In the next hour we will be talking with sheila patel, Goldman Sachs ceo international. Xi and talk about President Trump in light of that north korean Ballistic Missile overnight. Also, how are investors in asia handling that a geopolitical risk and the potential of a trade war. David that is looking towards asia, what about europe . On brexit, we will have some discussion about the terms of the negotiation. Alix the Eu Parliament approving that deal, saying youve got to pay your bill before we talk about the transitional agreement which will be most at most, three years. Who better to speak on that than Andrew Wilson, Goldman Sachs ceo of europe . Middle east as well as africa. It should be a great conversation. David jonathan will be very happy since you touched on south africa. Good to have you down there. Now, we will be getting the feds if rmc meeting last month. Yesterday the fed was in the news for different reason where kersident jeffrey lac resigned abruptly, admitting a role in a week of confidential information. Joining us now is mike mckee. Tell us about this. Is this a big deal . Not really. He had already resigned. He was going to leave the presidency in october so it is a little bit earlier. He is not a Voting Member of the open market committee. If you go to the dot plot and you know over the next few years he is one of the two highest dots, way out of the median, it is really not going to have an effect on monetary policy. David so go to the minister today. That is a bigger deal. What is the fed going to tell us about how they are going to reduce the Balance Sheet . We know they are on course to raise Interest Rates once or twice more this year as long as the economy keeps performing the way it has been. Last week bill dudley introduced the idea of the Balance Sheet moving by the end of the year. The question is, how do they do that and when did they start doing that . We will see what kind of discussion we get. It is important for the markets to know whether the markets , ess treasuries david you are too modest, that was a very good interview at the time. The larger question is what about the fed vacancies . We spoke with dan cirillo yesterday. They are making any progress on appointing a new fed governor . Talking in washington, they say little bit of progress but not in the area we think. We focused on the vicechairman for supervisions, somebody who could take on the question of what to do about doddfrank. Hastrumpet ministration focused instead on the community banker. The Obama Administration had appointed somebody that never got a hearing and now the Trump Administration is looking to fill at least one of those seats. Trumpg question is, does move forward and appoint somebody who would be a chair in waiting, assuming that he would not reappoint janet yellen to the chairmanship in january. That is an open question. David that is one of the things he focused on, exposing the big money. That is an area that is a real problem in the economy but really the only one the fed would have. David thanks to mike mckee. Jonathan . Jon now in new york is michael perlas. Michael purvis. Thomas, when the minutes come out on the Balance Sheet, what are you looking for . I think it is unclear what they are going to do with their assets, right . I think the problem with the fed with regards to their assets is it is not clear whether they see that as tightening or whether it is a rate hiking cycle to start focusing on the Balance Sheet or whether they would do it in sync. I would like to see more clarity on that. How do they do . Do they do a gradual taper . Jon president dudley indicating that they would pause on rates to see what happened initially and then it would flow off the Balance Sheet and things would be ok. So how is this going to play out . I think the fed has a history of making a narrative about normalization, whether it is rate hikes or on the Balance Sheet. Which is starting to loom more and more. There are some very practical realities when you get President Trump and his agenda. I think it is hard to imagine that trump is really going to love a very high Interest Rate environment at the long end of the curve. If he is planning on issuing longer plans to build all these he is a real estate guy, he loves low Interest Rates what we have been learning is the tightening cycle really impacts the curve and is ricocheting into long end of the curve, less and less. Fed does start really aggressively exiting its Balance Sheet and it has Significant Impact on the dollar. That is a key point for trump. Behink the narrative has to put in the context of where trump is going to be coming and his guys are going to be coming over the next several months. David whenever it happens i think most will agree that at some point the Balance Sheet will have to go down. How important is it that it be gradual . It is very lumpy if you look at the returns. If you just let it roll off it would not be a smooth pass. Wasn 2013, the fed essentially purposed urges and 65 growth over the 10 year and 9 of the 30 year market. It really meant going back during the phases and it starts to unravel. I dont think dumping a lot of data on the market is necessarily going to be an easy thing to do, in an aggressive way. We are seeing less treasury buying from Foreign Investors as well. It is still a little bit unclear to my mind who is going to take up the slack on that when you have the fed, the giant whale exiting aggressively. It is a heart condition. Jon on the bloomberg on the far right column, that lumpy maturity profile in the fed is huge in 2017 and 2018 and 2019. At the moment, they wont just allow this to roll off. A would be like emptying Swimming Pool with a symbol. It is going to be slow. It is going to take decades. Is that what you think as well . That it will take a long long time and this is just the beginning of the decades long process . The fed has never explained how the Balance Sheet works and when it works so that is why there is some inquiry about how they are going to do going forward, focusing Balance Sheets. As they dont actually know how it is working. That is the original sin when it comes to the Balance Sheet. They would have to go very gradually. They would say one, we are going to taper this way. They would taper very gradually. I think next year, the deficit is going to go up. There would be more issues on their side as well. It would be very gradual. They have to do this not in coordination with other banks but at least with the ecb on its tapering process as well. The fx channel is an important factor. Jon Michael Purvis and thomas costerg. Up, joining alix steel up next on this program, we take you to paris, france. The latest on the debate. The crowded debate where one came out on top. That is next. You are watching bloomberg. Jon all 11 french president ial candidates faced off in a debate yesterday and all eyes were on Marine Le Pen as opponents attacked her on her opposition to the european union. Bestluc melenchon was the performer in a poll while candidate macron all of closely. Reported with us now from paris. He to have you on the program. Who came out on top . Poll,ording to this exit we had the candidate Jeanluc Melenchon coming out as the most convincing for the french people. You have to bear in mind that recently he has been taking points from the socialist candidate who is really struggling to survive in this campaign because of the legacy of president hollande. Of the supporters for the center candidate, Emmanuel Macron. Jon the kind of threat to Emmanuel Macron, where it is it where is it going to come from . What does le pen need to do to change the narrative in a month . Not only you had the five main contenders, but you also candidatesller attacking macron and le pen and subject,s on the main especially on Marine Le Pens plan to leave the euro. On that subject, Emmanuel Macron try to fight back. He was already in a runup against Marine Le Pen. Marine le pen was attacked by a small candidate who has only got about. 5 in the opinion polls realwho wants to be the t. Ndidate of frexi to let the french decide. Macron reacted quickly, saying that would actually have all of the french people in an economic war in france. Jon still with us is Michael Purvis and thomas costerg. Thomas, the narrative out there at the moment is Marine Le Pen has a strong base. Are they going to vote for the second round . For her to win she needs to divorce this populist story from the antieuro story which plays very well in france. They want to stay in the eurozone. For her to get more votes, how does she move away from that without isolating her base but then getting more votes to take on macron . I think the key to watch is the turnout. That would be a way towards the presidency. There would be two rounds in the elections, so lets see how she does in the first round. How it is going to turn out. And then whether she can bring more people for the second round. Whether she has a more centrist appeal in the second round, i think it is still very difficult for her. We should not underestimate her chances. Populism is rising globally and it is also rising in france. David we have these polls but polls are not always accurate. What do the markets tell us about what is going on . What are the markets pricing in right now . If you look at equity volatilities around the world, look at its counterparts in ,urope, the be to ask, the eem they are all very low and they are staying very low. There is a consideration that if victory, and pen aggressive victory without adopting her stance, changing her stance on the eurozone, global risk can withstand that. I think part of that, at least, comes to the fact that the problems by which the aftershocks of that unfold is a very slow process. Look at brexit. Dont have to change that much. I think with these types that was out of the blue. This is something where everyone knows the election day in the market has time to adjust and they have a sense for the process. Jon everyone is screaming, buy europe. Below the previous number, another solid print for eurozone nearby. Is this a euro story . If you think about global ecigarettes growth probably on, you have to think about relative value in that context. There is no question that there is better value in european equities right now. The u. S. Has been the best house on the block but it needs a sale, and there are other houses down the street that are just cheaper and more exciting right now. Lets not forget that if le pen by which process actually something really gets done is for coney and. , is very very slow. David so when you look at these pmi numbers they are all above 50. At the same time there has been a gap not just in euro growth, but between soft and hard data. Is the underlying growth number as encouraging in europe as the data would indicate . The key data point is actually bank lending. In europe, bank lending is accelerating. My fear is about the u. S. Where bank lending is softening. I am not saying it is doom or anything but that is something to watch. Jon is it something to watch, michael . Without question. Credit growth is absolutely key. With all the excitement about the financial fate and the 10 curve, that doesnt mean that commercial and industrial loan growth is going to accelerate. I think you saw a huge explosion in corporate confidence. Whether that really turns into Capital Expenditures and other forms of commitment to the agenda remains to be seen. Jon so the slowing growth is calling back just a little bit, but what is the story with credit . That is the question. However, bankers tend to be more cautious than market investors. I am worried about that because maybe bankers know something that the market based investors watchknow and i would that. If you see the drop in bank lending i would get worried. David is that a matter of bank lenders not wanting to lend or borrowers not wanting to borrow. We thought a lot of people would be rushing to their banks to make those investments. Is that trailing off . The picture is still very mixed. You have manufacturing other surveysme as well, bank lending, it doesnt seem like is really booming. David thank you so much, Michael Purvis and thomas costerg. They will be staying with us now. We want to welcome our twitter viewers who have been watching. Daybreak is now streaming live at 7 00 to 9 00 a. M. Eastern time at bloomberg daybreak. Twitter. Com. Later this week, we have jobs friday, an allstar lineup of guests including gary cohn, rick rieder and alan krueger. They will all be with us right here. This is bloomberg. Jon proving there will always be someone somewhere unhappy with the site of a bonus, a lot of news out of europe. Deutsche bank slashing bonuses for the second straight year. For executives have left the bank after it paid out a compensation last month. Stephen morris joins us now from london. A classic dilemma for any chief executive. Cut costs but remain retain talent. Talk about deutsches. We are seeing what we saw with a lot of other european banks, where people have just been sticking around to wait and see if those numbers at their account. Then they are moving on. The problems of Deutsche Bank are very well documented at this stage. In january, the ceo took a , ofsion to slash bonuses 5000 they wanted to keep her tensions of. Recipients who havent been paid are going to look elsewhere. It will pop up after a few months of gardening leave. Jon over at Deutsche Bank, it is the employees that are mi ffed about the size of the bonus pool. What is the story with Credit Suisse . Credit suisse hasnt been in the news this week for another new tax investigation. This time out of the that the lens. They have ordered a package of 11. 9 million francs this year. That ranks second among the european banks and looks to be about two or three times the size. Now we are seeing people telling shareholders, if you dont like this executive conversation you dont get a good enough job to deserve it, youve got to vote against it. Jon Stephen Morris joining us from london. We appreciate you. It is not lost on anyone the size of the bonus, at about 3 billion, the money they are looking to raise at buffer capital is up 3 billion. I imagine some investors arent pleased. David with the prizes me is the executives did not figure out that number. Jon that is not a good story to sell the market. Still with us, Michael Purvis and thomas costerg. David the real question i have is, is this a cyclical issue . Or is it a more structural, longerterm issue. Typically the european banks have had to retrench since 2008. They had to redefine their business. Theyre less risky and this may be the future for bankers in europe. There is a question of regulation as well. ,ith compensation but also there is a big question right now about regulation. The europe on the europe in senders copper, is their business on a present lending basis . These are important questions. Jon tough questions for anyone trying to run bank. Deutsche bank, guess were they went . Reported destination, Credit Suisse. Ultimately, it means you get to hold on to the canon, which means you get to deliver profits down the road. How do you weigh the two things . To build on thomass point for a second, it will be interesting to see if trump effectively exports some deregulation of the Banking Sector to the europeans, meaning are going to more of a flag carrier model for Deutsche Bank, and Credit Suisse and ubs as opposed to being global franchises, then they are arguments. T into they might work to get those softened so that they can compete with the goldmans and the city banks and the Morgan Stanleys. It will be very interesting to see how that pushes. David does that mean President Donald Trump may be encouraging to these Credit Suisse and Deutsche Bank bankers . He was to back off on some regulation. I think in europe there is probably a hope that trumps deregulation push will extend beyond the u. S. And we will also probably lose a bit on the european side. There is a question about growth as well. U. S. Growth. The European Growth has been lackluster but it is picking up. We have some green shoots in europe. Jon thomas costerg, thank you both for being with us. David coming up, sheila patel, Goldman Sachs asset manager ceo, talking to our partner alix steel. Jon looking forward to that conversation. In two hours, the cash open in new york. To cut you down, here is the state of play. Futures down by about 1 10 of 1 . You are watching bloomberg. From new york city, for our viewers worldwide, this is bloomberg daybreak. I am Jonathan Ferro. 21 secondsours and away from the cache open here in new york, slightly negative on the s p 500, remarkably flat through the week. Far thiss session so week after the biggest game last week since february. This is therket, play for the euro, pretty much dead flat. Solid the pmi, slightly below the previous week, awaiting the adp report, which comes in about 45 minutes time. Treasury firmer, yields up by a basis point. That wraps up the market check. Lets get you some headlines with emma chandra. Emma thank you, jon. In asia, north korea has conducted another Ballistic Missile test a couple of days before the first meeting between President Trump and chinas president xi jinping. Japan called a major provocation. President trump is likely to push chinas leader to pressure North Koreans on their Nuclear Weapons program. In the middle east, syria and russia are denying involvement in a gas attack that killed at least 70 people. Russia blamed the deaths on rebels. They bombed and ammunition cache. Syria has agreed to destroy its chemical weapons after a 2013 attack of sarin gas, which killed people south of domestics. Of damascus. President zuma has fought back against accusations he did not consult adequately before firing the finance minister. Gordon was publicly criticized. Day hourws 24 hours a by more than 2600 journalists and analysts, im emma chandra. Jon . Jonathan bloombergs alix steel is standing by with sheila patel, Goldman Sachs Asset Management. Great to see you care you have a great insight into what is going on right now. Today, we get the news that north korea had yet another ballistic test your we have president xi, President Trump meeting today. Where are these two things . The globalhink markets and Global Investors are looking at the underpinnings of Global Growth, and they feel good, notwithstanding geopolitical influences. Clients are voting with their feet in the middle east, in europe, and around asia. In the last two months, all the clients ive seen have said i am confident in Global Growth, i feel more confident than i ever have a the u. S. Recovery, about burgeoning returns in europe, and then they look at what is going on in north korea, and they say, i hope the politicians can square it away. Alix dont mess it up. How can President Trump and president xi not mess it up in the next 48 hours . Sheila if they have a cordial meeting. It is not helpful if you have declarative and powerful statements of animosity from both. The meetingut of feeling like they have a dialogue, that is enough to help people feel good. One of the reasons people going to the meeting with some amount of confidence is people are hanging on xis very constructive, very capitalist where he that davos gave the image that one might expect an american to give. M. Isit feels like e more stable than american investors right now. Sheila and number say emerging markets feel more stable than developed markets. Theyre looking to the fields that e. M. Markets. E. M. Is decoupling from d. M. It is not about how much china trade with the u. S. They trade with europe and around asia. It is not about what india is doing anywhere else. In the a is a most purely a domestic story when you look at the returns, and that is also why you see people investing in the etf, but then taking a step back and redeploying that money into more active strategies because when you look at the , their in e. M. Backward looking. Things like financials, telecom, steelmakers, and when you look at emerging markets, the growth is an internet, mobile banking, forwardlooking about growth in these economy. Alix to your point, 6 billion of inflows in the First Quarter, so does it move to specific regions, companies, sectors . How does the allocation happen after that . Sheila we see clients looking at countryspecific allocation in some cases, so if they are in a more broad e. M. Sector, they are saying what countries do i have confidence in . India is want your china, people are cautiously optimistic. People are very much looking at lifaipan. Many people are saying they are on a trip in the next month or two over the last two weeks than ive heard in two years. Alix wow. Why . Sheila the situation and brazil has stapled a little bit. When you look at the emerging see some goodou returns to be had, stable government, stable cash flow, and better yields. Alix i know you do not necessarily cover south africa, a lotat is a great story, of turmoil with president zuma. A lot of people are expecting a isziltype rally if zuma removed from power. How do you truly decouple that kind of risk when youre investing in e. M. . Sheila i think south africa is tough. We saw reaffirmation that is zuma will stay in place, which gives people pause. When it comes to places like south africa, people put them in the broader e. M. Mix. It is not a countryspecific story for most investors. African has always been tough, and south africa in particular. So taking a step back and waiting for it to play out. Distinctionis a between a search for yield, this is not just zero bound in many countries, is it . Search for it is a investment and fundament opportunities. Look at india, for example. If you look at the growth that has happened in the last several years and telecom and internet in china, and you overlay that on india with the same kind of numbers, one billion people, it is a staggering story. If people can make the kind of money on the domestic story in any other they have made in similar scenes in china, they are very interested in that. Alix talk about flows. Ive seen huge amount flows in u. S. Equities, starting to get a little bit of e. M. In europe, but not be same extent. Sheila when you look overall, people are underweight in general on equities after many years of shifting toward fixed income. I think you can see people starting to shift some of the u. S. Equity positions into more international, broughtbased allocations. I think part of this is about a reallocation to equities overall and a very different type of equity. Whenever the headlines tell you one thing, you have to look under the hood. Active versus passive is everywhere. It is about where the quality is versus where can i have an advantage by having an active story. Alix it is correlation versus noncorrelation. Sheila it is also about new tools people did not have before quantitative investing and quantitative overlay with fundamental acumen is a new story. Big data is a completely different insight into many of these companies. Investing is a very hot pocket. Alix do you need that money to come out of u. S. Equity to make the e. M. In europe, or do you need that money to come out of fixed income because that money has been sticky . We have not been able to get that kind of return if you have a twoyear at 3 to 5 . Sheila it depends on where investors set. If you look at u. S. Investors, specifically u. S. Retail, people are talking but how underweight u. S. Investors are to the rest of the world. U. S. Investors put money into u. S. Equities, which is understandable, but if you look at their portfolios and those who have had good exposures to e. M. , they informed their peers significant amount we shift to the international side, india, europe, east africa, they are more balanced in their allocation for your they do have some power drive. You see moving some of their cash and moving some of their allocations that may have been to underperforming markets, shifting those toward e. M. Fed later, we will get the minutes. If you had told me a year ago the fed would be talking about unwinding a 4. 5 trillion Balance Sheet and have the 10year at 2. 35 , i would have called you crazy. How long is this paradigm sustainable for if the fed ramps rhetoric up . Sheila investors have been very happy with the fed. Lets talk with the ecb about the ecb. Traveling around europe, the middle east, they feel like the fed is being clear about what they are doing, and that makes it ok for Global Growth and for Global Equities and global markets. I think the key here is clients and the markets see the action by the fed driven by good, and it is underlying economy, and hoping they will coordinate to some extent where Global Growth is going. It is when you think theyre moving too fast or he thinks global close grumbl growth is being deterred by some for such as trade wars. Alix to wrap it up, your clients and asia, how are they looking at the u. S. . How are they allocating their money with President Trump . Sheila across the world and especially in asia, people are looking at President Trump and his administration and seeing that he has chosen some white pragmatic people to be quite pragmatic people to be part of his change and hoping that the adventists t pragmatistsh win. Will tax take longer and excited, will infrastructure take longer . Infrastructure is probably the number one thing that investors internationally want to see in the u. S. Because it is a winwin. It is clearly a place that needs investment. It is clearly a place that could offer good return if some of the red tape and the challenges that have existed in u. S. Infrastructure could be relieved, and it is the place where trump could have a big win, both in bringing money to the u. S. , creating jobs, and importantly, creating returns for investors, especially with pensions in the u. S. And elsewhere that need those kind of longterm investments. Great for your perspective, thank you so much. Sheila patel, head of Goldman Sachs Asset Management international division. David, two things i got out of that. 1 clarity. Some investors think the fed is clear now, and it is all about e. M. And reallocating those flows. Dont mess it up, politicians. David you know a lot on that very subject, alix. That is terrific. We will be coming back to you shortly because alix will be speaking to Andrew Wilson, assetGoldman Sachs Management International cohead. Later today, a new deal with the president of argentina, that will be at 3 30 p. M. Eastern time right here. This is bloomberg. Emma this is bloomberg daybreak. I am in much on up in the next hour, Andrew Wilson, Goldman Sachs Asset Management international ceo, on the europe, middle east, and africa. New appraisals in the permian suggests a lot more value available before and that the suppose it but oh the supposed bubble is about to burst. Compared to that 60,000 paid last year in the region. Joining us now is the cohead of the energy group. Great to have you on the program. The Permian Basin bubble or value for money . Morning, jon. There is value. It is not just the acreage, it is what is underneath the acreage, and i think the industry is becoming much more adept at finding additional reservoirs, additional ways to extract the hydrocarbon, and that is why the value has gone up jonathan when crude has done, what, try to explain that to me. A is cost efficiency and technology. That is why it is moving up. David how much of the saudis driven up that price . They have tried to put a floor underneath the price of oil. Osmar there is no doubt be opec agreement has had positive impact on oil prices. I think the activities going up irrespective of commodity prices. We have had some impact, but i think again the ability of these companies to we like to say they were surviving, now they are thriving. Also the fact that they are very well capitalized, as we talked of thehe realization Permian Energy sector, energy players, and that is part of the reason they continue to be effective. Jonathan crude, we have seen the high u. S. Base of the debt market. You are seeing it bleed across to potential ipos as well . Osmar any Significant Movement to the downside will happen impact on the timing of the ipos, and we are today in a period where there is a record amount of ipos in the u. S. , mostly shale players, and primarily upstream and well service. I think we need to see some stability before you see that ipo issuance resume, but it is certainly there, and it will come. Jonathan finding is the survival story, or is it the growth story now . Osmar as i said earlier, if we passed survival to thriving now, generally speaking, these companies are very well positioned, in a proper i would not and say it is a scrub, it is also focused on returns. Bigthan saudi aramco, a issue comes to market. Does it push all the potential ipos to the side . Do you want to get out of the way of that, or do you see others come to market . Osmar i would not want my ipo at the same time given the size of that, but i do not think it will have a Material Impact on the overall ipo window because i think there is more demand. These Shale Companies are very different investment pieces than saudi aramco, so it will certainly drive huge investor attention, but they are a bit different. Onre might be some rotation currently public big oil companies, national oil companies, emerging market oil companies, and so on. Jonathan what kind of numbers you need to do it . Osmar that question comes up a lot, and there are a lot of different estimates, but obviously it depends a lot on disclosure, the type of information that is put out between now and the launch of the ipo or during the ipo. It will be a question of reserve position, cost position, tax position. It will also be a function of governance, policy, and all of those things. A lot of that is yet to be disclosed and really in the depths that we all need to properly evaluate it, but we will be there. Abib, creditar suisse cohead Global Energy group, thank you. The payrolls report your from new york, you are watching bloomberg. This is bloomberg. I david westin. Nonprofit organizations exist to do good, but they also have to do well with her investors to continue to expand their work. In 1936, mr. Ford gave 25,000 to a new foundation, and that itped stock companies, and has now grown to over 12 billion. For Foundation President Darren Walker has now announced they will start investing part of that 12 billion, 1 billion, to be precise, in moneymaking ventures that will also support goals, such as private housing. Good to have you. Darren thanks, david. David explain this new project. You are investing to make money, but you are also wanting to do good with money you are investing can how can you do both at the same time . Darren it is important to understand most people know foundations are for grantmaking, so we advance our Charitable Mission around the world to ensure quality at the Ford Foundation by giving away 5 to 6 of our endowments every year. The question is what about the other 95 of the endowment . How can we use that to advance our mission of reducing inequality and bringing more justice in the world . David so you give away that 5 or 6 because you think you will make that much off of your investments. Are you willing to take a little bit of a haircut on the return . Darren i think we are going to have a portfolio that is blended, that overall will return in come to us, that will make it possible for the foundation to exist in perpetuity. But lets make no mistake in the areas where we are investing in Affordable Housing in the United States, for example, there are attractive market rate funds that will generate the income and the social good that we are seeking. David how deep is that market, as it were . Are there a lot of funds to pick and choose from that will square with your overall goals . Darren the good news is the Impact Investing marketplace is expanding, so we have seen deal flow in the last few months of at least a dozen theyre attractive, Affordable Housing funds working here in new york city and across the u. S. I am a believer that this new Impact Investing field is really at this point in sydney and, and it will grow as investors like the Ford Foundation demand more products that serve both low income people and serve returns for profit and benefit. David who is putting together those funds . Of jpmorgan ae Goldman Sachs that had operations in this area, the socalled Double Bottom line. Are you talking about big names like that, or are you talking about small means we have never heard of . Darren i am talking about both. Leaders like larry fink at bank of america and larry fink at blackrock have been creating new products in response to demand for clients for Double Bottom line investments, so we are seeing large brand name wall street players as well as smaller new funds and funds that have been around for some time. David where does that demand come from . You see investors saying, we want to invest, make this money, but also do social good. Where is the demand coming from . Darren the source is today investors not only want a financial return, they want to feel like they are making a difference in the world, that they are helping reduce Greenhouse Gas emissions, that they are building Affordable Housing, that they are helping to revitalize it does invested communities, that they are bringing financial inclusions in the developing world. Investors today are not simply concerned about financial return, they are concerned about what is happening to the earth, att has happened to society large, and build a market we can actually deliver and building market. We can actually deliver both. The challenges of the world, david, will not be solved by philanthropy and government alone. The private sector has a role to play. David you will start with 1 billion of your 12 billion, ok. That is a substantial amount of money, dont misunderstand me, but it is not all of your investment. More largely, over 800 billion is controlled by the foundation. A lot of founders follow the Ford Foundation. How big does this get . Darren in the next generation, we will have 1 trillion in foundation endowments. Imagine the potential if 5 or 10 of that amount of money was invested for social impact. I believe we are going to see an expanding marketplace. I think were going to see a thirst for greater demand, and people will be asking how are foundations deploying the 95 of their capital for social good . David do you expect and encourage some copycats . Darren we are hoping there will be copycats, lots of copycats. Our contribution is a modest one to the larger objective. That iserrific, darren, Darren Walker comedy for Foundation President. Jonathan check this out for a lineup on friday, an allstar one, gary cohn, my middle area mohamed elerian, and others are coming this friday from new york city. The adp report coming up in just under 20 minutes time. Full coverage on bloomberg. You are watching bloomberg tv. Jonathan the 4. 5 trillion elephant in the room. Asestors look for guidance the central bank will wind down a monster Balance Sheet. A step back in front for Marine Le Pen. A manual out on top in a crowded tv debate. Several bank loses Senior Executives after slashing its call for the second straight year. Good morning to our viewers worldwide. Im Jonathan Ferro alongside david westin. The markets are set up this wednesday morning with features largely fat. We go nowhere on the s p 500. If you switch up the board very quickly, the euro with a little bit of a bid on the margin by 0. 06 . Hawkish tones coming out of the ecb as he would like the bond buying to and within a year, speaking to a german daily over in frankfurt. The cable rate up by 4 10 and the treasury 10 year yield stable at 2. 36. I want to cross over to alix steel who is on assignment and has big guests coming up. Alix youre going to be very jealous. Im talking to Andrew Wilson at the Goldman Sachs Asset Management symposium. He is the ceo of europe, middle east, and africa. Ande a talk about brexit the time to step back in the booms as well. This is where its going to hurt. Have the Goldman Sachs head of Assets Management and what he thinks about the fed winding back the Balance Sheet. Its going to be a lot of action of the next two hours. Jonathan im really happy for you. I promise you genuinely from the heart. David big news out of washington this week will actually come out of florida went tomorrow late in the day president xi from china will be meeting with President Trump. When he was running for president , trump promised a lot of Economic Growth. We will bring in kevin cirilli. Kim President Trump hope to get anything out of this meeting that will advance his goal of 3 growth in United States . Kevin theres a great story on bloomberg by my colleague theyfer jacobs about how could come up in the summit at maralago later this week. It will be all about trade as was National Security. On the National Security front, they will dissipate to talk quite some length about chinas relationship with north korea and whether the two nations can come together to thwart some of north koreas efforts. In the last 24 hours, a Ballistic Missiles test in south korea has dominated some of the International News flow. Anticipate that to come up as well. On the issue of trade, this is something that candidate trump spoke about frequently. It is unknown whether these two leaders will be able to forge forward a Mutual Benefit and have concrete results of the end of the summit. David you put the point really beautifully in the sense that a lot of the things that President Trump seems to be talking about, for example curtailing investment with the westinghouse deals, really cutting back on trade with china, dont feel like they are progrowth. Is he riding the horse into Different Directions here . Kevin when you look at his objectives in terms of International Trade and what he has said here with infrastructure, they do at some point seem to be at odds. Yesterday in that meeting with ceos, he touted that 1 trillion infrastructure plan. Have those to progrowth policies, there are a lot of skeptics right now here in washington wondering whether or not he can force of the relationships he needs with congress and order to better execute those plans. Right now he hasnt been able to do that. When he wants to have those program policies, he is unsure whether he can get everything across the finish line as a result with congress. David on friday when we have the socalled Nuclear Option, which will not forge great relationships with congress. We will check back in with you later. Jonathan not a good time to throw that word around. David nuclear . Not really. Jonathan markets have more questions than answers, but that could change in the coming months. Bankes from the central mark meeting, joining us is the Morgan Stanley Investment Management portfolio manager. Andrew, great to have you with us on the program. The minutes come out later today. What are you looking for specifically . As long as the information doesnt come out as to hawkish, i think the markets will shrug it off. As an equity portfolio manager, when i care most about is that the fed does not get too aggressive on raising rates, because of that were to happen, i think you get a lot of dollar strength. Thats a concern for equities. That is really what im focused on. Jonathan in terms of Balance Sheet normalization, the secrecy may cause rising Interest Rates. As that support your bullish view on stocks . Andrew that would be very positive. I think the market would respond very well to that. Again, look at what we learned in 2014 and 2015. Dollar strength really stalls are earnings. Thats the story that people have been way underestimated. We are having an earnings recovery. We spend a lot of time focusing on politics, but its more about the earnings recovery than politics. David are there any cracks at all that my give you cause . We had vehicle sales that were disappointing i think it is fair to say. Creditguest saying that original position is getting soft in the United States. Are there any indications that might make you pause on your bullish call . Andrew i think the market is set up for a policause here. The march data did not improve over february and i do not think that is a cause to think we are unraveling, but i think the market is set up for a pause until we get further proof. In other words, look, if the economy comes in at 3 for the year, i think the market is going to be higher than it is now. We have priced in this earnings recovery. We priced in this kind of 2 gdp growth. From here, we need some signs of acceleration for sure. So yeah, you get some data a little weaker, and it is a reason for concern. I dont think its going to derail the story of this year for the u. S. Equity market. David lets talk about that growth for a second. Im assuming you mean the Fourth Quarter and not the average. Jonathan absolutely. David are you projecting 3 growth in the Fourth Quarter . If that is accomplished, President Trump will declare victory. Andrew absolutely. I think about it in terms of earnings. What matters is earnings. Right now the estimate for this year is somewhere around 130132. That is double digit Earnings Growth and that is why the stock market is up this year. But barneveld that is of all that is that the number that wall street tag for this year was pegged for the election happened. I do not see any embedded tax reform. I dont see any expectation of real acceleration and that number yet, which tells me that if we get tax reform, if the economy is a little stronger, the numbers for this year, they quite likely might go up. Jonathan in terms of the earnings and the potential for them to rise in whats the price already, we are currently up the estimates of s p 500. How much of that is already in their . Andrew were up from 16 in change at the beginning to 18. I dont think they and with the 10 year where it is, but i think thats another reason for a pause. We need some signs of further earnings acceleration to get the market rejuvenated again. Again, i think we are set up for a pause and not to call a timeout or an end of a rally this year. David its got a come out of top lines as a practical matter. Where would that increase revenue come from from the corporations . Andrew one of the things very interesting and its a great question. Why is the equity risk premium . The market has traded below fair value based on where interest 2019 ine really since the bull market of the late 1990s, the market traded way above its fair value. Why it has traded below its fair value is because the market has been smart enough to figure out that companies havent had a lot of topline growth, but through a lot of what i would call Balance Sheet buybacks, andtock Earnings Growth. I think if you get better Revenue Growth, you get multiple expansions. How do you get better Revenue Growth . One great way is a little inflation starting to build in the system. That leads to the Revenue Growth. As inflation first starts to increase multiples on stocks expand. It gets to a point where Interest Rates get to a level where they become competitive with stocks. That is when multiples start to move the other way. I dont think we are there yet. I think we have another hundred basis points on Interest Rates before bonds become competitive. Jonathan andrew, youre sticking with us. I want to take the opportunity to welcome our twitter viewers watching this morning. Is nowerg daybreak streaming live 7 00 to 9 00 every morning. Tv andn find me at ferro david westin at david westin. Do not miss this conversation. He will be joining the program with alix steel. You are watching bloomberg. Jonathan all 11 french president ial candidates the beta last night and all eyes were on Marine Le Pen as opponents attacked her on her opposition to the european union. Macro and was just the best performer. Greg joins us now from paris. Great to have you with us on the program. Do we put this down as a macro failure . Le pen greg i was wrong. On the show yesterday, i said macron would come in for a bit of a beating, but everyone turned their ire on Marine Le Pen. She was attacked by those who want france to stay connected to twope and then they were candidates much further right than her who basically attacked her for being soft and saying they are the real wants in favor of brexit and she is soft on the issue. She came in for quite a beating and she did not handle it well. Radel a few times. Macron didy that very well, but he managed to avoid any mistakes. You have to say that he came out on top last night. Jonathan his views on Europe Holding her back to some extent that it will get her through to the second round, but to get more people on board with her populist message, this need to soften her stance at least somewhere . Greg it all comes down from leaving the euro and that is her signature issue. She can be very difficult on how to go about it. For her core supporters, thats very important. Lot of eldera voters who might be open to her nationalist identity politics, but they are very concerned about their savings. Their savings are in euros. If france goes back to the frank it is going to fall. They are very concerned about that and so she has a real problem. She cannot annoy her base by softening too much on the euro question, but theres a whole swath of public opinion, but more french people are willing to stay in the euro. Jonathan greg is live from parents, france on the tv debate for the presence or race. Adpging the 80 peter report. Another big upside surprise. Number revised slightly lower to 245,000. 298,000 previously was the repeat a third month and a road where we have had 298,000 previously was the read. A third month in a row where we have had bigger than estimates. The eurodollar marginally negative so far. Take a quick look at how that is capturing the story. Treasury yields pushing a little bit higher on the market. No big moves here. Andrews lemon is still with us from chicago. On friday. Comes out another big surprise on the adp report as this month is concerned. Can we keep predicting these kind of reads for the u. S. Economy . Andrew does not surprise me at all, but when you this and the companies, i hear a lot more confidence coming out of companies. These types of numbers do not surprise me. David do you hear any worries about margins as wages keep going up . Andrew absolutely, but the key question in my mind is spending cap x spending has been subpar for a long time. As we start to spend on projects, that is earnings secreted for a while. That will still be positive for earnings even if margins come down. David but the ceo and the cfo are not going to put cap x out unless there is a man for it. Surrogatert of a surve for them saying we do not see demand coming in . Andrew if payrolls are up, thats a sign that they are starting to see a better economic scenario. Theres confidence building in the corporate suite. I think that is bullish. David thats a rosy picture and i hope you are right about that come up and as a practical matter, payrolls are much more flexible. Thats much more of a variable costs. You have to plunge and if you plan on equipment and things like that. Andrew absolutely, but the bottom line is no wage growth because companies have been selfconfident about their business. If wages start to increase, i think thats a sign of increased confidence in business and i think thats an increased confidence in the topline Revenue Growth. I think thats the point here. If you are feeling better about the Growth Outlook for sales. Jonathan what i mean by that is that those believe their Spare Capacity in the economy, are they going to be emboldened by north of 200,000 on a payrolls report once again, this time from adp, and intensely from nonfarms payroll on friday . What does that tell you about the labor market here in the United States . Andrew its not a slack as people think i suppose. Im not an economic portfolio manager, but i think to me, it just supports the fact the economy is showing signs of accelerations. What i amistent with hearing from companies that are talking a lot more confidently about their businesses than we have seen the last for years. Jonathan andrew, great to have you with us. Joining us right here on bloomberg. Coming up later this week, bloomberg real yield at every friday, 30 minutes dedicated to fix income. This time it comes shortly after the payrolls report. Do not miss those conversations from new york city. You are watching bloomberg. Emma im emma chandra with your Bloomberg Business flash. Regulators approved the acquisition of syngenta. Approval is conditional on chemchinas offer to sell supportes to antitrust. To abide the agree american bakery chain panera bread. Adding to a food empire that includes krispy kreme doughnuts. Im emma chandra. Always a catalyst for conversation, this time its Deutsche Bank, slashing bonuses for the second straight year. For executives have left the bank after it paid out its first compensation last month. Stephen morris joins us now from london. It is that time of the year where if you are at a bank and you dont know what you are being paid, its time to make a move. Is that what we are seeing at Deutsche Bank . Stephen we are seeing this across places like barclays as well. Germanys biggest lender has a whole host of other problems, which could of motivated executives to leave. Its concentrated in asia, an area of doubt a business going forward. It could be a combination of these this is a time of year where we see the most watching of jobs and investment banks after the bonuses hit bank accounts. Jonathan with the bonus call being cut come the talent is not happy. Over at Credit Suisse, it has been boosted and investors are not happy. What me through that one. Walk me through that one. Stephen a large group of investors have voted against the package and to start the executive board, saying performance has not been good enough to justify the pay, which of the ceo is about 12 million this year. Oft is more than the ceo barclays and hsbc combine this year looking at the numbers myself. It willt clear whether be rejected or not, but this is certainly a rich package for a ceo who has not been delivering on the returns front or restructuring front yet. Jonathan some talent is leaving the likes of Deutsche Bank. For him to acquire that, he needs an attractive package. He needs that bonus call where it is, doesnt . He . Theres an argument that if you dont pay well, your best bankers will leave to other institutions, which was the rational behind Deutsche Bank paying a Retention Bonus to about 5000 people. You do have to balance that with interest of shareholders. Ultimately if you lose your large investors, theres really not much of a bank left in order to pay all these bankers. Theres a fine line between it and credit suite has walked slightly too close to it at this point. We will see when this comes out in the watch. Jonathan Stephen Morris joining us from london. I want to bring in andrew still with us from chicago. It speaks volumes that we do not hear much about a bonus call on the red states anymore because the banks do so much better than in europe. If i put this proposition on the table based on relative valuations and the rally we have seen with these equities, do you want to buy europe in terms of financials or stay with wall street and by the u. S. . Andrew i think you nailed it. The financials here are further along. It feels like the stories of the financials in europe are couple years behind the u. S. Im agnostic, but i just believe the story of financials and the u. S. Is very compelling right now. You have had parts of the earnings revisions this year positive earnings revisions this year, but the financials have fallen off hard in march. It is preventing a very good opportunity. I like financials, but a more confident about u. S. Financials than i am european, because the thing about markets that you have to consider is the rate of change. I think earnings are excelling for u. S. Financials. David this may be unfair, but how much do you Pay Attention to the fundamentals of a company when you are deciding your portfolio . How much do you Pay Attention to the ceo . He shouldve seen this coming, showed me . Shouldnt he . Andrew absolutely. Its about the fundamentals of companies and following earnings. Easy to talk about the big picture and not talk about fundamentals. Look, i couldnt help but think that the best earnings revisions year to date have been in financials in the u. S. David thats a good point. Andrew slimmon of Morgan Stanley in chicago. Alix steel will be interviewing Andrew Wilson of Goldman Sachs management. Jonathan one hour in minutes away, feature set up like this. A push higher from an upside surprise from adp report. Positive s p 500 four points. You are watching bloomberg. [ engine revs ] [ screams ] [ shouting ] brace yourself this is crazy [ tires screeching ] whoo boom baby rated pg13. [ screams ] [ [ screams ] ] [ shouting ] brace yourself this is crazy [ tires screeching ] whoo boom baby rated pg13. [ screams ] jonathan from new york city to our viewers worldwide, this is bloomberg daybreak. Im Jonathan Ferro. Let me get you uptodate on the Market Action. Futures pushing higher. Four. W positive almost a blowout adp report for a third month in a row. 263,000 . Heres the action elsewhere in the other Asset Classes. Treasuries offer and yields pushing higher by basis point on the u. S. 10 year. Rhetoricsh over from germany not enough to push the euro of. Up. The euro rolls over by 10th of 1 . Thats the story in the Asset Classes. Lets get you up to speed on what is making headlines outside of the business world. Heres emma chandra. Emma syria and russia are denying involvement in a gas attack on 72 people. Russia is blaming rebels. Rebels were moving chemical weapons from a warehouse. Syria had agreed to destroy its chemical weapons after a 2013 attack killed more than 1000 people near damascus. North korea has conducted another Ballistic Missile test just a couple of days before the first meeting between President Trump and chinas president. The missile was fired into the ec. To called in a major publication. President trump is likely to push chinas leader to push the North Koreans on the nuclear program. Mitch mcconnell says he has enough votes to invoke the Nuclear Option to get neil gorsuch confirmed. The option would scrap the 60 votes if there are not enough democrats to vote for gorsuch. He says bill busters filibusters would still be permitted for legislation. Global news 20 for hours a day powered by more than twice 600 journalists and analysts and more than 120 countries, this is bloomberg. Im emma chandra. David alix steel is here with a very special guest. Alix im here with Andrew Wilson, Goldman Sachs International Management ceo for europe, middle east, and africa. He pretty much covers everything. Real pleasure to meet you. The adp number another blowout. That he way was revised down a little bit. Where are we here in the u. S. . Andrew we are in good shape. Payrolls, we will be watching closely in light of this number. The u. S. Economy is on a very firm foot, particularly in the labor market. One of the things that we feel strongly about is that u. S. Yields need to head higher because wage rates are picking up. This number confirms the strength particularly in the labor market. Alix i was going to say where is the steeper curve . The 10 is still at 2. 4 . Where is that pick up . Andrew the bond market is still focusing on trump and the failure to get the change through on health care. Somewhathere is dampening of enthusiasm around the growth story could we think the growth story is alive and well and the labor market will be the driver of that. Continue to see the prospect of significantly higher Interest Rates in the u. S. Alix what is significantly higher . Andrew we could easily see 3 sometime later this year. Its not that far away frankly. Think about where we were in the last couple of months. Alix weve called coming up from pimco same reflationary trade is taking a pause. Do you view that as shortterm ism or investors are starting to change their views . Andrew sentiment has moved to now its not clear. I think we always thought that some of the plans were ambitious. We are a lot more confident around tax reform and the impact that has. Its probably a 2018 story and not a 2017 story. We would be more upbeat on the prospect of that reflation trade. It may have taken a pause, but we still think thats the right direction. Higher u. S. Yields is the way to go. Alix there is a story out there that it doesnt really matter necessarily what the fed does because you still have the ecb and that negative deposit rate. Are we depended on the ecb moving because then we are going to attract more money into europe . All of a sudden, you get 3 and a flood of money coming into the us. Andrew we are much more cautious around europe. One of the things of this conference is a divergence taking place between europe and the u. S. European growth looks to be pretty soggy over the next 18 months. This is not just a short term the. Deal. Alix i thought we were Getting Better pmi. Where is it soggy . Andrew compared to the u. S. Growth rate, which is somewhere well above 2 , youre going to have much more subdued growth in europe. Particularly next year we are more bearish on the ecb. They are little more optimistic than we are on the growth path. For the ecb, there is no inflation. If youre going to get inflation in europe, you would think germany is the place to see that. The labor market is tight, but the reality is were not getting any way and gates even in wage gains even in germany. In italy or spain where there is labor market slack, you can see how difficult it would be to get inflation. Without inflation, the ecb will be stuck at these low rates and continue the Quantitative Easing Program. Alix you have the present veming out saying we ha start tailoring the program and maybe time for the ecb to step back. Is this the rhetoric we are going to see thats not really Material Change . Andrew its not unusual to hear the german consensus. The norman europeans talk about the need to take off some of this easing. You have to look at the underlying fundamentals. Without any inflation, i think mario draghi is want to sit there and say we can afford to take our foot off the accelerator to send. The Quantitative Easing Program carries on through this year. We will probably Start Talking about tapering and 2018. We still think theres a lot of accommodative support. Alix deposit rate versus the refi rate can you move . Is it tapering and away different than the markets are expecting . Andrew tapering comes first and then they might think about changing that rate. Again, for us, thats a late 2018 event. Its still a long way away and i will come back to inflation. Theres just no sign of inflation. Alix more treasuries and then bunds . Andrew theres no reason they cant get bigger. Thats still the right trade to play for that divergence in a comic performance. Alix what does that mean for the euro . Andrew the euros a tough one. On the 23rd of april, we will have the french elections. The inflation wont matter to the market until we see what happens with the french elections. The second round is the big one in may. We are sort of standing on the sidelines around the euro. Depending on which way things go, you either get a bump in the euro if you get someone like macron in the presidency. If you have Marine Le Pen winning the second round, markets are going to be pretty cautious. Obviously the reddick has been rhetoric has been quite antieurope and we will have to see how that plays out in reality. Alix once the elections are over, youll have a huge rally in stocks, but everyone says that. Does that mean that cant happen because everyone is expecting that to be the case . Andrew i think it can have it. Theres a lot of people who stood on the sidelines and waited to see. You do not see a lot of risk expressed in the european rates or the currency. People are very much waiting and seeing. The electionhow outcome is, we will start to see capital go to work. Alix you do see the bond spread moving too. How much is that widen out . Andrew making shortterm productions is pretty tough. Than three weeks to go until that first round. I dont expect to see Much Movement and that spread in the next few weeks, but i think the action will happen even after the first round depending on how those numbers play out and whether or not we have phifi llon for macron in the second round. Lot ofou still have a investors coming on a program saying i am buying european stocks. The growths Getting Better and its not as bad as it was before. Earnings are going to be a lot better and valuations are a lot better than the u. S. Why dont you see that story . There has been almost 2 billion of bond flows into european equities. Whats wrong with that narrative . Andrew you have to look at the valuation. Its a relative story. U. S. Stocks are very highly valued. Investors are looking for which of the stock markets we want to go into. My focus is really in the fixed income markets. I think we have seen spreads widen out. We have seen french spreads widen. People are saying, which way do we go . Company with our positions and we are allocated with our portfolios. What is the next move we need to make . It is certainly possible we could get a bounce in european stocks and a rally and bond yields if we see macron or fillon when the french presidency. Alix lets talk about rights it. Are you moving where you are located . Andrew we are staying where we are. We are thinking of Contingency Planning like you expect a businesslike Goldman Sachs to do. We will continue to serve our european clients. Dependent on how decisions go, we will make this is the when the facts decisions when the facts are known. Alix looks like a much tougher bet. The transition will be three years and we have to get a bill before transition agreement. Where are you on the hard brexit versus soft brexit . Andrew theres not a lot of point in speculating on hard or not hard. Its about what is the nature of that arrangement. We are going to get headlines. We are one week into a 104 week process. This will run for a long time. Until we have more certainty, we will not try to speculate. There will be Certain Industries crucial to understand. For our industry, Financial Services and what products we consulted european clients. As we get certainty around that, onwill start to get that where the areas are that might perform well and where it might be tougher outside of europe. Alix one quick question before we go. When we have 10year gilts yields around 1 , there are a lot of calls from by sterling for Morgan Stanley and ubs because they dont think its that bad. Where do you stand . Andrew we are much more cautious around sterling. 120 or 115. Its around the slowdown thats happening in the u. K. Economy we think in the second half of the year. Inflation is definitely picking up. Thats really going to hurt real wages, which is going to hurt consumer savings. That is why we see a slowdown in the u. K. Economy and sterling will reflect that. Alix gilt yields not 1 . Think so. Dont if anything, gilt yields could ofly because of the slowdown the u. K. Economy. But the second half into 2018 story, but we could see yields come down. Alix i was i could have you on for five more hours. Thank you so much. I will send it back to you. That is Andrew Wilson, Goldman Sachs Asset Management international ceo of europe, middle east, and africa. Hour, alixnd next steel will be speaking with the world of fixed income and credit specifically. Payrolls friday with an allstar lineup of guests including gary cohn, mohamed elerian, rick rieder, no and out kruger. Teeing is up is the adp report and another upside surprise. We will discuss payrolls from us a cloudy new york city. Futures positive. You are watching bloomberg. Emma this is bloomberg daybreak. Im emma chandra and this is the hewlettpackard enterprise green room. Later today, interview with the argentine president at 3 30 p. M. Eastern time. Im emma chandra with a Bloomberg Business flash. The Trump Administration is alarmed that chinese investors might try to buy Westinghouse Nuclear reactor business. According to people familiar with the matter, the government is trying to find an american or allied buyer for the company. If i for bankruptcy and its parent come to me toshiba has been looking for a buyer. Deutsche bank has been losing a number of Senior Executives after paying out compensations to three of them have departed from the banks trading unit in asia. Deutsche bank has cut bonuses for two years in a row. According to people close to the bank, the lack of clarity on compensation maybe harder to retain talent. President has offered the coal industry fewer regulations, but the Biggest Company isnt thinking that they. The ceo tells bloomberg that the company is not expected to boost coal output significantly. He only wants to grow shareholder returns. Peabody just returned from bankruptcy protections. Rare moment of potential agreement yesterday head ofjamie dimon, the jpmorgan, and the man who has been his chief regulator, dan rive dan tarullo. Jamie dimon said that banking regulations to be used and Daniel Tarullo agreed and some specs. Joining us now is benjamin banbain. Jamie dimon has been saying which should have less regulars in, but Daniel Tarullo with even some aspects of whic stress tests says we could come back on this one. What are you hearing out of washington when it goes to deregulation of the banks . Benjamin tarullo said it might be time to phase out some of these stress test, something that has been a headache for banks and they have complained about for some time. But we are starting to see in washington is really a pivot of these big platitudes of how we are going to come as trump would say, do a big number on doddfrank coul. Yesterday he said putting a big haircut on the law and putting it into action. We are seeing interesting points of agreement. You pointed out one from yesterday and points of disagreement. Ashington is in a very calm place moment. A lot of people on capitol hill and industry side are waiting on what the Trump Administration will do next. They made a lot of promises on regulation. Now its the administrations turned to come back with a review that they started at the beginning of the Trump Administration to identify rules that could be eased or even eliminated. People are kind of trying to gauge how thats playing out right now. David theres this process ongoing. Gary cohn came out and announced it, but theres something that they can do right away and appointing some of the open positions in the sec and places like that. Benjamin thats a really good point. Even last month, a top , theistration official Vice President s chief economist, said we could really start to undo a lot of the obama era Regulatory Framework just by getting people in place at these agencies. That sounds easy on paper, but its not so easy because a lot of these positions have to pass through the senate. At labor, we reported across the government that the Trump Administration has not nominated a large portion of these people. We are starting to see it take effect. For example, at the sec, wall streets main regulator, and who is in charge of overseeing a swaps market, we are down to two commissioners one democrat and one republican. The problem is that the Trump Administration might want these independent agencies even with their chairman in place to move quickly, but because of the voting rules in these agencies, democrats can essentially block anything that a trump appointee might want to do. We are starting to see some of the difficulties of washington changing washington so to speak play out, particular in terms of banks and financial deregulation. David wheres the chokepoint finally . Is it at the white house and the Personnel Office . It looks like they will blow past with the Nuclear Option so they can get things through the senate. Wheres the problem . Benjamin a lot of people blame the other on washington. On capitol hill, republicans going back to the Obama Administration have had legislation that they think would solve a lot of the problems that the financial industry complains about in doddfrank. The white house come on the other hand, is trying to score wins right now politically. What ultimately i think is going to happen and has to happen and will probably move ahead on two fronts. David couldnt they get a win wo . H an appointment or t benjamin that would certainly be good start. There have been appointments, but its still a long way to go. David thats Benjamin Bain in washington. Jonathan another blowout payrolls report. This time its the adp report for the Third Straight month. 263,000 is the number. 185,000 was the median estimate. What this means for the fed coming up next with mikes well Goldman Sachs Asset Management. You are watching bloomberg. David this is bloomberg. Im david westin. Big news in the Restaurant Industry where jab holdings agreed to live in arab red. In arab red. Nera bread. You add this as a topic for you. Congratulations. Thank you very much. David it was 315 a share that this deal was for. It was trading for as low as 186 last november. Did they overpay for panera . It is getting close to the top ends of the recent valuation range now. There been some transactions in the space since the beginning of 2017. The big example was the purchase of popeyes for 19 times its holding. This Purchase Price represents over 17 times. The interesting thing with this high valuation even though this company owns 44 of their locations, which you would think would press the multiples, but still this would tend to deter from a strategic Public Company that might want to pursue panera at this point. David is this hot area right now . Are there other deals like this we should be looking for . Stephen its an interesting question. The fast casual space has seen some maturation. It has not been without its share of problems, as evidenced by the problems at chipotle and some of the others that have struggled to try to gain traction in the market. What has made panera stand out is its investments in technology and better for you agreements. When you combine those two, you have a potent competitor not just in the fast casual industry that also in the Restaurant Industry overall. Panera has been emerging as a Technology Company and also as a Delivery Company that really computes more directly with the dominoes and papa johns of the world. Jonathan my producer came over to my desk and wait this piece of paper in front of me and said look at these numbers. 3. 7 million for each of their locations. Thats what the price indicates. Do a compare and contrast for me. Is that a lot of money because it sounds like a lot of money . Stephen it is certainly higher in the valuation range overall. Areoes point out that these very highly productive and they 300 million or so and annual sales. These are highly profitable locations and it certainly taking it share from rivals. The valuation at this point may wher very well be justified. I do not think you will see a rival bid from Public Companies who have made their own investments in technology or may focus more on a single brand. David you mentioned chipotle. When they wake up this morning, do they have something new to worry about . Stephen i would say at this point that their concern is singlemindedly focused on trying to revive their core restaurants. Ofhink they will get out some of the other smaller concepts in which they have invested. They are on their way to recovery, but ill think the share price will move a whole lot. I think they have anticipated that. Jonathan Stephen Anderson of maxim group. Coming up on bloomberg, the market open, 30 minutes away. Futures positive. You are watching bloomberg. Jonathan setting us up for payrolls friday, futures are a whole lot firmer after the adp report delivers another big upside surprise. The 4. 5 trillion elephant in the room. Asestors look for guidance how the fed plans to wind down a monster Balance Sheet. Flea core shares to their worst day in five months. Andrew will be joining bloomberg and exclusive interview. Good morning. This is bloomberg daybreak. Im Jonathan Ferro alongside david westin. This is how the stage is set right now. Futures are up whole lot higher. Positive on the s p 500 after another upside surprise on the adp report. On the other Asset Classes, this is what it looks like. Yields higher by a single basis points. The euro just a little bit softer against the dollar by a 10th of 1 . Thats the story across asset. Lets get you some movers and cross over th to abigail doolittle. Abigail shares of apple trading lower by 6 10 of 1 on a digit time report that apple could delay the launch of iphone eight from september to october and possibly november. This is a big deal considering the stock has hit record high after record high after excitement over the iphone eight super cycle. If the phone launch is delayed, i could suggest that there are some issues and investors may not like that. Certainly a story take keep an eye on. Panera up 13 in the premarket. Jab holdings is acquiring panera for 7. 5 billion. A 23. 5 premium from thursday. That is when Bloomberg News first broke the story that panera could be acquired with jab holdings mentioned as one possibility. A Bloomberg Intelligence analyst says its a great fit despite the high valuation, considering that jab is in bed with einstein bagels and krispy kreme. Amazon trading higher by 4 10 of 1 . Hitting yet another record high. Today the news is that the company did sign a deal, a 50 million deal to stream 10 thursday night nfl games. It was similar to what twitter did last year. Twitter said it led to a 40 live broadcasts. It looks like amazon is really getting into the media business. David i watched one or two of those games on twitter. 4. 5 it comes to that trillion dollar Federal Reserve Balance Sheet, markets right now have more questions than answers, but that could change in the near future, starting today with the release of minutes of the Central Banks march meeting. Joining us now is michael mckee. You sort of got the ball rolling with an interview of mr. Dudley last week. Could be early as this year where we could start rolling back the Balance Sheet. Where are we rolling with this . Michael the fed put out a statement of their intentions. Once they made significant progress on normalizing Interest Rates, we will turn to the Balance Sheet. Us on friday that basically they are about halfway there with Interest Rates in the 751 range. They would like to go another hundred basis points, but maybe they get to the basis point out of that. They could turn toward the Balance Sheet. By application, it suggests to more rate increases. That two mored rate increases might be in the cards so that would point in that direction. Do you think that we will get a sense in the minutes today that they talked about this actively at the fomc meeting last month . Michael im not sure how far they went. Janet yellen said they would be talking about it at the next couple of meetings and then it would root release a statement n what they are doing. Maybe the staff made a presentation on options. You look to see what those options are. You look at the Balance Sheet nec treasury and Mortgage Holdings have been steady since they ended qe. Which one did they attack first and how fast do they let them roll off . David we had news from the fed yesterday when the Federal Reserve president of richmond suddenly resigning. He hadnt step up quickly enough when there hadnt been a leak from the fed. There still is a leak are out there. That could be of real importance for the treasury market. Michael we dont know exactly the state of the investigation. We know the cpsc were investigating this as well as the specter general. The fed Inspector General is going to close the investigation. Usually the results are not made public when that happens, but if there is an active criminal investigation or civil investigation by government officials, that could come up and i could certainly have an thatications, and is especially in an environment where banks are prohibited from secret of conversation. Secretive conversation. Jonathan fed chair janet yellen has made a big push about trance fanc transparenc. What does this say about her big push for transparency when this is going on . Michael its already out there and for the most part the fed thinks this has worked very well. They had an unfortunate incident and somebody lost their job over it. Its hard to say that this is a pattern or this is an ongoing problem. The fed says there are many more issues at the banks themselves, but it doesnt do them any favors and climate where republicans on capitol hill and perhaps the president had talked about reining in the fed powers. Jonathan this happened with the ecb. He went to a Hedge Fund Dinner and presented a speech that contained Sensitive Information that was not published until hours later the rest of market did not have access to. The question is whether these guys on the governing council should be meeting the Market Participants full stop . Michael we learn something about financial conditions in the country and investment plans that are useful to us in making monetary policy. We have to be more careful and how we handle it. You have to figure their human relations departments are sending out the training videos to all this. Youve got to be much more careful with this stuff. David you can distribute those more probably in washington about w leaking. Thank you, michael mckee. Jonathan joining us now is a director of Global Equity strategy. I want to begin with you, robert. The normalization of the 4. 5 trillion beast and the calm we see in the treasury market currently. Theres in the sums and that the fed is going to take a long time getting this done. Do you buy into that . I hope so. the role of could be the nine or the roll off could be the nine or damaging. If they let the mortgages rolloff, that is relatively small amount that could blend into the market landscape. Youre talking about hundreds of billions a year of liquidity withdrawals. That is like taking the qe in sending it into reverse. I think the economy is doing fine and the u. S. , but i dont think its up for that kind of a tightening. Jonathan is this reverse qb or is it Something Else . I agree. If we have a slow withdrawal and allow companies to start investing and carryon on the positive sentiment that we had today, i think the fed can elegantly exit or slowly exit and that would be a Good Environment for equities securities. In interviews with Michael Dudley last week, theres no difference. Does it make a difference in the Mortgage Market in particular because some of those are mortgage bonds . Im sorry, adam, im asking you. ,dam from Equity Perspective which is where i mostly focused, how they ease is not the biggest issue. Im more of a fixed income situation. David could it affect actually homebuilding or home purchases, which does affect equities . Adam we dont see it as a major factor there. As a relatively healthy market for the home builders. We see decent demand. A Little Pricey in many areas, but we dont see that as a major factor for the outlook for homebuilders now. Jonathan another big upside surprise in the adp jobs report that says its up sets us up for payrolls. What is it safe in the market when we print 100,000 plus jobs . Robert the mortgages rolling off. Huge, buteople, its its keeping the economy very manageable. On the adp, thats a solid number. U. S. Economy is creating a lot of jobs and thats fantastic. From the perspective of global bond market, we are very well braced for this. It does not seem that way from a u. S. Perspective, but from a global perspective, these are very high rates. The fact that you have an andease in basis points yields today, this is an understanding of the economy and pressing it into the market. Jonathan is that the headline on friday that the goldilocks report again . Its a report that gives the hawks of the Federal Reserve not the fuel they need to push ahead because wages stay exactly where they are. For the equity market, they look at the situation and say the economy is still doing well. Adam that would be a nice scenario. That is what we are seeing now. Business confidence is growing and they are seeing that the economy is doing well. What we need to see is this transmission of positive sentiment at the business level and to actual investment and corporate action. In a goldilocks scenario, that might push more Business Investment and it can continue with this decent economic recovery. That would be good for equity markets. Jonathan what is the trade for the fixed income markets for treasuries . Robert i think the bear market is basically over. Back over the last handful of years, the bond went up to 4. 75. This year we have gone up to 3. 25. Thats probably it. Thats the market where the fed is fully expecting the height rakes. To hike rates. They have very good control of the situation here. It should be a very Good Environment. The First Quarter was a statement in that direction. Are carry outs there significant and people will be dragged into this market. Jonathan good to see you both. Thank you very much. Coming up later this week, payrolls friday right here on bloomberg tv with bill gross. Looking ahead to that, youre watching bloomberg. Jonathan from new york city, this is bloomberg daybreak. Let me get you up to speed on the Market Action very quickly. We are about 16 minutes away from the cash open new york. About an hour ago, we had the adp jobs report. It came out at 263,000. The median here at bloomberg was 185,000. 70 points higher on the dow. Thats the state of play in equities. Switch up the board and heres the state of play elsewhere. Yields higher by a single basis point. We will back the chains on the. S. 10 year as we await the Federal Reserve minutes, when they hike a number of weeks ago, the number around that to 60. David what a difference it makes. Now we are to head back down to the Goldman Sachs Asset Management symposium. New york. Alix steel is here with a guest that will make our buddy Jonathan Ferro jealous. Alix it is mike swell. Great to have you here. I want to start with adp. We have a killer number of 263,000 of march. The yield curve steepens maybe not so much. Why not so much . Mike the economy is on extremely strong footing. There are a lot of investors who do not want to believe it is here and real. If you look back at the temper tantrum of 2013, people got very concerned there. Significantly. That was nothing compared to the news we have now about the economy. It is not surprising to us that rates of mental that more. You point to the yield curve and we think its likely to significantly steepen and the fed will be roughly behind the curve. That should start to get priced into the long end of the curve in the u. S. Alix if you 263,000 at adp, where are these workers coming from . Does that mean we have less slack than we thought, meaning we should have a flatter yield curve and the fed should go slower . Mike if you looking what is going on in the economy, its broad. Its very broad based in terms of the job creation and the desire for companies to expand on the margin. They feel a little bit better about the corporate environment, the regulatory environment, so they are hiring across the board. The challenge is finding workers. You have an outlook map that is completely diminished in the u. S. You can see that the way that companies can start hiring people is through increasing wages. You are seeing a very steady small uptick in wages. That is something the fed is very concerned about. We think it will cause the fed to act. Been morehe fed has concerned about deflation and is very concerned about what is going on outside the u. S. This probably another couple of hikes in them this year, but we think potentially next year that could accelerate. In the meantime, we think inflation is going to start to concern investors. We think the yield curve in the u. S. Could steepen. Alix talk about Balance Sheet normalization. We will hear the First Official confrontation when the minutes come out. You trillion what do think the reaction will be the yield curve when they start to unwind and announced their plan . Mike its pretty amusing that the statement from burning king and 2013 caused such a massive market reaction. Maybe we need to consider to start to taper. Now you have a a lot of information from a lot of the central bankers talking about how, when, size, and markets arent really reacting. It is really calm. You add on top of that President Trump, who is very clear during the election about the type of fed cup an governors he plans on appointing. We do think the yield curve could steepen as a result of that and rates are likely to rise as the fed becomes less of a dominant player in the fixed income markets. Alix the markets are leading the fed. The fed has been saying that all along. They are not the problem and the problem is investors. Mike we think the fed will have to activ w. We talk about their desire to reduce intervention in the markets and they have been very slow to raise rates. Markets are assuming with the fed is going to be very slow in terms of tapering. Theyve increased their rhetoric significantly coul. Number 2 trump says he wants to appoint governors that are going to reduce the Balance Sheet. The asset class that people are not focusing on is agents and mortgages. The treasury has bought a mouse of the amount of mortgages to support the housing market. Thats an Asset Classes going to slow down their purchases. That will cheapen very significantly from here. Alix it is priced in for some kind of pairing of the Balance Sheet. Is that how you see it . Mike we do not think either a significantly pricing in the extent of hikes and the timing and the potential size for tapering as we look later in this year and its next year. Deftly dont think the Agency Market is pricing and then at all. Alix what you do with it . Mike we meaningfully underweight the securities. Think about those benchmarks, the bloomberg aggregate, the barclays aggregate has a significant proportion of it. We will have a significant underweight position there. We will also underweight are duration of portfolios. We have around the year under the benchmark in our positioning and portfolios. Will bet that longerterm rates rise more than shortterm rates. Alix we will be zero bound for 40 of the time going forward. That is a total shift and how investors deal with stuff. To 3 hat mean we will get on the 10 year and maybe not 56 again because you have to deal with lower bound . Mike we think we are going to move back to a more normalized rate policy out of the fed, which means positive real rates in terms of centralbank policy. If you look at the odds of a staying at 3 , we think shortterm rates can go up from there. Thee have inflation and 2. 5 area, we are likely to see shortterm rates higher than that. In general, not a big believer in kind of the lower for longer, given whats going on in terms andhe economy and inflation the change in rhetoric out of the central bank over the course of the last year or so. Alix what does that do with corporate cu credit . Hi yields to 6 and ig is 3. 6 . What kind of selloff will we see . Mike its a tough call. If you look at history, highyield credit typically does very well when rates rise. It does well because when rates rise, its coincidence a with a stronger economy. Right now though, if you think about why people have invested in credit, theyve not been invested in credit because we have had an extremely robust economy. Invested inen credit because the Central Bank Says dont worry, you can own it and we will be there in the event something goes wrong. They are also invested in credit because rates are negative in europe and asia. Those investors have been dominant players. When you start to see rates rise and volatility introduced into the marketplace, we think that can be somewhat concerning for Corporate Credit. Right now we think Corporate Credit is fine and ok, but sixmonth or year out, we think Corporate Credit could be susceptible to a change in the around rate policy and volatility and a way that is even greater than what happened in 2013. Alix where does that leave investors who are so exposed . Mike you have on the once im concerned on the one side concern around credit fund metals and evaluation and demand for credit. Address the demand side. Fundamentals are still relatively strong. Leverage has picked up a little bit, corporate a relatively healthy. They have issued more debt, but a lot of the debt they have issued has been refinancing of debt. We will see ak significant increase in defaults are challenges. Are where weets are looking as i mentioned before. There will be concerned as volatility picks up. That will mean we are closer to closer of a slowdown in the economy. As we are closer to recession, you will see an uptick in defaults. Six months to your outcome of people will start to get concerned about what i was buying. The moment be significant financial concerns. Strong andnce stay then investors roll back off . Unless rates pick up significantly from here and there is a significant turmoil in equity markets come i think you are going to continue to see very significant amounts of issuance in the Corporate Credit market. Number one theres an enormous amount of demand for yield and Pension Funds and demand from overseas investors. As long as rates stay moderate, i think we will see a lot of issuance. Alix the argument to that is Interest Rate deductibility and repatriation is that companies dont need to or want to go to the markets to issue. Do you see that happening . Mike its really hard to pick whats going to happen in washington right now. What we do know is the economy is relatively strong. Equity markets are strong. Credit markets are strong. That is likely to lead to more m a activity. We expect a pretty robust year for m a and that will mean more issuance as well to alix. Alix the other becaus they call is you like ems sifx. Mike the dollar over the last two years has had an extremely strong run. On question for the msx is the one side, how is the dollar going to perform . More importantly is house the Global Economy going to perform . If you have a relatively strong u. S. Economy, strong Global Economy, stabilization and china , stabilization or not take in commodity prices, thats externally positive for the emerging markets and emergingmarket currencies. Except for the last couple of months, they have lacked significantly. If you think about the trump trade, it was all about we are going to have some resumption of Global Growth. The emergingmarket currencies concern was that you will have significant trade tariffs that are going to keep growth from the emerging markets from growing. That is the probability of that has been reduced significantly, we think emergingmarket currencies can now benefit from stronger Global Growth is stabilization of commodities. Alix the dollar to move higher at the same time . Mike the dollar on the margin can move higher from here. Really if youis believe we will have stabilization and Global Growth, you will see significant appreciation of a number of emergingmarket currencies. Alix what is your favorite . Mike we like the peso so go right to the eye of the storm. That is a currency that has massively underperformed as a result of all the concern around potential trade wars with mexico. The economy is still relatively stable there,. The central bank is raising rates to combat inflation. We think thats attractive. We think the brazilian reality is extremely undervalued as well as the polish zloty. We think overall the entire complex of the emfx is attractive. Alix always great to have you on the program. That is mike swell. Great stuff coming out of here at Goldman Sachs Asset Management symposium. Back to you. Jonathan much more from alix steel later on. The opening bell is coming up next. Allow me to what through the Asset Classes for you. A blowout adp report coming in at 263,000. The median estimate of bloomberg was 185,000. The previous number was revised lower, but still at 240 k, that was punchy. That will set you up for payrolls on friday. If you switch up the board, this is a seen elsewhere in other Asset Classes. Treasuries and largely stable. We are up about a basis points to 237. Ay before federal Interest Rates rising, yields lower. The ecb saying that time is approaching for the ecb to step back from bond purchases. That is from a german daily newspaper. The euro is a top softer. The dollar is at 660. As we set you up for the open, thats coming up next. This friday, an allstar lineup of gary cohn, mohamed elerian, and alan krueger. You are watching bloomberg. [ engine revs ] [ screams ] [ shouting ] brace yourself this is crazy [ tires screeching ] whoo boom baby rated pg13. [ screams ] [ [ screams ] ] [ shouting ] brace yourself this is crazy [ tires screeching ] whoo boom baby rated pg13. [ screams ] jonathan from new york city, this is bloomberg daybreak. We are 23 seconds away from the cache open in new york. Futures are positive. The s p six points on 500. An upside surprise on the adp report. We have gotten used to that, havent we . The enthusiasm there are ahead of the board. Single basis points. The dollar rising firmer by. 1 . That is the situation. 10 seconds into the open. Lets get you to abigail doolittle. Abigail we are looking at a bullish open for the major averages. The dow, s p 500 and the nasdaq trading higher on the open after choppy trading yesterday that ended in small gains after the blowout adp report you mentioned. Laterad of the minutes today. It will be adjusting to see if averages hang on. Theenergy complex commodity complex we have a lot of strength there and it is reflected in some of the shares. Chevron and Chesapeake Energy trading higher. Oil of 2 on the week. A poor a second week in a row. We have strength in base metals. Copper up more than 2. 5 . For thece of strength natural resources, especially the metals, china a new Economic Zone being added in aging. Some thought that it will help with an protector play. Turning back to energy and going into the bloomberg we have. Ad a rough year for oil, down but investors, Credit Investors, are positive on the energy complex. In white, we have the bloombergbarclays with energy in blue, without energy. We see that high yields jump up. This year, we have high yields with energy outpacing high yields. So some of the Credit Investors are positive on the sector despite the fact that oil is still down a bit on the year. Jonathan a little bit of a bid this morning. The price on wti. Joining us now is mike ryan. Bloombergditor for markets alive. We also have michael regan. Strict out energy for me. Then give me the estimates. If you strip out energy, it will clearly be a rebound energy price. We are looking for earnings to percent on the quarter. So the earnings recovery after the earnings recession we think that accelerates into 2017. We are constructive on the earnings outlook. Jonathan is that enough to justify some of the optimism . Is in termshink it of what you are able to deliver. We are looking for doubledigit Earnings Growth in 2017. But it is important because we need crude points. That will almost be exclusively driven by earnings. There is little aptitude for reratings of stocks here. David how much of that has to be driven in turn by growth . You cannot have earnings outstripping growth forever. Yearu have the year on comparison being flattered by last year. The earnings recession that we had. What strikes me as being really important about the earnings estimates is that they are rosy and they are not getting worse. In the last few years we have had High Expectations for earnings. Little inching down a bit here but nowhere near at the speed that they have in previous years, which is telling, i think, that people are not throwing in the towel on the rebound in earnings just yet. And i agree with mike. Ultimately, as the market goes higher, i dont the market will have the stomach for the ever increasing fees. They will want to see the growth to back it up. David you are growing at 2 2. 5 percent, it will be hard to have a 6 Earnings Growth. They cut a lot of costs in the last years. And there is Financial Engineering going on . The fundamental underlying Economic Growth is driving this . And s pf im holding 500 index whatever it takes. If it is buybacks, i am ok with that. Personally. There is a big potential for a shot of adrenaline as far as i backs and evidence if the repatriation bill in a shortterm bump. If they ever get back to talk about tax repatriation, we will see a lot of buybacks. There is another element that we talked about here real gdp which is important. It also, nominal gdp growth. Because we have been focusing on the sluggish rate of real gdp. We are looking at real gdp of 2. 5 and we are looking for inflation to get higher. Revenueses corporate is nominal growth. We are looking for gains this year of 7 , a healthy environment in terms of Revenue Growth. My point is that it has largely been, so far, around costcutting and what we are starting to see now is more evidence that the economy is more resilient and robust and corporations are beginning to expand the top line. Jonathan is that a volume story . Can they get the price up . You talk to me about the Consumer Price tolerance, currently do they have the tolerance to put prices up . Is what we have to see. There will be pushed back. But when you are starting to see now is that as consumer demand starts to increase because of increases to personal income growth, better employment markets each we certainly saw a dynamichis creates where consumer demand continues to push. As long as that is intact, there will be Pricing Power for corporations. David how much of that is because of increasing wages and how much is because of increasing leverage . A lot of it is based on the fact that we are seeing better overall earnings, in terms of what households are able to bear. Lets not forget that this is certainly a Household Wealth effect. When your house is appreciated, when your job prospects are improved not just currently, but for the future there is a high level of spending. But it hasnt been exclusively about the real leveraging of the consumer Balance Sheet. That is only a minor part. Couplen a big tax cut a of years ago. What do they do with it . They saved it. They didnt go out on a big spending spree. Why would that change as these months progress as they get a bigger wage packet at the end of the month . I think we have progressed far enough in the healing game. Is largelyt process complete. So what you are starting to see now is rather than the consumer engaging early in the business cycle, we are engaging a bit later. The guthrie are starting to see some repair. We are starting to see some repair. What is important for the consumer is that as we see policy issues, there is a change in washington. There are a lot of things that were simply off the table prior to the election. Im not saying they will all come to fruition. We will see where we are delivered in terms of tax cuts and broadbased tax returns but these were not in the table nine months ago. Buy inn the excuse to november was that we would get great things from d. C. And now the excuse is that you dont necessarily need that stuff. You will get the Earnings Growth to to justify the optimism. Obviously, the whole trump agenda has been pushed out into the future a little bit. Bad maybe not necessarily a thing. As you point out, the economy is firing on all cylinders. The job growth is surprising to a lot of people. ,ast year, everything i read every economist said with and toyment under 5 some degree, you do have to wait and see whether this is a warm weather phenomenon. Whether there are more construction jobs over the winter. In thens in the adp prior months were revised lower. So maybe it is not as huge of a report as it looks. Coming off the election, there was a lot of thought that we would have a foot on the accelerator. Isnt as soon but what about just not having the foot on the brake . There is a lot of discussion in the community that the Obama Administration had the foot on the brake. Cannot get there quit cannot get us there . The Business Confidence numbers have been through the roof. The soft data we keep talking about. Thishen hard data like comes in strong. So halley two are linked is something that a lot of people are trying to figure out right now. Will the soft data pull at the hard data . I was a little bit skeptical about the soft data but when you see numbers like this, you start to wonder. Jonathan mike ryan, we appreciate your time. Regan, we appreciate you as well. But of course, you were on the payroll. This is how the stage is set this morning. Equities a little bit higher after the upside surprise with the adp report. This is bloomberg. This is bloomberg daybreak. Hewlettpackard enterprise green room. Coming up, an interview with the president of argentina at 3 30 p. M. Eastern time. This is bloomberg. Research is out with the latest short and this one is on sweet core technology, a company that specializes in fuel cars for large fleets. They were accused of using Business Practices and fees designed to deceive. The note sent fleet core shares to the worst in five months. Joining us now is andrew left. Welcome back. So these are strong words. That they are really trying to deceive their customers . Exactly what is it that you found that you object to . Andrew the Business Model behind fleet core. If you look at the amount of revenue that they just that they generate behind fees what a normal Credit Company would actually charge for fees, it is completely outsized. They have their next competitor if you look at how much more they generate from fees, it would be visa and mastercard with two similar looking businesses, one of them had completely out surging prices. And then the volume of complaints. Late fees, employees and customers and you realize this Business Model is it built on deceit. David charging too much money in and of itself is not deceiving. That is not fraudulent. Are they misleading or miss are presenting what they are doing . Two points to that. If something is on small print on the bottom of page 15, you could say, was this model intended to deceive . Let me get you in and then charge fees. But if you read what is online right now, there is a High Conviction argument that the companys Business Practices, as i write in my report, whenever anyone complains, the big thing they say is a computer glitch. Ad that is very similar to fraud scandal at and they said in the fbi investigation that if anyone calls, limit on a computer glitch. In 2017, we shouldnt have peter glitches that overcharge people. David they do have a prominent competitor in wex. Are high switching costs. Chevron actually just left fleet core for wex so you are seeing that happen. On the late fees themselves, Raymond James is out with outperform on the stock, pointing that late fees make up a relatively small percentage of the net revenue. 6 and it was a far smaller portion than wex. With lateat happens fees it is difficult to make late fees because everything pays online so it is not as easy to be late as it was a few years ago. So many other fees. Processing fees. Fuel fees. Fees that you didnt even know existed. It might be on the bottom of page 16 of your contract and you might not even know it is there. I dont personally have a fuel card but if you have a fleet, you will see them. So there are probably 30 other seas they list beyond late fees. David what has been the response from the customer . If i was a customer, i would be upset with fleetcor. Are they responding to you, the customers . Andrew i put the report out yesterday and im getting pretty good response from customers and employees. Not just investors. You are seeing it right now. They lost chevron for a reason. Why would they switch to another competitor . It has been a controversial name for a while. It just took someone going out there to Start Talking about it. So many of these stories that come out, like the pharmaceutical story of rising prices, people know about it. But it just take the media outlet to start discuss it. Jonathan the pmi in the united sliding below, 53. 2. A slight downside surprise. Is the soft data. The hard data earlier was the adp report. That was an upside surprise for the implant numbers and a little bit softer on some of the pmi in the United States. North of 50. But we are still growing. Lets come back to fleetcor. Youose that they came to and said, we will perform everything you complained about. We will play by the rules. Would they be profitable . Not a ponzi scheme. They make money legitimately. Andrew yes. If they limited the fees, with a be profitable . Probably not as profitable but they would probably be profitable. You also have to look at is there any fraud involved here . If their model is designed to deceive, if they have employees back stamping things in the mail, if computer glitches were more intentional david did you find evidence of backdating . Andrew when you go online and you have former employees say have i gone to the employees and given them a polygraph test . No, i have not. There are many of them saying, i work for this company. This is the Business Model of the company. So they do still make money. Where does it go . Is there fraud there . Jonathan a quick question. Is it worth 11 . [laughter] andrew we will see if it does, im writing it down. You are not going to win them all. Some go up and some go down. A Company Trading at 20 times revenue is not necessarily the most ridiculous thing out there. I bought it and that is what happened. David andrew left, always a good time. Think you for being here. The narrowhares of are trading higher this morning. Dab holdings agreed to buy the company for 7. 5 billion. Joining us now is shelley bento. What are we expecting them to get for the money . Of the best one companies right now in the restaurant space and they are growing unlike other restaurant companies. And theyre doing pretty well on the technology side, which turns out to be one of the keys to restaurants going forward. Jonathan our producer here bloomberg pointed this out 3. 7 million for each of the naras locations. It sounds expensive but then you find out how much money they make at each location. No one is arguing that they got some kind of deal here. They overpaid here but that is the strategy. They know what theyre doing and that is exactly what they wanted to do. I wanted to make sure nobody else gets the company. Do it now. They also overpaid for quite a few other acquisitions. The curategreen mountain. They have a history of paying up for companies that they want and holding it for a long time. A private Company Owned by a bunch of people who are not planning to sell it anytime soon it is a very different deal. They are secretive family. They hold things for a long time. David what is the growth plan . L the open more stories will he open more stores . The biggest growth driver is international. They have an opportunity to grow internationally and that is is wellg that jab suited for. They also have Consumer Product good services. They have all sorts of kinds of Convenience Stores where it is another channel for them. Almost 40 tocks up this morning. We appreciate your time. Thank you. Some have today, special coverage of a joint News Coverage of President Trump and the king of jordan. From new york city, 20 minutes into the session, a session that looks like this. Equities pushing higher by. 7 . On the dow. The enthusiasm is the blowout adp report. The estimate was 185. This is bloomberg. Jonathan from new york cityjonathan , lets get you up to speed on the markets. Futures are higher going into the open. Stocks are higher now. Almost. 7 on the dow. S p 500, up by over 0. 5 . The payroll report taking effect. Estimate. S the nonfarmmate of the payroll i wonder, how much of those estimates will go up . David i have seen a couple already. Yes. Apple fell to the session lows, falling by 1 of the premarket trade after a new release of the new iphone will be delayed. Joining us now is michael olson. What do you make of the latest report . Michael i think it is probably not a significant issue as far as the delay of the iphone 8 in a month or two. It isnt as big of a deal. And in some ways, it could be a positive to have that spread out over multiple months. Thepotentially quarters in sense that we dont want to have a situation where we have the huge upgrade cycle and then all of a sudden, all of the anticipation over the upgrade falls away. So it is the worst thing in the world. David the timing might not be important but what it is is important. What you expect and are you concerned that people expect too much . Michael i think the good news is that there are two key components. Wave of large tidal iphone users on versions two years old or older. We estimate that to be 315 million iphone owners. Forh is a great positive upgraded options. When we look at the estimate for the first 12 months, of the iphone 8 release, we expect 240 Million Units sold. That is a positive. As far as the actual changes to arm and function, we expect screen for the highend version of the phone and remote Wireless Charging as a potential option. And 3d sensing. We really think any combination of those features would be positive relative to the upgrades we have seen in the last two versions. David people are holding onto their iphones longer and longer which makes it difficult to get them to trade in. On they need a big change here to shake us loose from the iphone 6 and iphone 7 . Do and ii think they think they will get it with this version of the iphone. If you look at the last two versions, really since the iphone 6 which was big because of the larger screen size, if we look at the last two versions, it has been updates to the andra and a few other ills whistles. As we look at ifo 8, any combination of those things i just mentioned and even a tweak to the formfactor if we lose the home button and we go to edge to edge glass display that will drive upgrades. Button . lose the home i still have not adopted the new headphones. Dont do that to me. Thank you very much. The session. To lets get you up to speed on Market Action. We are up. 7 on the dow. On the s p 500. A solid read on the jobs report here in the United States. Another big upside surprise. It is now the countdown to the payroll on friday. This is bloomberg. Attention homeowners age sixtytwo and older. One reverse mortgage has a great way for you to live a better retirement. Its called a reverse mortgage. Call rfree information kityour with no obligation. It answers questions like. How a reverse mortgage works, how much you qualify for, the ways to receive your money and more. Plus, when you call now, youll get this magnifier with led light absolutely free when you call the experts at one reverse mortgage today youll learn the benefits of a governmentinsured reverse mortgage. It will eliminate your monthly mortgage payments and give you taxfree cash from the equity in your home. And heres the best part. You still own yohome. Call now take control of your retirement today vonnie from new york, i am vonnie quinn. Welcome to bloomberg markets. Vonnie we take you from new york to london in this hour. Stories in venezuela. Economic, breaking data. Abigail doolittle is here. Abigail we are looking at the data for the month of march for the isn nonmanufacturing. Were looking at a messy survey. Is down from february, 57. 6. So little bit of weakness in the services sector. Lets see if this is having an impact on services . Not so much. Pace right nown to finish at a record high. Such as it did on monday. So some strength for stocks despite the smallness relative to services. Lets see if ts
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