Beating Goldman Sachs. Coming in atates 1. 5 billion. R. O. E. Over 9 . There with us to discuss is Alison Williams of Bloomberg Intelligence. Your take on the earnings . Too few things . Wealthover 9 and their margin coming in at 25 . We saw that strength at bank of america, we saw strength at wells fargo which was a precursor but those are key metrics. They focus on that r. O. E. And the margin is one of the goals they focus on to get there. Fixed debt in line, the banking fee is something we have seen. Alix what have we learned about Morgan Stanley on Goldman Sachs . Is it all about commodities . It is more execution. Alison it to be a little bit of both. Every quarter is going to be different in terms of where the strength of the overall business is and depending on where the strength in the industry is, that is going to impact who is doing better. And of it is just business product but goldman also says for a Second Quarter in a row they did not navigate markets well. That is what investors are focusing on. They are keen to say in the present the resilience in the environment. What does it say about the Morgan Stanley franchise that they are able to do that . Alison they are the leader in equities, a broadbased business. They had on its back. The fixed income, they made cuts some time ago but they sort of and therek over time is a lot of focus on the revenue for the first half as big of an Goldman Sachs who is no more who is more known for fixed income. Equities interest is more important and their equity revenue stream is bigger. Jonathan what was interesting with the earnings yesterday . Goldman sachs disappointed on fixed income trading but surprise people on the up side of things like lending. Bank of america is the opposite story. We are used to them performing but we wouldnt expect them to outperform and they outperformed. What does this say . Alison they are trading a little bit better. Mixas to do with business and comparisons over time. Bank of america talks about the fact that they had growth in the first half of their trading revenue for the first time in several years and that was driven by First Quarter strength. On the other hand, it was weaker for goldman so lets think about what is happening with the mix. Ess there is activity around shortterm rates and what the fed is going to do and that is what makes someone take bank of america and citigroup over Goldman Sachs. With Goldman Sachs investing in lending business they have diversified over the years. They have focused more on the lending business but a lot of gains go through that. Instead of the very strong equities that we saw we saw the benefit of that in that business line. Atn we saw great fees goldman, better than expected, and we are seeing that at Morgan Stanley and bank of america so that is really the scene. David you mentioned key indicators for james gorman, the margin and the Wealth Management and the other one is cost control. Id be curious to see whether they make at 1 billion target. Alison at first blush it does look like they are making it because cost looking to come in live revenue better, so the cost ratio is probably better. That was probably a great surprise we saw at bank of america for Goldman Sachs. Their comp rate showed the lowest in the first half of all of their years as a Public Company so costs are a great story as well, getting that operating leverage. We had several years of revenue pressure that forced the banks to become very efficient. We are seeing the benefit of technology as well and that is coming through. Now, we want to bring in p or shiro of green capital. Put that in the broader context. This is the last of five majors reporting. What do you make of Morgan Stanley . One thing we are seeing is product mix. That is one of the reasons the big banks are doing very well. They are managing to harness the lending relationships and get that new business. This was an investment rate quarter. I think Morgan Stanley has a better mix of Investment Grade and highyield. Now, the real test is going to be the slowdown involved in fixed income really started in june, so two of the three months in that quarter were probably ok but it is going to be hard to see how people make it through the next three months. Jonathan jamie dunn thinks the end ofou and at june. It is going to be quiet. Peter tchir starting out quiet. We saw the treasury equivalent of the s p vix. That is a multiyear low of 3. 75 last friday so you are seeing the same thing happen where volatility is striking and turnover is reducing. It has been a slow start. Alix and you plan this out that if you look at the risk parity atex, on stocks and bonds the same time, you see volatility pick up. Nowhere near where we were in august 2016 but that pickup, is that sustained and is it reflected in other parts of the market . It has not been sustained yet. Interests back and forth but it is a crucial element. When we get the risk parity index, youve got commodities moving and rates moving and equities moving so it is great for the Big Money Center banks. Alix that should be good for the likes of goldman. My question yesterday was are they going to have to dump out there commodities . Peter tchir thats, i dont know but we will see more of this cross asset correlation pick up again. Everything has been so muted in terms of volatility and lack of correlation. The big banks need that to fire on all cylinders. Jonathan we spend a lot of time talking about fixed income and trading and Investment Banking but when you talk ccos they want to talk about their big consumer facing side of the bank as well. What is happening with loan origination . Alison in general, the positive news is that credit is coming in betterthanexpected. To one area people are going focus on Going Forward is we have seen pickup in the charge rates for credit cards and that is an area that people are focusing on not necessarily because of the growth but because of excess supply. You have the biggest banks focusing on this business. It has been a huge profit center, hugely profitable for them, and the extent that you get excess supply, you can get issues even if employment stays healthy. That is something we are going to be watching. That was, perhaps, one of the negatives but overall, coming in and ithanexpected, think that is continuing to be mortgage. The tightest area of credit since the crisis. It remains so and we continue to see strength there. Jonathan in terms of banking basics, you borrow short and lend long and put the profit in between and the interest margin becomes important when you think about that. The session now, with the shape of the yield curve and what it means for banks and the future of their stocks, what do you say to that . Peter tchir when you look at the reports, it was about 3 billion in revenue for every basis point so people become way , tens,ated on the twos as it is meaningful for banks with 2 trillion balance sheets. We are looking at the Smaller Banks. We like the banks in the carolinas. We have blair brenly has ozark and some of the others down there but what we are seeing is every bit of deregulation that helps the , and banks exponentially as they can get back into their base to do some lending, there is real opportunity for Smaller Banks away from money center banks. David what about deregulation . If you got back from all of this, we have heard for years about how press the banks are by the regulation. They are making a lot of money. Goldman might be doing less well and Morgan Stanley little better , but there is a case in washington that you have to deregulate . David i dont know about the case in washington. Alison i do think that in terms of, hearing from jamie dimon talking about tax reform and deregulation, helping to the end consumer, that is the case they are making. We still have to stress test of the banks are being able to free up that excess capital so that cause for dividends positive for dividends and buybacks but also positive if they can get the demand. The bigngs us to story, going into earnings and coming out of earnings. Tax reform is what the banks are hoping for. That is the strongest investment you can make for the banks. That is why you are hearing that from jamie dimon. If you can do it better, that means investors are doing better for that leg in the stoxx but when you see how things are going, that is the bigger story. Jonathan Alison Williams of Bloomberg Intelligence, great to have you on the program and capitalhir of rebel will be here. If you want to follow the Political Action in the United Kingdom you can on the live go. With Prime Minister theresa may facing off with the leader of the opposition party. The labor party, jeremy corbyn. Alix is it wrong that i love this thing . I watch this all day. Jonathan a lot of people are entertained by it. A lot of people are frustrated by the fact that it is entertaining. Alix but at least they show up and debate. Much more next on stanley earnings. For the financials ahead, as Morgan Stanley is up in the premarket. This is bloomberg. Jonathan investors are awaiting hits from mario draghi on tapering in tomorrows policy meeting. The current expectation is for an announcement in september or october despite ecb staff reportedly evaluating options for winding down qe. They are said to have a limited appetite for policy line which change. Turning us now is january. Always great to catch up with you. Get a set up for the policy decision tomorrow and the News Conference that follows. We are expecting very little from the ecb tomorrow. You could leave the popcorn at home. To expectation is no change the wording, no change to any of the policy variables. Really, we are looking to september for announcements and we are expecting that announcement to be that tapering begins in 2018 and lasts around six months, in the qe program. So the real action is more of us news. Jonathan you use the word tank wearing tapering as if it will draw to a close. Is that something to set us up for in september . Or will they do what they did last time . Drop the 20 billion and say six to nine months. On this occasion, it will be an easier sell just to take for the program. The ecb is not in firefighting mode anymore. Talls been extraordinary with extraordinary circumstances. Weve seen domestic growth pick up as the economy continues to recover. There isnt any great need for additional stimulus. At is what is going on. Anytime they find more assets, it is additional stimulus. It is only natural they bring that to an end. They will be more cautious about withdrawing stimulus. We are not expecting to lift rates until 2019 just because we are not expecting inflation to resurface. Jonathan i know weve in the eyes of many people. Sinkure they would love to this will be gradual and we will do it by 20 billion every six months and wind things down slowly. But investors are not going to hang around. Best if you say it draws to a close, are they sensitive to what could happen in the bond market on the back of that change and how sensitive are they to Something Like the fx channel with eurodollar trading where it is in the last 24 hours . Moderately sensitive. We have seen them trade market reactions around policy meetings. They have been disasters at the time and have they had consequences in the euro area . Troubling not. They want to be cautious and they want to top some sort of bond crisis but it is not something that has to be overly concerning. Signaled, people are expecting it, there are not any major surprises here. I think it is probably going to run to a deeper chance. Jonathan great to catch up with you. Still with us here at of tomorrows ecb meeting is peter tchir of bring capital. Any steps we should worry about over at the ecb in the coming months . Peter tchir when i look at this i think the bond is most susceptible because it disproportionately benefits from the qe and purposes purchases. It has been left off the radar screen, the Corporate Bond purchases. That has been much more controversial, that ecb has been buying Corporate Bonds and caused its credit spread in europe to be very tight and it leaked over to the u. S. Where european demands and asian demands for u. S. Bonds. There could be a pick up where have to go back to the markets tomorrow. Now they are open but they should get over, especially the corporate, where you are creating winners and losers in an unfair way. Alix and in the lending survey, the banks are loosening restrictions in the Second Quarter. Are we going to see a flood of issuance . Is that in play . Peter tchir i think you will see continued issuance. Certainly in the u. S. It is well received. Yesterday two days ago, jpmorgan did his deal. Expectations are Morgan Stanley might do a deal tomorrow. They are not trading well in the secondary market so that is one trait in the scene. Six months ago, when people brought in a new or issue they would bring in five basis points to the secondary market and they would have room to trade up and generate some additional revenue. That is another thing that would really change. Deals come off of secondary and they trade for a little bit. That would affect earnings over time in the thick area and that is something to watch out for but it is a sign to worry about on the market. Alix who will become the marginal buyer of the peripheral debt . Peter tchir that is a question. I think like a lot of these things, once the ecb steps up, widespread in italy but once you realize it is a normalized market, it will come back. Greece is talking about an issuance, and so is argentina. People are rewarded for taking the weaker credit place. It is happening here where you still see loan flows so it is not going to be as bad for the periphery as possible. You will see spread compression where germany and france fall off after than italy and europe. Jonathan the interesting thing is not the spread between core and periphery but the spread between periphery and south. Looking at the talon the trading overar, spain, is that a problem for the ecb . We put it on a fiveyear chart and this is what we see in the past. Spain trades over italy. That is not the story anymore. That is a flashing light. Peter tchir it is, in that italy has become much more dangerous for the ecb in the long run. Italy is a much bigger economy. Spain just has a much smaller amount of debt so as the s p that as the ecb has been purchasing, we see countries with smaller debt with an outsized impact on it. That is why germany has rated the single largest ice coming into germany. Spain has less debt than italy so they have the proportion of the beneficiary of the ecb purchase so i would expect that to narrow. Jonathan it certainly is something the ecb is keen to emphasize in that the politics and the election should be overstated. Downcould be winding quantitative easing. Should that be a concern . You would like to think so, but for the past year and a half, any type of election type concern has been shortlived. Even in italy with the referendum last year, the outcome wasnt what the market was looking for and that lasted weston a day. Less than a day unless something changes, markets can ignore that. Alix we are trying to get people to care about politics and every investor is like, not anymore, dont care anymore. Brean capital, you are staying with us. We will bring you live coverage of that ecb decision and president Mario DraghisNews Conference following the announcement of that decision. Live from new york, this is bloomberg. David this is bloomberg. Major news coming out of turkey right now. The Prime Minister is shaking up his cabinet. He replaced deputy Prime Ministers, a lot of ministers in the government and now we will go to istanbul for our turkey bureau. Explain what has happened as far as you know it. Is right. Turkey has Just Announced a new cabinet reshuffle. We have been waiting for this meeting decision about an hour ago and it lasted longer than expected. The names investors were looking out for was that the Prime Minister and would he still retain his role in the government. He is usually respected by international investors. The answer is yes, he is still one of the deputy Prime Ministers. Right now, he looks after potential banks, the treasury, and state banks. Later today, we will they will announce if he is still in charge of those or if he is changing to different areas. The deputy Prime Ministers in turkey look after different areas. One name that was usually speculated about was the former secretary Prime Minister and would he come back . Investors love him, completely respect him but his name was not announced in the new cabinet reshuffle. David so how are investors in the markets reacting to this news as we speak . We have had Little Market reaction today. Of course, if you was not in the lineup we could have had it go lower but it is currently slightly lower against the dollar before the cabinet reshuffle. The stock market was hitting record highs. It has been hitting record highs for the past few days. And for the past few months. Ever since we have had the turkeydum result where is heading towards a president ial system. Of course, it has been struggling over the past 12 months. 13 against the dollar and it is the worst performer in emergingmarket currencies. Weve got inflation problems and inflation has accelerated to double digits and is set double the Central Banks target rate. The market showing little reaction today. David thank you so much from istanbul. Jonathan . Jonathan coming up, on this program, manuel calderia cabral on u. S. China policy. In the markets as we get you set thisr this action wednesday, two hours in some change way from the cash open, on the dow and the s p 500, if you get to the other screen quickly, here is the story in the bond market. Yields up about a miss his point. Thats a basis point. A 2017 pulled back from high. Down at a quarter of 1 . At 1. 1525 on the eurodollar. You are watching bloomberg. Jonathan mrs. Bloomberg daybreak. Im Jonathan Ferro. Muted price action in the equity market. We want to look out for Morgan Stanley. The freeement in market positive as well. Thats a bit of a novelty compared to earnings from the banks so far. Higher today by a single basis point. Eurodollar retraces some of the move from yesterday. Down. 25 . Isr intraday high for 2017 11583. Thats the market action. Lets get you up to speed with some headlines. Heres emma chandra. President trump had a second meeting with Vladimir Putin at last weeks g20 summit. The white house says that they had a previously undisclosed conversation during a dinner for global leaders. The meeting lasted an hour and the only other person present was prudence translator. Mitch mcconnell plan to repeal obamacare appears to be dead on arrival. Three republican senators have come out against the repeal without a replacement. Mcconnell cant afford to lose more than two votes if the repeal is to pass. Plan to return to the International Bond market has been put on hold partly due to a ceiling set by the imf on how much debt country can have. A 4. 6 billion debt payment to the ecb thursday. Global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. Im emma chandra. This is bloomberg. Alix its china versus u. S. On trade. Atve mnuchin said yesterday an event organized by the u. S. China Business Council reiterating the u. S. Still has work to do with china to achieve a balanced relationship. Foreign china to lift ownership restrictions. Wilbur ross also emphasized there remain serious imbalances which we must work to rectify with china. Here to take us through what to expect is michael mckee. Those serious imbalances, ive got a chart and thats the u. S. China trade balance. Going to playats out in discussions today. This meeting might be the only thing standing between the u. S. And trade war. Donald trump treat the office to whack the chinese with tariffs over that trade imbalance. He and the president got along anwell, they put in place action plan that did produce some results. The chinese are buying u. S. Beef. Those talks have stalled. That they are putting together a one year action plan including u. S. Being able to sell securities in china. It wont be easy. And wilbur ross sat down with the chinese vice premier in just a few moments. We will see how much progress they can make today. Jonathan the Health Care Collapse could leave the president of the United States winless in his first year in office. Thet more incentive given gridlock in d. C. To get something done with trade . Toyou never want secondguess donald trump. Remember he has those steel and aluminum tariffs. Overcapacity will be a subject of the discussions today. Thats a hammer the u. S. Could hang over the chinese head. Whether the chinese care or not its hard to know. A no doubt that they expect chinese steel experts to drop 20 year on year in the beneficiary isnt going to be the u. S. Anyway. Fixation foruch a the u. S. Administration and is it really the right thing to be focusing on. Basis, you areal right. There is no real threat from china except that china dumps steal all over the world. To the United States have dropped off to very little because the Obama Administration put sanctions in place. Remember trumps days. The steelworkers in pennsylvania. Wouldministration said it put the sanctions in place in late june. It may be a negotiating point at the g20. They talked about the possibility of a worldwide agreement. Maybe the u. S. Can get the chinese to sign on to that. Deborah lehr has been on the front lines of u. S. Negotiations for many years. She worked closely with hank paulson when Goldman Sachs first entered the market and she remains actively involved as former vice chairman of the polson institute. She joins us now from washington. Good morning. David you have a longer historical context. Put these talks into that context. How important or unimportant are these talks today . Negotiating with any country as part of a process to do with china the issues we see on the table are ones i was actually negotiating 20 years ago. The important thing about this there that in january would be a trade war between the countries and thats not happening. Coming out of maralago the president s have been able to establish a personal relationship which has set a foundation for the overall bilateral relationship in the tenure. Whats really important about to thealks is going back model hank paulson had as treasury secretary. A dialogue that is focused pacific lay on the economic issues. The administration has been very smart to keep expectations modest for what is going to come out of these talks because its very hard to make significant progress in a short period of time with china. What they have been able to do is build up momentum through minor but harvest of important agreements they were able to reach in may and on the agenda they have very important structural issues like overcapacity. Thats not want to make a significant difference in the bilateral trade deficit. It was a signature issue of the trump campaign. A modest or minor. What should we realistically what might come out of these talks and is that a matter of cosmetics or is there real substance involved . Its important in any negotiation to create positive momentum. You have to build trust between the sides. What they have been able to do is create that through these Early Harvest and the discussions they are having. I think there will be a chance of reaching an agreement on overcapacity that will be bilateral between the u. S. And china. The administration has also said they want to progress on north korea. Thats a much harder issue. There are economic steps that china can take with north korea and a handful of other issues on the table. We might see some modest gains. Whats more important is the Administration Come up with a plan focused on goods exports which is something the administration is very focused and promoting exports to china in terms of how to manage the bilateral trade deficit. Still is the fastestgrowing major economy in the world. 52 of its economy is based on services. Lets hope that further market opening for services, lifting of equity caps and areas like security and focus on the process and enforcement issues. These are really essential because china is using laws and policies. Its very important the administration put a plan in place of how to address things like the antimonopoly law, National Security review, International Property rights to better protect their companies in the market. Aboutan can i talk technology. This is a country that censored the cartoon character winnie the pooh. Facebook and messaging services have been blocked as well. For the Technology Companies in silicon valley, should they hold their breath . I dont think theres going to be any progress on Technology Issues between now and the end of the year. China knows at some point it has to open the market to these vectors. Dominatingpanies are and certainly there is a propaganda and censorship issue to this. Haveve seen the chinese used this as an excuse to protect its own domestic companies. This is an area of the United States should continue to push. Like thisit seems administration has a pr problem. The media seems to think the bastian of liberalism is the chinese president. To the chinese need to use these platforms more effectively that china is quite the opposite . The unitedknow that states need to wage a propaganda campaign. Much more important is the focus on results. Its very clear if you look at what has happened over the past 10 years we have not seen significant market opening in china. The sectors we have been focused , why is a win china has developed worldclass security firms there are still requirements for joint ventures on major u. S. Security firms going into the market . It needstrageous and to change. Inwe can see progress further market opening in sectors, technology, content in terms of movies and they still maintain quotas even though they are coming in and investing in major movie studios in the United States. Then china has a better ability to say it is leading a charge on market opening. Focus needs tohe be on results. David you said that we might see something on steel overcapacity. Thet together with president has on his desk the possibility of curtailing steel imports not only in china but around the world. Via ministration has been thinking very creatively about how to use the various trade tools it has available. I think it is really a last resort and certainly the chinese are aware thats out there. I cautiously optimistic that they can. And theres no reason to move forward at this point with the 232. David you mentioned north korea. There might be some things economically that could be done. Do you expect something to come out of these discussions on north korea . Chinas trade has been increasing with north korea, both its imports and its exports. Thats an area where it can take action. Put this in the larger perspective of this overall plan wilbur ross is pursuing. After tomorrow what comes next thehow does it fit with 19th Party Congress . The president is very strong. We have seen him start to make personnel changes. He just had very important meetings on the Financial Sector where they committed to further market opening restructuring and enforcement. I think hes in a very good position politically for himself. What that means is he has the ability to make decisions about further market opening and one of the things he has to show is that he can manage u. S. China relations which is the most important bilateral relationship. I think there is an opportunity to push china very hard for further market opening. There are people within the system who are very supportive of that. Hopefully the administration will be thinking strategically about a comprehensive Economic Program it can do pushing for Market Access for our most competitive goods and services for the next six months to a year. David thank you for being with us, deborah lehr. Is peter still with us tchir. The good stuff you needed congress for. There was a fear you would get bad stuff from the administration. Now we have gridlock in d. C. For the markets. Do they need to start worrying about what the administration can do rather than what it cant do . It sounds like the healthcare debate is finally over and we can move on to whats going to drive the overall market. What kind of stimulus do we get. The market has given the benefit of the doubt that something will come through. Thats where the focus is going to be. The market has reasonable expectations. We need to start seeing something. That byto start seeing august or we will have a bit of a pullback. The one policy thats working because its completely independent is the weak dollar. That will be something we have built in to our portfolio analytics for a while. Thats continuing. Trump once a weak dollar. If you look at the mexican peso i think theres going to be a big push on weak dollar until we get back to levels so we can get back to the table. Hugehan we came in with consensus expectations for a stronger dollar off the back of some fiscal reforms. Weve got a weaker peso at the start of the year. Hasnt been are reaction to this administration its quite wrong. There has been a really strong reaction to what the of ministration has not done. Trump is very comfortable seeming to talk about a weak dollar. That is something that can be done with just noise. You dont need congress. Everyone seems comfortable with the weak dollar policy. Recently is noticed the only market that is not seeing volatility collapse is the fx market. Alix its not structural, you disagree with that . Its structural. Its relatively easy to control with words. Thats whats happening. Caches being deployed. What are the crowded trades now . I believe this volatility trade is one of the most at some of the people want long bonds. They own equities and they let those bounce off each other. That has been working very well. Yours in inflows into the lowball stock funds where people are trying to capture the upside without the downside. Away from the magnificent seven stocks you are seeing all of these flows that are targeting. People are becoming too complacent about volatility remaining low. We saw it for about two weeks. Yields go higher dragging stock prices with them and the market was not set up to handle that. That is what we are most susceptible to. Equities will remain very vulnerable. Been chasing it and it is been very driven by a few sectors. If d. C. Fails i dont know when the next level of support comes. Jonathan defined d. C. Failure at this point. Tax reform becomes a 2018 election issue. When you have the policy get stripped out of the market is just rotated into Something Else because of fear of missing out. Sector rotation like that its hard to make a case for a 5 , 8 , 10 fall back in equities. The alternative is we are seeing rotations. If they decide equities are does it go. Ere i continue to see a lack of depth to market. Even yesterday a lot of people were staring at the screen. From fx which is interesting. Alix good stuff, peter tchir. You are sticking with us. If you have a bloomberg terminal, check out tv. You can interact with us directly on your terminal. Check out the deborah lehr interview. This is bloomberg. This is bloomberg daybreak. Im emma chandra. Thermick has agreed to buy food business for 4. 2 billion. That will give products such as surpassedustard tabasco as the bestselling hot sauce in america. Thats according to a person familiar with the matter. Traditional Media Companies are byer pressure to grow acquisition. Thats your Bloomberg Business flash. Take a look at the bloomberg and you can look at highyield issuance. The white line is highyield issuance and Investment Grade are those blue bars. It looks lower. Talk of investment banks about how good their debt issuance was. Whats your take on what we are going to see in the issuance market . In the first half of the year 750 billion investors in the u. S. Compared to 750 billion last year. Think we are so focused on fromig is a lot of demand asia and europe. They prefer to the highyield market which is a little more domestic. Alix the question is are we going to see spreads widen as the fed gets more involved in the market. Seeing a weird thing. 7 basis points thats interesting. The names are doing extremely well. Nobody wants to buy credit protection on these names. Veryredit markets are robust. It going to take a fair bit of supply to push spreads wider. Jonathan i want to fold this into the ecb story. Traditionally its not about rate risk in credit markets. The ecb has introduced a huge amount into the european credit market. Credit in the United States was really resilient. Are you saying thats a sign of complacency at this point . A lot of Pension Funds are and rateook at credit risk. As rates back up you get a higher coupon on your credit. Its more of a pullback. Whats going to be really interesting is do we finally get them of this m a activity. That was one of the fears coming in. The policies out of d. C. Have been so unclear that slowed it down. Could make it clear you could pick of lbo activity, m a activity. That could put pressure on the market. U. S. Lbo volume jumped 63 billion in the first half of 2017. We are starting to see it really come in. David also m a. We have paul sweeney from Bloomberg Intelligence to talk about this here. Scripps have been talking about forever. Couple reasons driving consolidation. We have already seen a lot on the distribution side of the media equation on the cable tv and satellite side. The content players on the other side of the equation have to think about do i need to bulk up and get some scale to compete with my distributors. Cord cutting is real. Its here to stay. If you are a small to midsized cable operator you need to think of where do i fit into this equation. Theres been talk about it for a long time. Differentbit of a company. Its a familyowned company and to date the family hasnt gotten out of the business. Thats right. They control about 90 of the vote. Despite that potential hurdle a interestedanies are because it has very high quality programming, a very loyal audience. It skews toward women and it is a relatively lowcost programming. That means on skinny bundles and things like that it is getting a lot of traction. Between discovery and viacom does one fit better than the other . Its interesting that viacom has been discussed. Ipts came to the deal table to get a deal done. I think that shows more confidence on the part of viacom. They may have turned things around in some of their existing businesses. That allows them to be more aggressive on the acquisition front. It wasnt that long ago that viacom was on death store. Thank you for staying with us through the hour. Those morganre of stanley results as Bank Earnings wrapup up on wall street. Morgan stanley trading over two Percentage Points higher. We will be joined by Brennan Hawken with his outlook very shortly. This is bloomberg tv. Jonathan wrapping up the Bank Earnings on wall street for the Second Quarter in a row. Morgan stanley fixed income trading out aces Goldman Sachs. The European Central bank is said to be expanding options to wind down qe. It could be revealed in september. Gridlock leads trump poised to end his first year without an accomplishment. From new york city, good morning. Im Jonathan Ferro alongside david westin and alix steel. Futures are flat on the s p 500. The price action was in fx yesterday. Thatdollar retreats from 2017 high. Yields just a little bit higher. 227 on the u. S. 10 year. Dollaryen selling today by. 1 . Euro stocks treading water slightly higher as we enter the ecb meeting tomorrow. Soft by 2 . N ,avid coming up this morning Morgan Stanley is going to be holding a Conference Call to discuss those results. We get u. S. Housing starts data. Economists forecasting a jump for the first time in months. We will get opening remarks at the inaugural meeting of the u. S. China comprehensive economic dialogue. And the chinese vice premier will all speak in washington. Then its weekly u. S. Oil inventories. Jonathan this weeks data calendar a wasteland of nothingness. We are left with the ecb. On theall thats calendar. The current expectation is for an announcement in eight or september or october. The phillips curve seems to be and only when the links strengthen is the european likely to lift rates. Walk me through what we can expect from the ecb. Tomorrow not much because there is no need for them to move right now. The real deal will be in september or october. We might get an appetizer from draghi. He preannounced qe. It might be where he preannounces the death of qe. For now there is no need for them to move. Everything is looking fine except for one big missing which is inflation. It is actually decelerating. Of upward pressure on the inflation reading they got. You see strength growth strengthening. Labor market tightening. You dont see any wage growth anywhere even in germany. Negotiations are going very well. Theres no pressure here either. Draghi said this. If its flat, if it dormant theres a lot of debate around this. For them that means lets be patient. We will see when we just start during some life. Jonathan im going to do something really unscientific. Does this then our accommodation actually gets looser and we need to maintain things consistently so we need to do this and move with it to keep accommodation consistent to the genie is out of the bottle. When the economy improves for them to maintain accommodation the way it was they have to tie things up a little bit or remove accommodation. Its fine tuning. Basically what you want to do right now is make sure stimulus stays in place. Tapering is not tightening. When you taper you still add stimulus. You still keep buying those bonds. It is not a tightening of policy because they cannot afford to tighten policy at this cycle. Is this a market event over the next couple of months . Is it something to be worried about . Draghi is clearly preparing the market for less stimulus. This is the story globally. This is what we are moving to in europe. I think it has pretty profound implications for currency. Why is the euro being so strong. Wise the dollar being so relatively weak. Into why we made money in equities this year. We probably all made more money than we thought we were going to make. Have had no multiple compression. People are still prepared to pay a lot for equities. Central banks have been very dovish at the margin. Alix we saw a 5 rise in eurodollar. What kind of verbal intervention might we expect tomorrow from draghi . You get a warning from the speech. Markets reacted not the way he wanted. You have to be careful to not sound too hawkish. We will be looking at the euro. Quarter, the u. S. Has appreciated all major currencies. The implication for inflation. We expect no change in policy. And all the focus to september instead. Alix investor still paying for earnings in the u. S. Or europe. At what point does the currency become a factor . I think its a huge headwind in europe. Mostrates are the globalized. People are betting on big earnings recovery. Potential gradual fade from these very high european pmis. Lets go back to what for mario draghi has to do. Sooner or later we will have to reduce accommodation. How can you say anything of any interest even when its the most obvious thing . Hes trapped to a certain degree. Bund yields are close to zero. To do withis has market positioning. A lot of this has to do with Investor Expectations which i would argue have been somewhat misaligned. Jonathan we are set up for disappointment in the European Equity market. There is a huge consensus going into europe at the moment. Anyone who sits around this table, we want to buy europe. How disappointed are they going to be . European earnings are fine for this year. Think european earnings are fine for this year. I think europe is a bit of a value trap. To 20 discounts. Its just a mirage of a u. S. Equity market for health care and tech. David alix lagging behind other countries, does that mean you dont see synchronized Global Recovery . There are better ways to play it. Got earnings which are almost as depressed. Recovering much stronger. More visibility. Investors are much more out of position. It has a much better risk reward. Jonathan does this all stem from a weaker dollar . Remarkably we are looking quite joined up right now. Fairly subdued. Was global it growth. Weaker dollar, lower bond yields in the u. S. It checks all the boxes for emerging markets. Jonathan what is the headwind . Whatu wanted to play risk youd knowledge is a significant headwind . Concerns are china. We have had this great china data. We are bullish on china. Reasonable people disagree on that. All that talk on trade protections. There is certainly room for some disappointment. I would argue thats a bigger issue for places like japan and europe. Weakness here today. Stabilization. To saynvestors are going brazil, argentina and mexico. Is it going to be south america and Central America . It sounds pretty unfashionable. I would roll out the brakes again. All for different reasons. A year ago commodity stories got very depressed earnings. Now i think it is just broadening out and we have a much better range of countries. I love how we jump from ecb to em. Thats the first time we have actually done that. Thank you very much. Ben laidler will be sticking with us. Coming up come Mario DraghisNews Conference. All of that starting tomorrow. This is bloomberg. David this is bloomberg. Im david westin. Morgan stanley was out with a earnings just over an hour ago. For a Second Straight Quarter it be Goldman Sachs in fixed income trading. We have report cards from all five major u. S. Banks. Hawken hawken brennan is here. His Morgan Stanley the best of these five reports . It certainly appears that way. I would say the revenue trends quarter only one only one quarter. Backr as my memory goes the first time weve seen a sixmonth strength where Morgan Stanleys revenue is higher than it rivaled in fact which i think is really something. David they get lucky or smart . I sixmonthy window. One quarter can always include volatility. Pulling that off for six months is not something that can happen in my view. I think the idea that we have seen a sixmonth string suggest there is something rather substantially going on. Morgan stanley restructured their business a couple years back putting it on trading. He has clearly revamped the Risk Management process is in the approach and i think we are seeing tangible evidence of success at this point. David is that part of the conversation between Goldman Sachs and Morgan Stanley . Absolutely. For a in a comparison while. They enhanced the stability of their earnings base. A larger equities business and the improvement in their results began their equities. Now the story has expanded to all of trading stability we have seen. Back for all step five of the u. S. Banks. What do we take away from that with respect the financials . The environment versus where we were postelection but was a lot of optimism for a trading environment. The benefit of deregulation. We havent seen a lot of that manifest yet. We have seen higher rates which is definitely helpful. The regulatory benefit is still we are left to wonder at what speed we should expect this to manifest itself because some of these appointments have been a bit slow in coming. Theres no reason in my view to are done with this better than expected string and i think we can continue to generate a decent returns you can do the environment is not ideal. Was interesting for financials is revisions moved lower into earnings. That cant be said of the entire s p. You are looking at the best first half in terms of earnings revisions estimates since 2014. The blue is the s p and the white are earnings revisions. Laidler ofus is ben hsbc. This puts us in a bit of a pickle. I would be surprised if we didnt come out with a percent or 9 Earnings Growth yearoveryear. Yearoveryear the economy is accelerating. Dollar. Earnings expectations have been rising quite high. I think earnings are fine and thats crucial. They are probably not going up. Earnings need to deliver everything. Alix especially in tech. We sought netflix crush it the other day. Are we going to see a continued rotation back into tech . An extremely strong great is clearly a huge driver of the market. There is a lot riding on tech. Quitek you need to be selective. Software services looks very expensive. There certainly room for some disappointment. Like sony. Very strong demographic trends coming through. Talk about what the driving force of tech has been so far. Its a bit of both. Fx has clearly helped the rig celery in china. What we call digital natives, people that grew up with tech and markets with very high internet penetration, that cohort around the worlds quadrupling in the next decade. On the downside if something goes on these companies have a lot of levers to pull. The rest of Corporate America maybe doesnt have so much. Jonathan they are so insulated from the enthusiasm in d. C. They didnt need a Stimulus Program to really get going. How do you account for the prospect of fiscal reform tax in in a way that you did early 2017 compared to now . We were expecting something then and that was in the market. We are really not expecting something now. That whole value trade has completely unwound. Theres optionality on the upside. Present. Ot of it was david well have one of the nations foremost authorities on health care policy. Live from new york, this is bloomberg. David im david westin. The Trump Administration is entering round two of trade associations with china as senior officials meet with Steve Mnuchin in washington. This is part of the u. S. China comprehensive economic dialogue. Or International Policy and economics reporter mike mckee is there. What can we expect coming out of these talks . In about 10 minutes we will have Opening Statements from the chinese vice premier and we will see whether or not they make plane going in the differences between them. The biggest difference from the u. S. Point of view is the trade which actually narrowed a bit last year but has widened about 5 compared with a year ago. Act on thatts to and get the chinese to open up their markets. The chinese looking for more stability ahead of their Party Congress this far. Do they promised us lots of cooperation and happy talk. On the other hand opening markets. Theaw coming out of discussions in maralago that they did come up with some openete decisions to markets and specific albeit modest ways. Is that a template for what we might see over the next two days . It probably is. That was part of a 100 day plan. They want to extend that to a and continue to make progress rather than getting into a trade war. One area that has advantages for both sides. Financial services. The u. S. Would like the chinese to open their markets to American Insurance Companies and investment firms. Credit card companies, rating agencies. The chinese have a reason to do that because they want to join the global economy. The question is how much freedom to u. S. Companies get to operate restrictions are placed. You can definitely see progress in that area. There may be minor areas of trade coming out of the maralago meeting. Beef ifeed to buy our we agreed to buy their chicken. At least some general goals for the next year in these areas. David we are seeing the room where we will have opening remarks short time from now. We talked to deborah lehr early in the program. Even though steele may not be a large part of our economy it might be something very concrete that would be a big victory for President Trump. Ministration has been thinking very creatively about how to use the various trade. Ools it has available 232 is one of the options. I think its really a last resort and certainly the chinese are aware thats out there. Hopefully this clients can Reach Agreement and im cautiously optimistic they can. Then theres no reason to move forward at this point. The g20 specifically addressed excess steel capacity worldwide. This is something the president and wilbur ross has made a big deal out of. Of steel fornnot china . China has suggested it is something they could talk about. They know they have a problem. The Obama Administration put sanctions on them. Is talking about section 232 which would allow him to impose sanctions based on National Security concerns. Alsos a very creative but if both sides can avoid those sanctions it would benefit both. S is a worldwide problem it is not so much the steel that comes in from china to the United States of but the steel china jumps on the rest of the world. They hope to come to some sort of agreement the chinese would cut back. Jonathan michael mckee, thank you. In the markets about one hour and four minutes away from the cash open. Futures are positive. Almost it flat on the dow. From new york, youre watching bloomberg tv. Jonathan from new york city to our viewers worldwide coming or watching bloomberg daybreak. Action. Ok to the market the dow up by 0. 1 2 on the s p 500. In the bond market, on to the bid yesterday. We are higher by a single basis point. R u. S. 10 year yield. Yesterday was significant dollar weakness, but today is marginal Dollar Strength. The cable rate is pretty much one pointat one poin 1. 3037. The previous number of revised 2. 8. Building permits with a decent upside surprise at seven point or percent 7. 4 for the print and estimate was 2. 8 . Housing starts positive. Hsbc Global Equity strategist is with us. Walk us what you can see on your dashboard in terms of this economy. Ben people are underestimating a little bit the strength we are seeing coming through. When you look at that acceleration globally, that is the third biggest acceleration globally. We talk a lot about europe, but here in the u. S. , the largest economy in the world is having the thirdlargest economic acceleration globally. Thats quite a big deal. 10 is where the tempe Earnings Growth is coming from. Going back to my original point, that is why we have 8 up on the s p so far this year. Earnings multiples at 18 times, which is high. I think the u. S. Economy is a very good story. That tells you all about sectors. A lot of this has been led by investment and housing. Relative to cash flows is the recoveringents for cap x. Alix is there a level that cuts u. S. Economic growth . Ben now im going to argue the opposite of what i argued before. [laughter] i think this is a big bounce off a very depressed level. I do think that the constraints out here. That is built on a lot of the constraints. The u. S. Economy is caring a lot more debt now than at the time of the financial crisis. The whole bunch of headwinds that keep activity relatively subdued. We have taken some big negatives. That speeds into a lot of the things in our own and that is why we think multiples. High. David are some of the factors keeping things subdued . Is that something thats going to turn around or are they hesitant that disaster demand is going to be there the for them . Ben i do not think we are seeing a structural recovery in cap x. Is that cyclical story that becomes a more structural story. It, butth clearly upside risk. David for our audience, it is the opening remarks for the u. S. China economic conference dialogue. Were looking at the room at the Treasury Department. We will be taking the opening remarks when they come. If there is a cyclical change coming, which sectors are going to benefit the most when we talk about equities . Ben i think you want to be focused on industrials as the key overweight for us. David kicks in . Ben its a debate of how much. Morebecome somewhat structural given how depressed levels are in the u. S. Earnings are very depressed and could bounce quite a lot here. That is the key sector. Jonathan lets talk about the event that will take place in that room. What will wilbur ross and Steve Mnuchin actually do . What levers can they pull to help develop this economy in a way that some people think it can . Ben im not sure they can do a lot. I think that they can do less harm. That is the way that i would put it. Theres a lot of concern about protectionism and Global Growth. After five years of nothing, that has been a big ingredient8 for the synchronized Global Economic recovery that you have seen so far. If that was ever to be subdued or unwound, that would be a pretty big deal. I think it would be a very big deal for places like europe and japan where growth is accelerating, but its still very depressed and moun Monetary Policy is very extended. A renewed slowdown here would be limited. Alix when you take a look at the possibility of a trade war in november, then it went off the table. How do you have this factored in now when you look at the Global Growth story . Ben certainly a risk. Alix how big of a risk . Do you have to start protecting against it . Does that factor into your europe and japan call . Ben it is one of the sort of risks. The risk reward has completely changed. We are not talking about it and not pricing in. The risk of it plays up against and then markets have to start pressing that in. The bigger point is that people are concerned about it in the wrong places. That is one of the big pushback that we got on the end. Its a cyclical issue for e. M. And not a structural issue. Its potentially a structural concern for europe, which has been running hard and investors are putting money in. Its definitely one of the risks to europe and to japan, which we have not talked about. Economics is feeling somewhat. We think the e. M. Will strengthen and go back to 100. Japan does not have a lot of policy in place if Global Growth stabilizes. David we want to make sure we come back to japan. I want to stay with the subject of washington and the uncertainty. It may be of what wilbur ross and Steve Mnuchin can do reduce uncertainty about trade. We are joined by the Senior Vice President and policy analyst joining us on the telephone. Isaac, welcome back to the program. Address the question of uncertainty that the Trump Administration has created. Whatever you think of policies, it has thrown health care and tax reform in the air. What you think about the policies . Isaac you are absolutely right that the market is starting to price in the realities of both legislation taking longer and dramatic volatility in terms of policy priorities from the white house. Of the mismanagement health care strategy, especially the white house pulling back from major involvement. I think its concerning not just for the markets but also for folks on the hill. As we look around the landscape here, i think there are people who are resetting expectations relating to tax reform in particular and completely throwing in the towel on things like infrastructure. David thats the legislature. That is the congress. Markets and investors do not like uncertainty, but what about what the executive branch can do as we are looking at the Treasury Department room where we will have these discussions with the china and u. S. . Toare bringing more calm u. S. China trade relations. When President Trump was elected , a lot of people thought we would be facing a trade war. It doesnt look likely. Isaac i think thats right. Even if you look at the nafta goals, which came out a few days ago, the 18 page document, it in our viewd a that the globalists in the white house seem to be on the assumption compared to Peter Navarro and others seen as potential risk factors in the global trade market. I do want to caution and i want to agree with the previous guest that i really think today is going to be more about motion than movement. There are going to be a number of modest steps forward on chinau. S. Trade dynamics, especially the american beef market opening up and the secretaries pushing for more access to the Financial Services industry in china. These are not going to broach the big concerning topics things like trade, things like intellectual property, things like the overall trade deficit, things like chinas ownership of u. S. Debt. Jonathan at this point, the polls are not looking good for the white house. For the president of the United States, he faces the very real prospect this year of getting through the year without a major legislative win. Where can he win . Isaac this is our bet and this is what we are buzzing clients. First, continue to expect administrative shifts. In the Financial Services sector, i think you will see a twoyear targeted rollback of doddfrank reforms. On the legislative side, i think that the urgency around tax reform is only going to be heightened given the failure of health care. As we get closer and closer to the midterms, i think that theres going to be immense pressure on these lawmakers to come together and get a deal. I will always bet on lawmakers acting in their own selfinterest. The midterms are poignant moment where they consider their own future. Thats why i think that the movement on the budget reconciliation document that we saw begin yesterday is ultimately going to lead to a modest tax reform package. I cautioned that that will not be enacted in 2017. It will be a first half of 2018 if its going to happen. Jonathan isaac, youll be sticking with us alongside ben. Coming up, the harper professor harvard professor of house economics. Her take on Health Care Just around the corner. At the beginning of the u. S. China copperhead comprehene recommendialogue, i that i just wanted to dig. From new york, youre watching bloomberg. Emma this is bloomberg daybreak. Coming up on bloomberg television, the Wells Fargo Investment InstituteGlobal Market strategist. David this is bloomberg. Im david westin. We are waiting for the u. S. China economic conference dialogue getting underway. We are looking at the room were Opening Statements will be made. Isaac is with us as well as ben. We are to a question from a viewer who wrote in who asked quite specifically something he referred to doddfrank. What extent do we expect a rollback . This is a family photo op that we are watching right now with secretary mnuchin, secretary ross, and the vice premier of china. What role back to we expect to have in washington on doddfrank . Level i thinkhest we can start with the treasurys recent report. In that report, there were 80 specific recommendations. Those span the gamut from rolling back the Consumer Financial protection euros supervised bureaus Supervisory Authority all the way to byzantine calculations regarding bank capital. 60 of those can be done administered. Administratively. David we are waiting for Steve Mnuchin to begin speaking. I think hes about to start. Sec. Mnunchin good morning and welcome to the u. S. Treasury. Its a pleasure to have everyone with us this morning. We are here today to start the next chapter in this important bilateral dialogue. I like to extend my warmest welcome from my nation capital device for near wayne vis premier wang. I like to think secretary ross and investor lighthouses for being with us here today. Of theablishment comprehensive economic dialogue between the United States and china is an important step in economic relations. , my the economic dialogue hope is that we can increase our focus on concrete and targeted commitments to address both shortterm and longterm strategic challenges. As the worlds two largest economies and the major drivers of Global Growth, the United States and china have strong, overlapping interests. We need to Work Together to maximize the benefit for both sides. If this is only possible there is a more fair and balanced economic relationship between the United States and china. This means providing access for american firms in china as we provide access for chinese firms in the United States. It means addressing the imbalances caused by the chinese interventionist economy as well as addressing the impact of industrial, agricultural, technological, and cyber policies. It means holding the u. S. And china to a High Standard of communicating new and revised and regulations so that government and individuals worldwide can better tailor their policies and investment decisions. A more balanced economic relationship will create prosperity for our two countries and the world. We should pursue areas of common interest. For example, chinas rebalancing toward Household Consumption and away from relying on investments, exports come will healthy generate sustainable chinese growth, but it will also create more opportunities for consumers for u. S. Goods and services. Opening chinas markets to foreign firms will include comprehensive chinese firms and provide higherquality goods and services to chinese consumers. Foreign participation in chinas Financial Sector will help improve the allocation of resources to the most productive sectors of the chinese economy and contribute to a stronger Global Financial system. For our part, the United States is committed to restoring robust growth through three key policies reforming the tax system, streamlining regulations , and improving trade policy. The United States and china must Work Together both bilaterally and multilaterally to foster a healthy, sustainable global economy. We must look to strengthen the existing economic architecture to invest High Standards and a moment finance. The success of our dialogue can be seen through the actions taken under the 100 day plan agreed to buy our president s in the april summit. Can now bekets accessed by american beef producers and i can Credit AmericanCredit Rating agencies can assess worthiness of chinese corporations and products. On the agenda today, we will discuss a range of issues. We will have open and frank conversations about creating a more balanced, reciprocal trade and investment relationship that provides a level Playing Field for our firms. And we will discuss economic and financial policies that will generate healthy, Sustainable Growth in our countries and globally. I look forward to the exchange of ideas on these issues and many other important topics. While challenges remain, im optimistic that we can use todays discussion as a milestone in our economic and financial relationship to build on the continued relationship. I now invite vice premier wang to make his opening remarks. Thank you very much. [applause] david you have been listening to secretary of treasury, mr. Steve mnuchin. Ning remarks and that and that u. S. China dialogue says that there are benefits for real robust growth. It will help china and help consumers and refer to the 100 day plan that has made some progress. He says there is a big agenda today and it will have a robust discussion. I want to turn back to been labor. Starting with you right here, what are the possibilities for growth actually coming from improved trade relations with china . Is the secretary right . Ben the backdrop has approved significantly. I think do no harm would be a good take away here for everybody. Global trade after five years has been more robust of being moribund has accelerated significantly. The other point i would say is that there is Common Ground here. The chinese are concerned about overcapacity and Significant Industries that they have. They concerned about the sle segment. They are working on that. Thehan whats likelihood of getting any kind of win out of these conversations . Isaac i think broadly speaking, what we should expect is for both sides to do just enough to declare victory without losing face domestically. And thats going to be the overarching take away. To build on that a little bit more, there are going to be specific areas where we are going to see improvement. I look at the Services Industry as a perfect example of that. We have a trade surplus in the Services Industry. I think secretary mnuchin is committed to drilling down there and trying to soften the restrictive limitations on foreign orde ownership of chinese Financial Services companies. Jonathan isaac, thank you very laidler. Gside ben youre watching the beginning of the u. S. China comprehensive economic dialogue. David thanks so much. We have been talking all morning about the uncertainties in washington and how they are affecting investors, maybe no more than in the health care market. Were joined now by the harvard professor of Health Economics and also a member of the cbo panel of advisors. She is catherine baker. Welcome back to the program and its good to have you here. Tell us where we are in health care right now. It is clear that the Senate Republicans will not replace obamacare anytime soon. Even yesterday, Majority Leader Mitch Mcconnell said there is real problems within the insurance exchanges. How bad is the situation if we just keep going the way we are going . Catherine uncertainty about the plainfield makes it really difficult for them to forecast what premiums should be to make sure that they can stay in business and to figure out what kind of enrollees they are going to attract. Are they going to get sicker or healthier enrollees . Premiumsure on how will be set and how subsidized people will be to participate in the market makes it much less appealing for insurers to participate in these exchanges. David you mentioned subsidies. Th in ministration has not been willing to commit. Is there a problem with the individual mandate . Both the subsidies and the mandate contribute to peoples decisions to whether to get insured or not. As an individual, you have to decide is the premium with the protection and the health care i would get with the policy . To make ites are more affordable for low income people to use health care when its insured. It brings costsharing down for local people. Low income people. You have to get insured or pay some penalty. With those uncertain, you make it different decisions at the individual level. Maybe Healthy People will decide its not worthwhile to by policy. Income people will not think its worth buying the insurance because theyre not going to be able to use it because the costsharing is going to be too high. Thats really going to affect the mix of people in the market. Cost, even apart from the i understand that there are some places in the data were used subtly cannot buy a policy. I think anthem pulled out. There is nobody providing insurance at all. When will the start affecting real people . Katherine that goes back to the first issue you raised about the uncertainty that insurers face when trying to decide whether to participate in the market. If they dont know what the rules look like and they dont know who is going to enroll, it may not be worth the rest of setting premiums too low and getting a really sick and rolled populations enrolled population. As insurers start to drop out, that restricts peoples choices. Toy dont have many plans choose from, but it also limits the competition that pothole premiums down. In thee insurers we have marketplace, the more competition there is to provide good value, and the better the insurance policies will look and the lower premiums will be. David for those of us not familiar with all the details and interested to seize and obamacare,intricacies of would things be fine or as President Trump right that it was broken already and going in a bad direction . Katherine there are a lot of things about obama care that really could be improved in terms of the types of insurance plans that are offered to people and the real competition between compass between providers, giving enrollees more choices to keep Health Insurance premiums lower and the value higher. Millions of people were insured through obamacare but because of medicaid expansions and because of subsidized Health Insurance plans on the exchanges. Taking that away when i left tens of millions of people uninsured. The waythings going they are at least protects the insurance that millions of people had, but the system is not functioning well. Theres lots of room for improvement and getting us more spent,for every dollar which is a lot these days. David as you talk to insurers, is there a consensus on what to be done ought to be done . Katherine theres a lot of confusion about what the law actually looks like as written and certainly how it is implement it. Uncertainty is not only bad for insurers, but its bad for providers. Having a stable set of patients that they can follow overtime that they can invest in is a much better way to deliver health care. Providers are really divided about whether the system needs to be fixed, needs to be stabilized, needs to be overhauled. Insurers have a better handle on what they need for a stable marketplace and whats going to make them want to participate. Are probably a slightly more unified front than doctors and hospitals and Nursing Homes in a much wider range of activities. I think all of our audience has a sense that we are spending too much as a nation on health care given what we had for health care. The zika manual has a new book on it. In a nutshell, does obamacare help bend the cost curve or not . Ive heard it both ways. Katherine if you think the goal of Health Reform is twofold getting more people insured and having that insurance be higher value and lower costs for every health and proven improvement we get, obamacare succeeded in the first front in getting people insured and getting people the access that health care provides. The jury is still out on whether it has made any progress in bending the cost curve. It takes years for the Health Care System to adapt to a new state of play. So uncertaineen that we have not seen the Big Investments in infrastructure, Delivery System reform, new creative Insurance Products that we might have seen after a few more years. Im not sure we have cracked the nut on bending the cost of you. David many thanks to professor baicker of harvard. Jonathan that is one event down in d. C. Or not an event at all because its not going to happen anytime soon. Heres the situation elsewhere. The u. S. China comprehensive economic dialogue and washington, d. C. You can see wilbur ross is speaking just after we heard from Steve Mnuchin and the chinese vice premier. You can fin follow all that on live go on your bloomberg terminal. Jonathan d. C. Gridlock leads trump poised to end his first year without accomplishment. Wrapping up Bank Earnings on wall street for the Second Quarter in a rep. Morgan stanley outpaces Goldman Sachs. The central bank is examining options to wind down qb in september. From new york city, good morning and a warm welcome to bloomberg daybreak. Im Jonathan Ferro alongside david westin and alix steel. Lets get you up to speed very quickly. The story in the markets is that futures positive. The eurodollar moves back from a 2017 high. Some telestrate and some Euro Weakness and of the ecb decision tomorrow. Treasuries go nowhere. The yield on the 10 years to is 2. 26. Alix Morgan Stanley the call is going under right now. We know that the vix came in better than estimated. Heres what were learning from the call. The deposit rate is lower than i thought. As the fed hikes rates, they do not have to pass those on to consumers. They can pocket that difference. In light of that come you wind up having the cfo saying that there is good growth in net interest income. Also putting out that there is less volatility and a bigger trading band for commodities, but they have a benefit with fx vol. Wealth management is more profitable. A lot of good news coming out for Morgan Stanley. Solomon is and that stock of over 3 on that. I do want to highlight ibm. That stock is down by 3 . Tech services and cloud revenue falling over 5 . Quarters oftraight your on your declines. Youre on your declines. Year on year declines. Talk about not being able to participate in that tech rally. The biotech name for you is up by 26 in premarket reports. A strong trial for Cystic Fibrosis treatment, which may be the most effective treatment for patients. Almost all the revenues come from older drugs. This is potentially a game changer for the company. Jonathan thank you very much. Stock investors took the death of the gop bill and stride yesterday. The nasdaq rose for an eighth straight day. Both closing at record highs. The s p 500 has now gone to 67 days without a five percent pullback to mcc seven days without a 5 pullback. For now, we bring in paul ,hristopher and from st. Louis the chief market technician that joins us around the table in new york. Paul, lets begin with you. That streak of a 5 pullback, is that relevant in your world . Paul very much so. Its a remarkable streak and being held up a liquidity. There have been some other sources are games or support for the market in recent months. Both of those have faltered a bit. It is liquidity that remains the main driver. Jonathan looking at the technicals, jonathan, what are they saying to you. . The trend has been unequivocally bullish. We have not had a pullback in 267 days. Thats an underlying set of strings. Board, looked about the we have about 70 of all stocks above the seven Day Moving Average. As long as this internal rotation continues, we are constructive. Jonathan the d. C. In action does it matter to you . Paul it does matter, but probably not right away. What we would need to see in the end is some failure to produce a tax reform bill, deregulation, and infrastructure probably in that order. At this point it is still reasonable to expect that they may cobble something together by the end of the year or the Winter Quarter for the First Quarter. Alix winds up triggering sector rotation. We were just discussing that we saw a lot of by small caps and dont buy small caps. Talk about what you see on this desk versus technicals. Jonathan k. its remarkable not on an intraday basis but a weekly and monthly basis. Do you go growth overvalued and we think it can be both. This is constant rotation. Theres nothing wrong with the financials here. Theyre are trending higher about their moving averages. Its this constant rotation where one group may pull back a little bit and another Industry Group takes the baton. Jonathan maybe you should buy e. M. Or europe, but the big consensus call is that we caught up with hsbc ben laidler and this is what he had to say could. Earnings are fine. I think next year headwinds with a stronger euro and higher bund yields, i think theres a bit of a value trap. This narrative of 15 20 discount to the u. S. Does not exist. Its a summer rush of a summer rush of the u. S. Equity market full of health care and tech and europe full of bank and industrials. Jonathan do you agree that theres a value trap in europe and that it doesnt really exist . Paul for our clients were more longerterm investors, its not really a relative time horizon. You have valuations a bit extended, but the recovery in earnings is for real. We think the economy Data Recovery israel. Is for real. We would recommend taking money out of winners here in the u. S. And dollar cost averaging, that is putting money to work on a gradual regular basis in a disciplined way in europe and e. M. Take on european earnings, you have to have a take on what is happening with the euro. What kind of technicals are we seeing after that upward movement on eurodollar . Jonathan k. it has been basing in the range between 105 on the and 115 for the upside. The trend is pretty much neutral, but if you get a break and close above 116, that would be a significant break out the nero. If that does happen the next couple of months, tactically we think the euro is poised for a pullback. The dollar is very oversold and sentiment has shifted negative. N the dollar thats even if ultimately the euro does breakthrough. David Mohamed Elerian has written more than once now that what were seeing in asset values, including not limited to equities, is liquidity, whether its the ecb or the fed. We have the Central Banks to keep us from going off the rails and not put the ball down the middle of the alley. What extent are we vulnerable . Paul we think thats the principle risk and markets as we approach the end of the year. Youve got between now and the end of 2018 probably four or five rate hikes coming, not to mention the ecb tapering. The euro strength has been based on that tapering. Theyre not quite converging yet on the removal of stimulus, but as they move in that direction, should certainly give investors more to think about. By the end of the year, we should see more that consolidation and equities that for 267 days has been lacking. David when you look at valuation, how much is the level of liquidity injection versus the rate of withdrawal . If they do it slowly, will that take care of the problem . Paul eventually you will hit the level. Look at the rate of m2 growth minus industrial productions. Subtract that to take account of what the economy is doing. But you have left over is the money in liquidity growth available for the market. Right now its around 1 2 and falling. Its getting closer to 0 . The money in liquidity growth available for the level y begins to matter is closer than it appears. Alix we saw hedge Fund Liquidity really strength. Part of that you really saw with tech. He saw a lot of rotation and money coming out quickly. We will talk about the bundles of tech later, but on a technical basis, where are we with tech . Jonathan k. tech remains one of the strongest areas of the market. We put a note to say to buy in the tech weakness. This percentage of stocks above the 200 rates never faltered. Thats your opportunity to buy and generate alpha. Now we are up in the upper range of the tech. Maybe we see a pause and rotation in the valley areas, but theres nothing wrong with tech. Its been on an amazing run, but until the internals breakdown, it is tough to bet against it. One of the point is that people argue its only a few handful of stocks coming up banks. It is at or near new high. It is broadbased and not just bank stocks driving tech. Alix we will talk more about that in a second, but got to ask you about the 10 year. What do you think . Jonathan k. the 10 year is not in all in call on rates moving higher. There are some things happening. German 10 year bond yields have broken to the upside. Our buys are higher, but its not in imminent high, but maybe a slow grind. Alix thanks for a much for getting my technical fix on a wednesday. Paul christopher, youre sticking with us. Oversees 16, who billion in energy assets, will join us with his oil outlook as well as earnings outlook which kicks off next friday. This is bloomberg. Jonathan investors are waiting hence from mario draghi on tapering at tomorrows policy meeting. The announcement is expected in either september october. The ecb is setting on a plan that could unwind qe as early as the fall. The phillips curve seems to be broken. Only when the link strengt strengthening joining us now is max. What is the base case . Scott talk about qe only. Lets talk about when we can get a rate hike. See histhe ecb wants to domestic inflation. Ofhave a new measure domestic created inflation. It is trending downward. Slack is being reduced in the economy. The it of inflation that the ecb wants to see is not strengthening yet. This will come next year and this means they cannot tighten policy before they actually start seeing it. Jonathan do you think they are preoccupied with the demand side of the question and not focusing on what is happening with supply . Maxime theyre looking at both things. They want to see the output gap closing the right way, meaning that growth accelerates to come closer to potential. This is what we are seeing right now. It is a lag effect. It takes a lot of time before it feeds into super court place in and it needs wages reacting and we dont see it yet. Jonathan it takes a lot of i reg down with policymakers and they were sensitive to what happens in the fx channel. Is that still there and we have a president who goes in to the Conference Tomorrow that a 2017 high on the eurodollar is not has favor . Maxime the real problem is that the euro is pretty much stable. It has been appreciating. This could be something to look at more closely than before. I do not think its a big problem for them right now. This is what hes going to try to avoid tomorrow morning. Alix the action is going to be in the bond market. Who becomes a marginal buyer of peripheral debt as the ecb works its way for unwinding qe . Paul easily the institutions that have been looking all around the world, european institutions, Pension Funds and Insurance Companies that have had to look all over the world for yield as european yields have been negative for so long. They would be the first ones to step up and by those bonds. Im not worried about that. Alix the issue then is what would unwind that search for yield . Is there a level in the bund yield for the tenure over in germany that would change the game . How do you factor that in . Paul i do not think there is a level yet that changes the game. What we would need to see first is a plan from the ecb about tapering. That would allow the market to gauge its reaction function over time. As the ecb stops buying and then begins to actually unwind its balance sheet, that would give the market a chance to figure out where the rates should be at any moment in time. Then you can compare that more realistically and say treasuries. David when we talk about peripherys come are we getting paid for the risk we are taking in italy right now or greece . Paul no. Probably spain yes. On Central European countries, yes. Portugal maybe a little bit doubtful. Healsanking problem as it , you will see the italian banks still be the most notable laggards. We think that overall the european Banking System is gradually improving. Youre already seeing a better and better deal from some of those places like spain and france then you are in italy and greece, which has many structural problems still. Jonathan over the last for years, all roads to the equity market led back to foreignexchange. , do theybased investor need to pay a lot of attention to the News Conference and what it will mean for the u. S. Dollar and how it shapes their view on what will happen with equities . Paul yes, i very much agree with the initial comments about the European Central bank may be keeping an eye on the euro for now. If it were to break through 116 to the upside, then we would have maybe the euro becoming more of a drag on the economy and policy. Payink we would have to close attention to mr. Mario draghi talking the euro down. The euro looks overvalued to us. It is a robot in terms of futures contracts. The level is not quite beyond that 115 or 116 that would cause problems. If it would get there, that would be something to watch and we would expect esther mario draghi to talk it down. They much from a foreign verys perspective, much from a foreign currency perspective, it will be important from a dollar eccentric. Exchange rate. David is there a zerosum game . As the u. S. Dollar goes down, the u. S. Stocks game . As the euro goes down, do the euro stocks go up . Paul not really. Theres a stronger case to be made for the young Dollar Exchange rate. In europe, theyre still quite a bit of domestic consumption going on. Certainly here in the u. S. , we still consume most of what we produce and produce most of what we consume. I do not think the dollar is really that material yet. It could be if policymakers let it get above that 116 mark. Something to watch in the next couple of meetings. David thank you very much for being with us. Paul christopher of wells fargo, you will be staying with us. Coming up tomorrow, we will bring you live coverage of that ecb decision and president Mario Draghis comments after. Live from new york, this is bloomberg. David this is bloomberg. Westin. D discovery and viacom are to Cable Networks that have been hurt by the rise of netflix and youtube. They held separate talks to combine with scripps networks, the owner of hdtv and food network. Thats according to a person with knowledge of the matter. The stocks are getting a nice bump ahead of the open. Joining us now about the possible discovery deal is paul sweeney. Still with us is Paul Christopher of wells fargo out of st. Louis. When we start with the police let me start with you please. Tony why this would make sense for discovery or by,. Tellble this trouble me why this would make sense for discovery or viacom. Basic cable is troubled. Paul if you are a smaller permit Side Cable Company like scripps or discovery coming into the about consolidation to get more leverage over the distributors that you do business with like the comcast of the world. You really need to think about where you fit in a Digital World and you need to be bigger than you need to have more clout and financial resources. That is what driving some of these discussions on the cable side. David hd tv has been remarkably successful. I think it is the fourth most popular cable channel on all tv. Back in to the ceo march about the possibility of consolidation. This is what he had to say. You cant survive. You can grow. You cant be successful being small. Some is like you go to bed at night and someone has put a for sale sign in the front yard of your house and people are knocking on your door. David he says its like going to bed and finally a for sale sign in your front yard. As you look at the media space generally come are you looking at one more consolidation . How might that affect equity values . I dont think paul can hear us. We will try to get him back. Paul a lot of the smaller Cable Companies he is right. The ratings are very good. Theyre actually doing well on our existing pay tv packages. They are doing well on the skinny bundles that have surprised people. Their networks do well in their lowcost networks. That said, its a smaller company. In a world where growth is slowing, consolidation is natural play in that space. David we have to pauls and i need to use the last name. Paul christopher, i want to talk to you about the equity values in the media space. What is the effect on equity prices . C. the largest deals are the ones getting done and the smaller deals are falling off of it. They could because valuations could be high. Thats probably the case in telecom. We expect earnings to continue to grow, but perhaps not as fast Going Forward as what we have seen so far. The trend would seem to be to the lower side. Your take on the broader m a, take a look at the bloomberg here. This is north american m a the last five years and obviously we have tech a lot lower. On all, what is your expectation for the back half of the the year . Looks like we did lose connection with Paul Christopher. Where is the most action in your world going to be . Overall tnt space, there is certainly in the Slower Growth media sector consolidation going on there as companies defend against this digital disruption from the likes of overall tnt netflix, oe greatest disruptors in the media space. You see similar issues on a telecom front. People think of tmobile and so forth. Theres a lot of strategic m a and with lower rates, private equity is also interesting is what. David this is a very different deal from at t and time warner. This would be content and content. With that raise particular problems with regulators . Paul i dont think so in this particular case. Even if the other Company Viacom where to buy scripps networks, i dont think given the breadth of content that there would be regulatory challenge. Theres room to consolidate on the content side of the business because we have seen so much consolidation on the distribution side of the question. The equation. We will see more deals. Jonathan paul sweeney, always great to catch up with you. Paul christopher will be sticking with us as we copy down to the opening bell in new york. Lets get you up to speed. Empt to 1 up on the down sitting record high on the s p want to get. Sitting record high on the s p wan once again. Dollar strength in the margin against sterling. 1. 1530 is how we trade on the currency. Youre watching bloomberg tv. Jonathan new york city to our viewers worldwide, youre watching bloomberg daybreak. Im Jonathan Ferro. Moments away to the opening bell. Of attempt of 1 on the dow. The s p 500 coming in at a record high once again for a 26 time for this year. We start the day at an alltime high on the s p 500. 1 on s pa 10th of 500 futures. Heres the story. Yields unchanged at 226 on the 10 year. South of the 50 Day Moving Average just. Some Dollar Strength against a couple of currencies. The ones that count including the euro, giving the waiting of the dollar index. A little bit of dollar weakness is what shows up on the screen right there. Is your story across assets. Heres alix steel. Alix another record high on the s p. That is twice seven record highs so far. Year socord highs this far. Will weigh on the dow is going to be ibm. The weight in the index is 8 . The nasdaq is up by 3 10 of 1 . Also another record high for the tech index. In terms of the individual stocks, we want to focus on what is happening with airlines. You had united down by 3 . The company did beat estimates, but the stock is falling and rising costs. All airlines falling and sympathy. United air lowering its guidance on those margins. Boeing is up by 5 10 of 1 . Alaska air may replace some of its airbus jets with boeing planes. Boeing getting an upgrade due to stronger cash flow. Earnings seasons, this is my chart of the next three weeks. It is earnings revisions versus the s p. The blue line is s p and the white line is any revisions for the s p. You can see the writing so far in the last few weeks, the most since 2014. Th broader questione is will it deliver sentiment . According to Morgan Stanley, equivocal yes. Unequivocally yes. You had james gorman calling the Wealth Management business the yield stock because of a consistent revenue like stream. They are also forecasting some good growth and net interest income. Positive beta winds up staying low. A lot of good commentary coming from that Morgan Stanley call. Jonathan about two or three minutes and and here we are with s p 500 kissing another record. The dow jones pretty much flat on the day as well. The story in equity markets in terms of earnings is Morgan Stanley with a big straight Second Quarter. Morgan stanley posted more fixed income revenue than Goldman Sachs and outperformed its biggest competitor in equity trading. Joining us to discuss his stephen who covers jpmorgan. He has a buy rating at a price target of 51. Still with us is Paul Christopher of Wells Fargo Institute coul. More than just a coincidence or starting a bit of a trend . Paul it does appear we have reached an inflation point. If you think back six quarters ao, they went under restructuring on the fixed trading side and reducing their headcount and focusing on areas of strength it in the back half of the last year, you saw sustained momentum Carry Forward following those actions. The question was was it a riding tied lets all boats dynamic . Stanley going to navigate in the challenging backdrop . This quarters results showcases their ability to be able to reduce meaningful share gains against the challenging backdrop. Jonathan just in terms of the call and what you heard, you are on the call. What did you get from james gorman . What was the take away . Steven the messaging across all their businesses was quite encouraging. On equity side, they talk the strength of prime brokerage. I know you guys mentioned earlier about the annuity like stream that they are seeing and what that could mean for the business in terms of not just supporting continued earnings expansion, but even justifying a higher multiple because of the little reliability of that revenue stream, which is a really critical element that a lot of investors are supportive of. He also noted three factors that will ultimately drive meaningful Earnings Growth from here are rates, capital relief, as was tax reform. Still . Surround those areas, but the treasury white paper tailwinds that were outlined are things that do not require legislative action. The hurdle is not so high. It certainly requires rewriting the rules. You do see a path to meaningful capital relief and improved returns. There are is he kidding a well they are executing well across all their businesses. David that is largely outside of their control. Two things that arent out of control our Profit Margins and cost controls. How are they doing on this to fronts . Steven the Wealth Management business really speaks to the thatess of their making they are making and driving cost control and making that a key part of their business. One of things we saw this quarter is at the Wealth Management pretax margin eclipsed their target of 25 . While they were not commit and we asked on the call whether they expect to be able to sustain that 25 plus margin from here, given all the trends that we are seeing whether its expansion, conversion of clients into higher fee advisory accounts, all that is going to support 25 margins plus Going Forward in our mind. You are seeing the make significant progress in building the Wealth Management business and also driving costs lower. The expense controls another meaningful driver of the beat today. Alix weve heard Investment Banking is doing really well. Morgan stanley killing it with revenue coming in at 1. 5 billion. What does their backlog look like . Steven its funny you ask. That was the question being asked and i did not see the response from james. Broadly speaking, it feels like the backlog on the underwriting side continue to be quite healthy. On the m a front, that scenario where the backlogs look ok but generally speaking activity has been tepid. We have seen rumors of a discovery deal today and some of the price action. The fact remains that you are not seeing a lot of large deals get done because theres a lot of uncertainty around regulatory and tax reform. Alix we killed it for you. Sorry about that. Can you help us rate which will be the best this year Going Forward and which will be the worst . Steven sure. Given the strength of the results that we saw at ms, they were clear standouts. I do think you have a nice set up where they have an 11 r. O. E. Target. Consensus is modeling something a little bit of low that below that, but estimates will have to move higher. You have a lot of momentum behind that stock. They are continuing to gain market share. Coupled with significant gearing to other potential tailwinds and tax reform, thick Morgan Stanley is a compelling stock down. Jonathan just a jump in and talk about some of the reforms, we have seen some big payouts after stress test results and the big buybacks and big dividends as well. About thean was asked banks dividend payout ratio. Gorman avoided the question, but he says he thinks about the Wealth Management acting as the yield stock. If you want yield and a big dividends for many of the banks, can you identify one which is going to deliver . Steven jpmorgan is the one of the universal banks that has been identified as the name that is really strong and consistent dividend growth. It speaks to the fact that they have a reliable and extreme. Going forward given the strength of the capital position, especially if you see any incremental relief from the treasury reforms outlined, all these stocks are going to become yield stocks, including ms. At the moment, jp is the folks that folks want to own one that folks want on. Taking a longerterm view, i mentioned that collectively the entire group with the exception of goldman. For the others come i think longerterm they become yield stocks for investors. I think that is making an incrementally more compelling Investment Case for folks longerterm, given that financials relative to other s p components are really cheap. Jonathan great to have you with us on the program. Covering the big banks on wall street, at the park christopher, think you very much for giving so much of your time today. Sessionutes into the and it looks like that. Futures treading water through much of the day. We open up nine or 10 minutes and and we kiss a new alltime high for the s p 500. The dow positive 11 points on the day so far. From new york, youre watching bloomberg tv. Emma this is bloomberg daybreak. Im emma chandra here in the hewlettpackard enterprise greenroom. Coming up, senator ben cardin. He weighs in on the meeting between u. S. And china. Alix this is bloomberg daybreak. I am alix steel. The theme throughout all the big banks reporting is what happened to fix trading. A large part of the trading cap from commodities. Goldman sachs highlighting that and Morgan Stanley on the call saying that less volatility and banighter trading tweet the results. From a us now is robert Management Company with 16 billion in energy assets. Is this here to stay . Robert good question. We think that oil is set for a secondhalf comeback. We think oil is range found that 5060 dollars longterm and in the second half of the year, Oil Gets Back to 50 a barrel. That will be a result of declining u. S. Inventories as was global inventories falling in the second half of the year. Alix sitting on the desk and seeing the swings that we have seen. At 45,are back down but is the actual volatility as extreme as it feels . Robert in energy to rumor there are multiple ways to make money and energy sector. You can buy some of the volatile oil and gas stocks, but one area that we really like is essential assets. This energy of research are assets because these type of companies generate revenues that dont go up and down with the oil price. They pay investors really good dividend yields. Youll get a big fat dividend check at the end of this month or early august. Alix we heard that bp could be spinning off its mlp in, but the trend has been rolling the backup and removing and reversing the trend. Why is that and does not constrain opportunities for you . Robert the universe is quite fast. Whether its mlp or a corporation, does not matter. These are central assets. These are companies that every single year and every single quarter grow their cash flow and its because volumes are going up. I dont think theres any doubt that u. S. Oil volumes are going up. U. S. Natural gas productions are going up. We will need more and for structured to transport those products. Whos going to do that . U. S. Energy companies. The good thing about infrastructure is that you do not have to worry about Rising Oil Prices affecting cashless. Flows. Alix what will affect cash flows is the price of oil. This is Free Cash Flow for the big majors. Its a little bit dizzy, but what you want to Pay Attention to his right over here. The purple line is show in the blue right here chevron and the white is exxon and the yellow is bp. We had negative Free Cash Flow for bp, but the rest were positive. What is your expectations for Free Cash Flow for the majors and can they wind up covering their dividend with it . Obert very good point if you look at oil prices on average for this quarter versus the Second Quarter of 2016, they are actually up a little bit. They are 6 higher from an oil price perspective. Natural gas prices are in a similar place. You will see cash flow increasing from these companies. Other thing you have seen our capital expenditures. You have seen Companies Increase their capital expenditures. That is another important metric to follow. And the current environment, it has been very tough with low or prices for some of the majors to cover their capital and their dividend. That will probably continue to be a bit of a challenge until we see Oil Prices Back in the mid50s. There. F we get when a try to reconcile his when he talked to investors about value versus growth, everyone says they like value. Where in energy does it have the value and the price momentum versus a major that may have value as a little skittish unless we prices at 55 . Is that really a value at this point . Energy and for structure has been a top play among retail investors. Robert we think so. If you look at energy infrastructure, its a 2 . In energyields infrastructure, their 7 . You can find a lot of great companies. Not only do you get the current yield, but that dividend is going to grow every singly a year. Investors are still going to get more income as Interest Rates go up because the dividend is going to grow. That to me is value when you can get healthy return that comes in the form of the dividend yield. If the distribution goes up, we think that ultimately results in more Capital Appreciation as well. We think thats a value opportunity. Alix 10 on something thats not energy come out to focus on u. S. Show producers. The headline is that bp will double its spending in u. S. Even though you have activist investors trying to offload the sale assets. It shows how important shale is to these companies. How do you profit off of that . Robert a very good point. Shale has become the crown jewel for all large major oil and gas companies. Look at what exxon did. Acquirent 6 billion to acreages and permian basin. Why do they like shale . Shale has become one of the most Competitive Oil and Gas Producing areas basically in the world. The cost for news and earn an economic return in shale has declined significantly. Thats where theres an opportunity. When you look at shale producers, you do not want to look at the large integrated who have bought into this. You want to look at the companies that that have owned acreage for years. Are im talking about Companies Like pine and natural resources, who own 700,000 acres in the permian basin. Thats more than exxon that has little over 3000 acres. Owns a massive 600,000 acreage position. A little as well. You want to own the. Like companies that own large acreage positions in these core u. S. Shale positions. Shale is here to set. Alix i got a commodity nerd fix now. If you have a bloomberg terminal, check out to b tv david this is bloomberg. Top officials from the United States and china have begun their trade negotiations in washington today. Before they set down to haggle, Steve Mnuchin and commerce secretary wilbur ross set the stage. Heres part of what mr. Ross had to say. Sec. Ross we must create more byance in our trade increasing exports of made in america goods to china. There are significant opportunities to do this if we can Work Together to remove the significant barriers that continue to exist. David covering negotiations for us as michael mckee. There he is in front of the Treasury Department. Welcome back to the program. Why dont you set the stage for us . We have lofty goals from secretaries mnuchin and ross. What can be accomplished . Michael the chinese vice premier said we cant accomplish a whole lot just a day or so of conversations, but we will continue to work. That is the goal to set an agenda for the coming year and things they can continue to address. Wilbur ross went right to it. He says chinas got to change. Weve got to bring down the trade deficit and that is the u. S. Goal. China does not want to change because things are going their way. Its good for their economy to have that larger debt surplus on their side. Its not going to be easy to get the two sides together. There are some areas they can talk about Financial Services at the top of the list. We are not expecting breakthroughs in the next 24 hours at the Treasury Department. David i wonder if we have a bit of an insight into President Trump as negotiated. He was billed as someone whos a real negotiator. The china, he made some very hostile statements when he was a kate middleton. For china coming you make some very hostile statements when he was a candidate. They had small individual things they agreed to. Is this an incremental approach over a longer time rather than one big deal . Michael i would have to say it is too early to really say. Part of the chinese deal that was agreed to after the maralago meeting was the fact that they let u. S. Beef into china after 14 years. It are needed had already been agreed to before the meeting. The chinese just went ahead and did it after the meeting at maralago. Its hard to say if the Trump Administration speaking loudly and caring a softer stick whether that will work are not, there are areas that the two sides want to agree on. Financial services the chinese want more investment but on their terms. You can negotiate those terms. Beyond that, its hard to say were not getting any cooperation as the president has noted on north korea. David the north korean issue is a very difficult one. Theres also steel. Theres a little damocles renault hanging over chinas head with this 232 preceding where the president could curtail steel imports from china and the rest of the world right away. Michael that would fall under a provision of the trade promotion act that allows the president to impose sanctions for National Security reasons. The problem that he has is that we dont import much deal from china because we put tariffs on this deal for other reasons already. Its a worldwide dumping problem with the worldwide price of steel. Could do that, but it is not necessarily going to solve the problem. Better to negotiate a worldwide deal and lay the groundwork for that here rather than to impose it. It will be interesting to see what comes of this, but the president does have that in his back pocket that he could threaten the chinese with. President says he does not like multilateral agreements. David he prefers bilateral and that might make a difference politically. A lot of people who work in steel voted for him. Michael it could be that he is plaintiffs political base. Is not a planted negotiate a bilateral trade agreement yet. One piece of news the u. S. Has canceled its post Meeting Press conference. Jonathan is michael mckee, gret to catch up with the. That does it for us at bloomberg daybreak. This years of records its a series of records on the u. S. Equity market. The nasdaq on a nine day winning streak, the longest since february 2015. From new york, youre watching bloomberg tv. Vonnie its 10 00 in new york. Im vonnie quinn. Ra welcome to bloomberg markets. Vonnie here in the top stories we are covering. Is there a new king of bonds . Morgan stanley pulls more revenue than Goldman Sachs for the Second Straight Quarter. What morgan is getting right. President trumps agenda looks evermore in peril. Getaunches a bid to senators moving. More questions after the president held a second previously unreported meeting with Vladimir Putin. Our commercial real estate valuations running too hot . We will speak with ralph rosenberg. Twos coming up in the next hours. We a