Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170908

Alix lets take a look at that. Yields have lost 13 basis points this week. The dollaryen as well, the lowest level since november. Of gold is getting a bit it, up five dollars. Copper is getting hit along with other base metals. Of there is not enough to impact weaker dollar. Up, we getng secondquarter results from kroger. We will spot talk to the cfo. President will be speaking on consumer finance. Right now, lets get enough date on the business world. Taylor the hurricane weakened overnight. It is still on a collision course with florida. It will bring potentially deadly storm surges. It has been downgraded to a category 4. Has triggered a record evacuation from the miami area. Could become the most expensive Natural Disaster in u. S. History. It is already tattered small caribbean islands. A major mexican earthquake has killed at least 15 people. It hit near the border with guatemala. President called it the biggest mexican earthquake in a century. In israel, the wife of Benjamin Netanyahu says she faces indictment. Overspent on the official residence. He has said the allegations are absurd. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. I am taylor riggs. Alix thank you so much. Hurricane irma weakened. Take a look at this function on the terminal. It shows the trajectory of the storm after devastating st. Maarten. The pictures are unbelievable. Miami sundayitting and then we can into a category 2 storm. Joining us is the weather analyst. He predicted that Hurricane Sandy would hit east coast nine days before it did. Winter woulda mild send Natural Gas Prices vomiting. Plummeting. Confident it will make landfall in south florida. Any wobble with the eye can take it off the models course south florida looks like weve got landfall. Pity to finish preparing as the storm theres down. Alix tell us what you were looking at with water and wind. Jacob the storm was toned down. That does not mean that anyone should take it any more lightly. Its going through an eyewall replacement cycle where it is weakening and the outer eyewall that has the strongest winds are strengthening. That means the winfield is going to widen. Youre going to see a wider area of tropical winds. The dark area will get wider. Now thosem live graphics. There is a higher probability of Hurricane Force winds across florida. It is likely to ride right up state. You could see wins 150 miles north. Alix how do we compare that to other storms . Jacob this is no longer one of the strongest storms. We have seen a category 5 make landfall, andrew in 1982. This has the record for being sustained for the longest amount of time in the atlantic basin. It continues to grow in size. Weaken thatng to dramatically upon making landfall. It will sustain the strong winds as it moves inland. It will gradually weaken over time. You could get some very damaging winds. Alix you mentioned it in downgraded, how does it stack up to mother other major storms. Jacob downgrade is a term we should use loosely. Worse asts are still the storm grows in size and we worry about the storm surge and how its going to stack up. Irma is a name you are going to remember 30 years from now. Harvey and irma will be up there. David what could make it worse or better . Jacob it depends on the location. The west coast of florida could escape the worst. It could fear to the east. That would be the best case an area because that would lessen the storm surge around miami. The worstcase scenario is to make landfall around that southern tip of florida, which would maximize the storm surge in miami and bringing Hurricane Force winds to the entire state. Alix those are unbelievable pictures. Joining us is the weather impacting corporations. Its good to see you. Which companies are best prepared and least prepared to deal with irma . Fred when you look at the bjs thatpanies like have a number of stores in florida. They are going to hit hard. Publix has 90 of their stores there. Array, 25 wide Million People from florida up through georgia who are going to be affected by the storm rid storm. Alix what about inventory. You will see dying ahead of the storm. How much do they stand to lose on that western mark that . We think you are going to 1. 5 ilion dollars in sales. Those are sales that will not come back. David explain why they wont come back. , peoplee storm is over will need to buy a lot of things. Of why doesnt that make up for it . Fred you have a lot of things shutwill be taught and the down of restaurants, stores, people are not going to be buying a lot of clothing. Food sales will be bought. Gasoline, the diy chains are going to do well after the storm. Just because of the shut down it, you are going to lose from restaurants and a lot of other Small Businesses that will be closed for at least a week or two in these areas did areas where it areas. Joanathan thank you very much for joining us. He is the chief investment officer. What are we going to get a clean read on the u. S. Economy . Its been very modest recovery, it has surprised on the downside. I dont take there was anything shocking about the numbers we had been getting. The most surprising thing that has been keeping people busy is the absence of wage growth. It is happening in the younger cohorts, but not in the older thein a jonathan hurricanes, will they complicate how we read the economy . Vadim usually, catastrophes of the sword bring down the Insurance Companies and bring about pricing markets. That is probably looking worth looking at in the insurance space. David what about employment numbers . We saw in the jobless claims yesterday a lot coming from texas already. While this affect the reliability of the job numbers . Vadim thats going to be the excuse given in life that point to have a big impact. How do you see the texasconomy holding from and florida as well . , these oftorically than one time a shocks. Buildup of durable goods and construction spending, that offset some of the discretionary spending. Its a bit of a balancing act. It will affect the Services Component more, but not the aggregate numbers all that much. Alix youre worried about competing for workers. If they go back to work, they will have to tilde houston. That is critical in the labor demand. Is 91. Lar index is that an irma thing . Vadim of all the i think it does reflect continuing week this in the Inflation Numbers that we see. There is a lack of clarity on when the aggregate wage numbers are going to start to rise. We see very low inflation premiums embedded in the numbers. When you combine that with the draghi statement and europe may be getting too strong which could delay some of the tightening by the ecb, that is bringing down the numbers as well. Alix you are going to be sticking with us. Be talkingwe will about competing with the big guys like Goldman Sachs and how these smaller deals will come in to play over the next few months. This is bloomberg. David attention has shifted from what the fed is going to do to who its going to be. Stanley fischer has created an opening and doubts whether janet yellen will be asked to stay past that worry. That may be a reason why we see the dollar fall further today. Joining us is the head of european rate strategy. Lets start with you. Is it affecting the dollar this morning . Peter there are a number of factors affecting the dollar. We will see some rate expectations decoupling from the dollar. The dollar has been influenced by other factors, it is one of relative strength in currencies from a other economic areas. That is going to be driving the dollar lower. Is donethe rate curve in the u. S. We have gotten a bit too pessimistic. I think weve gotten too carried the last jobs report has a loss of extraordinary event. That is the pressing the u. S. Curve. We have currencies which are causing the market to be somewhat deflated. Little priced two into the fed. Is to look atere how to take a position on us having gone past peak pessimism with the administration and their ability to pass reforms. I think its about finding some smart ways of expressing that or lessg to get a that pessimistic on the u. S. At the moment. David has the dollar gone too far . It does not seem justified. Its Something Else bring the dollar down . Vadim you can attributed to the fact that the u. S. Has the largest trade deficit. There was a bit of support from the rate differential. That is predicated on the u. S. Economy accelerating. Going to be a divergence of Monetary Policy. We have downward pressure on the dollar. Joanathan i want to talk about the current regime. Treasury yields are lower and the dollar is weaker. Why does it keep getting caught up on weaker trade when in years gone by, it was dollar strength. Why has that changed . Peter it is no longer the safe haven asset. The yen and the euro are predominantly taking its place. Much of the uncertainty in developed economies stemming events are stemming from the president s position on a number of geopolitical factors. The dollar is flat. It was relatively overvalued. The euro was significantly undervalued. Now we see some more realistic valuation materializing and that is pushing the dollar lower, significantly below some support levels. Joanathan we talk about global growth. The bond market has struggled to see growth. Why are treasury yields lower . Everyone talks about growth and inflation. Vadim you have an enormous short position. People expect rates to rise. You also have a huge long position with the 10 year bond. People are betting on the flattening of the yield curve. At the same time, the equity market is powering on. The only thing that can link the sink together is expectations of real growth and continuing inflation. That is the best scenario you can find. David is there any factor at all of the uncertainty of the fed western mark that it . Fed . For positions and it may be a fifth a be replaced or it will that affect the markets . Peter since fisher announces retirement, that was a shock. On balance, he was one of the most hawkish members and very influential. Ae u. S. President says he is low rate guy. I think there are positions opening up on the fed and its more likely that relative doubts are put in there. When you look at how there is a debate about the effectiveness of Monetary Policy Going Forward, we may think about the existing tools being used in previous downturns, whether they are the correct ones. We may need to think about negative interest rates. David there you go. They will be staying with us michael mccaul, of texas will be here to talk about threats to the United States on the eve of 9 11. Live from new york, this is bloomberg. Taylor the business flash. The Largest Pension Fund is talking to blackrock about outsourcing is equity business. California pension fund wants to control fees and returns. 26 billion in investment. Sheldon adelson has gotten a big raise. Employmented a new agreement. That is the biggest Salary Increase for ceos in the s p 500. One of the three biggest Credit Reporting Companies has been hit i a cyber attack. Hackers gained two names, addresses, and so security numbers of 143 Million Consumers. They are offering pre free monitoring and Identity Theft protection. Alix one of the most intrusive breaches, Michael Reilly joining us on the phone. I take a look at the stock. They are getting hit by 15 . Trans union as well is getting hurt. What happened . Hackers used a simple web vulnerability in an application to get into the network. Once they were in, they were able to access a vast amount of information, drivers license numbers, sosa dirty Social Security numbers. The problem is there have been bigger breaches, yahoo had as many as one billion people last year. Those were email addresses you what they took is what every cyber the would want, the kind of information you can use to do what you want to do as a feed, fake yournts, try and way into manipulating all of the safeguard that exist in the digital realm to protect your eta. Data. All of the questions that verify who you are, you have that. Disaster. Alix these the people you go to to protect your identity. Are we going to see lenders still apply the data that they need or the credit business anymore western mark what is the longterm implication . Guys are thee central bank of protection you go to for Identity Theft. Hackers went to andspot and took all of the undermined the entire system will call into question the way we do this in the way we trust these three companies with all of this data. This may threaten their business while longterm. Joanathan when did they find out about this and what happened with that . Michael there are multiple problems at this point in it does appear the announcement they put out yesterday, they found out the breach in late july. Within days, you have three executives selling 2 million worth of stock. They claim they did not know about the breach, but the timeline is incredibly suspicious and its going to look bad. Notathan the optics do look good here it mike riley, thank you for joining us. Withg up, we will catch up Mohamed Elerian. From york city as we wrap up trading week, futures are softer. Joanathan we are about two hours away from the cash open in your area new york. As we slide toward a week of losses on the edge mark at the indexes in the United States. In europe, the bund yield is higher. The real story is with happening in treasuries. At a 2017 low as we rush with the 2 market. That is down about a basis point at the moment. The fx market is actually worse. Dollar weakness is the predominant story. Almostlaryen is down by 14 point 14 point. Full point. Lets get you set up with some headlines. Hurricane irma lost some steam overnight as it takes aim for florida. It will slam into the southern part of the state on sunday. The town has been downgraded to a category 4. Forecasters say it did bring a catastrophic storm surge. It about 650,000 people ordered to leave miami dade county. That is the biggest evacuation ever. 95 of theroyed homes on barbuda. It is expected to be the most expensive storm in u. S. History. Mexico has been rocked by the biggest earthquake in a century. It hit not far from the border with what amount. It had amendment to the eight. 2. At least 15 people were killed. Firefighters look for people who are trapped. Waves could reach 10 feet. The race to be the next chairman of the Federal Reserve is wide open. According to people familiar with the matter, the white house is colluding at least ticks people. Six people. That goes against the narrative at the race was down to two people. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. I am taylor riggs. Joanathan they told me it was a two horse race. David im not sure. Lets talk about the ecb. Mario draghi said the central bank is monitoring the rally in the euro as it studies qe options. Draghi the recent volatility in the Exchange Rate represents a source of uncertainty, which requires monitoring. With regard it to the mediumtions, for the term outlook for price stability. With us to discuss is petr cech well. Lets begin with you. Reports are circulating about various options. What is the best case you at the moment . 40 billion for an undefined amount of time. The market should do that as a compromise. Keeps the hawks in place. Would have to have technical changes to the program and thats where it its really interesting. We would think that implies the program is going to have to buy more in credit and highyielding assets and less in the sovereign space. Thats why we are quite bullish on the periphery in credit more generally. The one thing that is incremental is it does have a strong bearing to europe. The market has really lagged. Part of that is the currency. Elevated expectations as we go through the year, european revisions are likely to stay negative. The the rhetoric was statement we played monitor is the weakest word draghi can use. Do you buy the ecb saying growth is ok to set off lack of inflation. Peter they told us that in the forecast as well. They couldve with the 2018 or cast lower than they did forecast lower than they did. They knew a bit lower. Lets talk about the uncertainty that mario draghi is talking about. Its only uncertainty of you dont know what the current he is going. Irrespective of what the said, i think the currency is going to be rising. That makes the market fundamentally isometric. On the one hand, the ecb is dovish in october or december when they fire the gun, duration will be well supported. Bond prices should be rising. Hawkish, the euro is still going to be rising. David are they going to be out of the Online Business . Vadim they are going to have to reinvest. Growth, by the end of this year it is likely that growth in the Balance Sheet will start to turn to zero. Draghian didnt validate the market . He said they remain accommodative. Isnt that what weve seen in the fx market and elsewhere . Peter i would like to think of him being once a pattern of the other governing council members. Is preservingo the euro area and the mechanism in the past, it suits mario draghi to have the euro theinuing to rise so that december forecast be revised down again. That means Monetary Policy will be increased more aggressively and aggressively. Joanathan it feels like the bond market is on another planet. They finished the day down nine or 10 basis points. Why does it have that urgent . They had strong bid going in. One of the points made about dying credit and it could beg debt, interpreted as the weakness of the dollar as opposed to strength in the euro. Given that we are seeing some catastrophic events and the potential for the Monetary Policy to stay low longer, that could be another pressure on the dollar viewed through the upside. Alix two weeks ago, it was no. Johns point,ff that doesnt seem to make any sense when you see potentially low qe. That is going to be bad for the yield curve. Vadim the only interpretation is you have had selloff for quite a while. Thats been one of the most rotted trades in the market. Selloff,rket has had a they are just coming back a little bit worried i would not tie them directly to the yield curve. David wasnt the take away the growth message . That drowned out Everything Else he said it. Vadim i think thats right. We see that in the Earnings Growth expectations. It is quite robust. We see improvements in credit growth. They will both be staying with us. As you had to work today, you can tune in to hear our colleague tom keene on radio. Bloomberg surveillance can be heard in new york and the bay area and ross United States on serious xm radio. This is bloomberg. Taylor this is bloomberg daybreak worried coming up, Mohamed Elerian. This is bloomberg. Now to your business flash. Police are suing the owner of a Chemical Plant that makes loaded in the wake of Hurricane Harvey. They did not warn the police about toxic chemicals. No response from the company so far. Is Worlds Largest dealmaker shutting down overseas sales and that is a sharp contrast with the flood of x boards over the last two years that spurred protests. Want martinecutors shkreli locked up immediately. He is out on bail while waiting to be sentenced for deep rotting investors. Defrauding investors. I did not know that was a market for Hillary Clintons hair. Im sure the court is reacting well to that. Alix you cant make this up. David President Trump spoke out about north korea, saying war is not inevitable. He said it was not out of the question. Kevin, give us an insight into whats going on with north korea. Kevin the president did not rule out lee terry options. Military options. He did not disclose any details about how willing the united with how thato development of the new year program in north korea goes along. Has tried to pressure china and russia and financial s. Stitution here inside the beltway, all of the chatter is about Rex Tillerson and where he has not been, which is at the white house. There is growing speculation there is contention between the president and the secretary of state and speculation about the future of nikki haley. David there is a lot of tension in washington. Undercuthe president speaker in making a deal to days ago to extend the debt ceiling. Now they are blaming paul ryan. Conservativetra Freedom Caucus suggesting its not the president s fault that he wasnt able to get it deal with the republican congress, but leadership. I can tell you that while the conservatives in the house are present this week are, reporting is not lead to the conclusion there is no great threat to paul ryan in the immediate future. Should we get to december when investors and policyholders are going to be watch United States make good on its debt and keeps the government open and addresses a major policy win whether it he health care or taxes, if there is no policy win by the end of the year, the conversation about paul ryan could be much different. Isid now, still with us petr cech well. Yesterday, there were four basis points in the treasury yields. Back downe right again and we are back down to two point. What are the markets thinking right now . Are they worried about what comes up . Peter i tech stocks of massively underperformed because of tax reform. Many of the traits of underperformed banks. But we see now is you have added another later of uncertainty. I would interpret this as a significant negative because it has delayed another round of us urgency and another round of green. It further complicates passage legislation. Joanathan now the story has changed. D. C. Is the wildcard for markets where it the markets are struggling with what to buy. Did you really think United States was going to default . May have some weakness. Im not sure where the demand came from. Think due to the postponement of the decision regarding the debt ceiling, that is a negative or growth. Alix the pushback on that, when you look at the ratio between hightech and lowtech rates, you can see over the last couple of days we saw it move higher in the hightech rate. Is more optimism about tax reform after the tech ceiling deal. It stays in a fairly narrow trading range. Moreave seen some of the touted trades rebounding a little bit. Some of the least crowded have made more noise. You have not seen a move in some of these trump trade with the regulation. That has not played out. Alix you share a similar view . What are we looking for . Peter i do share a similar you. I would add concerns about President Trump doing a deal with democrats. I am more concerned going to be difficult or him to get consensus with his own party on further reform. It makes me a bit more cautious on whether or not tax reform is going to be of any significance Going Forward. The problem i see on the tax reform side of his its most likely going to be neutral. The 10 year into rate doesnt do anything. David give us a point of view on how much this is Monetary Policy. Peter there could the a significant increase in you could get a significant selloff in treasuries and the Monetary Policy side does not increase the term premiums. Flattens the curve. When you look at the 10 year the fed it needs to reduce the Balance Sheet. That does not have an impact until next year. If we had some expectations of his ago fiscal stimulus, we could get an increase in the term premium and that would put the u. S. Significantly higher. We still have some hopes that materializing. It is a more challenging future to hold. Joanathan if the market is by step, why are so many people concerned about the future of gary cohn . Peter interesting. He has criticized the president publicly. I think he is seen as usual to adding credibility to the economic plan. Thats one of the reasons why the fiscal side has been processed significantly. If he were sticking around or prominently featured, the Treasury Curve could have more premiums. Alix we are talking about the trump. Joanathan can you imagine if we talked about jason furman this way western mark way . Given his role in the white house, he had the same position. Or memberare anybody talking about that area that. David i think there might have been more tension. Alix excellent point. Thanks very much. If you have a bloomberg terminal, check out tv and watch us online. You can interact with us directly. You can rewatch anything you may have missed. This is bloomberg. Alix the new york fed president is predicting inflation after backtoback hurricanes. He said the demand for construction workers in texas and florida is going to be very high and it time with the Unemployment Rate is low. There is no supply of labor. Joining us is michael mckee. This echoed what i heard from the energy ceos yesterday. We are going to be competing for construction workers. Michael its going to be a problem. Construction employment has been going down. Its been rising since 2008. The financial its hard to find people. It is made worse by many construction workers are undocumented immigrants from act go and it straight is pushing them to leave. Thats a real issue. Hourly earnings are rising because demand and that would go up further, which is what bill dudley is talking about. I want to show you another chart it could be impacted. If this is irma and inflation. Its a little hard to see that. You see food prices. Harvey was all about gasoline and prices spiked. Then it goes into georgia and possibly the carolinas. There is a lot of food that we count on that could be impacted by this and we could see food prices spiked as well. Alix not even food, cotton. That could potentially influence prices down the road. Avid it could you will see this first in on how strong it is and where it hits. The poultry prices would go up , down the road you could see it in things like apparel because it takes a long time for the cotton to get in there. Vegetables will be relatively impacted. Michael mckee, its great to have you on the program. Coming up, Mohamed Elerian it will be joining us. He will weigh in on everything post tv. In the markets this morning, we are one hour and 34 minutes away from the cash open. Futures are negative and the dollar is very much weaker. Its been the trade of 2017. Watchingyork, you are bloomberg tv. Joanathan Hurricane Irma will pound florida this weekend. It will ravage world test markets. Monetary policy is looking uncertainty. The white house is considering six people for fed a chair. The ecb is still studying qe options. Cyber attack on a Credit Reporting Company leaves half of the populations information at risk are in risk. Davidgside Jonathan Westin and alix steel. Negativeutures soft at seven. The dollar is very much weaker. The euro dollar is 120 point arerience treasuries catching 2017 lows. Alix you can see all of that play out with dollar yen, the lowest level since november. The index is encapsulating what we see in trading. Gold is getting a boost off the weaker dollar. That is still a oneyear high. Copper is down despite the weaker dollar. Lets get enough update a was making headlines outside the business world. We can Hurricane Irma slightly overnight, but it is still on course to florida. It will bring powerful winds and deadly storm surges you the storm has been downgraded to a category 4. Irma has triggered record evacuations from the miami area. 650,000 people have been ordered to leave. It to be the most expensive Natural Disaster. It is already battered the caribbean islands. In mexico, a major earthquake destroyed houses and killed 15 people. The earthquake had a magnitude of 8. 2. He called the biggest it mexico in a century. In israel, the wife of 10 twominute netanyahu has been told she faces indictment on misusing public funds. She overspent on the official residence. He has said the allegations are absurd. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. I am taylor riggs. Joanathan thank you very much. The tension has shifted from what the fed is going to do to who it is going to be. With the departure of Stanley Fischer trading a fourth vacancy, we dont know if janet yellen will be asked to state afterng february february. York, we have the jeff chief financial person. Stanley fischers term is up. Talk to me about the composition of the fed. I think its going to change substantially. Weve just begin to see the change. We saw a lot of name floating around for people who might replace janet yellen. Might on the ward, there be a substantial change. From the shift away domination of academics with a mixture of people who have than in the is this world. Joanathan does that mean we will have a shift away the dovish Federal Reserve. Will that change . I think if wes shift to a more business friendly environment, it will favor a weaker dollar. The administration refers a weaker dollar. It, ire is a new fed would anticipate that being week for the dollar. David the other question is what the president wants. Only do we have quite a few openings, we have a president who has been conflicted about what he is said. During the campaign, he said he would you be rate low. Then he said he likes low interest rates. Good point. A his comments have been conflict did. Thats not unusual for him. Now that he is in the white house, he wants to see an economy continues to grow. He will be sympathetic to a fed that is slow to raise rates. But i do think we will see going over it is the fed regardless of who comes in after janet yellen and i do think she is going to leave, they will pursue normalization. Mentionedhave already randy quarles. He is not in the fringe. The set give the market a reason to hope these will be mainstream people . Mark i think its an interesting point. The transition between monetary and fiscal policy, if you go back to where the dollar started to take off, it was a reflection of the handover of policy. Those things will be more coordinated. That would force the fed to be more hawkish. The market is looking at the fed it differently because weve got so much tightening of financial conditions. I think the focus right now is not really whether or not the that is going to be hawkish or dovish, how does the rest of the world look . How does that impact the market more broadly and which currencies are the most undervalued . That is direction. Alix you were talking of more of a hawkish tilt. Like mark said it, is it rising other things . Right now we think the market has no idea what the fed is going to do if janet yellen is the fed. There been so many stops and starts did earlier this year, he looked like they were on a mission. Growth is stronger. Build deadly is clear. I think he speaks to a certain degree for janet yellen. Dontso have others who want to raise rates. The most Important Message from the most recent minutes was the fed is in disarray right now. He believed the employment inflationhey think numbers are more orton. If you look at the party firing shot from Stanley Fischer, it was about regulation. Janet yellen talked about regulation. When we talk about what the president wants in a fed chair, is that were balls . With has a big impact in is going to be. Composition favor of less regulation. How far in that direction do they go . David it strikes me that we will have all of these confirmations in the senate when there is huge partisan green. Is there a danger with this president that the fed will become more foolish . Absolutely, that is one of the key risks we have. There is such a backlog of things they need to do and there is this looming stimulus. You can see that with the uncertainty in the is worthy conflict index or some of the indicators the track when or not Monetary Policy is predict. The combination of those things, with there moves Natural Disasters we have right now. The overall backdrop is there is a lot of uncertainty from the u. S. Economically. We have a very overvalued dollar and it is starting to play down that discount. The more impact we have the fed and the outlook with more uncertainty, thats going to be reflect it in the asset markets. I think the last few days something changed, the real roll over in the dollar. What was the most significant change . Increase about what is going on at one in. Washington. That has put a different later of uncertainty. Are we going to be able to get any progress . Reform, reductions in taxes . Joanathan what is new about that. Treasury yields look like this with a little bit of volatility and the dollar looks like this. This is the trend for the year so far. Why are we waking up to its already happened . It, we had a lot of central bank meetings. Every one of the central bank told you there is not a big push back on the Exchange Rate. The fundamentals outside the u. S. Are improving drastically. See thethese, you growth coming in on the nominal side. Central banks are saying the impact of the Exchange Rate is a reflection of the improving fundamentals did that is a big change now out side of what happening in an isolated risk. Have improvedide pneumatically. The rest of the worlds that are right now. Area wefeel like that are good worried you still have the dollar down 1 . Thank you so much. Up, we will be joined at 8 30 a. M. Will talk about his business and the potential growth areas. This is bloomberg. Alix Hurricane Irma is expected to make landfall in florida sunday. It is on its current track. It will impact commodity market. You can see the huge amount of wind. Theing us on the phone is Senior Petroleum analyst. By a hurricaneed researcher. Give us your perspective of the storm and how long it could last and how it plays in two other storms . This is a very strong storm. The thing that sets the storm , irma it was super intense in the western caribbean. You see the devastation from all of the Little Island countries from st. Maarten. This is coming out of the turks and caicos. Its an incredibly strong storm. Alix how long will it last best and mark last . On how long it lasts over central florida. It will fuel when it hits the ocean water. David we have these numbers, 155 mile per hour linens. You said it has lasted longer. What does that do on the ground in terms of peoples lives and Property Damage . The Property Damage from the storm has been tremendous are in some islands are reporting 90 of their structures are destroyed. The gusts can be stronger than that. Lot of time to a destroy a structure. That can do a huge amount of damage. It is so incredibly strong. These winds are still incredibly strong. It is going to hit florida in a couple of days and its a very serious warm. Storm. Alix from a gas price get your gas in florida through a barge. If you have a hurricane, youre not hitting our john sure. What will be affected in the market . Its demand destruction on a major scale. We will see a lot of people fleeing and moving north. Our gas ready tracker is active in being used. When those ports are close, they dont have access. It means you are effectively cut off. Situation aserious far as access to supplies and we know the governor has issued a memorandum and relief as far as waivers for gasoline. To allow more transportation into areas it will be affect as people go for the north, we see a number of destinations running out. This is going to be bearish for gasoline. Florida is the Third Largest consumer of hassling in uniteds needs. It may lead other regions short. Not even done with Hurricane Harvey from last week. They would not be able to do that. If its going to send anything, its going to be to the southeast. With the storm is going to proceed further north. It does mean theyre going to be distractions to infrastructure and logistics. More importantly, how you get products from terminals once the storm has hit into gas stations . We are going to be looking at shutins where the devastation is strong. The caribbeand islands. I would look for a lengthy. Of time in which it normal. Infrastructure been able to supply those to go markets, not just for gasoline but for fuel be electricity, they will somewhat sidelined. Just the war frequent along the atlantic southeast coast. Give us some sense of storage will he, how does it take to rebuild the infrastructure . What range of time are we talking about western mark it depends on the damage to the terminal. The vessels themselves will the coastproval by authority to allow them to return. Nothe infrastructure is there and there is no electricity to pop those alex into the terminal, if there are sensible, we are could be looking at several difficult to say. We do not know the magnitude of the damage it is mean done. We have orderly shut downs of infrastructure, that is always a way of ensuring things happen quicker. This is a significant storm. Ruinous ofentionally the infrastructure that is there. It could take several weeks. David many thanks. Next, the republican congressman from texas. He will join us here. Is bloomberg. David there are potential threats facing the nine states, from cyberattacks to Hurricane Irma. Michael mccaul make sure we are prepared for those threats. Monday march the 16th anniversary of the 9 11 attacks. There will be hearings to address the issues we face. Welcome to the program. Its good to have you here. There is a lot to talk about. Lets talk about at what fox. 100 or the 3 million americans informationir subject to cyber attack. What can the government do with a private company . Ini think the collaboration the Critical Infrastructure whether it is energy or compromisedhis is a in a significant percentage. This is also credit card information. We see this more and more. The trend is not going down is that about. This latest attack is very alarming. What we are trying to figure out nationstatee, what could be behind this, or just a nationstate. Is this one of these big data still we saw when china 20 million security clearances. We are in the investigation phase right now. Joanathan the first thing you react to is isnt china or russia . For these companies, what can the government do to make sure theys ended up on security them selves . Michael we can only mandate so much. We encourage companies to have insurance. We are constantly interacting to protect the private sector. We work with them. Diagnostic check in terms of their system, how safe and secure they are. We have the 16 Critical Infrastructures we work with. Gives free information sharing so company to know what how can i best tech myself knocking on my door . Threat an ever evolving that we need to stay on top of. Avid another threat is irma hurricanes are one of the things you mentioned next week. What steps are being taken to protect the people as well as the is this is a florida right now. Texas, one of the best things the president and the governor did was to sign a disaster that duration in it and, which allows fema other key assets to reposition themselves. That includes the national guard. It,thing they have done they waived the jones act. This would allow the military vessels to come into the florida area and provide immediate relief and assistance that we know is going to happen. This is not a question of if that when. Its a category 5. This is one of the most a struct of hurricanes theyve seen their lifetime. We move on to another threat, north korea. They are very much in the news. Committeecan your play in protecting the homeland from a possible Nuclear Threat . Icbmsl now they have capability. They can hit the United States. Some have a hydrogen tom. Hydrogen bomb. They are moving in a much faster rate than we thought originally. Secretary tillerson last night, the sanctions, the mimetic pressure with china. They have economic sanctions on north brea. Everyone agrees military is the last option. There are tens of thousands of americans in south area. That option does have to be on the table. These missiledefense systems can intercept the missiles in midair like a bullet hitting a bullet. Our technology is getting better. We have to protect United States in any event him genuine goes rogue us. Its very unpredictable. He is a very and pretty will man it. He is very young and rep us. Terms of the biggest threats to national security, it is a Nuclear Power that has this capability that could potentially go rogue. David monday will mark the 16th anniversary of the 9 11 attacks. We dont hear much about al qaeda. How do you assess that threat . Michael i will give a talk about this and five minutes. It hasnt gone away. Successes, weary have been able to shrink the caliphate. Do that, you counteract any external operations into the indicted states to protect the homeland. What we are doing over there does that her. Its a global ideology. Strong in pakistan. There are seeing havens in Northern Africa like liberty in tunisia worried tunisia. , i thinkhe trend line the trend line is getting that are in terms of threats to the homeland in terms of islamist terror. Spread of thishe radical ideology through the internet globally. That will not go away in my lifetime. David thank you very much are joining us today. Joanathan there is always something to worry about in the markets. About the minutes away from the point 25 e are about on the s p. Story in the bond market goes as follows. Treasuries have been bit throughout the week. Yields off by a single basis point. The session we did hit a new low for 2017. Market, with all of the store, the dollaryen down in two days. At 120 r is former 2060. Oint 20 1. Lets get you some headlines out of the business world. Jonathan, Hurricane Irma is forecast to slam into florida on sunday. The storm has been downgraded to a category four, winds at 155 miles per hour. Forecasters say it could bring potentially catastrophic storm left one 150,000 have county, the biggest evacuation ever. They have destroyed 95 of the homes on the small island of barbuda. Mexico has been rocked by what they have called the biggest earthquake in a century. The quake struck not far from the border with guatemala. It had a magnitude of 8. 2. And 50 peopled were killed. There are worries that seen on the waves could reach 15 p. And in israel, the wife of president netanyahu faces over misuse of funds. Benjamin netanyahu has said the allegations are absurd. Global news 24 hours a day powered by 2400 journalists in 150 bureaus around the world. In 120 journalists countries. Im taylor riggs. These story of the day, higher confidence and m a the blue line is m a volume. Tax reformhe hope of and repatriation of cash, but m a has not held up. Isaiah down with one investment banker and asked what his plans are looking for out of d. C. In particular in 2017 they looking for the main environment, and what they are looking for his clarity. As the year has gone on and it has become more and more muddled, people are frustrated. They have put deals on hold. They would love clarity. Most ceos and boards are tired of worrying for it waiting for it and getting back to business as usual. , we havening us jeffrey solomon. Is it the same thing that gregg told me from where you sit . You haveh, i think if political uncertainty, tax reform uncertainty, folks will wait to see how that shakes up before they make any moves. Said they were tired of waiting. He said they could pick up deals on the back half of the year because of it. Do you not agree . Jeff theres a little bit in the pipeline we think that we can get done. It depends on whether we get any clarity. You get these policy pronouncements or you get a direction and people start to run that direction and all the sudden, something shifts or pivots. I think that has some folks unseated. Are stilla bonds pretty good. If youre looking at a really strategic transaction over the next several years to make a big impact in your organization, you should not be distracted by interim political swings. Ofx you guys have a lot moves in biotech, right . This is a tweet from President Trump from march. Im working on a new system where they will work on pricing for the american people. Jeff theres lots of trees. Alix it did not have an effect then would say the first tweet was Hillary Clinton tweet maybe two years ago and there is a real reaction in every tweet after that, there is less reaction. Folks do what they are going to do. If you look at the kite transaction, which we coadvise on thats an emerging technology. Are a gilead and you are making a big splash in oncology, youre looking at the ability to have a significant new business line. And look, theres concern about drug pricing policies. I think they might think twice of it. That firm has spent a lot of time in the crosshairs. People are getting things done. The technology is evolving. What gets lost in the debate is, honestly, there is tremendous economic benefit to creating quality of life and all of these things that really go into, you in theignificant costs healthcare sector. So, you know, i am still a big believer there will be more him in a in that space. We are seeing more companies become public. That is pharmaceuticals. Is the uncertainty affecting different sectors different ways. You halve the hole obamacare question which is really riled the last markets over summer. You even have the obamacare is of the coming up this month. Is that Holding Companies back when consolidating health care . Jeff at the beginning of the year, yes. Repeal and replace we tried. We tried several times. I think people in the industry are getting their heads around the fact that my not much is going to change. That means we can go back to figuring out how to optimize our organizations, our delivery withinsms, our services this regime. Its not going away. That was the big question at the getting of the year. A lot of people are becoming increasingly concerned about crossborder transactions, possibly emanating more from china to the United States. Is that what we should be spending time discussing . Politicalhis environment its harder to get crossborder transactions done. If you are looking at china, there is definitely an increase in activity on behalf of of the federal government. But obviously, things are still getting done. In europe, transactions with europe and other companies do not seem to be falling. Deals to bet of reviewed and staffing has not increased at all. What youre seeing what we are seeing in terms of a slowdown might be a function of the fact there is so much work to be done. Lets sayonathan those big deals get approved. Are there a lot more deals to come . Jeff yes. Jonathan big deals . Jeff big deals yes. We are in a low growth environment globally. We are in a serious slow growth environment globally. In a low growth environment, ceos have nothing to do except scale their transactions. We bought converge x. A businessbuying that as to our core business, and adding on a ton of costs. That is what you need to do in a low growth environment. Those trends are way more important. Once those could get cleared, i would expect to see more m a. That im glad you brought up, these smaller deals versus the bigger deals. These smaller deals have not got done. I asked about what that means with an independent like you that has more market share with a small m a guy. Gg this is in terms of volume and number transactions we do more transactions than anybody else. I dont think everybody recognizes that. Those are in the hundreds of millions of dollars. Alix true . Does he go down market to play to compete with you guys . All banks compete. I will just tell you, as the ceo, i actually care about the brand name i am affiliating with, but i care much more about the banker and his ability to get aims done for me. , ipeting with Goldman Sachs think it is banker to banker and i dont want to lay awake at night worrying about that. How are the competitions going for recruiting . Who is winning . We haven, listen been able to recruit pretty much whoever we want. This is a culture where the bank can enable those bankers to be better than anywhere else. Cowen,fit really well at its because you understand the importance of financing and doing financing as well as m a advice. If you dont, you probably do not fit terribly well in our platform. You might look at other platforms that do not really do that. We look at the folks on financing. We would like to talk to clients what is bestbout in this environment and be able to execute on that. We want to be able to sell trusted advice. Our job at cowen is to make sure when the client selects you, we can execute flawlessly. What it does, it works tremendously well. Alix one quick question before we had to break sectors, in the next nine months where will we see the most deals . Gmt. Alix does that mean mergers are equal or addon . Jeff both. I think they will be both. If you are a venture capitalist and you have things in your portfolio, you need to be held execute those i think we will see exits out of those portfolios. Alix interesting. President of cowen you will be sticking with us. , one view on Hurricane Harvey and potential opportunities for business. This is bloomberg. Alix taylor this is bloomberg daybreak. Im taylor riggs. Coming up, Mohamed Elerian, bloombergs chief Economic Advisor. Ared european banks as method to change his research. 140,000 for Premium Research at nomura, to 10,000 for basic research add jpmorgan. Joining us, jeff solomon, the ceo of cowan. This is something i do not understand. Uncovered for some time. Its not a secret. Why arent people ready . Each of the various eu regulators of each country are responsible for implementing the two. It can be different than the roles that are going to be required in the u. K. There are mechanical elements. Also i feel like people are wondering how they can comply from a mechanical standpoint and what they are want to do with their businesses globally. We have known that this is coming for quite some time. , we think at cowan it could be potentially disruptive, but thats not a bad thing. David the regulators have been clear so cowan could be prepared for it. Jeff if you are trading in european counties, you will have to have a Research Payment account and have that associated with the costs of research, thats for sure. Beyond that, whether people will comply with the laws just in europe or whether they are going the u. S. D financing position so they are not regulation,eu thats the sort of thing that clients are grappling with. I dont think there is a onesizefitsall solution. I think they will be looking at how the compliant slightly different ways. Its a matter of getting organized as we hit the january 1 deadline. Alix how much do you charge for research . Jeff we have not said yet . Banks charging nothing or a small amount, you will be in a cup or spot . Jeff lets be clear. Theres a number of things that we get paid for, not just research. Trade execution. One thing that we did with convergence acquisition, we are people are still going to trade. They have to trade. They have to exit and enter positions. We have to create scales. We are probably one of the largest players out there. This is the next element in a long line of this trend. Our view is you have to have scale and be good in multiple areas. At Premium Research, i think, wins here. We give People Research when they need it. Toathan i dont expect you give me a price, but what is the methodology . What is the methodology to calculate what you should be charging or research . Organization what does it cost . The people. I have a pretty good idea what it costs to manufacture that products. We apportion our time to the clients we think will pay is the most meaningful amounts or the amount that they can pay us. So, this is about optimization. This does not change that. Our cost of research may be one component, but the aggregate dollars that we plan to get paid, whether this is Corporate Access or trade execution or any service weher provide, its how we optimize our services for clients. Jeff, we willt, check back in with you when you give us the pricing. And we can have a different discussion. Jeff solomon. Breach of the only show. Watch is on bloomberg tv go. If you missed anything in the conversation with jeff solomon, thecan go back and rewatch whole thing. Go to tv on your terminal. This is bloomberg. Alix now to your Bloomberg Business flash. A probeestigating forsing on drivers working ubers bestknown competitor,lyft. Sales of kroger are falling in premarket trading. Investors may be concerned by their decision to no longer buy longterm guidance. David . Jonathan i will take it from here, taylor. Thanks. Its great to have you on the program. This gotten back to why do think that is, why is there risk on concern about your decision to abandon longerterm guidance . That is the only thing i can think of out there that might be a cause for concern for folks. We had a great quarter. We delivered on the estimate. The consensus estimate. We beat on sales and total revenue. Our Digital Offering grew by over 100 . Have beenhing people expecting and wanting us to deliver, we have. Thats the only thing i can think of. Been a really tough 2017 for the shares. You addon to the pain that could be inflicted later on at the open. In midjune when that headline crossed and it was announced that whole foods would be amazon, what were your thoughts in the boardroom at that point. It looks like investors are increasingly abandoning kroger . Is certainly does look like that from an investment standpoint. We have over 9 million customers come into our stores each and every day. We have loyal households. We grew market share in the quarter. We are focused on delivering more of what our customers want every day and they seem to be appreciating that, and we are back in the positive ground for food store sales. The Third Quarter is off to a nice start as well from a revenue standpoint. The headlines are the headlines. We great about our ability to do this. We have been doing this for over 134 years. Do have Customer Loyalty. At what price are you requiring the Customer Loyalty question were to what extent do you have promotions . Is that affecting your margins Going Forward . If you look at what we have been doing over the last 13 years or so since we introduced our Customer First strategy, it has four elements shopping, products, experience, and price. Our philosophy is were not going to lose customers as a result of price. We will remain competitive and we will not charge prices that cause a customer to go somewhere else. We have done a great job of balancing our investment and gross margin with reduction in operating costs as well. Its a little bit out of kilter so our sales continued to gain more strength and we get more leverage in the income statement, but we feel good about the trajectory we are on and the opportunities we have to become more efficient of an operator, both from an administrative side and taking, making sure the labor we are using in these stores is on the most important path. Jonathan the bottom line is, this is a sector engaged in a price war. For some people, that means a race to the bottom. My question is pretty symbol. You have a huge footprint with physical stores. Are you sitting around with other people in the sea suites about cost talking cuts that you need to remain competitive question we are always focused on cost savings. There is technology we have deployed that do things electronically we used to do manually. We can take that cost out of the business and reinvest in some other facet by providing better service. I dont think we have ever had a year where we have not sat around and thought how can we become a more productive and costefficient operator. Its just part of being in business. We have jonathan does your physical footprint need to be reduced over the next 12 months . No. 2800 storesalmost we have. Our 9 million customers who come in every day, we are very, very convenient to them. Most of them live within a mile and a half of our store. We are a very convenient shop. Jonathan we appreciate you coming on the program, the kroger cfo. The open is about 34 minutes away. This man will be diving into give us some insight. Hurricane irma remains on track to count florida later this weekends. No reservations Monetary Policy and 2018 looking increasingly uncertain. The white house said to be next the fedo chair. Of the country for population is at risk and very warm welcome to bloomberg daybreak. Im jonathan ferro. 30 minutes from the opening bell in new york. We are off the lows and treasury yields and also off the lows for 2017. We are up a basis point on the day, 2. 50 is your yield. The dollar week, but not as weak as it was earlier this morning. The single currency is up 2 10 of 1 on the eurodollar. You some movers there ahead of the open. Here is alix steel. Alix we have a downgrade and to earnings per downgrade for chipotle. Downgrade to underperform from. Perform from cowan. They say the customers are focused on quality. They are pretty aggressive. They cut by a third. American outdoor brands, priestly known as smith wesson, next quarter they will as revenue on 15 on the highend. They had a lot of buying going in to the president ial election in case Hillary Clinton won the presidency. So now those cops are to wiki because you have President Trump because youeaky have President Trump in the white house. In Verifone Systems matching thirdquarter estimates, but the outlook is what missed. They do not expect it to return to annual Earnings Growth next year. Nonetheless, shorter than expected headwinds for that stock. Jon . Athan i has donek chair yellen a fabulous job. I have known janet yellen for years and years. Now from joining us irvine, california with his outlook, Mohamed Elerian, bloombergs view columnist. We understand from sources close he is six to that end the running for the next fed chair. Your thoughts and have they changed it all in the last month . Mohamed with the resignation of Stanley Fischer, it amplifies the importance of looking at the issue. Its not just that you have a potential or possible change in leadership, and we do not know yet whether this would happen, but you also have vacancies at the board and you have vacancies. Lso at the fed lots of vacancies at a time when fed officials are trying to understand like everybody else inflation dynamics, productivity, wage determination at a time during which they are trying to normalize Monetary Policy. This is a very tricky time for the fed and it is running now with less people on the bench, on the team then you would like otherwise. About the absence of Stanley Fischer. She worked with them. This is a man who knew that if the careers of pampered accu mario draghi. For many people, he is the father of modern day central banking. What has been left behind and how difficult will it be to fill that void . Mohamed its a huge void, not just for the fed, but for central banking and Economic Policy more generally. As you say, he was and is a great academic, having taught lots of people. Very highly respective. Very highly respected. He has Massive National and international experience. He has incredible interpersonal skills. Its very hard to find this combination in any one person. When that person decides to resign for personal reasons, the fed and the Economic Community in general loses something. Alix the rhetoric after the resignation was, oh, that pushes back the december rate hike. That may not happen. What was the takeaway for q1 all of that . Am not with the people who say this fundamentally changes what is going to happen policy wise. I think what is going to happen policy wise ultimately comes down to judgment. Well not understand very why inflation is low. Should inflation be an over determining factor in Monetary Policy . On the other hand, how concerned is the fed about elevated asset prices . This is the fundamental tradeoff that central bankers have to figure out in the United States. While they will miss in norma slate governor fisher being in the room in normas enormously and being in the room, they still up to out the market tugofwar. Bloomberg hes a piece where he was talking about somethings changed panic has crept into trading activity in what can only be described as a melt up in bond prices. What was your explanation . Many say it was fed related. What was your expiration . The theme mohamed market has repriced aggressively in my mind, alix, to aggressively, but it has priced aggressively what the fed will do. You have to go all the way out to june to get a material imply probability for markets of a fed hike. I think that is too far. Still a 50 50 is proposition. That not happen . Its a combination of factors. David i wonder, as i hear you talking, to what extent does the alt up in bond prices reflect low from it. As you look at the fed over the next year, two years, is there a conceptual issue, a. Issue they are confronting . Given that, how important is it to have a really strong Academic Team . We are losing Stanley Fischer, we may or may not use janet yellen both with strong academic backgrounds. Do we need practitioners or acquisitions on the fed . Mohamed we need both. We need fed officials that operate at the in section intersection of three things economics, policies, and markets. Thats what you need. You get that from a team. It will be important to think of team aspects. You need a high level of cognitive diversity. Its not just that there is not a full understanding of the inflation dynamics, which is critical. That is one of the chief dynamics of the fed. Productivity is not reacting the way that people expected. Theres lots of questions about what technology is doing to the economy. The phillips curve has flattened in honestly, and add to all of that youre trying to do this in the context of elevated asset prices. I think you meet a team that is able to operate together at that intersection of policies and markets. This name here six possible names. I will not ask you to indoors. If you are advising the president of the United States, where would you be looking . I will ask you to endorse. Where would you be looking . Atamed i would be looking at least for vacancies, so i would be looking at a signing names that vacancies together operate in that intersection i talked about. You know, the six names that are out there in the bloomberg report are all very credible names, people with experience, expertise. Lack of candidates. Its important to go beyond who is going to be the chair of the fed, but who is going to put a Holistic Team in place . Im going to use the frame the Federal Reserve is the market sbff. Will be Federal Reserve still be the markets bff next year . Mohamed the markets are pricing at that way. You look at what happens and you continue to expect what is going to happen. The markets have priced in the bff, and i stress the second f, fo i will think that is the case. Rever it was the only. It was the only transmission it had available. But at a certain point, because and risks of using that transmission channel exceeds the benefits. I think we have gotten to that point and i think more and more people realize that. So, be careful. The fed is not going to be the bff. Robert elerian, appreciate your time. He will be sticking with us. Coming up Mohamed Elerian, appreciate your time. He will be sticking with us. Have 30 minutes dedicated to fixed income. It is 12 00 a. M. Alix 5 00 a. M. . Jonathan from new york, this is bloomberg. David this is bloomberg. I david westin. As we wait for Hurricane Irma to hit and we can gigi clean up after Hurricane Harvey, theres the question of safety in the path of the storms. But also, what impact those storms will have on the Insurance Industry in the overall economy. How businesses are being hit. Shows what we shut down in advance of the storm. We have reassumed production. We got a lot of water. Port arthur, which is right by our facility, i think, in one day got 27 inches of rain. Just unheardof levels. At and now we are dealing with, you know, were all that water is flowing and it happens to be flowing down our channels. My expectation is there may be cargoes that get disrupted, but we dont see anything material. There was a fair amount of scrambling, making sure we had kroos cour frack rews and our rakes. We think 15 or so of the down andve been taken are excited to come back, just but we have not should down any wells, but there are larger batteries that we had to choke back of it. For the quarter on production, i would say is very small. We shut all of our wells in the eagle ford shale. Just as a precautionary measure for our employees. They are back in reduction. That was a survey on how the hurricanes are affecting the oil and gas industry. Its not just the Energy Industry being affected. Also the Insurance Industry. We want to bring in an analyst with morgan stanley. Its the with us, Mohamed Elerian, chief Economic Advisor to allianz, and of course, we are proud to say a Bloomberg View columnist. With a lot about insurance. Give us your survey on how this is likely to affect Insurance Companies. Uest good morning the Natural Disaster has a great human tragedy. We saw Hurricane Harvey, Hurricane Irma. And they are potentially in harms way southeast. The Insurance Industry is in the business of paying claims, so the u. S. Industry has more than 700 billion of capital. The Global Industry has more ofn 300 ilion dollars capital. We think they have the financial handle the losses. Some on the street are talking about 100 billion losses if it is a major hurricane hitting the miami area. They are ready. Thed so they can pay claims when they come due. Is there a resurgence after this because a lot of people need to buy more insurance . Yes, in the past if you have major losses pricing can go up because the industry facing losses, they need to recoup losses. 2000 one,k, back in 9 11, after the tragic event, the commercial line pricing went up 30 yearoveryear. Will these events be big enough to cause that . We have to wait to see. If this is a 100 billionplus event, there could be pricing afterward. Give usohamed elerian, a sense of how hurricane infants typically affect the economy and is there anything different with the timing this time . Two affects, david. One of flow, one of stock. Flow attracts the most attention. There will be an immediate ding to gdp. However, this will be more than compensated as they are as the rebuilding gets going. On gdp, it will be a very much vlike process. The other is these stock effect. It goes to what you were just talking about with insurance, which is significant wealth destruction. The question is, who underwrites this wealth destruction . If its not insured, it probably would have a bigger Economic Impact in terms of wealth effect alix go ahead. Im sorry. We can talk about the economics, but it is really important to think about the human dimension, and our thoughts and prayers are with being disrupted, not just by the hurricanes, but the earthquake in mexico. Alix sure, and to bring it back to the market implication, where the longerterm implications for inflation . Particularly Wage Inflation with construction workers, and food inflation, cotton being so pivotal in florida. That will be a changing dynamic in the economy . Alix, thank you. That will have impact on two segments, which inflation and food inflation because of where to hurricane is expected hit. It will have an impact for the question is, is this a transient, temporary, reversible impact, or not. In that reverts back to the questions we have about lowflation. Shortterm, lower gdp, higher inflation, that will be offset by the rebuilding and inflation is a question mark. Up, if i, to wrap this ask a crude question about inflation, what will be the turn up in the next way for hours . Stocks will underperform the vicinity weeks because of loss uncertainty, but afterward, they tend to outperform as the loss become certain as well as investors start looking after the event at whether improving pricing would bring to the industry. Alix all right, guys, thank you. Stanley,f morgan Mohamed Elerian. You will be sticking with us. We will have more on the affective Hurricane Irma. I will be speaking with regina of the state of the Energy Business after Hurricane Harvey and into Hurricane Irma. This is bloomberg. Alix the Market Reaction to d. C. Has been very bifurcated. President trump 12 decision did not buy treasury yields, but it equities. This is the high tax rate index to the low tax rate index. You see it moving higher as that deal was reached and improved. Still with us, mara abbott elerian, chief Economic Advisor Bloomberg Viewnd columnist Mohamed Elerian. Again, im not sure i would press it that hard. What this deal did is it pushed back for three months concern about the debt ceiling, concern about funding the government. Lot morextrapolate a than that . I dont think so. Ok . There are concerns about divisions within the republican party. I saw it as a shortterm deal, but it does not solve the longerterm issues. Alix well, no, but the idea that you have President Trump willing to cross the aisle and democrats happy to work with President Trump. You would think that does set it up for a better conversation on tax reform. Why dont you believe that . Mohamed you would, and i certainly hope so. But remember the context. , pressingt was work people to compromise. What they have found out the last few years, when there is no pressure on congress to act, congress does not act. Alix is there anything left in the markets for trumps agenda . Mohamed the market continues to look to deregulation and you see this in different sectors and that is moving along. It continues to hope for infrastructure and tax reform. Sectors yes, but the treasury markets and the fx market no . Mohamed the minute you go to the treasury market and the fx market, you have to take the influence of the rest of the world. One of the relationships i look at every day is what is the yield deferential between u. S. Treasuries and German Government bonds . And the result a lot of excitement about a policy revamp about growth in the u. S. , that deferential went all the way up to trigger 30 basis points. Today its much nearer 170 basis points. Its important to look at how the u. S. Asset prices are interacting. It is, by its very construct, a relative price. You say that it is 173 basis points, but the yields have been rolling over for the last several months. One thing we have been exploring is why . Why would they justify prices by saying we have this global takingnized growth story place . Why are yields rolling over . Is perception of centralbank policy and one of the tough things for any investor and for you all is well is to interpret the different singles, signals coming from different markets. You mentioned the equity market and the Government Bond market. They are sending different signals. Lloyd blankfein, the ceo of Goldman Sachs, reminded us the difference between the dividend yield and treasury yields is completely abnormal. He is worried about that. ,o theres a lot of strange relative pricing. I think central banks, by definition distort market relationships, distort correlations. A lot of people have been worried about that. Jonathan Mohamed Elerian. Thank you. You will be sticking with us. Coming up, the opening bell is about four minutes away. You are watching bloomberg tv. From new york city, you are watching bloomberg daybreak. Im jonathan ferro. Moments away from the opening bell. Little bit softer, down by 62 points on the dow. By six points on the s p 500. In the bond market, treasury yields off on the lows so far. 2. 01 early in the day. Yields higher by two basis points now. Something struggling to get a bid, the u. S. Dollar, down half a percent on the day. 91. 23. Andnger euro, stronger yen, pretty much stronger Everything Else in the g10 space. Lets get to the market open. Alix that is what we are seeing as we open for the session. The dow off by 32 points, s p, down by three. Not getting any help from commodities or the dollar either. Names, thecompany interesting story is at what fax, especially as you look at their competitors. They are getting hit by 15 . Not only did they have a Security Breach affecting 143 million customers, they now have the potential a Class Action Lawsuit against the company, as well as questions as to what executives sold shares after they knew about the breach. It is good for Companies Like check point software, cybersecurity stocks. Arecan see why they potentially getting more business. Ifax is where i went, and i have my identity stolen, so the western is what the after effect will be in terms of credit card companies, how much of a will have to pay. The other big ramification is up we saw int treasuries and the downdraft. 201 is what we hit for the lows of the year. Nonetheless, more questions about the health of the financial system. These tend to track each other, we know the story. As you see, the curve is grinding lower. Financials holding in but now losing some steam. Do we need to see a stronger rereading financials . Is the hope of deregulation enough to support financials in spite of that weaker yield curve . Jonathan with us now is Mohamed Elerian from irvine, california. What is the bull case right now for banks talks . It is tough to make, frankly. The bold case is valuation. Lower thanare quite the rest of the s p 500, one of the few sectors trading and relatively discounted valuations. The bull case is valuation. The bear case is pretty well covered. The yield curve continues to flat. A pretty tough environment for financials to make money. We arethe things neglecting in the conversation is insurance stocks are a large part of the strong tend to downtrend. Insurance is in the headline out because of harvey and now irma. There are a lot of reasons why we dont like financials. I think the bull case is that valuations are low and there is not a lot of opportunity in the rest of the s p 500. Jonathan you have a tugofwar taking place in the regulation and the yield curve, how does deregulation reassert itself in the coming months . You have to have better headlines from washington, for a start. Some size washington will get something done beyond just kicking the budget and debt ceiling conversation later in the year. You need real action that suggests maybe there is a potential for change. David are we expecting too much from the banks right now . They are making a lot of money, just not growing as fast. They have essentially become a cash cow because they can return a lot of money with dividends and stock buybacks, given regulations. Gina a lot of the other sectors of the s p have decelerated, especially on the back by backside in lieu of other cash use. Are we expecting too much . The Analyst Community is expecting doubledigit growth. Part of that is the bank story. We are expecting a lot already. The onus is on the sector not to be knows expectations, Going Forward, and that is to do with the yield curve is flattening. Vol, socouple weeks of fingers crossed. Gina at the beginning of the year, everyone was expecting valuation to be higher. That does play into how stocks have performed. I agree with what has been said, the yield curve has had enormous influence on financials, and rightly so, o. The only thing i would add to the bull case is not just valuation and deregulation, which are correct. I would also add that in mind you the market has gone too far in pushing out fed rate increases. There is also a potential of the market repricing the profile of fed policy actions. Alix what does that and him doing to the volatility of the stocks . If you have rerating, that is helpful for the yield curve, but these are cyclical. Gina if you have short rate rising, yield curve still relatively flat come along rate remains low, if you have a short rate rising, thats what anticipated by the market. That has ans point, impact on banks in the near term that is positive, creates an earnings boost in the short run that gets priced into the stoxx. The market is saying, we are not going to get a rate increase until at least march of next year, maybe after. Most economists are forecasting we may get a rate increase in december. If we have another rate increase this year, short rate boost, immediately impacts banks in particular positively. Mohammed, given the Global Situation with the steady but slow growth, is there anyway for the bank stocks to take off without running undue risk in the system . Part of the issues we had taken a lot of risk out of the system. We like that. Is there going to be a choice here . Mohamed i think in general, Systemic Risk of banks has been reduced enormously. Not only because of much higher capital cushions but because they have cleaned up their Balance Sheet. When i worry about systemic financial risk, i dont worry much about u. S. Banks, but i worry about nonbanks, how risk has migrated. To answer your question directly, we are a long way away from where we put systemic Banking System risk back into play in a major way. Jonathan muhammad, we have had a 45minute conversation about markets and have not discussed ecb and mario draghi. We asked whether it was reasonable to expect higher ,ates five years and beyond before we see significant reduction in Balance Sheets. This,t the key to all of president draghi has to get a move on and ultimately he is not going to . Mohamed it is very important. Yesterdays press conference provided a lot of insights into the challenges they face. The normalization of policy at the ecb is a necessary condition for other relationships to get back into something that is historically familiar. It may be asard early as october we hear the timetable and the plan for starting to taper qe. David thank you both for being here. There is some news being made right now in washington. Wilbur ross has been speaking in an interview with the washington post. He says nafta is fiendishly complex to renegotiate but is still committed to getting it done by the end of the year. At the same time, when it comes to tax reform, he says it is up to congress to get it done. Jonathan it is one the most extensive cyber Security Breaches in history. Equifax hit by a cyber attack that left half of the population in the u. S. At risk. Is we know that three second sold shares worth 1. 8 million in the day the Company Discovered the breach. Joining us on the phone is jeff that has a analyst 141 price target on equifax. Joining us from washington is michael orielly. Lets begin with you, jeff. I imagine you may be revising that call. Have you done that . We did take down the price target last night, we are sticking with the outperform rating. A riskeaches is always for any company, that is especially pronounced when you are dealing with consumer data. This is a big deal, no question about it. At the end of the day, we dont think their access to key data sources will be affected, and we dont think their client relationships are meaningfully affected in the longterm. Jonathan lets talk about the executives involved. Those that sold stock, the Company Claims they did not know about the issues when they sold that stock. Does that concern you . I think its a plausible explanation. According to the company, the breach was discovered july 29. I dont know what level it was discovered or how concerning they thought it was at that time , at what level it was elevated to the executives. Its plausible on august 1, august 2, when the sales occurred, the executives themselves may not have known about the situation or its potential severity. Jonathan lets say that is the base case. They didnt know about it. Isnt that a concern, that there was a data breach this big and it did not get pushed up in a matter of days, never mind a matter of hours. Within days they did not find out about it . I dont think they knew there were 143 Million Consumers affected that early on. I would also note the date of braces breached were not thought to be the core Consumer Credit files, employment income information, so they are not thought to be some of the core credit files. No question a big deal. I wish they would have known sooner, im sure they wish they wouldve known. My understanding is within the first few days they didnt know the men to do the incident. David just to push you a little bit, because im a subscriber of equifax as well. This is a company that is founded on the notion that it will protect our data, will let us know when people are doing things inappropriate. Wouldnt the ceo get a message out to say, even if they dont know it is 143 million, if there is anything that may compromise me, wouldnt i need to know about it, even on a weekend . I dont know how broadly it was distributed among the executives, but this is valuable data. It is under constant attack. Somenk there is probably minor things they look into on a daily basis, and this may have started out with them thinking it was something along those lines, and then escalated, and as they did their investigation they understand better the severity of it. Certainly, you wanted to know as soon as possible, but they are constantly under attack, there always issues at more minor levels of they are looking into. Alix if you look at the sector as a whole, will we see more migration to experience, trans union, more government oversight . What will be the immediate change . There will be called into question the model that these credit agencies work under. The market works on a system where a lot of very important in the hands of a small number of companies, and we trust those companies to protect the data. This is not the first problem equifax has had, in fact, the third in the last year. The fact that this breach was so large is going to get congress and others involved. I want to go back to the timeline question. One of the things that is almost certain is, when this breach was announced, equifax had spent a lot of time talking to lawyers and consultants, getting their ducks in a row. There is a lot of information that has not cannot yet. When they say when the hack was discovered, we dont know if that is when they discover data left the system, malware on the system. There is a lot of definitional stuff that play. Given the selloff of shares by the executives, there will be a demand to know in a much more precise way that timeline. Same time, we already have civil lawsuit filed yesterday. How much more can we expect, and we have any idea of the amount of money were talking about . Makeese kinds of incidents consumers very angry. Then civil lawsuits follow. We saw the same thing with target. They have been trying to fight off lawsuits for years. One of the key questions that lawsuit revolves around is negligence. Did equifax not properly all the data, encrypted data . The first indication was a simple web app vulnerability. That is one thing, it is hard to fight of all the attacks, but that should not be able to get 143 million customer data. Theyre all to be a lot of safeguards. If that is not happening, that will go into a civil suit. Jonathan appreciate your insight. Thank you very much. We are 14 minutes into the session. A slight move to the downside. Off by. 1 on the dow. Potentially closing out the week with a week of losses on the s p 500. From new york, you are watching bloomberg. This is bloomberg daybreak. Coming up today, robert tipps joins us on bloomberg real yield. It is the story over the next 72 hours, Hurricane Irma. Ityou look at the bloomberg, shows the path of the hurricane. Downgraded to a category four but was still hit miami over sunday and monday, and what will be the ramifications of that . We are seeing lots of video of lines at gas stations all over florida. Florida gets 90 of its gasoline through barges. Evergladesrd port will close to inbound ships as of 8 00 friday. Tankers keep gasoline in storage as well because they dont want them to blow away from the storm. Joining us for more is regina mayor from kpmg. She joins us from houston. We will get to houston and the state of the Energy Industry in a moment. When does florida run out of gasoline . Alit is a risky situation, x. As floridians focus on conservation and Energy Companies focus on keeping areas open, i dont think it is at risk of losing gasoline, but there is certainly a risk. Alix has it been demand or supply when it comes to product . Seen two different situations with Hurricane Harvey and Hurricane Irma. Hurricane harvey brought disruption on the supply front. 25 of gasoline production was put at risk. But you didnt have a spike in demand because most houstonians sheltered in place. Irma, there is almost no are fine reproduction at risk but we are having a huge spike in demand as you have mandatory evacuations and many floridians trying to leave. The situation is risky in both senses but most of floridas gasoline comes from texas, and texas production will still be online. If we can get the supply routes open, like the state has been doing with escorts of fuel tankers into convenience stores, then we will see continued supply happening even in florida , which may be hard hit by Hurricane Irma. All florida and should be prepared to evacuate. Rick scott is speaking live now, dealing with the impact. We know there have been forced evacuations. I spoke to a lot of energy ceos and they were saying, some downstream is affected. It will be a shortterm blip. We wont see earnings materially hit. Production guidance will not be materially hit. Is that true . I agree. I think the industry has demonstrated his resilience through Hurricane Harvey. We only lost about 500,000 Barrels Per Day of production at eagle purred. Some estimates were higher. You are seeing the impacts on the crude price. Refinery shutdowns have been in a slow and staged fashion. As the storm moved across the texas gulf coast, corpus christi, houston, into the you hadriangle, refineries shut down in a staged, control the manner, and then they came back up. Even though 25 was down at its 12 righte only down now, and the gulf coast is rapidly turning the refineries back on. Going to see increased Service Calls for Oil Companies in the shorter term as they compete with workers, as supplies have a harder time getting in . Is that something we need to Pay Attention to . Have only seen pressure on service costs, and thats been a concern for 2017 moving into 2018. The good news is Services Companies are coming back on and they are focused more on volume at an appropriate margin as opposed to claw back to earlier pricing levels. I see more operation amongst the industry. The fungibility of the workers to go to the oil fields versus construction, i dont see much of that. I think oilfield workers are more specialized and we should not see more pressure on upward pricing, although there will be some cost escalations. Alix i have one more question having to do with the refiners. Which are best positioned to do well in the mediumterm . European refiners had a huge jump. Which ones should we be keying in on as investors . The gulf coast continues to be a strong player. I like that we are seeing once differential,wti which favors u. S. Refiners. I would keep a close eye on the very larger binaries on the gulf coast. Those will be the longterm successful ones. The west coast is a market onto itself. Investor, i would be watching the closely. Kpmg, globalmayor, head of energy and natural resources. Definitely a question we will be looking into. David we have a lot to cover this weekend with Hurricane Irma. We talked to a lot of people throughout the program about irma. We are very confident the storm will make landfall somewhere in south lord. Exactly where is too early to say. Bjs, have Companies Like a quarter ofave their stores in florida. They will be hit hard. 90 of theirix, stores are there. While we see a lot of people fleeing, moving north, our gasbuddy tracker letting people know where gas stations are closed, being used, generally those barges no longer have access and it means you are effectively cut off. 90 of floridas gasoline needs are met by barge. This is one of the strongest storms ever recorded in the atlantic. We think they have the financial strength to handle the catastrophe losses we are facing now. Some are talking about 100 billion losses if a major hurricane hits the miami area. Fx, one ofiew of stocks. The flow attacks the most attention. There will be an immediate ding to gdp. It will be lower than it would have been otherwise. However, this will be more than compensated as the rebuilding gets going. Jonathan that is the weekend ahead. The week ahead next week begins tuesday with the Goldman Sachs bond strategist. It begins monday really, but this is where the news is. The apple product launch. How much does the dam thing cost . David and when can i get it . Jonathan i understand it is inevitable but i want to know how much it is. North of 1000, i would question if i want one. David there will be one north of 1000, i guarantee you. Alix and that is unlocked. If you get one with a provider, it will be cheaper, right . Jonathan this one down here is smashed. You pressedein, him, what are we going to get next week . Alix what are they doing about commodities . Are they shrinking the unit . How many people do they need to be set up . They didnt take a lot of risk on safe haven trades. You know who did . Gary cohn. Jonathan we keep getting the same answer. Alix this is a really big opportunity for harvey to come in and say look, this is what will be important. Jonathan wednesday, the European Commission president will deliver the state of the commission. Thursday, bank of england decision. Friday, we get retail sales in the United States. These numbers will be scrutinized, whether it is an accurate and clean read on the u. S. Economy. David i dont think we will have a clean read for a couple of weeks because of these hurricanes. Alix absolutely. Jonathan risk off to start the session, and then we roll back up. 0. 1 . P 500 down by thank you very much. Bloomberg markets is next. You are watching bloomberg. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. It is 10 00 in new york, 3 00 in london, 10 00 and hong kong. Welcome to bloomberg markets. Julie here are the top stories we are covering. Hurricane irma churns toward florida, putting millions at risk as the largest evacuation in miamidade history has been ordered. We will have the latest on the storms potential impact. Worry over, and global risks are putting investors in a bit of a risk off mode. The dollar hitting its lowest level since 2015 as havens rally. Will the sentiment stick around . Equifax is dealing with a massive data breach with as many as 140 Million People exposed. How safe are the Credit Bureaus Going Forward, and is there anything affected users can do . We are 30 minutes into the trading day into the u. S. And a