Transcripts For BLOOMBERG Bloomberg Go 20160502

The global underperforming coming from the nikkei, closing down three for a percentage points, catching up with dollar yen. Switch up the board and we would get to the fx market. We it is a weaker dollar story on the euro. That is a yeartoday high. Just coming in a little bit following where crude is going down by. 6 of 1 at 45. 66. Lets get across matt a couple of them are the stories we have been watching all weekend long. Yesterday afternoon is when we found this out, right . It feels like yesterday afternoon was the whole weekend for me because i took friday all the way to sunday. Halliburton, baker use baker hughes calling on their merger. The second and Third Largest oil service on sunday, the plan company jon baker hughes is planning a. Uyback they have that 3. 5 billion to play with now. David so much for the speculation they would be investing in technology and being more competitive. Lets buy back some shares. Megan 3. 5 billion coming back was always hugely controversial in that deal to begin with. Never heard of a breakup fee in my career at bloomberg. Megan there was one that was 20 , the technology deal. This is not the largest ever in terms of market share. Terms ofould think in dollars, which would be the most important, right . Percentage could be a very small dollar amount. In any case, it is massive. It is three years of halliburton fee. Ts and one breakup another m a story to talk about, a group led by Apollo Global management raised its bid to 10 share up from 9. 54. It is 52 above apollos price in january. Gold is a story we have talked about all day today. Hire for the sixth consecutive day, matching his longest matching its longest winning streak since 2014 and topping 1300 an ounce for the First Time Since january of last year. On theers are higher open. If you look year to date, with gold up more than 20 in 2016, rebounding from three years of annual the klein, you see Massive Gains of annual decline, you see Massive Gains. Newmont has doubled. Gold is up 75 . Jon lets get back to the big story. Two of the Worlds Largest oil copies come a 28 billion merger on sunday. Hughesrton and baker have announced determination of that merger. Halliburton will pay bigger use baker hughes 3. 5 billion. We have with us robin shoemaker, an analyst from key maker from keybank. We now know what they are going to do with 2. 5 billion of the money. The headline broken the last couple of minutes or so. The conversation we had in our planning meeting this morning, what are they going to do with the 3. 5 billion . Is that a productive use of cash . It will actually be about 2. 8 billion after taxes, in that neighborhood. Very little has debt, so this cash at this point in time can be used to repurchase stock. It is just the beginning of a revamp or resurrection of the company, which has been in limbo for 18 months and needs to come back with their customers, with their employees, with the Financial Community after a period where there has been a great deal of uncertainty. Megan do you think they stay in play now . Robin i dont believe so. We are in a stew downturn in the oil and gas drilling business. Downturn in a steep the oil and gasoline business. They do not need to. They have plenty of cash and ample liquidity to survive the downturn and come out on the other side. Thed when the announced deal in november of 2014, they had 1578 rigs. They have 332 today. They will have to whether a storm here. America is the worst downturn, but also internationally. Baker hughes is a big player internationally as well. There is a growing downturn there. It is everywhere, basically. Jon i wonder what this means for halliburton. The president the week ago said that my definition of a losing market is when all companies are losing money. Is that completely out of their control . Robin it is in terms of demand for oil services. Oil prices have rebounded lately. If we get to the 50 level or higher, it is likely that u. S. Oil companies will want to start drilling again. Megan in terms of putting in was that age mistake, the level of confidence they must have had to say they were going to get the regulatory clearances that we need, and now they say it is not happening here it is not happening. Robin halliburton miscalculated, thought they to satisfyt enough any trust concerns, and they were wrong. David there are some lawyers now to answer some tough questions, but they went in from the beginning and said we will sell anything that we need to sell. But the authorities are say we do not care what you sell. Robin the justice departments claim was that this merger would end up in a duopoly between schlumberger and halliburton, and that was a major concern, and that is the reason they blocked the deal. Jon to me it is obvious, you have the number two and three plan and schedule down to two, schlumberger and this combined company, there is going to be resistance. Fromhave we learned this merger, megan . There is another story. Are seeing regulators more active and looking at plans to invest in saying that is not going to cut it this time around here it they have a plan in place. A very complex plan. Regulators are saying we think it is too heart. We think it is too hard. I think it is regulated been quite active. David who is celebrating today . Not have as does fiercely competitive. But who else . Are Oil Companies saying it is going to be cheaper to get services now . Robin it will create and establish and maintain more competition. Im not sure who is celebrating today. Sure they are happy that the company is going to be isependent again, so that the winner here, if there is one. And now the business goes back to where it was. Except that we are in a severe downturn that has no end insight. No end in sight. David lets go to puerto rico. It is a big day in puerto rico. They are looking forward to a default of a 20 of a 244 million bond payment. Joining us to discuss what it means for the island is pimcos global strategic advisor, richard clarida. There have been defaulted the past in puerto rico, and there may be some in the future. What is important about this one . Richard this one indicates the real challenges in puerto rico, the big item on the radar screen is in july there is a scheduled series of payments. The last u. S. State, for was inal purposes arkansas in 1943. The Republicancontrolled Congress is putting together a bill which might address the puerto rico situation. It is significant. Megan paul ryan has really staked a lot of his future and Political Capital on getting the bill through. It is caught up in infighting between republicans and democrats. Where do you think it progresses from here . Richard you do not think of this as being a front burner issue for the republicans, but they have put a lot into it. I think the view of going to puerto rico i think that is the motivation. But he has his work cut out for him. There will be resistance. Jon every morning we used to wake up in europe with the g word, greece, and i used to have to explain to people why it mattered for everyone else. As a wick up this morning, seeing this headline puerto rico default, why should we care . Richard the broader issue is you have a huge municipal and local bond market, trillions of dollars. One of the key anchors of that market is in the general obligation part of it. Good ates have been making payments on these debts, and to the extent that this muddies that water, it creates potential issues, which is why the legislative action is being drawn forward. David the Supreme Court has said they will have a decision down by july 1, on whether puerto rico posco internal bankruptcy process will go forward. Abbaye is that how big is that . An unusual circumstance in the United States is that they do not go through a traditional bankruptcy process. With puerto rico, it is an important issue. Clarida, you will stay with us the entire time. Things again to robin shoemaker. We go to matt for first word news. Matt the u. S. Is turning to russia for help in trying to revive the ceasefire in syria. Secretary of state john kerry wants the russians to pressure their Syrian Government allies to stop or limit their attacks. Last week dozens of people were killed in the city of aleppo, when syrian warplanes attacked. The departure as the brussels air has as the Brussels Airport has reopened since the terror attacks in march. The suicide bombings killed 16 people. The airportsay should be back at 100 capacity by the middle of next month. Used pepperpolice spray to break up capitalist demonstrators that turned violent. Protesters or gasoline bombs hurled ethylene bonds and bricks. At least nine people were arrested. Global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus david . The world, up, we hear why ed bastian says delta has been burned in the past. That is next. Jon this is bloomberg. Challenging traditional paytv, developing a subtraction carrying Broadcasting Cable tv channels predisney and 20 century fox are expected to sign up for part of the venture. Consortium led by Apollo Global management has increased parenter for the university of phoenix, the forprofit college. The company is not commenting. In january, apollo education says it would explore strategic options. On a new set its eyes headquarters in london, according to the sunday times. Apple is in advanced talks for the old fantasy powerstation. The company would take over all the office space plan for the power plant. The Residential Property if this goes through, they will get rid of the commercial property. The worlds, Largest Airline by market cap, has a new ceo starting today. Is taking over the chief executive role. Erik schatzker sat down with him to discuss his vision for the company and what he is focusing on for the future. Are going to continue to do what we do in running the best airline on the planet. We can do better at that. We will invest in the operation, invest in the product to make sure that the reliability at the Service Levels continue to grow. While we set records for three years in a row, 2016 will be another recordbreaking year. Our Customer Expectations are rising, and we are getting paid for it as a premium. You will thing that see me focus heavily on his continued international expansion. We have been active in the last five years. We are in the process of doing a similar deal in mexico. The u. S. Industry is largely a mature industry. There is growth in this industry, but there are not new cities or new markets or new airports being constructed. If you are going to look to grow for the future, it has to be outside the u. S. In terms of where we can go. There is Great International opportunity still to be had. Erik where . Latin america, brazil. There will be longterm growth and opportunity, through Central America and mexico, which is a deal we hope to close by the end of the year. The largest city in the world, mexico city, is sitting across our border. A big opportunity year bank. Opportunity. An the u. S. China traffic next year will be the largest we have made an investment in china eastern. I think shanghai will continue to become not just the commercial capital of china, but longterm the commercial capital of asia. Erik a lot of capacity has been added between the u. S. And china. Are you making money on those routes right now . Ed we are. Not as much as we would like to, but there are restrictions about how much capacity can be added Going Forward. Chinese airlines are running up against their capacity caps. You will see the capacity start to moderate in the next couple of years. That will allow both chinese and u. S. Carriers to harvest a little more of the investments they have made. Erik what is the longerterm plan, as you look out 10 years. You have this investment in china eastern, and do you anticipate or envision an open skies agreement between the u. S. And china . Ed i sure hope so. You listen to the political rhetoric, i am not sure where the view was are. But from a longterm commercial perspective and a trade perspective, absolutely. When you look at the success we have had with our partners in europe, building the most successful jv and the world, our , look tontic jv recreate that now in latin america, where it would be mexico or brazil or another developing market. There is no reason we cannot longterm have that in china. It is a little difficult because the cost of the airplane when you fly between the u. S. And , it is an incredibly expensive investment. That will moderate that will modulate level of growth over time, but we can certainly enhance our prospects. Erik would you go so far as to say it is something you are counting on . Ed it is something that is going to happen. You need to be out in front of it. Erik is that when you mean when you talk about turning shanghai into a hub for delta . Ed longterm. Shanghai will be an important market for connecting. There are so many cities within china, a multibillion population mass probably that cannot afford direct service to the u. S. They are not large enough markets for u. S. Travel, with a feed into shanghai and beijing. We have a great partner in guangzhou, in the chinese self. South thirdinese longterm we are going to look at our asian center of operations from tokyo to shanghai. That is ed bastian with Erik Schatzker. David up next, Warren Buffett is offering what he considers probably the most important investment lesson in the world. We will talk about that next on bloomberg. Jon this is bloomberg. Let me get you up to speed. Dow futures up 36 points. S p 500 futures positive come around four or five points. A weaker dollar is the story. The dollaryen, what a move last week. Biggest weekly drop since 2008. Crude you think dollar yen had a week . Up. A month, april, crude we are down 1 10 of 1 on the session. Lets get across to matt miller now for some stocks to watch. Down 19 se shares were on friday, and the stock is getting downgrades today. J. P. Morgan cut their shares to underweight from neutral. Rbc downgrading. J. P. Morgans analyst ron hall that ron hall says it continues to deteriorate. Bb tt shares of analyst gary nelson says shares Goldman Sachs is switching some things around among defense contractors today. Goldman has updated l3 communications to buy, saying the guidance is that it has underperformed and it is ready to change that trend. Reachedes have almost the 107 target. David it is time now for bloomberg trends, and you can go to read go and see this yourself. I want to talk about i think he was number one when i just checked. It is Warren Buffett, and he is dumping out hedge funds bigtime, saying you cannot make money given the fees being charged. About which will do better, the clarida, richard hedge funds are having a bad time of it this year. Termrd hedge funds is a to describe a lot of different strategies and approaches, but worn path but Warren Buffetts point is understood. Jon it depends what your strategy is. Our hedge funds getting an unfair rap at the moment . Richard the sector has evolved. Go back 15 years ago when equities were being hammered. It was all about doubledigit turns. Hedge funds are recommitting to being uncoordinated uncorrelated with returns. Jon coming up next, we will break down what to expect this week. It is payrolls friday this week. Show me movies with romance. Show me more like this. Show me previously watched. Whats recommended for me. X1 makes it easy to find what you love. Call or go online and switch to x1. Only with xfinity. Show show me more like this. S. Show me previously watched. Whats recommended for me. X1 makes it easy to find what blows you away. Call or go online and switch to x1. Only with xfinity. David this is bloomberg. Bombuthern turkey, a car exploded, killing two Police Officers and wounding 22 others. No one has claimed responsibility. In but that, protesters in baghdad, protesters have ended their sit in. They were protesting corruption and the political paralysis on iraq. Tomorrows indiana primary has been, a last stand for republican ted cruz. According to the wall street poll, hebc newsmarist trails donald trump by 15 points. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. That is first word news. So indiana do or died. Last stand for ted cruz. It will be interesting to see how this plays out. If trump has a big win, he will clothe this you will close this out. Jonathan i am a little unnerved. Tom keene, a weeks vacation . Tom i came into the office twice. Jonathan i did see him. The big question is how you reconcile what the dollaryen is doing. It follows from the shock of last weekend into this week. A stronger yen against weaker everything else. The i find interesting is separate analysis of it when you look at other nations. Jonathan the mustread from Mohamed Elerian about how you reconcile those differences. Tom he wrote this at the white house dinner. Megan said you could not write this here. He said it is for bloomberg view. Combination of lower Interest Rates, including negative ones in europe and japan, and steps up asset purchases, the free banks made a valiant effort is tonight demand. Beyond a clear point, Interest Rate differentials can lose their effectiveness in driving exchange rates. Now. Body is in that trade jonathan if you look at nominal yields, you cannot explain what is happening to the yen. But if you look at the rate of change, arguably the pickup is better in japan than the u. S. Are brutal moves. Saieh and this is a fed with a tendency to raise brutal moves with abrupt moves. Can janet yellen ignore what is going on in japan . Weathan two years ago, would have talked about divergent money policies. That narrative has changed, where we shift away from it. Tom this came up in conversation all last week to you the distinctive feature of negative rate analysis is it nks. Cts tanks ba pushey have the courage to negative rates lower to affect retail, mom and pop, and one example the small banks in germany. For europe and japan, it is a different experiment, especially for the credit channel. The big story was friday after the close. The treasury came out with a report and put japan on the watch list they use the word orderly. Lew is is secretary economicelicate stuff, politics, almost, of foreignexchange. Drama,s no plaza accord but you get the drama from the all ascend dollar versus everything else. Jonathan do you think this is a message to japan, this is our position we do not think you should . Tom i do not think there was a specific message. You see that in the back channel discussion. Thing, whole equity selling gold, known as doing that in the international economics, which is front and center. Gete is a huge momentum to yen through parity to a strength a have not seen in ages. Jonathan tom keene back from vacation. Thank you. He is going back to bloomberg radio. Time now for econ recon. We look at the week ahead and data. T key intelligence Carl Riccadonna will take us through it. Looking forward to friday. But there are numbers you want to Pay Attention to as well. Is the extenttion to which the economy is bouncing back from the disappointing firstquarter. Last week, we talked about the seasonality issue, where firstquarter growth always comes in on the weak side. Seen this this elevation over at least three or four quarters, though. The serviceve center counterpart wednesday. Those will be the focal points going into fridays jobs report. We also have trade data wednesday. And the rattling about low productivity numbers will surface again in q1 because we have decent job gains. Why is this manufacturing data import . Decentlyse are correlated with gdp growth. If we are bouncing back from. 5 in q1 two something healthier, surveysd see these ism improving. And the regional surveys that give us a prelude heading into the week have been next. The chicago pmi disappointing. What are you looking forward to in terms of numbers . We need to just sound of the all clear. We do not need further progress, but evidence that we are not unraveling, so to speak. The jobless claims, we do not need new lows, we just need to hold. We have a deceleration in the economy. We have seen negative corporate profits results. These were all negative omens for the pace of hiring. If we can hold up to hundred thousand or better, that is the all clear for the economy. If it is weaker, it will really start to rattle forecasters pages and worry them. David rich clarida, what do you look at in the meaning beneath these numbers . Soft sixhave had a months in the u. S. Economy, so we are looking to see a rebound. The best case is we will see one. There is seasonality. The other part of the labor market is that because of the demography and what is happening in the labor force, caps on the next year we will have to get used to a successful payload friday. One thing the fed is looking at in labore seen tick up force precipitation. Some of the folks who dropped out in the recession are coming back in. That could be a good sign for the economy. So a key report friday. You just said we will have to get used to jobs ba in below 200,000 at some point. You say it is important to get over that now to ease other warning signs. What about wages, in terms of Consumer Sentiment as well . Not only forkey workers, but the fed wants to higherher rages wages. Are pointing out the share of wages in the National Income has started to go up. It fell for a number of years. That is a positive. Fed is hiking, but it wants higher inflation. But higher wages would be key. Angle isge and income important because we had a very disappointing firstquarter. The fed held out hope, saying these things are going wrong, rowth iseholds g strong. If we see Income Growth is faltering, that is a problem, not only for consumption, the main engine of growth this year, but also for the fed view of the economic landscape. Anid some people see unexpected will problem with wages. You would think at some point it starts to pick up given what is going on in employment. It makes you wonder what is going wrong with numbers. Are just seeing a lot of fence sitters moving back into the labor market. It is kind of indicating vindicating Janet Yellens thesis that there is more slack. We need to get to payroll friday, where a sub 200,000 number is good, but that will not happen until we have a rebound in productivity growth, which we are not seeing. David Carl Riccadonna. Thank you. Is chrysler on track for its first driverless car . Matt this is bloomberg. I am matt miller. Economist. Ubs chief here is your Bloomberg Business flash. An australian entrepreneur claims he is the creator of bcsin, according to the bbc. Inig wright kept quiet december when to be a magazine and said he was the likely creator. Automakers may use Virtual Reality to stay ahead of last years recordsetting sales pace. Volkswagen plans to roll out oculus rift headsets. Virtual reality could save billions u. S. Dealers have an interest to keep new vehicles on their lots. According to people familiar with the matter, for our he is about to name marchionne ceo. Ferrariry, he spun off from Fiat Chrysler. Turns out that Sergio Marchionne is a busy man. He is also said to be in talks firstoogle to build their driverless car. We talked with david welch out in michigan. David chrysler really has done very little in terms of autonomous vehicles. Google is seen as the leader and developing cars that can drive themselves. They tested a car for more than 1. 4 million miles. Fiat chrysler does not have any others technology, or at least in its early stages, they really need a partner like this. Most a year ago, marchionne put confession,entation where he basically said Fiat Chrysler needs a merger partner, because they could not afford the new technology. A year on, no one has bought his company or merged, so now he has to find partners to develop this. David according to your reporting, they will start with ca, which is a minivan. Why are they starting their . David w. a lot of when this will come out is to be determined. But that is a good place to start, because it is a minivan. Pragmatic. If you have a self driving car and want to use this for ridesharing or Something Like fleetsome kind of cab or application, a minivan is a great place to start. They will probably use this for testing first, because no one has approval from the government. The government has not even approved has not even figured out how to improve self driving cars on the road. So it will be a wild. A while. Paciwill probably use the real sizedns to test cars consider the eggshaped cars. There has been debate between carmakers about different strategies to take and how aggressive the government will be. David w. the government has only said they will get testimony over the next six months. That is where we are. Everyone is struggling with what they are going to have to do. So they just continued to test the technology in different cars and environments, whether it be in cities, highways, on snow. They are just trying to get this Technology Ready for any driving situation, so when the government comes out with protocols, they will be ready to go. Matt what i have been trying to do is look at the ratios of tios ofgoods p. E. Ra luxury goods. Sergio exactly what wanted to do. Bring ferraris valuation up to a luxury good. This is a carmakers p. E. Racier. Chrysler. Iat obviously a much poorer valuation. I wonder if you think that adding Google Technology to Fiat Chrysler will help lift its valuation higher to that of a flowery a ferrari . Not that hard. One of the problems fiat thesler has is they traded worst multiple of any major car company, except maybe one other competitor. They trade below forward bel ow ford, gm. You really have to add some Great Technology to Fiat Chryslers cars to get there. They sell stuff at the lowest in the market. They are a pure massmarket car company. They sell to rental fleets, more than most competitors. Everyone else is developing south self driving cars as well. David talk about the other majors. Ford and gm. Could they do a similar deal with google or are there other companies . Already General Motors bought a Company Called cruise automation. Ford has been testing its own cars for self driving capability. So has gm. Could they do a deal with google to provide cars . Sure. Google needs cars, because they do not have factories. They are a software writer. They are developing the capabilities and will put this in the dashboard and brains of the car, but they need someone to make it. Whether or not the deal is exclusive will be interesting, because maybe they just want a minivan out of chrysler and would want a catalog rum General Motors and a pickup rom maybe they want a cadillac from General Motors and a pickup from ford. Up, how acoming weaker dollar has been a boom for some downbeat and commodities. Around 40 minutes from the open. Futures positive across the board. Murphy heremegan with matt miller for off the charts. Matt this is the story of the month that was. , commodities gain. We have a chart that goes back to 2010. It shows the movement in dollars and commodities. The bloomberg commodities index. An inverse relationship. Over the last month is as the comer has calmed down down 5. 3, commodities have gained the most they have since 2010. Really strong gains for commodity prices. Megan tell me about gold. Matt gold is interesting. This is g btv 1142. The previous one was 1141. Another one would be 1143. S climate since the beginning of the year. But in the last week, they dropped by the most since hedge funds have turned bullish. So hedge funds have missed out 1300, which would have been pretty profitable and has been for some Central Banks. Let me show you a couple Central Banks that have been on a buying spree, adding to a huge toward huge hoard in gold. Russia and kazakhstan. Kazakhstan in r ed. Megan how much more do we have to go on the gold run . Matt depends who you ask. Goldman sachs said a couple weeks ago that they expect the price in three months to drop to 1100 and in a year to 1000. Clearly, russian and cause asked on central bankers do not agree. Kazakhstannds and central bankers do not agree. We will be able to track this with the bloomberg terminal. David thanks a lot. I want to get final thoughts from rich clarida. And i want to bring the conversation with tom keene about the Mohamed Elerian piece. Says run theirks course in terms of stimulation. The bank of japan just stood pat. What comes next and what does it mean for markets . Rich my view is we are in a world of diminishing returns to central bank policy, but not where there are negative returns. The japanese were surprised that venturing into negative rates backfired, but i think the ecb and bank of japan still have policies that are accommodated. Down the road, you get to really uncharted territory. Some people talking about helicopter money, coordinating actions. At some point, we would have to call it the new conventional policy. Talked about the commodities in china. That has come because we had a weaker dollar. We had stability because we had a weaker dollar. I wonder if we can have stability without a weaker dollar, because the way things are so correlated. Rich what we have yeartodate, we had soft u. S. Taylor soft u. S. Data. So that it said had a dovish message, minimizing policies people that would be there. I think there is a natural limit to how aggressive the fed could be because of how aggressive the dollar is. Jonathan how does this that make it if it fit back to where they were in december make a pivot back to where they were in december . Rich they will be tough for the fed to go to an aggressive rate hike strategy. David rich clarida, thank you. Up, mobius sets its sights on brazil. Details, next. Putting cash to work in brazil. Franklin templetons mark mobius saying Dilma Rousseffs likely impeachment is not in the markets yet. Jonathan halliburton and baker hughes call off a 20 billion deal. And two Top Economists weigh in on the feds june decision. David welcome to bloomberg. Jonathand westin with ferro and megan murphy. Megan happy mayday. The nikkei 225 closing after a holiday friday down by three percentage points. Futures stay positive in the u. S. S p 500 positive almost six points. , the fxg the boards market. Yeardollar close to yeartodate highs. Dollaryen, they gained about 1 10 of 1 coming off the 18 month low. In the crude market, up almost 20 . We trade any much debt flat around the 46 mark. So many stock stories out there. Matt a ton going on. Hughes dealonbaker first. Calling off a 28 billion merger that faced very stiff resistance from regulators in the u. S. And europe over antitrust concerns. They were the second and Third Largest oil service firms. The 3. 5 billion termination fee second largest payout in corporate history after at t paid tmobile 4 billion to walk away from that proposed tied up in 2011. A group led by Apollo Global management raised its bid to 10 a share for apollo education, owner of the university of phoenix. A 52 premium from one of first put itself on the block. 28 premium from fridays closing price. And per next therapeutics. Stephen has heard of it. 72 asset management, putting in a bigger stake. Interesting to mention, because is interested. Apple in transition. It has been rough. The company has lost so much value the last couple weeks amid slowing iphone sales, first concerns, and then confirmations. You can see apple is up. Only 4 10 of a percent, but it is a big, heavy stock. There is news breaking now on weyerhaeuser. Wy is the ticker, i believe. It will sell Mills International paper for 2. 2 billion. International paper has a tax benefit of 300 million. International paper essentially one huge paper company. It will buy mills from we yerhaeuser. Jonathan thank you. On to emerging markets. While some investors are shying away from brazil, mark mobius, executive chairman of Franklin Templetons emerging markets group is finding opportunity. Here is what he said with manus cranny. Not think it is fully priced. We have seen a big rise from the low point. At a low point, the percentages are great. But if you are look at where we are headed to previous highs, we have a long way to go. We could go another 200 . Manus would you add money . Mark yes. Pleased irish i am he made such an effort in attire for Bloomberg Markets mideast. Joining us now is conrad saldanha. You agree . i agree there is upside, but not as much as. At the leveraged names in brazil, they are at least 50 and up to 150 . There have been significant gains. The economy will still struggle. Once you have gone from the thetical soap opera on front there, it will still be a challenge economically, for earnings as well, in a market creating 15 times this year is not cheap. I think you will see more positive momentum and use flow on the election and political front. Beyond that, it will be a struggle to see how that economic turnaround happens in brazil. Megan lets talk about be soap opera you referenced. Is everything priced in in terms of what further unexpected developments we could see as dilma continues to take the stand . Conrad i think she boxed herself in. Whether 85 or 90 , i think the impeachment process goes through. Temer comes through as positive as president. The point is who he appoints in his ministerial positions. That could lead to a little uplift. David ironically, it is all about rousseff. And we forget about things like the petrobras scandal. To get through a lot of barriers before you get to a solution to their problems. Conrad absolutely. Economically, it will still be a struggle. Vp, i now he is putting on a totally different face. I think change is good. I feel good about the economy and what could happen to it, because looking at the suffering they have gone through economically. But there are significant challenges. There is not a significant change, but we are now uncovering all of the corruption upndals, which is opening that the system itself was corrupt. Good news it is democratic and is coming to a boil now. But it is more systemic. Jonathan how do you get a read on brazil . Looking at santander numbers, it has stabilized. A credit. You see there is credit that needs to shrink. Will increaseit significantly, so whether youre looking at corporates you get respect with the real strengthening a little, but it will still be a struggle on that front and in copper. Are emerging markets, you buying it for the consumer and for consumer debt. Consumer debt is pretty high and is leveraged. Marketse rest fight is coming down. In my view, you have a risk premier coming down. But they need to sustain with earnings coming through. A struggle in terms of the Economic Situation transpiring into earnings. Megan what sectors should be watched for the most for the upside . Conrad it has to come from the domestic sector. The bigger one is financials geared domestically. This is still not positive, though they are positive on political change. The Financial Sector third gives you an indication on credit, and credit cycle. Number two is the domestic and section that is or should take up. That is the challenge. In the corruption scandal, it spread to the construction area. So that should take up. That should have a domino effect. Jonathan the liquidity delusion that Mohamed Elerian would call it. I am talking about the petrobras just overome down to 9 in the yield. If you are buying that i want to back out, can you . Conrad i am on the equity front, but i think bonds in brazil are one of the highest yielding markets. Risk was the currency isment, but liquidity now there. You never know when that could turn on you. Front, in the equity would stay liquid. Because i am not sure when the tide goes out and there is an economic adjustment process that needs to go through first. Jonathan conrad, thank you. About puertoalk rico. The u. S. Commonwealth will default on a 422 million bond payment for its Development Bank s. That could open the door to larger defaults. Its agencies oh another 2 billion july 1. Extended the military its ceasefire around the city of damascus another 48 hours. President bashar alassads army announced the ceasefire friday. It does not include the city of aleppo. Seattle, police used pepper spray to break up anticapitalist demonstrators that turned pilot. Authorities say protesters thr that turned violent. At least five people were arrested. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. I am matt miller. Megan coming up, halliburton and baker hughes scrapping a 28 billion deal. Our regulators pushing back, next are regulators pushing back, next. Jonathan this is bloomberg. Today is of usa escalating its takeover fight. Are asked to withhold their votes. Theirent public with offer after unsuccessfully making a private one. Hulu is on the verge of challenging traditional paytv subscribers. Disney and 21st century fox are excited to license channels for the venture. Those companies are coowners of hulu. Newe has are set on a headquarters in london. Apple is in advanced talks to move into the old fantasy power station. That would take over office space. No jokes about south of the river. David i did not make jokes about that when i was there. Mistaken, am not south of the river is the cover ofan animals album. Halliburton and baker hughes have abandoned a deal worth more than 22 billion. Bloomberg deals editor Jeff Mccracken joins us now. So it is 3. 5 billion that they will have to pay. So lawyers got this one wrong, didnt they . Depends on which side. I guess the lawyers on the baker hughes side did a good job in getting the three. The last one of the ballpark was at t, when they had to call off the tmobile deal. For baker hughes, now they will have to rebuild themselves. A lot of their top people have been eyeing the exit doors, because they figured they would lose their jobs. They either have to bring those people back in or convince them to stay. They will also have to restructure, because the price of oil fell 50 the last 15 or 16 months. David what has been going wrong . They announced originally in 2014. They have been upfront in saying we will sell things and make a deal with regulators. Deals y work closely they were close with deals with ge. With ge. Have beenc and doj applying more scrutiny, especially the very big deals. They would say this would create duopoly in the oil services field. Five years ago, this would have gotten through. But today, this is the most scrutiny i have seen for really big deals in a long time. The level of confidence halliburton had to express that they would be able to get this through, and it climate that is rapidly changing and we had office depot and stables going through now but is this a new tone for regulators or did they just overestimate how they would be able to get done in selling assets . All of these really big deals in 2015, when dow and dupont came together, when pfizer tried to do its deal. Regulators have elevated this green knee of these really big deals. The was a big deal before run of big deals in 2015, but it is running into the wall these regulators trying to block these big deals. We have Health Insurance deals coming up shortly. Four of the five largest Health Insurance companies merged last summer. They will see scrutiny. Companies owing to be able to convince regulators . Have there was argue they plans in place. But you just see so much more scrutiny. They said they would split the company into three pieces. Which would make it easier to get it across the hurdle. That could make the regulators more relieved. Jeff mccracken, thank you. Jonathan gold on pace to do something it has not done in a year. How high the price could climb, next. Vonnie matt golub looking to match its , higher for six days in a row and topping more 1300. Joni is scott bauer rate joining us is scott from chicago. Goldman sachs says they think 1100 in thel to year. But it seems everyone is bullish from russia to the central bank of kazakhstan. That is probably the time when you need to exercise caution. When everyone jumps on board. The dollar falling against the yen is precipitating this. And what happens with gold in the near term is predicated on is the dollar stabilizing, what will we see . 125dollar has dropped from from 1. 25. 125. 1325 is the next resistance level. If we break that, you will see it skyrocket. There is a lot of dead air between that and 1400. The likelihood of that is small at this point. Matt you mentioned the dollar. If we see another fed hike, if the dollar takes and we are the only place for yield, does that turned the gold rally around . Think it turns it around real quickly. The fact that the fed has down to two rate hikes, that has also helped. If we start to see inflation a little, if we see the fed turn from their dovish stance, you will see the turnaround quick. Matt i am looking at the euro. Breaking through 1. 15 for the First Time Since august. Isthat note, dollar weakness still happening in a vague way, whether you look at the euro or the yen. That will help gold and commodities across the board. Do you expect that to change anytime soon . Futures are not forecasting a rate hike until the end of the year. Scott right. That puts in a backstop for what we are seeing. Now, any surprise ahead of that will lead to a precipitous fall. The fact that we are not expecting any sort of rate hike for about six months is already baked into the marketplace. 1325 is critical. Break it, look out above. But the likelihood of that is probably small. Matt thank you. Scott bauer, see marketing analyst at cme. Hadthan you thought kuroda problems, draghi has problems as well. Picking one of these charts are for us. Megan this point out a longrunning saga. Which printer, craig wright, has identified himself as the actual creator of the coin. This history has confounded tcoin. Coin of bit manthan why has this fitting himself away . Hidden himself away . Well, he has not wanted to come forward. Now that he has come forward, his home has been rated by taxes stories. It is amazing he has come forward. I am an enthusiastic and i do like to read about it and i hand out and i hang out on the reddit boards and stuff. One thing fascinating is if he just because the guy says he is he should have at least one million bitcoins. Satoshi created it, he was the first one mining it on a regular basis. There are huge blocks that total 900,000 900 dollars and change. He should have 4. 2 million. Why australian tax authorities visited. Matt so where is that money. That kind of overhang really puts pressure on the market. David it feels a little like an episode of lost. Megan not quite as complicated. Matt i feel like that every day. Next, we hearup from two Top Economists with their predictions for jobs day and when they think the next rate hike will be on bloomberg. Jonathan this is bloomberg. I am Jonathan Ferro and we are about 60 minutes away from the open in new york city. Thats get caught up right now. Future staying positive through much of todays session. The s p 500 futures positive six. All attention on the fx model. Eurodollar 115. Briefly for the First Time Since last august. Elsewhere, yields a little bit lower, playing in today weaker dollar. Nymex crude, a huge month last month. Down by about one third of 1 . Matt lets get the first word news. Results embattled president is trying to drum up popular support. It is less than two weeks from the senate. Dilma rousseff has announced tax cuts, more public housing, more public housing, or spending, and a Cash Transfer program. She has called the impeachment process a coup and is doing everything she can to convince voters. Only a handful of detroits Public Schools are open because of the threat of a teacher strike. The union and cards teachers to call out sick the union encouraged teachers to call out sick because they do not have enough money to fund teaching through the summer. Britons are almost evenly divided on whether they should leave the european union. According to the survey on sunday, 46 support a brexit and 43 are opposed. Say they three fourths were unaffected by president obamas backing for the u. K. To stay in the eu. Froml news 24 hours a day our 150 news bureaus around the world. Rico willpuerto default on a 422 Million Dollar bond payment for its Development Bank. Joining us to discuss this is michelle caskey. Michelle what has happened is that the government Development Bank will default on this may 1 payment. The governor made the announcement yesterday in a televised address. Is, there is an agreement with some bondholders but unfortunately, the island has another bigger payment on june 1 of 2 billion. Megan tell us how you think this will change. Paul ryan has been pushing congress to get this bill through. What do you think will happen . Michelle i think there is going to be a lot of negotiating going on between bondholders and puerto rico. Puerto rico wants to get a broad level restructuring done where they lower their 70 billion debt status. Whether they can get that done by july 1 is a big if, and what is going to come out of congress . How soon could they pass something . David what is the recourse for the bondholders that the default is happening today . Can they sue and try to seize assets . Michelle one thing that did help the gdb is the bondholders agreed to a forbearance. That will keep discussions out of court for a while. That is temporary and at some point, if the bondholders feel that the discussions are not moving along, they are not getting what they need, they can seek legal recourse. The downside is, compared to some other puerto rico debt, it is unclear how strong a repayment pledge the gdb bonds are. If the bank does not have money, the bank cannot pay. Matt i am looking at this gdb bond, the four point 27 coupon. Back in march the commonwealth suggested a 36 sent recovery price. Do you think there will be negotiations to get back there, or is that the hope the creditors have . Agreed towhat they yesterday was an eventual 47 recovery rate. That is higher than what puerto rico offer them last month. ,ondholders must like that although im sure they would even like something more than 47 . Matt on the july 1 bonds, we now have a 300 yield so if you want to put it all on red 21, it is a gamble. Jonathan i am not sure you are in that market. My question to you, michelle, the same way we talked about greece, cut the debt pile down, what is to stop it from piling up again . Michelle that is hopefully where congress can help out. When issues they are talking about is creating a financial control board similar to what they have in d. C. And new york city in the 1970s. They are hoping that will help get puerto rico on track, get them to create balanced budgets over a number of years. Jonathan thank you very much for breaking down. The complex story. David i agree with you. Megan we are talking about the fed. Friday was jobs day and economists predicting 200,000 jobs were added in april. For more, lets turn to drew matus. Drew, but are we looking for on friday . Will we get over 200 . Drew we will probably get 200 and see the Unemployment Rate dropped and we should see some wage gains. I think that combination will be quite favorable. Megan that is the one number were looking at. How big do you think the gains will be . Drew i think we will see 3 10 on the much. We think we are running out of Spare Capacity in the labor market and that puts upward pressure on the race wages. Megan how is this going to weigh on the fed . What to think they will be looking at most . You could look at the whole report and i think we are pretty optimistic that either this report or certainly subsequent reports will continue to see a wage pickup. We will see the unemployment , andflat or falling continue solid job games. Job gains. I think the data flow with the risk Trading Market will support a rate hike this summer. Jonathan looking ahead, we had a conversation earlier, the idea as you get closer to full or employment job gains will slow down. For the markets, do you think the market is prepared for that kind of a shift, that kind of a divergence, or they will read it incorrectly . Drew that is a great question. It will probably be coming at the time when margins are under greater pressure, so it is going to look bad, but that is the place to fade it. We all know it is darkest before the dawn and in the labor market, that is one it is darkest. The jobs market is telling you the fed has to move rates higher but they are waiting for some signal inflation is ok. David we talk about unemployment and wage levels but do not talk as much about underemployment. How important is that number . Those are people on the fence who would like to work more. What matters to me is the parttime people who want fulltime employment but that is the troubling part. We do not know what level is due to the Affordable Care act. There has been a significant policy shift which might have changed the number of people we can expect to fit into that category or who can come out. David ethan, do you agree . Ethan i think if you look at the u6 broadly we are still slightly elevated but we have come down a long way. Particularly in the past two years we have seen a big drop. It,atter how you measure the labor markets are near full employment or at full employment. Megan lets talk a little bit about spending and where we are. What is Holding American consumers back in terms of anticipated growth and wages . Drew there is very low Interest Rates. There is the perversity of high savings at low Interest Rate levels. I think part of it is that there unease,eral feeling of also might be the result of low Interest Rates. I think the consumer would like to look ahead and be able to see with some clarity what is going on. Unfortunately, we are just unable to get a clear view of anything right now, at least from the consumer pass perspective. Consumers perspective. I tried to avoid sentiment measures because often the consumer says one thing or does another, or they feel bad and that causes them to spend to feel better. I am looking at the numbers themselves and what area are they spending money in, how much are they saving because that tells you how concerned they are about the future. Jonathan Going Forward to june, how does the fed negative it from where they are now to the pivot fromve it where they are now . Isan i think communication a little bit confusing and stale. The market is pricing at a very low probability of a hike. I think as we get closer to the meeting and as the data begins to look healthy, the probability of a hike will go up. But they need to do some talking. We need to hear more from fed speakers and hear them push this idea that the summer is the right time to hike. I think that will happen over the course of the next six weeks. You think the uncertainty around the u. S. Political election is weighing on Consumer Sentiment, or this lack of certainty that is holding them back . Ethan i think there is a lot of things weighing on the consumer. Correctionstwo big in the equity markets in the last year so that has made people a little bit nervous, and the election is probably having a small negative affect. What we are seeing in the election is just an extension of what has been going on years now. If you look for gallup polls, congress has a 17 approval rating. Even these president ial candidates have higher Approval Ratings than that. It adds a new layer of ugliness to the political discourse, but i do not think it is new so we have kind of gotten used to it. Megan that is drew matus and ethan harris. David coming up next, one country is shutting down some important streaming systems in apple. We will look at what this means for apple next. David this is bloomberg. I am david westin here in the hpe greenroom. Later today, guests include Christopher Allman and alan schwartz. Matt this is bloomberg. I am matt miller. This is a Bloomberg Business flash. However will have to pay baker hughes a three and a half billion dollar termination fee after they called off their merger. There deal faced resistance over antitrust concerns. Baker hughes will buy back shares, pay debt, and probably have a ton left over. The largest country in the paper industry, has agreed to buy warehouse ors pulp unit. Once the deal is done, annual bet cost savings will 175 million. Chrysler ceo is about to take on more responsibility. Furry is about to name him the ceo. That would be a case of keeping all in the family furry david should apple be fearing china . The worlds most populist country blocked the system. This comes as the country aims to make the internet closed and national. Joining us is cory johnson, bloomberg editor at large. We reported on apples earnings last week. They reported a reduction in their revenues from china. Just so the was chinese were not buying smartphones as fast. This suggests there Something Else going on. Corey theres certainly a slowdown in the growth of the chinese economy that has impacted them a lot. Tim cook a few months back sent a letter to tim cramer saying, china is great. Decline in a 26 quarterly revenues in china. China has been about half of apples revenue so a decline will be a decline for all of apple. David in the meantime, xiao mei is going in bigtime. Corey but perhaps at no profit. If they are selling a lot of phones but losing money in every sale, that may not make for the longterm success of xiaomi. It is interesting to look where apple is. I think youre highlighting of ibook and itunes is a big deal, even though neither of those have been big successes as of late because as the world is getting more and more saturated with devices and the refreshment cycle is getting longer and longer, apple is counting on revenues from services to support the company. If china is not going to participate, if what has been half of their market is not going to participate, that is worrisome. Apple in this period where they need something new, they need a new product or they need to tighten the refreshment cycle, or they need something new, the latest and greatest . Corey the ipad has had fantastic success but the sales have fallen in nine quarters. The watch has been a fantastic success. They have sold more apple watches in the first year than iphones in the first year. The company is so big that nothing seems to move the battleship. It really is an iphone business. Or iphone sales so nothing has come close to that, even the macish macintosh business. David when it comes to china, it is not just apple. Facebook was shut out, alibaba is coming up and challenging, and china has been aggressive at protecting their domestic injured industry. Corey linked in has found success to get into china and has some sort of agreement with government censors to allow, but they do not fully explain or feel a comfortable with it, but tying the Global Network of workers into china, they can have some success. China is aware that social networks are relevant when i go across borders. Howre trying to figure out to go along with that. I would not look at the but itns as forever, shows the struggles in china of how to connect with the world globally. David thank you, currents cory johnson. Megan it is battle of the charts next. David this is bloomberg. I am david westin, and this weekend we were in washington further correspondence dinner. One thing that surprised me was how tough president obama was on hillary clinton. President Obama Hillary trying to appeal to young voters is a bit like your relative who just signed up for facebook. Dear america, did you get my poke . . S it appearing on your wall i am not sure i am using it right. Love, and hillary. Were you surprised that this . Megan i was a little surprised. He was funny, but i think there were times he was a little bit meaner than i expected, the hillary stuff in particular talking about rolling up the hill. I think some of his jokes teetered on the edge of what i would have expected. David in fairness, he took shots at ted cruz and bernie sanders, who was there, and shots at trump. Megan you know who he took the biggest shot at, the media. I thought that was really interesting in how trenchant that criticism once. David in part because of how time how much time has been given to trump in the media. Megan if he gets big ratings, we will keep him on the air. Jonathan matt, are you and i the only people that did not go . Matt i think so. David there were only 2600 people or so. Jonathan david westin takes on Matthew Miller in battle of the charts. Matt if you ever played battle of the charts, use a macro chart because macro always wins. Im going to take a look at some stocks. What i found interesting was the barclays note from thursday. If you are looking for safety in this market, do not look at consumer staple stocks because they are so overvalued. The white line here is the Consumer Staples sector. The purple line is just the average s p in general, but the blue line is Energy Stocks. Of course the pe on Energy Stocks has soared to above a hundred as earnings have fallen out. The second most highly valued sector of 10 s p Industry Groups is Consumer Staples, food, beverages, and tobacco. They are trading at such a high premium it is not a good place to look at for defense according to barclays. David that is a really good chart. I am going to show you my chart. Ons is basically picking up Mohamed Elerian. He says negative Interest Rates are not productive. We have taken the relative strength of the u. S. Dollar as opposed to the yen and euro and have plotted against the various act of stimulation the Central Banks have done. In theory, as the u. S. Rates go up, the u. S. Dollar should strengthen. Is, herehat happened is where we had the. 25 rate hike in december. It went down, not go up. Then we go along and boj goes to negative Interest Rates. With the ecb with their massive infusion of going further into negative territory and buying corporate bonds, again went down. This is basically a picture showing what Mohamed Elerian is talking about. If you want to look at it on bloomberg, it has an elaborate explanation. A sickly flight to safety. Basically a flight to safety. Megan i think i am going to give it to david westin. Jonathan the rate of change happening with the dollar is absolutely remarkable and they are trying to reconcile all time low yields with where the dollaryen is currently trading. The solution is to look at real yields and how quickly they have declined in the u. S. Versus japan. The pickup began in japan. Helped mattat miller put up the shot shows up in about 20 minutes time. He would be voting against a guest. David i had the idea, but not helped with the chart. Jonathan matt miller gets the vote. Delta airlines new ceo takes over today. The market open is in 34 minutes, futures are positive. David the deal is off. Halliburton calls off the deal. Paymenthere is a bigger looming it. Jonathan the s p 500 rally could stall in the near term. Investors should add to some safety stocks. He will explain what they are this hour. David we are just under 30 minutes away from the opening bell. Meganvid westin alongside murphy and Jonathan Ferro. Jonathan lets get you up to speed on whats happening. Futures stay positive. Dow futures are up 53 points. The s p is positive seven. Lithic or going to kick off may on the front foot for the board. Market, thehe fx eurodollar is punching through for the first time. Tocomes back a little bit 114. Thedollar yen, it breaks losing streak. Month of gains in april of almost 20 , its 2 10 of a percent higher for the first day of may. Lets cross over to matt miller some stocks to watch. Company in thest world is trying to snap a seven date losing streak during its longest losing streak in more than three years. It fell 11 last week after earnings failed to impress. Here you can see we are up about 4 10 of a percent. This is a highvolume freemarket trade. The slide has not just affected it. Its such a huge body that pulls down everything around. Take a look at apple in blue and the s p 500 in white and its dragging the s p down in making up 29 of the indexes decline over the next week. This is chart 1147 on our library. Check it out on your own. A group led by Apollo Global its dealt has raised to buy the university of phoenix. Its a 28 premium. The revised terms are the best and final offer. The apollo education said they will look it over. There is no deal on halliburton and baker hughes. Baker hughes called off the merger because of massive resistance from regulators here in the u. S. There are antitrust concerns. They announced sunday they were going to terminate the agreement. Thats going to cost halliburton three 5 billion to walk away. Stories that matter in the markets this morning. Joining us is michael reagan. Aboutgoing to talk halliburton and baker hughes. They called off their merger. Story number one is the deal between halliburton and baker hughes. Lets head over to david in houston. What is in store for all of these companies . Baker hughes knows what its doing with a lot of the cash. David they are going to go for more cost cuts. They were hampered with their merger agreement as far as what they can each do separately or on their own. Things had to be a little stagnant for a moment. We will look for more cuts. Thats what they talked about this morning. Or jobs will be cut. It makes baker hughes look stronger. The Large Service companies. Eported a loss this is a stark thing that weve seen. They are in something of a storm. We see reduced production in the United States. How are they going to whether this . David they will weather through technology. They will try to bundle Different Things together. Four bighave three or providers out there. The rest of their competitors are smaller and offer only two or three service lines. They offer the bundling of packages you need at the well to drill it, to find the oil. They are going to rely on their technology a lot. Whys one of the reasons halliburton really liked baker hughes. They will rely on using other technologies to boost efficiency. They want to get more bang for their buck. Jonathan we were looking at this price tag. We said what are they going to do with the cash . They are going to buy back stock thats number that popped out at me instantly. There is no election in the stock market. This is compared to the pfizer deal falling through. I do wonder if there will be a confidence. Jonathan if everybody knew this was not going to come in, why did they allow themselves to be in a position . I would be sitting here saying giving away 3. 5 billion, everyone knew it wasnt going to go through. Why did they allow that to happen . David it shows the confidence of halliburton. They were willing to put that much on the table to show they thought it would go through. As one analyst told me, maybe they made to much of a stroke and trying to take too much all at once. Putting up the 3. 5 billion shows their confidence it would get done. We are moving on to number two. Puerto rico will default on a bond payment. This may lead to more consequential defaults. On july 1. Billion what are you taking away from the announcement we had yesterday that they are going to default . Michael how does this affect the overall market . I am surprised this isnt making people nervous. If you look at puerto rico, would you compare this to detroit or greece . Its a none of the above. Much in the Municipal Bond market the compares to puerto rico. Every time a greece yield would ride, you would watch portugal and spain rise. Its its own animal there. Megan puerto rico is just puerto rico . Expert, it is so isolated that they are calling this the biggest crisis in the bond market. This is something everyone is looking at. Their situation is so isolated. They cant go through bankruptcy courts. Theres not another puerto rico sitting out there. To deal no nomination with. The yen. They are at an 18 month high. On dollar yen. This dollar weakness yen strength story, weve got a decision to make. Youve got a weaker dollar and the boj that does not want to do much and youve got general risk sentiment. What is the signaling coming for you . Michael david was talking about it earlier. Theres an fun column today. This is gotten counter intuitive. We are at negative yields now. The relationships to used to exist, you can expect more centralbank stimulus to lead through a weikel weaker currency. Its more counterintuitive now. We can expect more volatility. Moves that by not make sense using the old playbook. Confidencemuch of a inducing answer. Traditionally, you go to stocks and take more risk with more return. When you see the Central Banks all doing this for an extended time. It doesnt make you inclined to take a lot of risk. The Central Banks dont see a lot of good news. Michael this is lasted so long now. It makes you wonder how much more can you get out of it . At least at the highs a couple weeks ago, the highest valuations of the bull market cycle. Thats going to be a tough thing to get past without a strong confidence that the risk is valid. Jonathan those are three of the stories that matter to markets. To michaelhanks reagan. Story of the markets. Lets head over to matt miller. The military in syria has extended its ceasefire for another 48 hours. Assads army declared a truce on friday after two weeks of violence. Include the city were dozens of people were killed last week in government airstrikes. Hall of theh are Brussels Airport has reopened since the terrorist attack in march. 16 people were killed. The airport should be back at 100 capacity by next month. Only a handful of detroit schools are open because of a teacher strike. School district said it would not have enough money to pay teachers the summer unless the state provides a lifeline. They have emergency funding until the end of the school year. I am matt miller. David thanks very much. Trading opens in about 18 minutes. Will have more on that on bloomberg. We have tim mossad in the 11 00 hour. David as of Delta Airlines has a new ceo. The u. S. Industry is largely a mature industry. There is growth, but not new cities or markets. Foroure going to look growth, it has to be outside the u. S. In terms of where we can go. I think there is great opportunity to be had. Latin america, brazil. To be a lot of growth and opportunity right up through Central America into mexico. Thats a deal hoping to close. Its a very young population. Mexico city is just across the border. There are big opportunities there. China is an opportunity. Be the largest traffic flow in the world. David George Ferguson is joining us from georgetown. I was struck by what he said about growth. Tot have they done at delta pursue that mexican market . George theyve been expanding quite dramatically their flights into latin america for the last couple of years. They are pursuing this. The recent downturn in brazil has made it more challenging. They put a lot of capacity into latin america. David what margins can they get . Its a tough business. I think the most incremental markets are probably negative. It they are probably losing a profitability. Doubledigit changes in yield. The yield is how we measure affairs at the airline. Theyve been gaining ground on lower fuel costs. Thats given them 900 basis points of margin. They are losing 18 . Their ticket prices have gone down 18 . Its been less profitable this year than last year. Matt we are showing the year to date. I pulled up an old chart. This is airline stock. The price earnings ratio is in yellow. Thats got lower. They are really cheap. We have not seen a ratio that cheap since 2014. Why are they so cheap . Does that mean investors think this is a good buy right now . George investors are telling you they are afraid of them. The challenge here is lower fuel prices have improved margins a lot. Would help stock move the share price. They are concerned its going to give away that money on the top line. They will stop keep cutting fares. Thats going to bruise profitability over time. Thats what we see. Thats why they are so cheap. Airlines never trade at a market multiple anyway. Its a volatile business. Delta is arguing that they are different. They are highvalue industrial. Of that all investors have bought off on that idea. David the new ceo of delta talked about us expanding to china. That allows for Bilateral Agreements into china. Agreementsre are that set the caps on how many flights we can get in there. I do know so much that thats going to be the big thing on china. Beennses the chinese have romantically expanding their international capacity. They arent focused on profitability. They are focused on market share. Will be to try and fly to china and do it profitably while the chinese carriers are adding so much capacity at lower fares. They are doing it by getting to some of the smaller cities. They will try to fly to smaller markets to get better fares for that direct flight. David thanks very much George Ferguson. Latest fore have the the s p 500 as we count down to the market. Away. Ust 10 minutes o the futures are up six points. Matt ferreri says this is the strongest ever First Quarter. The revenue will be the telly number because with glucagon, sergio can sell as many as he likes. For 650only looking point 3 million euros. Ferrari is selling more cars. Shipments reached 1882. That is the First Quarter. Is in the news because we are waiting for his switch to become ceo of ferreri. That is many roles as ceo. Jonathan did you say what happened before considering they can boost volume . Matt they can do whatever they want. This is why hedge funds have gotten into the stock. There is a position in a ferrari. They expect sergio to broaden sales, to sell more cars essentially. What a keep it very exclusive. Jonathan thank you very much. Its a rough start to the year. The s p has rallied in the last 10 weeks. Says it willa close at 2200 points by the end of the year. Talk to me about whats underpinning this market. Many cliches that mean nothing. What is actually happening . Jonathan we think its time to have a little bit of a pause. Think what you do right now is start to take advantage of the big rally. You some safer stocks in the portfolio. We might sell off a little bit. We think some potential catalysts are going to be things like the dollar. You had good chart up earlier. The dollar is crucial to the market. We think the weaknesses run its course. Youve got softer data on the economics run overseas. Those things can inspired to kill this rally. Now, safenges right stocks are really expensive. How you find safe stocks without falling into the trap overpaying . When you talk about what factors we may see coming up, there could be a good number friday in terms of jobs. How much longer does this rally have to run . The labor data has been the shining star for the u. S. Economy. Worried theple were economy was slipping into recession, we focused on the labor day to and it looked great. Jobless games are at a 40 year low. I think labor is going to be the thing that keeps people confident that the economy is in good shape. Its a little ways down the list in terms of our concerns. Where more worried about the dollar strengthening. David what about moving up the line . What about earnings as a concern . Bit of a thats a concern. This is been a weak quarter for the s p. We think its going to get better by the end of the year. We predict you get 4 growth over the course of the year. When i think about earnings of the big challenge with them, its more about earnings quality. We talked about this in some of our research. Its very right now. Our estimates for the year are just 111. Many are predicting more. We think we are taking a more conservative view. Hold that thought. The market open is just under four minutes away. Futures are up across the board here in the United States. Jonathan theyre Just Moments Away from the opening bell. Let me get you up to speed on where we are. Dow futures are higher by 45 points. S p is up around six. Japan is getting back to work monday. Bell, hear the opening let me get you to the fx market. Through dollar is up 115. We come back in touch. Its a weaker dollar story. The yield is a little bit higher. What a month it was. 20 for themost month of april. Thats 46 a barrel. Take a look at green on the screen. At 2000 69. 2069. All three are up today. Take a look at my terminal. You can see almost all of the sectors are rising. Telecoms, financials, Consumer Discretionary are leading the way. The only thing down his energy. There is very little change there. It should be a light read on that screen. As far as the stocks that are moving, halliburton and baker hughes are ones we want to keep nine after calling off their merger. Weve talked about this all morning. They were against it. There were antitrust concerns. Bakerurton will pay hughes a frequent 5 billion breakup fee. It doesnt seem to be hurting chairs at all. This is good for warehouse ors down a little bit on the day. Apple is a huge player in the market. Wow,if you dont see its turned down. It was up in the market. We were looking at about a half percent. There is a little bit of a turnaround in apple. This would be the eighth day of losses if the continues down. Its only off three hundredths of 1 . There were slowing iphone sales. Gold has been on a tear. 2015. T the highest since this matches the longest winning streak weve seen since last year. The top trade of the year, you did well. Goldman sachs says its going to come down to 1100. We just heard that if we get past 1325, we could see a breakthrough. Watch gold very closely. We have eight days of losses, thats the largest sense 2004. Describinga note now it. Its incredibly expensive, not just gold equity markets as well. Whered he go to get that safety without paying a huge premium to get it. Jonathan matt great chart earlier. We ran into the same things. We looked at staples. Thats probably the first move you would do if you wanted to get safer. Its just too expensive. They looked the stocks of companies with low Balance Sheet leverage. Those are cheap, but they dont give you the protection you want in a down trending market. We moved onto low volatility stocks. They do a great job of protecting the portfolio. Expensive. We came up with salt record of approach where you look for stocks that have low volatility. You put on top of that a valuation constraint. Ratiost Companies Whose are not high in relation to where they normally are. Typical pe ratio of 18 times, you look for 16 and not 22. You can get these safer stocks without overpaying for them. Jonathan caucus to the chart. Matt thank you. I one battle of the charts today. I appreciate it. Consumer staples stocks are in white. 22 times forward earnings. Its coming down a little bit. The s p i have here in purple ink. You can see it trading at 18 times forward earnings. But i found shocking is the fact that Consumer Staples are the second most expensive groups after energy. This is unreal. The p e ratio on the Energy Sector is above 100. Its amazing how expensive. You cant even count whats going on in energy. Jonathan make sure you have a valuation. Whats the glitch in the marketplace. What you are saying is the market is miss pricing the stock. Why is that . Say is theset we are the names the market has not identified. Method kicks out a lot of utility stocks. That has had such a big rally with Interest Rates falling. Thatisolating the company hasnt rally yet. We back tested the strategy over the last 15 years. It worked really well. Its helping you pick stocks that havent rallied already. Lets take a look at some of those names. Financials are the place for there be room to run. Where do you see that developing in terms of individually picking the stocks after people and building a portfolio . Megan we like the Financial Sector. It is an expensive. Its been one of the worst performing this year. That has a lot of upside. We develop this quantitative approach. Stockstor with the most was the Financial Sector. We thought that was a little bit of a validation for our preference for that sector. You mentioned to some of the names in there. That thego was one sector identified as attractive. Looking for are the lower volatility stocks within financials. Most of them do look cheap versus where they have been. David is there similar analysis for defense . Is a little bit more of a defensive area within it. I think its the surprise that the Defense Companies like Lockheed Martin were identified. Megan i want to print my terminal right now. Jonathan you mentioned p e ratios. Dips down toward what is a weak spot. You pull back again. Based on that chart, do you look at that . Is that fully valued . Its a term i dont like. Is that what they are saying . Theres notnathan a lot of evidence when you hear valued. Fully if you had a 10 year time rise, i would say thats extremely important to your returns. Valuation is such a strong predictor. As almost meaningless for three or six month stock. Jonathan youve given us some ideas. They are heavily rated. My question to you is why not just go to cash . Jonathan many investors cant do that. The reasons why you see sectors like Consumer Staples trade with the premium valuation at that they have. You are getting nervous. You dont move your portfolio into cash. Bonds out and you find like stocks. The interesting thing is ever since the financial crisis, safer stocks of been trading at a premium. In order to exit the equity market, thats one of the reasons. Jonathan thank you very much for joining the program. Up next, puerto rico announced it will default on the 400 million on payment it has today. What does that mean for the island . David coming up later, the Milken Institute global conference. Jonathan this is bloomberg. We are about 12 minutes into the session. The dow is up by 72 points. The s p is up around six and the nasdaq is up about 2 10 of 1 . Its time for your business flash. Theres a big transaction in the paper business. International paper will buy april unit. 2. 2 billion about dollars. Whats the deal is done, cost savings will be about 175 million. Halliburton will pay a 3. 5 billion dollars termination fee. They called off their merger. Faced resistance from regulators over antitrust concerns. There will be a buyback of shares and debt. Phillips is disappointed with its business. They are considering an ipo. They may seek a valuation of about 6. 3 billion. They will make a final decision soon. Thatcher latest. David were going to head over to matt miller. Confirmation got that sergio will take the ceo role at ferrari. Thats not a surprise. Rate shares are down now. Another asset that has moved down sharply is crude. You see oil. Wti is behind me. Its down 1. 3 . Thing. A big the correlation with stocks has been pretty strong this year. Gold looks the same. Gold took a sharp leg down. Watch those commodities today. Gnc may have put itself on the block after hiring Goldman Sachs to review strategy. Thats what you do when you are doing that. Franchisinganges to strategy. The review comes after they made their First Quarter earnings. Tumbled 30 . They are up 4 today because investors like it when they are exploring all options. Take a look. Goldman analysts say defense spending is at a trough. It may benefit l3 as it grows. They have been lagging. Calling l3sentially a buy from a market performance. Apollo, we were talking about the university of phoenix, they are up right now. They are up 8. 7 . They are offering 10 a share. Premium to apollo education. Jonathan the worst week on the nasdaq since february. The stock is trading higher here. Resort chairs are higher. Thats better than analyst estimates. Gaming revenue fell i 9 . Of 13s the median decline point 5 . More onare focusing tourists after chinese authorities to crack down on the elite high rollers bring in a downturn in macau. The last time this happened in 2012, there was a big upside it coinciding. This was the news that chinese are not regulators are going to look into compliance after incident where a 21 euro student died of cancer recently after using by do. They will cooperate fully. The stock is down. Megan puerto rico will default on upon payment due at the end of the day today. The governor asked lanes the different difficulty over the week in print at me be very clear. This was a painful decision. We wouldve had preferred to have a Legal Framework to restructure our debt in an orderly manner. Faced with the inability to reach the demand of our creditors and the needs of the people, i had to make a choice. First. Al services came peter we are joined by hayes. Where do we go forward after we blew through this deadline . Iser the bigger deadline the july 1 payment. This has been expected and generally known. They still have until the end of the day to work with creditors. They do they have a Forbearance Agreement or solution. Need 100 of the creditors to do that. They have defaulted on two different entities. This is in the market. The problem is july 1. Thats always been thought of as the Gold Standard of the market. The headlines are going to be sensational around that time. Is this having any effects of the bond market . Its isolated. They are unique. It all around a weak economy and a high level of debt. They can technically afford to raise taxes and pay for it. Thats not the case in puerto rico. It. Has been widely expect its been coming for the last few years. Investors were either comfortable or not. They sold it. We see a much different set of investors get involved. Thats making the workout process more comfortable. Its not goings to impact the market. Retail can be very reactive to negative headlines. We are paying attention to that. On july the attention 1, im adjusted in the use of the word headlines. Peter the market is pretty big. Its 3. 7 trillion. Its different than other fixed income asset classes. They dont all have problems. Two thirds of the market as revenue based. One third is general obligation. Rico of places like puerto has a pension problem and missable bet outstanding. Its the association of those two. We see the effect of spreads on upon prices in places like new jersey and illinois. That will grab more headlines. Its going to be interesting to see how investors react. Is congresss responsibility in this . Is staking a lot of Political Capital on getting something done. Peter thats a very tough question. They are going into recess. It may happen next week when they come back. They need to get bipartisan support in the house and that it needs to pass the senate. There is a critical time element. Im not going to handicap whether they get it done or not. Its growing increasingly difficult. They need to restructure their debt. Its a twopronged approach. Congress like to play a part of it. It will be a humanitarian need. They dont have a framework to restructure. Thats what congress is time to provide. It simply its less litigious. David up next, its Bloomberg Markets with betty liu and mark barton. Park is joining us. From theve got tom lee research. He is one of the most accurate forecasters. For going to get more on that Erik Schatzker interview with the chief executive of delta on his vision for the company. The latest on ferrari, on the acre Hughes Halliburton takeover. Its fascinating because crude oil as i speak has moved from positive to negative. Look at that big slide. The deal fellsons apart. David thanks very much. Up next, a look at whats on the agenda today and later on this week. Jonathan heres an update for you. The dow is up by 31 points. The s p is up around by about five. Sharp dropoff in crude in the last 20 minutes or so. It didnt really come from nowhere. That is your market update. David we get april manufacturing data at 10 00. Earnings afterg closing. Megan the indiana primary is tomorrow. Tesla reports on wednesday. Jonathan i always get excited about hell rose. Payrolls. Im excited about the Milken Institute local conference. Theres a stellar lineup of bloomberg. T here on a big guest is coming up tomorrow. I think the markets are fascinating. What happens. The data it looks firm. David its real people with real jobs. Megan lets not about the forget about the indiana primary. Jonathan thats it for bloomberg. Betty it is 10 00 in new york. This is Bloomberg Markets, on bloomberg television. Vonnie lets head straight to the markets deck markets desk where julie manufacturing data coming in worse than estimated. The institute for supply management coming out with its numbers just minutes ago. Versus a survey number of 51. 4, so worse than estimated. Prices paid higher than estimated, reading at 59, 52 was the estimate. 55. 5 ands coming in at Construction Spending month over month up 3 10 of 1 , down from a revised 1 gain. Interesting to be getting these nuer