Treasuries. Over widening its lead china as being the top foreign holder of u. S. Treasuries. That is the main headline crossing the bloomberg terminal. We are talking about a total amount not quite sure what the total amount is. The headline is that japan continues to widen its lead as top foreign order of u. S. Treasuries. Scarlet chinas share dropped even more. Both of them decreased their stakes. Reporters toour check in with them to see what they are monitoring. Abigail i am watching the tech shares you all were talking about after yesterdays small pullback. The bigger public for the stocks perhaps on the signing of the phase i trade deal. Lots of dreams of green on the screen. We have macron trading strong. Inductors big in on these tech dreams. This is one of the scary charts to take a look at. 500 tech index going back a few years. The yellow line is the 200 Day Moving Average. Investors buying technology. There are periods of time where the s p 500 has been well above the moving average. Fast forward to today. Right now, we are above the 200 Day Moving Average by 18 . Take a look at the rsi. Before. Near the levels we have the overextension above the 200 Day Moving Average. It could suggest there could be some bearish catch up ahead. 10 minutes ago, mike regan talked about how Agricultural Commodities are being impacted by the u. S. China trade deal. I want to dig into soybeans. Soybeans are slumping as the trade deal fails to boost the outlook for agricultural demand. While the agreement with the United States and china says the u. S. Will increase purchases in u. S. Farm goods, it was lacking in specifics. Traders worried that chinese buying will be driven by cheap supplies in the United States, brazil, and argentina. Earlier was pointed out small caps are the star of the show. If you look at the big etfs, it is pretty much all small caps on the leaderboard. Russell, the value and growth. All of them are doing well. A big reason perhaps is the earnings season so far has been favoring the small caps companies. Season,ry early in the but of the 41 companies in the russell 2000, they have beaten estimates by 11 . That has left them with etf growth by 12 . They have actually reported a drop in earnings as expected of about 2. 7 . Divergenceferent going on in the earnings season between big caps and small caps. Romaine our thanks to everyone on the marketing. Vincent andhose is David Sowerby who joined us from detroit. Today. K at the market you look at the valuation and where we are, is this still a market . If you are not exposed to some of these names, is this the time to get in . David you will always wait for the dip. The average interyear dip is around 13. 5 . You can wait an awful long time time that drop. You talked about small caps stocks. One of the catalysts is on the margin, earnings are improving. Gdp is improving. The relative valuations in smallcap look compelling. Is to lookting area at the bloomberg spinoff index. So many spinoff stocks are more compelling today. I think it is a great spinoff name you want to look at in the smallcap leaning value stocks. Scarlet so look at small caps and look at spinoffs. When you say the average client would be 13 , what would cause that pullback in equity market today . What event on the horizon could do that . David most of the time, it is the risk you do not know that proms that 10 or more decline in the market. You can go to the usual suspects. Global, political unrest. Inflation being a little more problematic then we initially than weed va initially perceived. I think sentiment is getting overly bullish. That can lead to a minor hiccup in the markets. Joe why wont people sell treasuries . Vincent you might have gotten a hint of that this morning with phil hogan talking trade. Basically taunting trump or threatening trump to not impose tariffs on the e. U. Or retaliate for the french tax and saying the e. U. As a group were behind that. I think that maybe one of the risks david was referring to where people would sell risk if to autorned his ire tariffs. Happened to that idea that people were going to switch out of the u. S. And go into International Markets . Is that still a valid approach . David it is not compelling to me. If i want to own international, i think i want to own International Emerging markets. Developing markets continue to trail u. S. Markets by four Percentage Points per annum since 1987. We know the growth rates are not in europe or japan. For so many investors who want to have a portion of their portfolio in developed International Markets, i ask, why . You are not getting the growth rates to allocate any capital to that asset class. Romaine the Interactive Program this is, we have a question from a terminal user. He wants to ask you, vince, about the fed Balance Sheet. Addede about 400 billion in the last four months. He wants to know by june 2020, how long d think the Balance Sheet will be echo the fed will be echo vincent the fed is stuck in this repo market. You bottle up everything else. And aer you fix something financial markets, other things start to vary. By not allowing the fed funds rate to trade, the repo market is taking the brunt of it. Wille short term, the fed be continuing in the shortterm market. Well they let their mediumterm rolloff as they get more involved in the short end . Look at david, as we what is ahead for the equity market, what would you be listening for from these tech ceos with the stocks at record 1 trillionbet past in market cap today . David it is going to be the traditional house guidance, looking at the frequency with which people talk about uncertainty with tariffs. I firmly suspect it is going to be much less. The expectations that are may be getting a little ahead of themselves the earnings by the third or Fourth Quarter of 2020 will be better than 10 year on year. I want to hear how companies are guiding me to that number. Scarlet the path to those kind of projections. Thank you so much. Hear more of vincent function onsq you a your bloomberg. What did you miss is up next. This is bloomberg. Romaine live from bloombergs World Headquarters in new york, here is a snapshot of how u. S. Stocks closed today. The three main benchmarks at all time highs. Joe the question is, what did you miss . Romaine u. S. Consumer confidence, retail scales retail sales and a manufacturing sentiment all move higher. Real weight advantage in ing economies varies. Beer consumption slows, we are going to talk to the ceo and a pioneer in the craft brewing industry on how his company is adapting. Scarlet but first, we are going to focus on washington because earlier today, chief justice John Robertss were in senators for the impeachment trial. The president has until saturday evening to file his responses to the charges. Here with the latest on capitol hill is erik wasson. Everyone got sworn in. Everyone had to sign their name in a book. Did anything else get done today that could slow down the proceedings on tuesday . Abigail nothing is going eric nothing is going to slow them down. He did set out a schedule. They can get all the paperwork ready for the tuesday afternoon presentation and beginning of the trial. It looks like they are setting up for at least two weeks of trial. Mitch mcconnell would like to have this over quickly. He will likely force the senate to work the following saturday as well. Naked it as painless as possible for senators who have kept quiet under penalty of imprisonment. Theyre not even allowed to have devices on them . Romaine how do you live . Spy they cannot, but i did several senators checking their apple watches. We may see that becoming the faction in the senate. Joe it does become is that because they did not anticipate wearable devices . Romaine there was a lot of talk about whether there should be witnesses and whether the republicans will allow for it. What do we know about that . Resolutionds on the that will set up the trial rules. It takes 51 senators to establish the rules. Mitch mcconnell says he has lined up 51 republicans who approved a phase approach to this. We are told there will be a roll call vote at some point on witnesses. Conservatives have insisted there will be a roll call vote available on a motion to success on a motion to dismiss. Thanks to erik wasson, providing us that update on what is going on. We want to bring you breaking news on. Planned toy has separate the old navy business. Gap says it is no longer pursuing a separation of the old navy brand. We also wanted to point out that gap is making some changes in regards to management. They say they will name a new cal a new ceo. The company also providing guidance, saying it sees the fiscal year 2019 comp sales and net sales at the higher end of the guidance. Shares moving higher after hours. Joe lets bring in jordyn holman. We are going to talk about this data. I am curious about what you make of gap. Some thoughts. Gap hired its ceo in november. They are looking to hire a fulltime cal. With that hiring in november, they were clear they wanted to continue the separation of the company because it would take old navy away and shine a bright light. Since then, we have been earnings season that shows old navy has slowed down in growth. Looks like the company has stepped back. They are saying, we are going to focus on the management side and not do this larger separation. Romaine the initial reaction was positive. Old navy seemed to be holding up the gap company in terms of sales growth. There was concern about what the leftover company would be. With the ceo change, i guess i do not understand where does this leave them . Does this put them back to where they were in february when they made this announcement . Jordyn we are pretty much where we were before february with the announcement. Gap,ave banana republic, and old navy. Going back to the idea that old navy had a lot of value. Since february, it has had some sale misses. Now, they are stepping back and reevaluating that decision that was made. Scarlet someone else who is no longer going to be at the company is the president and ceo of the gap brand. Old navy held up everything for the company itself. The namebrand kind of got lost in the shuffle. Banana republic was high end. Gap got lost in the makes and to zara andng out century 21 forever 21 that is. Jordyn cap was always known as the american brand. Like you said, it got lost in the mix. Part of it was, how do we make it a go to brand again . Theye mix of all of this, say they are Closing Stores as they plan to expand old navy to 2000. That shows where their priorities are. Joe lets talk about the broader macro picture. We have data out today this morning. Looking pretty good. Jordyn we saw a really strong retail sales. The consumer is willing to spend and some other good data. You have to look at the individual holiday report we got from Companies Like target, which was weak. What was interesting in the data this morning is that general merchandise went up and Department Stores went down. Romaine i want to go back to gap because there are a couple key sentences. They talk about, they are committed to a sharp focus and operational discipline and accountability. You can read into the lines about what that could mean. Obviously, a company that is going to find a new path forward. Scarlet better Inventory Management i guess is where they would start. We are across the street from gap. Everything is 40 off all the time. They have a lot of extra stuff lying around. Romaine you go back to do thousand two when they lost two 2002 when they lost drexler. Have to run. Jordyn. Nks to we are going to talk about a whole lot of other things. Tariffsffs the are the new normal . That is coming up next with shery ahn. This is bloomberg. Scarlet we want to recap the breaking news we told you about earlier on. Gap is no longer going to pursue a separation of old navy. New ceo. E naming a the president and ceo is leaving the company. Salesap says it sees net at the higher end of its guidance. You can see gap shares gaining 11 . Tariffs becoming the new normal. The phase one trade deal may be signed, but american businesses are still looking at tariffs on hundred 60 billion on chinese imports. Shery ahn is here with the story. Shery at least another year or two. It took us three years to get this. Joe no matter what happens, the state of relations between u. S. And china trade shery definitely has youre paking about 25 tariffs seven and a half are still in place. Two thirds of chinese imports under tariffs at the moment. The indication coming from government officials talking about tariffs is what make me think, are the tariffs the new normal . Ambassador lighthizer saying these tariffs are some way addressing issues within subsidy issues in china. Way this mean this is the you are going to try to fix those problems . Another issue is, you are putting the tariffs on china. An expectation that the economy will crumble, and you will pressure china to give you concessions. The chinese economy seems to be doing fine. Romaine when we watched the press conference yesterday, President Trump took a big victory lab. We had a guest on yesterday who said the response in china, that downplayed it a little bit. We heard from the global times editor which some people may a proxy fornk maybe the chinese government. Shery the global times released a fullpage editorial. Their response is pretty muted saying, boast both sides definitely have some regret. What they are saying is precisely the point of a relatively fair agreement and debating about who had lost or gained is shallow. This of course, trying to portray this deal as fair and balanced, which is with chinese have been trying to ask from the u. S. When going into the negotiations. Deal is thisbig a for the guests you talked to . Shery we have seen a lot of the optimism being priced in to the markets. We saw the shanghai composite rally 20 last year. What else knew that we get, not much that was not already leaked to the media including these purchases of agricultural goods. Not a lot of swift reaction or asset allocation. Whatcontinuing to watch happens in terms of the phase two trade deal. Scarlet the phase two trade deal could be a long time coming. Thank you so much. For more on these stories, do. Ot miss daybreak australia from new york, this is bloomberg. Mark i am Mark Crumpton with bloomberg word news. President trump will be formally notified the senate has convened an Impeachment Court and has to file his response to the charges by 6 00 p. M. Friday. Has until 5 00 p. M. Saturday to file it trial brief and the president s lawyers must file their brief by noon on monday. If the house has two at the house wants to offer a response, has until noon on tuesday to do so. Michael stinger read a proclamation admonishing senators to keep silent during the trial quote, on pain of prism it. The president said he believes the trial will go quickly. Before they turned the attention to the impeachment trial, the Senate Approved a north American Free trade agreement that rewrites the rules of trade with canada and you and mexico. Senator Majority Leader Mitch Mcconnell because the passage a major step for our whole country. Then the 26 years since occasional of nafta, trade with canada and mexico has come to support 12 million american jobs. 12 million workers and their families who depend on robust trade with our robust with our north american neighbors. Our neighbors to the north and south purchase half 1 trillion in goods and Services Every year. That includes more than a quarter of all the food Agricultural Products grown in the United States. Mark passage of the trade bill came a day after President Trump signed a new trade agreement with china. Choice to bens russias new Prime Minister was a surprise to many in the country. His name did not come up for a top candidate for the job. As always kept a low price of a low profile and does not belong to a political party. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. I am Mark Crumpton. This is bloomberg. Joe yield hunters beware. Inflation in developing natures evolving nations is the fastest in years, making it harder for investors to escape the 11 trillion in negative yielding debt. For more, lets bring in damien. Scarlet has all of her retirement portfolio in german bunds. She said she wanted to roll over to em. Greate a couple of big decisions. Decisions. If you the if you look by the 2017, it was wide real yields in we just did 2200 basis points of her guts across the whole of 2019 came we saw three rate cut today. Ist that is doing, is it compressing what sort of nominal yield and carry you can expect to get from some of these emerging markets. Looking at where we are today, you are right. In october, we saw inflation hit an alltime low of 2. 8 . Now, we are back up to 3. 2 . Joe what causes inflation to build up . Ir yield curvethere is so low . It is tight labor. It is also rising food and energy prices. That are the things driving inflation a little higher and causing it to accelerate. If you look at returns from em local debt, 12. 2 was the return. More than half of the return was due to rate cuts. You cannot expect that type of return this year. If youre going to put your eggs in the currency basket, youre going to be looking for currency gains. What is in em investor to do . Damian youre supposed to look at the markets that still have a high yield. India, mexico, russia. Even in some of these markets, you are seeing inflation accelerate. Youre not going to get the easy money from rate cuts. Youre going to have to look at the currency. Making. The bet you are it is very dicey. Romaine looking at my bloomberg terminal, they say seven countries on the terminal have seen positive rates rise since october. You mentioned russia, south africa, zambia is the leader. 15 of these economies that have positive rates saw the levels the road over the past 12 months. Due to a lot of that is europe. The reason for that is what is going on with the ecb. The negative yielding pool. It is the ecb buying these bonds. It is driving down nominal yields to the point where they have gotten so negative, it is difficult to invest. Back, youp the yields may get a positive u. S. Dollar yield. Romaine how is the m2 money supply doing . I am joking. Chiefergs intelligence marketing strategist. Coming up, it could have been kevin. President trump used yesterdays hise deal signings to air centralbank grievances. What could life have been like under a fed chair war . We will discuss next. From new york, this is bloomberg. Scarlet we want to recap the breaking news we told you earlier. Pursuing ager separation of old navy. Of old strategy was a legacy our pack art peck who has been ousted. There will be a new leader named. They are not going to spin off old navy. They are going to stick with keeping all of the brand under the same umbrella. Old navy, gap, banana republic. Romaine when they made the announcement in february, the shares rallied. They came down pretty hard after that largely because of disappointing results out of the old navy brand, which everyone thought was the star of the show. The chief Financial Officer makes a clear they are looking to tailor their operating strategies and accountability. When i read it between the lines, that sounds like being a little more diligent. Scarlet perhaps cutting more stores and making sure the inventory is not bloated. UsedPresident Trump yesterdays phase one trade deal signings to thank a litany of people including a number of kevins. Regret passingto him over for the top job at the fed. Kevin. Where is kevin . I do not know, kevin. I could have used you a little here. Why were you more forceful when you wanted that job . Were you more first for more forceful, kevin . Forceful you were too joe for the job. Joe is us now now, you know every word everyone in the fed department has ever uttered on anything. What would a Federal Reserve kevin warsh have looked like . There are two possibilities. One is, he is significantly more hawkish than jay powell. Everyher is, he discards thing he has ever said or written about Monetary Policy and does trumps fitting. Outcomes ifur two he had been picked. Joe what you are saying is that history priors a to the election of President Trump of expressing fairly katesh Monetary Policy the only thing hi terry policy. The only way trump would be happy with him as if he were trumps guy. Beenr 10 years, he has blasting the Federal Reserve for being too easy. He wrote a wall street opinion journal. Even the month prior what he went on jim grahams podcast, he was talking, jay powell is not being tough enough. He has a deeply hawkish record. He was willing to save wall street. He was the fed governor. He was quick to pull the plug on main street. Still on the fed those years. What was he saying during that immediate post crisis period when there was a lot of debate . Mainly he was concerned about inflation, but he wanted the fed to pullback so that congress could take on structural reforms. He was very critical of the fed for enabling government deficits. He danced around the inflation question. For a long time, he has said the fed has been too easy and should have normalized. He was criticizing barack obama for not being freetrade enough. Shown this he has signing deal. Joe there is a report in politico that the nomination of may finallys be moving forward. Where does she stand . Some sort of Gold Standard advocate or sound money type person. Is there a reason to think if she were on the fed board today that she would continue to advocate for a major monetary restructuring . Person the most hawkish on the fed and times it by a lot. She wrote an oped in february 2009, which said, lets go back to the Gold Standard. She has an expansive vision. She wants a Global Common currency with full gold convertibility. 2012 thata paper in put forward a universal gold reserve bank, which she said would operate as a global monetary authority. Maybe she could not do this on her own in the first year, but bloomberg has reported that if she gets on as a governor, she could be a fed chair candidate or trump could put her in charge of the fed even sooner than when powells term is up. She is a consistent Gold Standard supporter. She has an expansive vision for what that means. Joe we have to leave it there. You literally know everything and everyone of these people has. Ver said from new york, this is bloomberg. Romaine the u. S. Bear market as a 100 billion business. It has seen growth taper off. Countrys largest craft brewers has a plan to adapt. Of boston in the ceo beer company. Thank you for being with us today. Iss talk about what really not reflected in your name, which is a lot of these hard seltzer and nonbeer drinks, which has become a lot of your core business. What is behind it . Do you think it is a passing fad or are you willing to stake the longterm future on these . David thank you for having me by the way. The consumer is behind it. Consumers today, 21 to yearold are drinking the striking differently than their forebears did. Theyre looking to substitute other beverages for beer. A couple trend important for millennials. It is about health and wellness. It is about variety. Hard seltzer is becoming the light beer for millennials right now. Scarlet that is an interesting way of putting it. How do you balance growth in this category with spending caused . The hard seltzer category has a lot of competition. In order to stand out, you will need to spend. There is really two brands, white call and daschle claw andl white truly. We have to do is a number of things to build the brand, you have to have a great product. Taste matters in beverages and food of course. We just reformulated all of our 13 flavors this fall to acknowledge that taste matters. Awareness in the category is low. Social media,dia, digital to build awareness of a brand. To explain, what is this category . What are the types of occasions where you might want to consume it . Innovate . Continue to seltzerdged a lemonade we Just Launched a lemonade seltzer. How do you make consumers aware differentiate them from other brands that are out there . Substitutingpeople beer consumption for cannabis consumption. How do you see that from a competitive standpoint and how the laws develop in the u. S. , how do you see yourself laying into that space . David right now, it is hard to see if it is making any impact. Colorado and california, do not see a major impact on alcoholic beverages. Cannabis in beverages in the u. S. Is not going to be a reality for a number of years. Right now, we see a lot of opportunity. We see a goldmine and a gold rush in hard seltzer. That is where we are putting our resources. That is where werts. Right now, hard seltzer is taking the entire category by storm. It was probably a 2 billion business last year. This year, we expected to be a 4 billion business in the u. S. Scarlet overall, americans are drinking less. This is something that you are looking at very carefully. Are you concerned about the decline . What do you think its driving . David it has happened before. Cost of the time, it is temporary. I go back to the millennial consumer. They value health and wellness, they care about variety. They are drinking less, but they went to drink better. They are willing to pay up. Today extent we can provide Premium Brands at premium price points, we can capture the dollars. At the end of the day, it is about the dollars. So much. Thank you great to get your perspective. We have some other breaking news. This comes out of bayer from germany. This is according to the courtappointed mediator. The settlement of cancer losses from its weed killer is underway. We will keep you posted on further developments. Been a hot topic especially as the 2020 election looms. What is not usually talked about is Animal Health care. Taylor riggs spoke to the ceo of an Animal Health care company. Acquisition of the is around diagnostics, we which we think is a important part about the care we are speaking about. Detection is important in animals because they cannot speak. When you look at the diagnostics space, making sure you can understand if a frg dog comes in, what is underlying that. Growing ata space 10 . We have a significant diagnostics presence today. The acquisition of phoenix help us grow our Reference Lab business and to build over time a National Footprint in the u. S. Looking at a similar m a strategy. Taylor we were in an industry where a few top players control the market. Is this a company or industry that, you just need scale . Player, we arene confident i am confident we have the global scale to be competitive across the world. We see opportunities for smaller scale m a and in smaller places like diagnostics or precision livestock farming. I do not think this is an industry where you will see incremental consolidation. Taylor i am trying to get a read from a letter the ceos about antitrust concern given a new Regulatory Environment and an administration that has been a little more focused on antitrust and highlighting some of the key mergers. Has that changed your strategy given the heightened tension on antitrust . It has not changed our strategy based on the focus areas we are trying to grow. We see opportunities in diagnostics and genetics. We continue to have significant opportunity to continue to grow in the u. S. And globally. Taylor back to the numbers and the fundamental analysis, last month, you raised the Quarterly Dividend by 22 . Are you confident you can continue to deliver that tech shareholders while being able to invest in new medicine . Oure are very confident in capital structure and priorities. Business. Nvest in our if you look at 2019 alone, we invested 1. 1 billion in r d and capital expenditures. Investing in the business, we are looking at a return to shareholders. We have plenty of excess capital. We are confident we can continue our total shareholder investment. Scarlet that was taylor riggs speaking at the health care tis ceo. Ce with the zoe joe there will be more economic data. Decembering starts for out of 8 30 a. M. Eastern. Mission number for january coming out at 10 00 a. M. Eastern. Bloomberg technology is coming up in the u. S. This is bloomberg. In santaylor riggs francisco. This is bloomberg technology. It streaming surge. Comcast debuts its new streaming service. And it stand out against others . Microsoft makes a major push into removing carbon from the earths atmosphere. We will get details from the president and chief legal officer