mega auto company. alix: meaning that renault sells more of its stake in nissan, but tit-for-tat, nissan will support a fiat renault tie up. david: because there's more alignment of how much they out of one another. alix: but what is more important to renault? david: i think renault really once a deal with fiat chrysler. you stilleven still,

have 20% stake so you still have to deal with the japanese, french, and italians all involved in one car company. i wonder how that works. david: which is a strength and weakness at the same time. there would be really huge sales, and this would be huge scale. it would be by far the biggest auto company in the world. alix: to me, in this world of globalization, it also raises concern. david: and three governments involved. alix: really interesting. coming up, we've got jensen quality growth's bond portfolio manager. what do you do when defenses are quite expensive, but you don't want to take on a lot of risk? this is bloomberg ♪ -- this is bloomberg. ♪

♪ alix: the rush into safety. bund yields hit another record

low. gold hitting a six year high. where do you go when defenses get expensive? rollover. transports fedex earnings on deck. and abbvie's 63 billion-dollar push for scale, agreeing to buy allegan, believing they can get even bigger. david: welcome to "bloomberg daybreak" on this tuesday, june 25. we've been talking about this abbvie megadeal. think itam fazeli doesn't make sense in terms of the companies on their own. alix: he's not alone. that 45% premium is kind of big. cantor says unlikely to see other bidders. no kidding. interesting take on that. david: they think they can add

to earnings-per-share a lot if those numbers pan out. alix: and peak accretion is like 20%. that's not nothing. fairlys point, it is a -- it is a purely financial transaction. david: there are no more synergies underlying. alix: big is better. in the markets, here's what we are looking at. it feels on the margin a little bit of risk off, but not a lot of positions being taken at all. s&p futures up by just about two points. weaker,lar a little bit down 1/10 of 1%. it was a weaker dollar story yesterday, at a three-month low. now the dollar is mixed. you're seeing some buying into the treasury market. a lot of that coming out of germany. you did see reg at of -- you did see record lows at -31 basis points. crude unchanged, gold unchanged.

there's a lot of safety being put on, but not a lot of movements. david: a little taking of breath, perhaps. at 8:30 this morning eastern time, we get u.s. new-home sales for the month of may. throughout the day we hear from a range of speakers from fed chair two fed presidents of boston, atlanta, and richmond. just afternoon eastern, st. louis said president bullard will be on bloomberg television and radio with kathleen hays. at want to talk this afternoon, the u.s. treasury is auctioning $40 billion into your notes. after the bell we get fedex earnings. some say there could be warning signs about the economy. at smallggs has a look caps and transports. taylor: since the last time the s&p hit record highs on april 30, before we got the last record highs last week, you've had the s&p recover, but all of

the other major indices have not , particularly the transportation index. it is still down about 6%. the chipmakers are still down about 10%. i wanted to dive into the transportation index. it does not look pretty, particularly fedex, off about 15% alone just in the last two months. this as they have been caught up in the second time in just two months about that controversy involving diverting huawei packages, and concerns that china may add fedex to their unreliable list of companies, so the trade fight released -- the trade fight really starting to play into the transportation index. it is not, however, playing into the small caps. what is interesting is the relative outperformance of the small caps relative to the s&p 500, now down to its lowest since 2008. some of these domestic small-cap companies we think are insulated from the trade fight are not performing as well as we

thought. david: thanks so much to taylor riggs. defensive stocks may be expensive, but cyclicals may be risky. laid itbovitz earlier this morning. >> they are uncomfortable chasing technology. they are also uncomfortable blowing value encyclicals because they think it is not at the end or very near the end of the cycle, so it is a little too late. david: we welcome now eric schoenstein, jensen quality growth portfolio manager. great to have you here. you invest for the longer term. you are not a trader day-to-day. but still, the market since signals. what signals are you taking from defenses being so defensive right now? it is an opportunity to be

a bit more selective about where you go in the markets. issues, a lot of larger whether it is interest rates or trade wars or geopolitical dysfunction that you need to be thinking about. the nice thing about having high quality businesses that had the sustainability like the ones we typically prefer to see is that they had a resilience to them, and you know that there is a higher likelihood they are going to continue to create value, regardless of what is happening. our job is to repositioning things that might be getting more extensive to have a lower position in the portfolio, but it is also going to be relative to everything else. one of our highest holdings is a consumer stable right now, which would be considered defensive, but because of its long-term growth opportunities, we still have a high position. david: you still have international exposure when it comes to trade. eric: i think it is more geographic specific, and also company specific. where have companies

they're manufacturing is more matched up with where the products are being sold, you have perhaps less of a trade issue in the same way that someone who has to do a lot of importing and exporting. if you've got many factoring facilities in local economies, may be the china trade issue isn't as big a deal. that's how we start to think about how can we see companies have a different perspective on the trade issue than just simply they have international exposure, therefore that is a potential negative. alix: we just showed a chart that showed how defensive cyclicals are, and a lot of that is going to be utilities. first's consumer staples, which hasn't run as much. do you have both of those? what do you do? eric: we don't actually have any exposure to utilities, but it is because they don't have the consistency underlying their businesses that allows them to qualify for our discipline. we need to see high returns on the business, consistently above cost of capital.

utilities have a capital-intensive nature of their business. while we are concentrated, we typically don't have any energy, utilities, reads. we used to not have any telecom before they reconstituted the sector. we are in places where competitive advantages are strong, free cash flows are high , and there is a persistence to their business that allows them to have that resiliency. certain sectors have it. other sectors don't produce it as much for our benefit. david: apply that analysis to transport. eric: we have exposure to ups. i know that fedex has been sort of in the news today. it is one of our smaller positions because of some of those struggles to transport sector has been having, the fight with consumers doing more online shopping in the battles with amazon as far as who is going to take care of the last mile, how you can do that efficiently. ups is looking a bit more like a business sort of company rather than a business to consumer

transport company. alix: you have recurring services for some tech names, but they do have macro risk, as well as regulatory risk, such as qualcomm. eric: for us, the technology space is one where if there is a business orientation to it, there is probably a higher likelihood to be attractive to us. for example, microsoft. there is a services aspect with apple. that is one of the reasons we think it has more long-term opportunity. but when using about the technology, it is still going to be about the individual names. we tend to move away from what might be a bit more discretionary to where there is a stickiness and repeatability because of the service orientation, something like that. david: a lot of people are saying enterprises the place to go right now and it comes to tech. to come back to some trade

issues, particularly with china, there is a potential to hit the enterprise arc of software and tech harder than other parts of the economy. eric: potentially, but i think it is about how large the install base already is in the opportunities of that. we don't have any of the facebooks, the amazons, the netflix side of things. we do have a presence where the business orientation is stronger. from a china perspective, you have to worry about the ip side of things. you have to worry about whether or not they are stealing technology. but from a business enterprise perspective, china is one part of the globe, and the rest of the opportunity while we work through some of those issues is where we think the value creation can come from to help offset what might be week. david: what about the chipmakers? eric: we do have one exposure in the chip space that we added last december. we put texas instruments into

our portfolio. for us, smaller position because want to think about the relative risk. we think it is an important thing for investors to take about. maybe right now isn't the right time to be loading up on chip companies. texas instruments has a unique advantage because they are the dominant player in the larger wafer size, which allows them to be highly efficient in terms of how much productivity you get out of their manufacturing. that gives them an edge on some of their competition, but it is not an area where we would want to go deep right now. alix: good stuff. really great having you here. eric schoenstein of jensen quality growth is going to be sticking with us. coming up, why the maker of humira is buying botox maker allergan. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." there's a big transaction in big pharma. abbvie agreed to buy botox maker allergan for a deal valued at about $63 billion. that would represent a 45% premium over allegan's closing price yesterday. abbvie is bracing for the end of patent protections for the world's top-selling drug humira. it is another sign mortgage rates are keeping the housing industry going. andrts beat expectations falling lumber prices helped lennar profit margins. bill gates says his biggest mistake ever came in mobile phone software. he told david rubenstein at a bloomberg event in washington that microsoft lost to google in

launching a mobile operating system to compete with apple. >> we missed being the dominant mobile operating system by a very tiny amount. we were distracted. we didn't assign best people to do the work. it is the biggest mistake i made in terms of something that was clearly within our skill set. we were clearly the company that could have achieved that, and we didn't. viviana: gates says that mistake cost microsoft billions of dollars that eventually went to google for its android system. that is your bloomberg business flash. david: thank you so much. shares of abbvie are trading lower in premarket as allegan surges after the two drugmakers announced their $63 billion deal. here for more on the telephone is bloomberg deals reporter ed hammond. sam fazeli said he was surprised. did you see this one coming?

ed: we have to admit we didn't see this coming. there are elements of it that aren't surprising. we are in a market where a very big deals are quite difficult to get through, so it definitely showed that this morning. abbvie has some issues of its own. its best selling drug and he best selling drug worldwide, humira, the patent on that is running out in stages. it does need to do something if it is going to keep the lights on in terms of revenue. the other thing is yes, it is a big premium if you look at the face value, but allergan is a company that was worth 40% more than that, but it was worth

$334 per share, so it looks expensive but over time, allegan is a lot cheaper than it used to be. alix: what is interesting is average premium for deals is like 26% right now in the pharmaceutical industry. oxi buying with anadarko. is this the trend we are going to see, that if you want to buy m&a you will have to pay? ed: we don't know whether there were others around it, but i think you are going to see companies pay significant premiums because it is really the opportunity cost. abbvie, it is this or nothing. there's not an abundance of companies of this size that you

can go into choir. we should note that a lot of this premium is coming in the form of abbvie stock. so yes, it is a high amount for them to pay, but also something they can absorb. alix: thanks so much. really appreciate that insight. of jensennstein quality growth still with us. do you like these names? eric: the health care sector definitely has the things we are looking for. they definitely make sense. i think the hard part is trying to see where some of these deals are going to take these companies from the standpoint of what they are doing to combine. there's a lot of transactions in the health care space over the last few years that have been about trying to gain scale because they are now faced with a lot of cost pressures came out of the aca that was passed over the last of administration. a want better scale to attack the cost dynamic, but that

doesn't necessarily always lead to the right opportunities for some of these larger companies if the synergies aren't there. david: one thing the democrats and republicans seem to be able to get together on is that drug prices are too high. there should be a lot more pressure coming. ed: that's correct. if you think about companies like johnson & johnson or others in the pharmaceutical space that theythe opportunity where have a broad enough array of ings and have did a good job making their portfolio dynamic in terms of the drugs they have, there will be opportunities there and in others. more draconian

price dynamic than what the more likely outcome would be. alix: when you mention synergies, i had already gone through the report when the news broke, and typed in synergies and there was none. it didn't mention the word once in the press report. i thought that was fascinating. there's not a lot of crossover between the countries. when you look for opportunities to see synergies where they are serving similar addressable markets, and combine their get some that can buying. humira and botox. there's not a lot of crossover there. so it looks not so much like a synergistic deal as much as we need to do something that returns some value to our shareholders, so we are willing to maybe make a bigger reach. david: that sounds like two plus two equals four, not five.

the way you described it is not getting me excited. we are just bigger. eric: i think that is the research you need to do to understand these deals to see if there is something the kids me there. -- something that gets me there. alix: meanwhile, i am like two plus two equals four. duh. [laughter] alix: coming up, fedex releases fourth-quarter results later today. what the company is going to do to counter the amazon threat in today's bottom line. if you're headed out to the car, tune into bloomberg radio. this is bloomberg. ♪

david: time now for the bottom line, with a "surveillance" music playing as back end. first, hospitals and health

insurers on a continuing campaign by the secretary of hhs says we want to know in advanced what the costs are of hospital services. there's a new executive order coming out. alix: i feel it before the election in 2016, there is this same kind of fear that came in. alix: lennar was out with earnings earlier in the day. you know what? it wasn't terrible. new net orders overall up 1%. we actually estimated down about 4%. you also had earnings coming in much stronger than expected. overall, net new orders strong. revenue up about 2%. download was down by about 3%. nonetheless, when we get this lumpy housing data, we have solid earnings from lennar, that is a good sign. david: good housing numbers would be good news for the economy, no doubt. fedex earnings are coming out

after the bell today. we have brooke sutherland here from bloomberg opinion with a new piece on this very subject come also talking about e-commerce. brooke: there was a report this week that fedex is offering steep discounts to encourage retailers to their packages on their air delivery service, the fedex express unit. they are in some cases offering the equivalent of what it would cost to ship the package via ground, which would be cheaper. amazon has been looming in the background with its own logistics operations. has beenparticular pushing back on the idea that amazon is a competitor, but i hope that they have to be in the traditional sense of taking away customers or dropping their own business. they are forcing them to completely rethink their business model. they are taking a significant hit to their margins. that is the amazon effect. david: at the same time, i am

mindful of an antitrust investigation that is going to commence in washington. if they have a dominant position , that'sarket, delivery markets can say, i'm sorry, that is a problem. it is a significant cost investment that would require a ton of logistical capability. i think they want their own packages to be delivered as cheaply and quickly and efficiently as possible, and you may be don't need all of the planes or the cars and the people that fedex and ups have. alix: to me, the backdrop is still what is happening with trade. maybe they are going to make it on the unreliable country list with the chinese. it is a big, fat mass. brooke: that is the perfect way to phrase it. fedex has always been a

bellwether for what we seen in the economy. they've had some not great numbers recently. thet of it has to do with european market. there's obviously going to be lots of questions about huawei, how they are handling matt, what they will do if they are pin chile -- how they are handling that, what they will do if they are put on a blacklist. 7% of sales from china. you. all right, thank coming up on this program, investing in energy in the midstream space. we will speak to five point energy's ceo. he likes water infrastructure. we will break down that. this is bloomberg. ♪ hey! i'm bill slowsky jr.,

i live on my own now! i've got xfinity, because i like to live life in the fast lane. unlike my parents. you rambling about xfinity again? you're so cute when you get excited... anyways... i've got their app right here, i can troubleshoot. i can schedule a time for them to call me back, it's great! you have our number programmed in? ya i don't even know your phone anymore...

excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. alix: this is "bloomberg daybreak." i am alix steel. the market is going nowhere fast. the conversation is what is happening in the bond market. the equity market goes nowhere.

european banks down .8% as yields continue to roll over. the big news earlier was -33 basis points. that is how much the tenure printed at a record low. we are now -32. you had a german two-year sale that came in fine. the average yield was -74 basis points. almost up of the actual deposit rate of the ecb. that shows the demand you are seeing for these assets. is it safe haven or is it the reach of any kind of return. dollar-yen also down .2%. a little bit of safety into the currency market. david: come to find out what is going on outside the business world with viviana hurtado. viviana: the u.s. is downplaying expectations for this week's meeting between president trump and trine is xi jinping. they insist the u.s. is not willing to compromise on demand for meaningful chinese economic growth or. the meeting is raising desk

economic reform. bloomberg -- economic reform. bloomberg has learned china may blacklist fedex, a move certain to escalate tensions with the u.s. huawei said documents it has to be shipped from japan to china were diverted to the u.s. the trump administration has imposed a number of restrictions on huawei. it is a move that would rock the relationship between the u.s. and japan. bloomberg learning president trump recently spoke about withdrawing from a defense treaty with the japanese. he reportedly things it treats the u.s. unfairly. administration officials said pulling out of the treaty is highly unlikely. this week the president heads to japan for the g20 summit. 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 am viviana hurtado. this is bloomberg. david: let's turn back to the

subject of iran. tensions between the united states and iran show no signs of diminishing, with president trump imposing new sanctions on the leader of the country and iran responding that this means no possibility of diplomatic resolution. expert saying the two sides do not want to go to war butter on conflicting paths. >> the iranians do not want to go with more with us and we do not want to go to war with iran. >> what the iranians are trying to do do is provoke us into an over response. >> our forces are up against one another. we have tens of thousands of forces in the gulf. it only takes a few minutes for something to develop quickly. >> we are picking sides, we are picking the sunni arabs and the saudi's over a long-term future with iran. i do not see how that will go well. >> iran will have a role, whether they are a nuclear power or not, and we have to be out

what we think their role should be and understand they will not take dictation from us and execute that. david: eric is still with us. this is a complicated situation. as an investor, do you pay attention at all? can you ignore it? eric: you cannot ignore it. what we try to do is stay focused on our tenants, sustainable growth opportunities. what you do with issues like iran as you think about how that might temper some of your growth expectations when you try to develop longer-term growth models. we do not have energy in our portfolio. we never have. it does not have the consistency we would look for. the volatility of the stock price can create dramatic shift in the stock that are not

anything about the fundamentals. david: what about defense stocks? eric: they have the opportunity to qualify for our discipline. they can produce those higher returns on capital. the difficulty is that if you get too concentrated, you can be concerned that the changes in the administration's perspectives on defense spending can cause downturns. the reality is defense spending is a staple like item within the administration. there will always be spending. it does means those businesses can be opportunities given the right circumstances. david: what we are seeing feels like an increased level and uncertainty and geopolitically around the world. china, ata, iran, what point does that change your rubric? you haven't a disciplined by which you look at stocks. you can adjust that. does it change your overall rubric? eric: what it changes is your

growth outlook. if you think the market has an opportunity to grow at 10%, and you have geopolitical issues, you might think it will grow at half of that. what we think about is there is a defensive characteristic in the portfolio itself. it does well when things get more challenged. if you start have this geopolitical issues, we think our portfolio will hold up better because the underlying strength of the businesses. you will not be able to avoid it. the key is if you can avoid some of it or hopefully a lot of it. david: thank you so much for being with us today. alix: another way to invest in energy is through infrastructure. we are seeing a lot of deals this year playing with the lack of takeaway capacity in the permian. too much oil and gas, not enough ways to get it out of the basin. another way to play that is water infrastructure. 80 million barrels houston produced -- used and produced each day.

ng us is david coco bi -- is david coco bi -- david capobianco. 80 million barrels a day. david c.: thanks for having me here. the opportunity from a water midstream perspective is probably what we call the convergence of water in midstream. historically water was in oil service business. a month-to-month type contract business. what we have done is recognized early the convergence between that business model and what a true midstream long-term infrastructure model. the opportunity for us is to take that oil service business, create long-term solutions for our customers, and then provide what ultimately will be a gathering transport, recycle,

and reuse capability for all of the producers in our core basin. alix: meaning that if i am a producer and i'm not using water, i can put it on a grid and if i needed i can take it off and then use that water and then you recycle it and help transported -- help transport it? is that what you are saying? david c.: exactly. historically the business was spot gathering to spot disposal. what we saw in 2012 was the opportunity in densely drilled basins to create a ubiquitous network where throughout the network of a densely drilled basin, you will be able to gather, transport, and manage that water in a way that the producers to produce the water would put the water on the network and producers who need the water would be able to take it off the network. any of that in operation right now? david c.: we do. we are very active in the

permian, specifically in the southern permian, the texas part of the delaware basin, we are the largest gather and transporter and manager of water in the basin. today we have over 500,000 acres dedicated to our network that spans the basin. alix: that is a capital-intensive business. what is the return profile like? david c.: returns are attractive. if you look the return on investment, part of the reason we are so successful doing this is it provides a phenomenal service for producers. it takes them from needing to pay trucks, which can be from two dollars to three dollars a deliverto being able to a redundant network at approximately 30% to 40% of that. $.65 a barrel. alix: how much do you make off of that? david c.: margins are

offoximately $.50 a barrel of $.65 of revenue. that is a return to capital to fill out the network. alix: do not have that cash currently? how long does it take to build up the kind of project? david c.: the beauty of the water infrastructure network is you can build in small pieces. -- it the adding capacity is not a long infrastructure, not along capacity buildout. to the extent we hit capacity on a network, we can add new torastructure for $8 million $10 billion per pop without having to mill -- without having to build a $100 million -- alix: what is interesting is the permian production and the way to take away all that oil and gas. what happens of production is not what we think it will be? david c.: production will

increase and decrease over time. the energy sectors are volatile. we will go through periods where drilling will accelerate and decelerate depending on where oil and gas prices are. the reality is we need the permian and we need the shale basins to meet long-term demand. as a result, as long as you need oil and gas to meet long-term demand, you need a water management business to manage the water out of the well. alix: where will you move now? you mentioned you are in the permian, you are in the delaware , where else will you expand? david c.: as we speak we are working hard on a strategy to build out our network similar to what we have done in the texas-based delaware and the northern delaware in new mexico. other markets are the midlands and the rockies. alix: when you talk to investors, what kind of interest you have from investors? i'm trying to get it all the private equity money wants to invest in infrastructure.

what does that do for you? david c.: a great question. going back five to seven years ago, one of our core themes was the convergence of water in midstream. the idea there was we saw something we feel like others did not. over the last five years, people have become more interested in it. it is not until recently that water is starting to gain the attention we believe it needs. as recently as two years ago when we formed water bridge, we built the business when others were not attracted to the industry. we built a business that is now the biggest in north america. alix: great to get that perspective. david capobianco, thanks so much. coming up, italy gets a lifeline. more on italy's debt and the plan to fix its economy. and as we go to break, a reminder to join me and my friends as we celebrate the fourth of july next week with

the boston pops fireworks spectacular. as we had to break, smooth the highlights from last year's festivities -- as we head to break, some of the highlights from last year's festivities. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." i'm viviana hurtado in the hewlett-packard enterprise greenroom. coming up on balance of power, u.s. health and homeland --

health and human services secretary. lead. time for all the a deep dive into stories making headlines and moving markets with key insights from industry veterans and insiders. today we are looking at italy. the eu has given italy's populist government and other week to bring the debt into compliance with eu guidelines. here is taylor riggs. taylor: our bloomberg economic team is thinking the fight between brussels and rome presents a key risk to italy. italy's growth forecast is nowhere near where it should be. our team is forecasting growth of .1% in the second quarter. the forecast improved slightly but this is nowhere near the growth levels we should see for a country with so much their capacity. a return to normal growth rate remains a distant prospect. another thing that could harm italy is there bond rate. right now you have the tenure down to a 2.19.

every october when we get a fight between brussels and rome, we get a bond tantrum. if that happens in october of 2019 as it did in 2018, our team thinks this is something italy cannot handle. is, weng it can handle can thank mario draghi and the ecb, we know of all the tltro programs, and mario draghi announced the long to be tltro three program, italy's banks are the biggest beneficiaries of this. accountednk financing for 63% of the total take-up rates of these programs so far. alix: thanks to bloomberg's taylor riggs. eu finance ministers will meet july 8 and ninth to talk about italy which risks of popular center. joining us for more is the head of italy's lower house budget committee. he has also been economic advisor to the deputy prime

minister since 2014. how are you going to avoid a censure from the eu? it depends if there is good faith from the eu. basically we are doing much better than what was forecast because we are collecting much more taxes due to the reform we made then. the twopending less on big expenses budgeted, the pension reform and early retirement. if they want to look at the numbers as they are they would conclude the deficit is much lower than it was predicted to be and one of them lowest in europe. in france they will end up at 3.5%, we close at 2%. david: better than it was. will it be good enough to comply with the guidelines by the eu?

claudio: it depends how you go gdp rule the potential is something that has no fundamental meeting. in this situation, it is probably better to come back to the 3% deficit rule. our estimates and the independent estimates differ a lot from what the eu is saying. if ever there is a real intention to look at the numbers, we have nothing to be scared of. if there is a political stance and the eu wants to punish a government they don't like, that is a another matter. alix: let's get to the economic factors. yes italy did exit a recession the first quarter, but there are some indicators the second quarter will not be that great.

industrial production, composite pmi is slipping. our team at bloomberg looks for your economy to expand just .1%. how will that be fast enough to grow your way out of the budget deficit and avoid some kind of censure from the eu? claudio: this is a good point. we are leaping into the stagnation, which is not something that is new. out of the 10th year we've been on the common currency, the average growth has been zero. we not talking about something that is unprecedented. it did not make me happy, but we [indiscernible] the fiscal discipline for italy has been unparalleled with the rest of the world. i do not think there is another country that ran a surplus like

we have run for the last 20 years. that we should have the way to push a little bit the growth that is a real problem of italy. to push the growth you need to make investment. makeind of investment you [indiscernible] there is no way out. if you are in substantial compliance with the eu guidelines and you are very fiscally responsible, why is there a need for these things that are t-bills of different denominations. why do you need those? idea, in orderan ,o stay better within the rules if there is a commercial trade ,enter from supply to the state and there is less debt not computed under the rules until

it is paid, so basically there is an incentive not to pay the supplier. if you have an argument with the because wemmission, are talking about this, we are not talking about the 3% or 5% gdp from the projected situation. .01.e talking about that is under the spotlight. until you do not pay the supplier, it is not computed as a debt. then you have a problem. your a lot of people expecting money from the state that need to be paid. these solutions, when you print themany bought -- [indiscernible] sometimes credit is for a small sum. it is not straightforward.

credit.transferable tax it isthey are redeemed, not computed as debt. those have a lot of other advantages. once you have the paper form, then you are able to move quickly because you spend it quickly like you spend a bank note. push forhy you have a -- there is a lot of potential in the mini bot idea. thatdea is to move credit they have and can do nothing with it. alix: the head of italy's lower house budget committee, thank you very much for your time. coming up, it is the most-watched deal of the morning. the analysts calls i am watching right now. this is bloomberg.

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alix: here is what i am watching. abbey -- you're lucky if you're in allergan shareholder. what is wall street saying? >> people are looking at this exactly like you are saying. ,f you are an allergan owner this provides a solution to problem that has been going along for a long time. the stock hit a peak in 2015 and has been trading lower the last few months. they are getting taken out around $200 a share. for them, this is a good solution. if you are abbvie you are in the same boat as allergan. both companies are dominated by older products. a weaker pipeline other than that. this says let's get together and see about $2 billion in costs.

two companies, similar problems, get bigger, find some savings. we knew they had to do something and this feels inevitable. david: it is a bigger company. it is -- is it a better company? >> everyone of these big mergers we see, that is the question people need to be asking. do these great buying for shareholders? that is a question that takes years to answer. alix: thanks for a much. appreciate it. , michael kuchma, morgan stanley fixed income cio on a day when german bund yields hit another record low. this is bloomberg. ♪ the latest innovation from xfinity

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lisa: coming up, the stress between the u.s. and iran building. the white house playing down hopes of a trade breakthrough. bund falling to another record low. gold climbing to a six-year highest caution spreads ahead of the big day of fed speak. chair powell in the spotlight as policymakers discuss shifting into an even lower gear to boost the u.s. economy. 30 minutes until the opening bell. you are seeing a slight to quality, at least in bonds, 10-year yield at the lowest level since 2016. s&p futures flat. the dollar flat as well. as we seeing a bit tensions rise between u.s. and iran. we begin with the big issue -- investors balancing caution with a seemingly impervious rally. >> we seem to reached a peak. >>