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Will cover all the commodities. Caroline hyde in paris on a warning by the oecd, and Ryan Chilcote in vienna previewing the opec meeting. We begin in asia where Prime Minister shinzo abe has decided to postpone an increase to the sales tax. Delayed once, it is twice, and i am wondering if we will ever get it. Enda i think it just shows you how nervous the outlook is for japans economy. Japan has the biggest debt burden and they have been trying crying out for the government to do more to tackle debt. Minister day has had to step back again and surrender and say, we need to do more spending and try and get growth going. The economy keeps flirting between contraction and expansion. It is also interesting in terms of what it needs means for the bank of japan. We have already seen the reaction, a big gain in the end today as it takes pressure off Central Banks in the yen today as it takes pressure of signature banks. It shows you that japans economy remains on quite narrow footing. The dollaryen 109. The pm eyes look stable but they are stable around levels that are certainly not around what the chinese authorities would like to see. What do you see . Enda as to the stabilization out of chinas economy, it has freed a little bit after a rocky start to the year but there is no real sign of a big momentum for the economy. All the fiscal and monetary stimulus, they are a little bit disappointed because they are not getting any real traction. Lets see what the fed decides next week. If they do signal a hike, that will put downward pressure on the yuan and might trigger more capital, and china gets back in the game in a big way. I think the coming months are going to be more critical. Stabilizing but few really think that chinas economy is out of the woods. Jonathan janet yellen speaking in philadelphia june 6. A special thanks to enda curran. News, salesforce will be buying demand where, paying reportedly 75 a share. Salesforce is a very successful business. Their demand share is an eCommerce Company, 75 a share is right. That is quite a healthy premium over what they ended at yesterday. We are going to move to a warning on the Global Economy. Paris and go live to check in with Caroline Hyde for the very latest. They started these meetings with a bang, chastising them for relying too much on Monetary Policy. What is going on . Caroline it is fired up inside because this is a call from the oecd to get the governments to step up to the plate. They say Monetary Policy has done enough and all of you nations with negative Interest Rates, start spending. Stop shutting down the barriers, start opening yourselves up and boost trade. I spoke we have to the secretarygeneral of the oecd. , that isment today going at about 3 to three and a half percent. It should be at 7 . Credit is not flowing. The strong to Medium Enterprises saying conditions have tighten very much so they are not getting it. Caroline it is pretty fascinating on a day that comes the warning from the u. K. , the issues with the brexit, the risks they are managing about potentially leaving the eu. Foroecd cut their outlook growth in the United Kingdom and they are starting to worry about the commodity cycle. Clearly the oecd feels it is time for governments to start to work. David that is Caroline Hyde joining us from paris. Megan opec ministers are gathering in vienna. In a bit of a relationship repair mode given in april what we saw . What do we expect to come out of this . Ryan it is pretty clear, we talked to a couple dozen analysts can only one thought opec would take any action. The expectation is that they are going to leave it to the market and stick to the strategy from late last year whereby they sit on the sidelines and remove their production ceiling. Relationship building is what we can expect and the reason is that a lot of the opec countries think you should be a freeze on production. They went to doha thinking they should get that and they feel the saudis ran away with the show, even though everyone in doha had come to view a freeze. Interesting that on the one level we are not expecting any big news in terms of immediate opec policy here, but we are expecting to make some headway in terms of the x essential problems facing opec. Megan does everybody agree with the take on the oil market . Ryan no. The gulf countries are effectively saying, look at how the oil price has risen nearly 80 since february. That is because we are leaving this to the market. A lot of other country say wrong, that is supply disruptions pushing things up. There will be a pretty robust argument but at the end of the day, the expectation is that the saudis and gulf countries will get their way. Jonathan lets get a check on the market. May, very much about the Federal Reserve and renewed recalibrated expectations. We kickoff june with a very japanese thing. Prime minister abbe confirming confirming the tax hike will not happen until 2019. Significant yen strength. Dollaryen pulls back. 1. 16 , the by biggest oneday drop since april. It is risk off any see that in the fx market. The bloomberg dollar index which had its best month since may 2014 fullback a little bit. As we approach opec, brent crude and wti both trading lower, the fourth straight day of losses. Brent crude off by one full percentage point, trading at 29. Lets get over to Abigail Doolittle for some stocks to watch. Abigail one of the top stocks we are watching, alibaba. Investor softbank is going to sell up to 7. 9 billion of its 32 sake stake. In an effort to bolster the banks Balance Sheet, people think this could be the first of several reductions. Italian banks trading down for the second session. On the news that the bank of italy may ask the italian inject an lenders to additional 1. 5 billion euro into a bankruptcy fund. Shares are down 90 from their record peaks in the last decade. Hsbc may cut jobs among the senior high level Investment Banks in an effort to cut cost, consistent with a threeyear plan outlined by Stuart Gulliver last week last year. Megan lets get an update on what is making headlines out by the Business World. Break there may be a into the investigation into the egyptair plane that crashed into the mediterranean. Has picked up signals from deep under the surface, presumed to be from the black box. It appeared off radar may 19. France,or problems in rail workers have gone on strike and 40 of highspeed Rail Services may be disrupted. The president is trying to contain the unrest before the start of the football tournament. This has to do with labor reforms the president is pushing. Donald trumps pitching himself as an insurgent and privately telling donors he will not try to oust Republican Leaders in congress. He plans to keep Mitch Mcconnell and paul ryan. Quinn. Nnie david coming up, shinzo abes aboutface. He delays an increase in sales tax in hopes to boost consumer spending. , take a lookbreak at the japanese yens move today, seeing its biggest gains against the u. S. Dollar in five weeks. Jonathan this is bloomberg , i am Jonathan Ferro. Futures in the United States down, 72 points. S p futures up by 4 10 of 1 . The ftse 500 down one full percentage point. A twoday losing streak on the stoxx 600. Shining bright red on the fx map is dollaryen. We had a 111 handle earlier this week, the biggest drop since april, down 1. 2 . Do you see that risk off tone it tonee treasury market in the treasury market . Crude falls for a fourth day of straight losses. To japan, where it is the focus thehe markets where japanese Prime Minister has an aboutface, postponing the increase in the sales tax until 2019. Joining us is tom orlik. October 2015 was it, we were meant to get it then. Now it is 2019. Talk about the sales hike and why we may never get it. Large itdebt is so needs to come down at some point. Even very minor attempts to pay down that debt, the last two attempts to raise the sales tax were insufficient to plunge the economy into recession. Question then becomes, if you cannot make these minor down payments is there anyway you can get ahead of the curve on paying down that monster public debt . Into office,e came this was a major part of his Overall Economic plan. Does this mean he has to rethink his overall strategy . There weree came in, these three arrows everyone was so excited about, monetary, fiscal, and structural reform. A couple of years ago people were giving him credit on two arrows, not on structural reform. I think we have to mark him down again. The Monetary Policy arrow remains in flight. Megan this is what i find so notresting, we still do have any detail of where we are going to get this additional stimulus, whether they will look at elder care or childcare, two things that are been heavily discussed. Where can we see that boost . When are we going to get the details . Tom that is the key issue for japan. Yes, you can run an absolutely enormous monetary stimulus but will that stimulates be sufficient to stoke investment the faceonsumption in of the very well recognized fact about the demographic headwinds . The answer appears to be no. Jonathan japan dominating the headlines and at the beginning of the year it was china. Dollaryuan tom in the beginning of the year for china were two big issues, this mysterious silence from policymakers, not talking about plans. We got much more clarity and they told everybody what the plan is. The second thing which has changed his growth. Growth was still sliding at the beginning of the year. We have not seen it bouncing back that we have seen stabilization and that has reduced concerns the government is targeting a big devaluation. Jonathan the question will be how do we get strokes . We can do the bloomberg from space and it is the satellite imagery to get the satellite pmi to china, and that is the blue line. I believe it tracks thousands of factories in china, and that is a gauge that is not pretty of what is happening. How do you read growth in china . There are doubts about the reliability of chinas official data, concerns there is some kind of political aspect to the numbers. If you look at pmi data, it points to zero change in the manufacturing section and week growth in the services set. It is difficult to square that with 7 gdp numbers. Megan when we look at this possibly going down to 7 , what is the number you think could actually be running that would not make people so alarmed . Tom i think the thing that people forget about china is that uniquely of major economies, has significant policy space. Look at japan, next out on debt, negative Interest Rates. Hat is not the case for china the pboc can still pay Interest Rates, Government Debt remains very low as a share of gdp. We think the chances of a hard landing in china are pretty farfetched because the government has the policy to support demand. Jonathan can they cut rates and manage capital outflows . Tom that is the impossible trinity which concerns theoretical economists. China thinks they have managed to solve the problem by having controls on the capital. Jonathan tom orlik is in town and we will be seeing a lot more of him. David the ecb and payrolls numbers still ahead this week, but could the Rate Decision and jobs number turn out to be nonevents . Purcelli joins us next. Megan this is bloomberg , i am megan murphy. It may be a short work week for the u. S. But it is still a big week for global markets. The ecb meets to review its Monetary Policy. Friday, we get the u. S. Jobs numbers for day. Joining us to discuss it all is tom porcelli. Tom, three big events coming up. What for you is the biggest event risk of this week . Tom i do think it is the payroll report. The ecb meeting, i do not think there is a lot of event risk. This is really more about fleshing out the details of plans that were already put in place. I think the payroll report is almost always the most important event. There will be some impact from the verizon strike but generally speaking, that is sort of where we are focused. Megan we have seen about 35,000. Tom 35,100 to be exact. Obviously to be stripped out when the fed is looking at the number, but tell us what number you are looking for. Tom we do think this number will be 155. We think the underlying run rate is about 200,000 and that is basically enough to keep the fed on course for raising rates in the junejuly window. Payrolls,icture on People Better start bracing themselves for the fact that we are in the midst of a slowdown in job growth. There is nothing pernicious about that. It is a natural part of an economy that has been in expansion for a number of years. Growth already slowing down. Two years ago we were averaging 250,000 per month. Last year we averaged 220,000. Megan if we are at a point where the labor market, why arent we seeing a faster pick up . Tom wages are accelerating. It is interesting we are talking nowoes talking about it with that has been a story since at least last year. Everyone has to understand that going from 1 to 2 is an acceleration. David put yourself in their shoes. What is the best cased, the most compelling case for why you should raise rates . Things are going ok now. Tom here is what i think people have to wrap their head around. This is on a tightening cycle. That is the wrong way of describing it. This is a removing of accommodation cycle. If it is true that neutral fed funds are around 2 , and no one knows were that market is with that number is, basically everything up to that point is still accommodated Monetary Policy. We are seven years into an pace. Ic expansion at a 2 should you be well north of neutral orwell south . That is where i think the debate could come into play but there is no question that you need to be removing accommodation. Megan tom porcelli, chief u. S. Economist. Ofathan the facebook vp global, to discuss the shift out of digital and mobile. That is coming up. Features soft. Okay, ready . Whoa [ explosion ] nothing should get in the way of the things you love. Get americas fastest internet. Only from xfinity. Jonathan this is bloomberg , im Jonathan Ferro. But a snapshot of the markets. I go to the fx market and a go to dollaryen. This is a much stronger japanese yen and the biggest oneday drop since april. A 111 handle earlier in the week, 109 at the moment. Weak, closingre lower. That negative sentiment from asia spilling into europe as well. The pm eyes globally the pmis globally the dollar index softer but look at the commodity market. We went through 50 last week and we are looking at 48 handles now. Wti down by one full percentage point. It is risk off in this market and it spilled over from asia to europe and potentially the United States. David here is what you need to go at the hour. Salesforce signed a transaction and will commence a tender offer for outstanding shares of demand. Gauges official factory remains slightly positive for the third month in a row, signaling improving conditions. The organization for Economic Cooperation and development warned the Global Economy is sinking into a selffulfilling low growth trap where Monetary Policy risks doing more harm than good. But go to first word with fine quinn. Vonnie california governor jerry brown has sent a message to democrats quit fighting over the nomination. He announced he is backing clinton and her lead is insurmountable. There is more pressure on venezuelas embattled president. Aey have come out in favor of recall referendum. Venezuela is suffering their worst recession in decades with everything from Food Shortages to electricity. They tried to rally support for her opponents in sundays elections. Her father is a former peruvian president who is in prison for corruption and authorizing death squads. Global news 24 hours a day 2400 journalists in more than 150 news bureaus around the world. Jonathan joining us is tom keene. We did not do this very often. Renewed uncertainty over the nomics, and a down move for sterlingyen. You have concerns about a referendum. Today, japan front and center. Tom it is stronger. You can look at it against any major pair but the idea is that we are not back to center tendency of what has been a stronger yen. Dollaryen, at 109, 106, 105 you get to see the tension clicking. Jonathan one thing you do really well is look at rate of change, and the rate of change to go from a 111 handle to a 109 handle certainly moves against kuroda. Tom and these are brutal moves. The acceleration in trend. Some of the moves today and the strong yen maybe the idea of the covering of trades. I get that idea, but the fact of the matter is we are nowhere near where we need to be. Jonathan it confirms probably the worst cap secret kept secret in japan, the rate hike in 2019. It is a fiscal stimulus because he is not going to implement it but he clearly has a lot of work to do. What does it mean for viewers around the world and Market Participants in the United States . It just leads to more uncertainty and that can affect particularly china. Adjacencies tose japan really begin to click in within asia. Jonathan the question i would ask, many governments around the world have missed targets. Many Central Banks have missed targets. Is japan any different or is this worse . Tom it is an artificial construct compared to most systems. The demographics are totally different. The sense of island nation makes it different, the cultural economics. The number one thing has to be the debt buildup and the oddity of how that debt was controlled by domestic dynamics for years. It is by no means a normal debt dynamic of the stocks of the debt, or the flows of the debt compared to others. Jonathan the analysts will come out and question the fiscal examination. When does it become a credit risk issue if ever . Issue, ever has been the we are pushing 20 years of chronic malaise. I think if it ever is, would it be something measured and controlled versus what many would predict would be a condition of higher yields or fiscal monetary instability. Nobody knows the answer to that. The imf has to confront the potential jump condition because of how odd the scenario is. Tom keene from bloomberg surveillance. Tom keene, Michael Mckee mckee, 7 00 to 10 00 weekdays. David quarter after quarter, facebooks success has driven earnings. This shift to digital and mobile is a trend more Traditional Companies cannot ignore, and that is the message that erson has been telling ceos and board rooms. Point,to pick up on this facebook is part of our lives. That is for social media, communicating and buying things. In a broader business context, why is this a more profound change then say word processors . Is the mostile profound disruption we have ever seen in business. At dollars in january the theme was the Fourth Industrial Revolution and when you look at the pace, have never experienced this in the history of our economies. The average lifespan of Countries Companies is to be 67 years old and now the average lifespan is 15 years. Companies that have been around for a long time be to either acquire a disruptor, have a venture fund that invests in a disruptor so they can participate in it, build a parallel organization, or rewire their culture. Facebook itself has been open about its own struggle as the mobile dynamics shifted so rapidly. How are you using that to do exactly what you are saying, convincing companies of the profound cultural change they need to undergo to capitalize on mobile . Carolyn we lived this disruption ourselves. When we went public we had no mobile revenue and our mobile five, andilt on html was not particularly good. Mark declared we needed to be not only mobile first but mobile best, and tries cultural change very quickly. When the team walked into the Conference Room and showed him a desk top mockup, he ended the meeting. That sent a message very quickly. We retrained all of our engineers within a period of ,eek, rebuilt our mobile app and 80 of our revenue is based on mobile. We went through this transition and are continuing to go through transitions. We have seen visual communications take off, which is why we have acquired instagram. Whuired whats out atsapp and messenger because of people wanting to committee kit with businesses. We are constantly saying Consumer Behavior evolve. Transition, it was an amazing story for facebook. Other companies have not been quite that successful. When you go back to more traditional brickandmortar companies, you see more failures than successes. Do you have examples of Traditional Companies that have made the transition . Carolyn each day there are a thousand apps they get submitted to ios and android so thousands of companies are trying to disrupt brand by brand across the model. Examplemotors is an that is trying to participate in new and emerging models with their investment in lyft. David autonomous driving. Carolyn they are investing very heavily in, and mary personally is using facebook. She has seen the trends and is utilizing the platform that just for business but for communicating her message. At this, i we look have heard you say that as much as mobile has been a profound disruptor, video and live video could be more of a disruptor. Tell me about what you are looking at in terms of content and where you see video going. Carolyn we believe video can be more disruptive than noble. Every day, and hundred million hours of video are being consumed on facebook. Format oflove the telling stories through sight, sound, and motion so we are exploring everything from allowing consumers and businesses to go live, all the way to businesses, allowing them to communicate their story from three seconds to much longer formats. Kleenex did a wonderful piece that allowed people to have one emotional moment in their news feeds. It was seen and watched by over two minutes. Mobile video is typically a mostming factor and viewers will watch with sound off. Branders need to think about how they go to market with mobile video. David i want to talk about other sorts of businesses, particularly general motors. Talked about taking ge to a global company. It is a slow to know growth world. That does not mean you stop. You continue to have to plant seeds. We are looking at the digitization of industry, that is our future. David for general electric, they think there is a future. It is a difficult transition to make. Carolyn it takes leadership at the top and beth is a wonderful example of that. Dna tove got it in their continue to evolve. Leadership needs to set the agenda, to recognize this is not a fundamental shift in marketing but in business models. If you were to start a Financial Services company today it would look more like a fin tech. Two. Payment service. Industry, industry by every leader is going to have to rethink the way they do business. David we are going to have more carolyn everson. Unveiling new tools to interact directly with customers. Carolyn iverson discusses the company plus revenue drivers. Megan this is bloomberg , i am megan murphy. Coming up at the top of the next hour, we will be joined by jeff curry. It is the commodity roundup at 8 00 a. M. Eastern on bloomberg. David this is bloomberg , im david westin. Since it went public in 2012, facebooks stock prices have climbed 12 112 . For more on the social networks growth plans, Carolyn Iverson is still with us. Where are you in the process of monetizing instagram . Carolyn it is still very early days for instagram. 50 million businesses have a presence on facebook. On instagram have 200,000 advertisers. We have this great poster at facebook which says, where 1 of the journey is finished. Every day we think about how to grow instagram. We launched instagram and response to the Small Businesses that have a presence, they wanted to have better insights in analytics and better respond to their customer need. David is the curve of growth in instagram roughly the same as the curve of growth for facebook . Consumer adoption of instagram is actually at a faster rate. Instagram is at 400 million active users around the world now and it is growing very rapidly. From an advertiser base, we see a lot of facebook advertisers utilizing instagram so we are getting crossover, and they are finding success. Instagram provides incremental feed to facebook as well as tv. What we are doing is leo is take it from what is your business we always take it from, what is your business objectives . We take that objective and build products and solutions on both platforms to achieve that. Jonathan there is tension between yourself, the platform, the advice the advertisers, and content creators. How does that resolve itself . Carolyn content is incredibly important on facebook and instagram. People on our platforms love to consume. We want to be a major Distribution Platform and we are. Differenting to find ways to help content producers monetize that content. I think it is very early days to understand how we best monetize it. There is no question that facebook and instagram are incredible platforms. Jonathan take me inside the board room. What is the conversation right now . Carolyn we are exploring revenue share articles. Are there different ad units that we can provide . We also have a very active product called Audience Network what serves on publisher apps and sites as a way for publishers to monetize their inventory using facebook data. Megan really always talk about facebook as a platform company. Is there any concern at the boardroom level that the type of regulatory scrutiny we had seen from Companies Like alphabet is going to move into the platform space . You are such an effective distributor of content and some would say you are the dominant distributor. We work very closely with policymakers across the globe. We have an active policy team and we are in constant conversation to make sure they know what we are doing every time we update our user policy or how we have privacy settings. We are giving users more and more control over how their content is shared. Our team is very active. Facebook is an incredible platform for policymakers as well as leaders. All of the candidates in the u. S. Election, government leaders, every member of congress is on facebook so we are an important platform. Reality, you are big and virtual reality. What is the business . Carolyn we do not know what the business is yet. What i mean by that is of course were selling the product, and overtime we will have potential models that could look like advertising. Rift has just shifted and we have 50 programmers building content. We are selling the hardware and we will look to see if there are other monetization models. Iverson,rolyn facebooks global vp. Megan the good, the bad, and the ugly. We wrap up the month of may. David this is bloomberg , im david westin. Time for off the charts. As we start a summer filled with risk events sure to shape global markets, lets look back to the month of may. Is will my question the month of may transform the month of june . Here is the story of the month of may. With the Federal Reserve at the epicenter of what happened in markets, take the 2year note in the u. S. Yields on a 2year note pushed higher by the most since the back end of last year when we by the first rate hike Federal Reserve. High yields on a 2year note means we have the worst month since december meant a much stronger dollar. The bloomberg dollar index, the little red dot every single may for the past seven street mays, have inched higher. Yields support them a stronger dollar, so the recalibration of expectations, the expectation for a rate hike has started to move the markets. What does this mean for commodities . Gold had an ugly month , the biggest monthly drop since november. 2year note yields go higher, the dollar stronger and gold lower. What does it mean for the fx market beyond what happened in the u. S. . , it hast dollaryuan its biggest monthly decline since august. In august, we had the chinese devaluation that pushed higher in dollaryuan. The weakness as we push back to year to date highs my question the Federal Reserve has transformed expectations for june and july and as the yuan starts to weaken, will the feedback loop start to kick in . Quite simply, will the month of may transform the month of june and july and the summer ahead . David i wonder as i look at your charts if this indicates more volatility. I get a lot of movement on a lot of different assets. Jonathan the question i would raise, we seem to be the doom loop, the idea that the conditions ease and the fed steps forward, we know what happens when the fed steps back. David thank you so much, jonathan. Ore,oil to gold to iron Jeffrey Currie make sense of the recent commodity selloff. David commodity crash. Dip. Snaps a nine date we will make sense of the crude move and commodities. Jonathan a cut in Investment Banking jobs. Goldman sachs is set to be added to the list of slowing down directivity. Megan a battle for the white house keeps up and we revealed the top Exchange Traded funds for clinton. David welcome to the second hour of bloomberg. Jonathand westin with ferro and megan murphy. Megan first, we had the head of Commodities Research jeff curry here. He is revealing has outlook for all. Later, Stephen Englander will join us, too. We will discuss what is happening with china and the yuan and the surgeon again. First, a look at the markets. Jonathan a decent session out there for the bears and not so much for the bulls. 75 of 1 . By Dow Jones Futures up. Switch out the board, the big cross, dollar yen, one point 09, down by over one full percentage point. The Prime Minister shinzo lobby domain that sales Prime Minister abe delaying. A stronger euro story at 111. 74 and yields creeping on treasury, down by two basis points. A 50 handleys from to a 48 handle, 4847. Over one full percentage point on wti. Abigail doolittle wont walk us through it. Abigail one of the top stories, wall street preparing for new job cuts. Goldman sachs could be cutting up to dozens of Investment Banking jobs has they adjust to a slowdown in deals. It has been reported that they have been reported to cut several senior highlevel Investment Banking jobs and they look to cut costs. Goldman sachs is unchanged at this time. Turning to salesforce. Com, trading lower in the premarket. They announced the Software Company will be buying any Commerce Company for 75 per premium. Cash, a 56 the acquisition will add between 100 and 120 million in revenue in 2017. Bloomberg intelligence says it is a good acquisition for salesforce. Com. Lastly, shares trading lower in the premarket as the company cut their full of your forecast by as much as 13 as the sports of 30 bankruptcy ways. The ceo says the Sports Authority impact bankruptcy is impacting the 2016 number, but the grand momentum has never been stronger. Shares are down in the premarket. Jonathan thank you. From the stock market to the commodity market, crude set for the longest losing streak in six weeks as opec ministers gather ahead of tomorrows meeting on production policy. Ryan chilcote is live in bnf. Talk me through the meeting. I spoke to several people who say nothing will happen. What is the town . What is the tone . Ryan i think the expectation is that nothing big will happen. Bute would not be any cut we could see some new ones changes. For example, we have been hearing from the saudi delegation that they may reintroduce the production ceiling, why . Because people are not very happy at opec with the saudis policy that they basically championed and push through back in november, where they sort of left things to the market. Not everybody agrees that this rise in prices that we have seen is sustainable. They are concerned that it has less to do with killing off the shale producers in the United States and a lot more to do with supply disruptions that are temporary and could come back. It is going to be an important meeting, but it is mostly about how opec moves after they announced that not so exciting policy decision on thursday. Jonathan the cheat guide used to be listened to the saudis ahead of the meetings. Is the new Saudi Oil Minister a lot like the old minister . What are you seeing . Ryan no, not like him at all. He is a very quiet guy. Low profile. A his security guards have done their best to keep us very far away from him. He has not said a single thing before the meeting. The perception here on the ground is that he takes his ministerom the old oil. He is to go out for a speed walker and everybody waited on every utterance he might make because it could move the entire oil market. People really believed that even by trying to judge his move, you could tell which way the price of oil was going to go. That is not the case with the new oil minister. He is very a nononsense kind of guy. Now been in this and it is his job to make. Ther, he went to 70 old minister went to 70 meetings and this is the new ones first. Jonathan thank you. Ons bring in jeff currie oil. Your latest report, it is a basic chart, but it is the epicenter of the crude move that we see, Global Supply versus Global Demand and a market that is overpriced in deficit in the short period of time. Will its not back or stay there . Jeff nearterm we will stay there because of the temporary disruptions that have driven the market into a deficit, but think about what the market has been driven by. Three factors, temporary disruptions and a strong increase in demand in both of these will probably be transient. Second is that we have seen supplies, even in the United States, iraq, iran, and a third issue is you have a macro backdrop that puts downward pressure on the market to a stronger dollar and a weaker china. When we put that together, nearterm, the market could stay in that 45 to 50 range but as we move toward the end of the year, the market will soften again, which is what we have a drifting back down to the lower 40s by the end of the year. It is more of a transient tightness and it is a persistent tightness. Jonathan jack sits across from you and we talk about 30 crude and we are talking about reaching storage capacities for the crude market and not about induction but storage capacity. It seems to change radically. What is the ceiling now . Jeff if you look at so what the uncnp tells you and you watch isir strategy, the line drawn in the sand at 50 a barrel. You take resources about 50 and they rethink investment strategies. We look at the hedging activity in the oil market when that back and got into that 5055 range and you sought increase in hedging activity, so that is where i would put the height and the. It does not mean the highend. It does not mean it cannot trade above the 55 branch, but we see selling pressure above 50. David where are inventories right now . Jeff still at extraordinary high levels. We just started to dance at the externa a high level of inventories that were put in place over the last 2. 5 years. It takes a while before he can get really bullish on sustainable basis because you have to draw those inventories back down to the fiveyear average. We do not see that happening for another 12 months to 18 months. Megan we just heard brians take on vienna. What are you watching for this week . Are you looking for something . Jeff i would call it a victory lap. Successfully engineering a market that rebalanced on its own. In terms of thinking about strategy going forward, the discussion of an opec output ceiling or going back, those are production levels much higher than what we are talking about right now. Back and inventories are so high, transient factors that push the market into a deficit, so it argue, do not put any more oil in this market right now and wait until they get those deficits, and focus on being that marginal barrel that replaces inventories. Jonathan i need wti and the curve on bloomberg terminal as quick as possible on the terminal. The people hedging around the 20 17th mark, around 50 crude, you have seen the bigger producers and the bigger players with the ratio jumping off a cliff. How does the shape of that curve start to change in shape in the coming years all the way out to 2022 . We would argue that the longterm equilibrium price is somewhere around 55 and you find an inca around the longer term around 55. The front end of flattened, but we dont see that happening for at least another year with the front end getting up to 55. At the near term, we expect the front and dealing with high inventory, which we think will continue to weigh on this market for at least another six months. The front and would stay in that 45 to 50 range and not into the deep end into 2017 to expect the front and to come up. Jonathan my producers, that was quick. David very quick. Currie will becf sticking with us. Megan lets get an update outside of the Business World with vonnie quinn. Vonnie friendship france may have detected the black boxes from the egyptian plane that crashed into the mediterranean. Date received signals in the searched area. The voice recorders are considered essential to finding out why the plane went down. 66 people were on board. The United Nations is asking for a iraqi troops and state fighters to spare children in the battle. Unicef estimates there are 20,000 children still trapped in the city. Few families have been able to get out since iraqi troops weekend there offense to retake the city more than one week ago. Russia has arrested 50 suspected members of the hacking ring stole money from the nation bank. Since the middle of last year, they have lost more than 45 million to hackers. Local news powered by our journalists and news bureaus around the world. Jonathan thank you. Coming up, if april was the party, may be made was the hangover. Biggest monthly losses in 2011 and could the slump just be Getting Started . Weighs sachs jeff currie in. Bhp and rio all seen significant losses. Next. O david this is bloomberg. Westin. Id the metal rally running out of steam. Iron ore seeing the biggest loss since october 2011 as the rally driven in china fades. Is still with us. Simply passed, what happened with iron ore in china in may . Jeff you did have a physical increase in demand. The problem is it is super easy to create supply and create iron ore supply from around the world, which was able to uncut that decrease that demand in march. We look at china right now and a half life of that stimulus they injected into the economy in the First Quarter has already collapsed. Reading the halflife of stimulus is getting shorter and shorter, which is an indication that we cannot expect that there will be a followthrough into the second half of this year from the strength that we saw earlier and that is part of the reason light base metals dropped this morning. David where did the increase in demand come from to begin with that went away . Jeff it is important to go back to what happened in the Fourth Quarter of last year. Everybody was bearish on china, so we sought significant the stocking of inventories, particularly iron ore and steel. Then we had the stimulus of the market in the First Quarter two trillion dollars and that should have created an enormous increase in demand, but it only increased a small 2. 6 increase. Why did that create such a big rally in prices . Because the market was caught short due to the destocking. We are now back to the problems we had today, similar to what we would have had in the Fourth Quarter. Jonathan where are we in supply because an opec like strategy on the frontline they used to say that the highcost producers ranking on by fingernails, that i dont see them coming off in a big way have we seen a major change in strategy . Jeff no, it really has not changed touches why the market came off. It was a demanddriven popped off of the credit stimulus that china directed in the First Quarter and that ran its course. Now we are back to the same supply overhang. You take a look at steal lexus capacity on a global basis and it is 30 . You take a look at steel capacity on the global basis and it is 30 . Megan factors have actually been shuddered by this. You are describing a supplydemand mismatch, a temporary one, but what responsibility is it for the government to look at this popped and to keep about better gauge on what can be done and what should be done . Digs into thethat question of why did the stimulus out such a short halflife . The reason being that if you put industry thatan has low rates of returns because of excess capacity, it will have a smaller impact. If you put 1 trillion into an industry that has a 10 return, it will grow by 10 . If you put one chilean dollars into an industry contracting 5 , you will lose 5 and that is if you put 1 trillion into an industry contracting 5 , you will lose 5 . The free area is reagan but the stimulus. One is a structure and that helps one is a free area in the stimulus. One area is the structure and the third one is manufacturing, so the only one that would really lead to any kind of growth on a permanent basis would be in the structure. Jonathan one of the things Goldman Sachs has done so well is look at commodities in china and walk me through that trend. Jeff when you think about commodities, we put them into groups. , used to build the commodity like iron ore, and then you have commodities used to build the Economy Like Oil and gas. If you build the building with capex and you keep with the look at gasoline demand, up around 6 , diesel demand down by 9 , which gives an indication that we are seeing that rotation toward the consumer driven economy. Jet feel demand all relatively strong while the demand for your commodities contracts. What you say about the limited effect and duration of the stimulus in china and the fact that china is so much a driver commodities overall, what does that tell us about Commodity Prices over the next 12 months . Metalin terms of the complex, you have that excess supply overhang in the market combined with a sequentially weaker china over the next six months because you have a lot of downside risk. You take the copper forecast and we have 4200 a ton at the end of this year, 4000 a ton next year, so we see lots of downside risk. Curr Goldman Sachs global head of commodity will be staying with us. Ie, megan coming up, a quarterly gain in the past 30 years. Streak snappedng yesterday. Go the inevitable rate hike send old into a meltdown . Jeff currie reveals his forecast, next. Go to go on your bloomberg. Gold suffered its biggest monthly decline since august and may. Good day to our viewers worldwide. Crude on the move. Some losses in the session were down by about one percentage point at 48. 56. Speaking at the old market, it will change in the second half of the year. The oil market will be good in the second half of the year. Iraq currently producing 4 Million Barrels a day. Gan this is bloomberg i am megan murphy. Cold inching higher for a second day after snapping the longest losing streak. This comes after a dismal may. Is still with us. On gold been the bear for quite some time. I dont think your position has changed. Walk me through your stats. Jeff we are focused on three factors. One, higher Interest Rates. The market prices in on 29 basis points of a rate hike going into the year. Forecast is for 50 basis points. Second, we see a stronger dollar across the board and across most i the g10 currencies and will put downward pressure on gold. The other factor that keeps us focused is simply how long the market is. There has been a lot of interest in gold, particularly since the interest in the u. S. And potential negative Interest Rates around the world. The link is at extraordinary high levels. That is a significant risk to the downside if you have all the same or exit at time, so those trade factors drive carl levin 84 at the end of the year. Megan is there anything that could disrupt that . Would changet particularly the fed outlook in terms of the hike . Nominated ins been u. S. Dollars. We think of it as another fx, so if you think about gold denominated, you can think about those and i think your question is spot on in terms of what could happen in the u. S. You have to take the view that the fed is forced to become much more dovish, and we saw that dovishness back in march, april time period, which is unresolved a significant increase in gold at 1300. As we think about going forward, how dovish can the u. S. Get because the problem is you look euro, japanese yen, the have significaly stronger with that time period to have a drag on the rest of the world, so there was a limit on how dovish you can get with the u. S. Equivalent of the as you get bullish, because you have to think about the balance. I think about the dovish risk we saw back in the first and Second Quarter probably being the limit of what you can see. Jonathan when you sit with clients, what is the biggest back you get . Jeff china. China is going to be forced to diversify into gold and they are underestimating the physical demand for gold going forward. And you will have significant capital outflows. What of the arguments we push back against that is you look at china and it is running a current account surplus given the trade balance, so there is a limit on how significant the Capital Outlook out of china can actually get. Also, you look at the government and go back to the policymakers back in Fourth Quarter and First Quarter and there were a lot of uncertainties. That is sophisticated. It proves that the policymakers are much more adept at managing those presumptions. You manage those and you dont have the risk of capital outflow, which takes without bullish leg of the gold output. Megan you used to live in london, what about breakxit . The that is much more of europeanbritish event and not so much a u. S. Dollar event, so in or gold are nominated dollar i am not so much worried about. It is a question mainly for the pound been for the dollar and gold. Thank you for being with us. It has been great to have you. Yuanscoming up, the worst month in nine months. Will it retreat to another global selloff like last august . Us ton englander joins talk china, japan, ecb and more. More bloomberg coming up, next. Jonathan this is bloomberg. I am Jonathan Ferro. A snapshot of the markets. Futures softened in the Asian Session and europe session. Down by one full percentage point, the dax down by. 7. Japan doing the heavy lifting in terms of bear sentiment. Nikkei closing by 1. 6 and the spillover into the fx market. Stronger yen. Stronger by 1. 3 . The swiss franc pushing higher as well. Appreciating by. 501 . Beat toand the swiss currencies paired to take a look at. The commodity market soft as well. Right now, a fourday losing streak on wti, 48. 62. As we approach and opec decision. Under one hour away from the opening bell on lost it. Heres what you need to go at this hour. Goldman sachs cut Investment Banking jobs, joining firms adjusting to slow down. People familiar with the matter say that there are dozens of executive directors and Vice President directors across the Capital Market teams. Salesforce. Com, which sells Business Productivity software, agreed to by demand rare in a transaction with 2. 8 billion. Brazil, latin americas largest economy, shrank less than what was expected in the First Quarter. Now over to vonnie quinn to hear about the news in the rest of the world. Vonnie thank you. California governor jerry brown sent a message to fellow democrats fighting over the president ial nomination. Clinton backing hillary over Bernie Sanders and next weeks primary. He says clintons lead is insurmountable and she has the best chance of stopping donald trump. Donald trump is pitching himself as an insurgent. He is privately telling donors he will not try to oust Republican Leaders in congress. Trump is committed to keeping paul ryan and Senate Majority leader Mitch Mcconnell in their positions and that is seen as a sign that he would cooperate with gop leaders if elected president. Andllinois, the Governor Legislature have failed to resolve a budget impact that may lead to 10 billion in unpaid bills. Prisons result in running out of supplies. Both sides said they will negotiate a stopgap plan to keep the government running through december. Illinois has tried to resolve the unfunded liability. Global news powered by our 2400 journalists and more than 150 news bureaus around the world. Much. An thank you very to todays morning meeting, where we hear were key banks are looking at. I am looking at the chinese currency moving back toward a fiveyear low amid speculation of the feds next rate hike. Steven Englander Englander joins us now. Great to have you with us. All fx rose and went back to the cross. We have had this move back toward the year to date hard. The rest of the fx market pretty stable. What is the story . And cnhi think this cny move has been relatively gradual, unlike what happened in december and what happened in august, so i think they are trying to signal that they will not eat disrupting emerging markets the way they were in those previous offense, so trying to accommodate the fed symmetrically,e the dollar is under pressure, so both should be depreciating. Appreciating. Jonathan reserve septic tire and compare that to the previous 12 reserves have ticked higher compared to the previous 12, how are you gauging capital outflows . First, you have to take into account that they have a trade surplus, so reserves accounts should be going up. Reasons,on, for other the dollar has been appreciating the numbers then to fade the reserves numbers. It still looks like there is some capital outflow. Norm us ast as an late last year and early this year. I think within reason, the chinese authorities are willing to tolerate them. Jonathan the Pressure Gauge for the Federal Reserve at the fx market in the early part of 2016, the stronger dollar it pours, the fed took a step back, is it different this time . Steven i think it is. A, the dollar is weak or than the other times weaker the other times, but i think the fed is focused on the question of whether the u. S. Economy is beginning to slow percent local reasons. We are seeing that theyre running out of capacity, so we should be seeing slower growth, so right now, i think the questions are mostly domestic that are driving the fed which is why we go down to the wire. Jonathan looking at the onshore and offshore chinese currency, and stable. S tight how do you gauge speculative activity around the chinese currency on the back of what the fed may or may not do . Steven i think there is an expectation that cny will weekend if the fed tightens and the dollar appreciates against g10 currencies. Fastnk the question is how and i think markets can deal with a slow pace of weakening. What they cannot deal with is very rapid cny move. Jonathan todays session is about risk off with the yen stronger and this was strong as well. In june, with a referendum in the u. K. On june 23 and the Federal Reserve decision to wait before, everyone seems to be looking at sterling against the yen, what is your view of some of those risk off Currency Pairs emerging for some of the event risk . Steven i think that yen is in play today. It hasd a lot strengthened a lot against the dollar. Made the announcement and i think there is a sense it will be hard for them to do monetary easing in june or july when you are not going to see the fiscal package until sometime in the fall, so i think the story is mainly the yen. On the back of weaker u. S. Economic data. Jonathan if i want opportunity in june, do i go to the Options Market for it because we have had a pretty range bound fx market in the past two weeks. Are there any options going into the risks . Steven i think that the Options Market is proficient in pricing events risk, so i dont think there are any bargains of their. Options have been fairly elevated, reflecting that the market feels that even on both days, there is not much volatility. When you get volatility, you get it in spades. Jonathan steven englander, great to have you with us. Megan coming up, Goldman Sachs that the list of security is cutting jobs. That is next. Vid this is bloomberg i am david westin in the hewlettpackard enterprise green room. Coming up, we will find out what they think about where the s p 500 is headed. Jonathan i am Jonathan Ferro. Health care, is it a safe bet under president clinton while aerospace and oil might be a safe play for President Trump . We are joined by bloomberg analyst. In your own words, brace yourself for the advisor about to give. Painted for me. Do you know what the policies are for the potential candidates before we even decide which etf to go to . Eric you can only go by their rhetoric, and also, brace yourself because you see a lot on how tos coming out play trump are clinton carried a few are obvious. Thats a trump wins and you look at the coal industry and clinton wants to put that out of business and trump once you save it, so cold etf might be a decent bet. It is down 81 in the past five years, so it is dirt cheap. On the clinton side, if she continues obamacare, which we assume she will as opposed to xhs is anoving it, interesting choice and it is Just Health Care providers and little pharma, so she is going after price gouging for pharma. More direct play on obamacare and the increased amount of customers that will be frequenting hospitals and those places under obamacare. Make the point that if we had invested in a sector that weve that would boom under president obama, alternative energy, that has been a died in the etf world, so how much can we really that has been a dud in the etf world. How much can we really know . Eric i said to take it with a grain of salt. Every article told you to buy into alternative energy, but it is down in the past years that he has been around. Over 100 , era up which you think would not do well under obama, so who knows . It is all a crapshoot in terms of playing sectors, but investing has worked since reagan and s p 500 has delivered an average return of 10 a year regardless of who is president , is a cheaperrd s p to play the market in general. Megan let me look at hillary clinton, we dont know what donald trump because he has yet to outline, but when hillary clinton, is there any room for an upside given the fact that she is likely to not do anything tremendously dramatic to the bank like we talk about with Bernie Sanders, etc. , and she has been supportive of doddfrank, is that priced in . Eric if you look at things that might benefit like banking, kb is the bank etf and it is up 155 under obama. Aerospace and defense is up 205 , which i think is something that would benefit under either of them. You look at some of the runs under these sector etfs and it is so tremendous and it is hard to buy in, so i agree that it is difficult and tricky to navigate plane policy. Ic with the word of caution, brace yourself for more conversations. Megan Goldman Sachs has cut dozens of Investment Banking jobs in the last few weeks. Jobs are eliminated across the merger and Acquisitions Team and that an equity markets. Just the latest of a string of job cuts. Ruth in london. Lets talk about this. We have seen tens and thousands of job cuts in the past year alone. Ruth absolutely. Today earlier in the day, we had news of more cutting of dozens of senior jobs and now youre talking about goldman doing the same. This is over and above. Of jobsdoes this 5 cut every year, so this is over and above that. He saw them do something similar in the trading division, where they cut up to 10 . We do not know what percentage of jobs this is, but we do know that the job cuts were all in hong kong, london, new york and we know that there are dozens at the managing level, director level. If you look at just how the volumes are this year, gives you an indication of what the banks are going to do across. Megan these are client focused , client focused operations. But my question is though is looking at thinking, how deep seen about, we have 5 just in terms of overall operating costs go down, but can they take them down fast enough in the new environment, where it deal volume, client transaction and also they continue to have this huge regulatory coming to, can they take the cost down fast enough ruth fast enough . Ruth yes, and that is the question they try to answer. The trigger mn date is still there, even though globally it has dropped about 80 this chick compared to the last period, so i think the banks are hoping that the activity will pick up again. Theyre hoping that the regulated concerns, despite that, will happen, which is why you are seeing the cuts, but you are not seeing really deep cuts yet. Jonathan is this a case of look what they do and not what they say . Theyre cutting senior positions very why cut the positions if you think it is coming back . Uth the same deal volumes are coming back, but right now, they dont have enough for the bankers that are doing the jobs. You are talking 80 in m a, 65 in equity Capital Markets globally and goldman is a bank that has usually been on top of the tables for all of these things. They are feeling this pain and i wonder what the others across the tables are feeling. David there is a question about how big the pie is. For example in m a, some are taking market shares in the big banks. Ruth yes, but to funds to come in and take market share, but keep in mind that the financing on these deals, it is something and this financing pe is what bank pie is that banks make their money on and you do need a big bank for that, like the Goldman Sachs, jpmorgan, and those banks still seem like there is money to be made in the deals because even if they dont get in on the advisory, they get in somewhere else. Whereas the boutique relies on that one deal. That could make or break them. Jobs, it is time to cut but when do we seek severe cuts to pay as well . Shrinking in such the industry. How much are they taking a whack at pay packets as well . To keep in mind is that earlier this month, you saw the most opposition from investors since 2009 on black it is forackage, so the Top Investment bankers and that is rising again. We have to see how it plays out. Megan thank you, ruth david. David lets get back to premarket movers and send it to Abigail Doolittle. Abigail thanks. Several stocks moving on analyst upgrades. Starting off with a negative. Were watching the stop, including Morgan Stanley, which overweighting from to underweight, citing slowing sales. And bank of America Merrill lynch cutting from neutral to buy, claiming they are losing shares to adidas for the first time in six years. They could reflect sympathy around under armor. They are cutting their fullyear forecast, so we will see how this plays out in the market. Trading higher in the premarket, cold foods. Upgraded shares to outperform and edward kelly says the company is in the early seasons of a turnaround. They say that 50 drop from the offers anock record attractive entry point for investors. Than 20 upside potential for the shares of whole food. Lastly, trading higher in the premarket we have cost go. Costco. High visibility, including the transition to a new credit card and potential number potential member fee hike. They are off the 2016 lows quite a bit. If you premarket movers on analyst upgrades and downgrades. David thank you. Now, we talk about the future of japans debt market and take a look at a few shocking metrics in battle of the charts, next. To our viewers worldwide and the city of london, good day to you. Last two days by one point 8 . Thats get to the Global Financial scorecards quickly to give you a sense of what has been happening in global markets. Futures are soft in the United States, down across the board. Equities soft in europe. The dollar yen into the red. Session. 36 on the a stronger euro story at 1. 1174 and yield creeping lower on the u. S. 10 year. Down by three full basis points, david . David you know what time it is. Jonathan is it chart wars . David [laughter] no, battle of the charts. Matt miller coming from us from berlin, great to have you back in battle of the charts. What do you have for us . Matt great to be here. Thanks. I have out of berlin, ill be enough, a chart of japanese that, both in terms of debt of what the country goes compared to gdp in blue and the debt that they sell in whites. What i thought was interesting it reminds him that doritos commercial, crunch all the ones, we will make more and this debt, we are at about two times the japanese gdp ended his and the more investors piling to the 10 year, driving yields way down into negative territory, so it seems like investors cannot get enough no matter how much the Japanese Force and that is because they can print their own money and they are buying their own debt from themselves and putting it out into the open market. This is chart 1510 if you want to look at it. David well done. Abigail, top that. Of theman version japanese chart. Abigail i thought we would take a look at gold since it had a rough may, down six percent since november 2015. We have a chart of gold in yellow and in white, the goldsilver ratio, basically how much silver it takes to buy one ounce of gold. And the goldsilver ratio is high, the Precious Metals tend to be low. 1921 the nominal high of per trillion pounds back in 2011 and this goldsilver ratio was at a 30 year low. Now, when we look at gold and silver trending higher and goal trending lower, we see that both are caught and trend channels. The gold trend channel is down and the goldsilver ratio is up and it appears that it will drop back down into the channel as that gold silver ratio goes back up, so we have some confirmation of what could be ahead for gold may be in the month of june, july and august. David debt versus commodity, two very different charts. Megan Precious Metals. I know it is a tight one in terms of who i am going to go with. Jonathan i am going to go to the news of the day and it is tax for a second time. I get where matt miller is going, the idea that a debt climbs up to some point and they should be a credit risk premium but it is not going to happen with the boj in there buying so much of the debt. For me, with that 10 year yield shows is the failure of the boj to stimulate any kind of increase projection and growth or inflation, and all the heavy lifting almost exclusively done by the central bank only north of one third of the market and the 10 year yield keeps grinding lower. Short version of a long story, matt miller. Matt can i interject to sway megan . Imagine you are in a household where your for grandparents are living, the two parents are about to retire and you only have one kid working and you want to continue to borrow money megan i am going with you. David sorry, abigail. Matt miller wins it. Megan well done. Megan, he just sucks up all the air. Jpmorgans joins us with the view on equity. Jonathan from viewers worldwide, this is bloomberg. I am Jonathan Ferro. Futures kicking off on a bum note in the United States. The session in asia carries over to europe, and germany stacks down by. 8 of 1 . Pmiss underwhelmed underwhelmed globally. What does that mean in the fx market . Risk off, stronger yen and swiss. 5 ,ar yen down by one point so crude is soft as well. The down by 1. 5 and crude with the 49 handle. We will cap you down to the cash open. David we are 30 minutes or from the opening bell. Withis bloomberg , Jonathan Ferro and megan murphy. We are going to talk about the three big stories that matter to markets now and they are further cutbacks in banking, costing Investment Bankers their jobs at hsbc and Goldman Sachs, and they warn of a global trap and abe anticipates the sales tax over the next years. Here with us is len to discuss that. Lets start with the banking job cuts. Bloomberg news learned that Goldman Sachs has cut dozens of Investment Banking jobs in the last few weeks. Hsbc, which also let go several senior Investment Bankers. And that macquarrie, upon been trade is leaving 30 job cuts in department. Uity theyre having a tough time. Earnings are down, pricetobook ratio is down and they are taking necessary actions. Where does this leave them . Len we saw this coming. We have had 18 offerings in the last year and a half and has done nothing and that is emblematic of what is going on, reduced Stock Offerings, ipos, m a and those are the few drivers, which sales and tradings are a of. One of the goldman bankers todling joined to make dd owen joined me and i think yet foresight in slowing, but this is continue. You will see publications and resources. Megan let me give you another number, 170 billion in fines and penalties that has been paid by the banks since the financial crisis. Anytime we think we see the end, we see Something Else come through, whether it is fx, but do you see an end and talking to banks and do they feel like theyre getting over the hurdle of the crisis which continues to drag on earnings . Len no, i dont think theyre getting over the hurdle. I think ge capital is a good idea of thinking about what the Regulatory Environment it to one of our great competitors. She cap of the was the dominant force in the lending space for the years ge capital was dominant force in the lending space for years and now they sold off assets because regulators kill them and they spend more time on regulators. I think that is the problem with big Investment Banks and conglomerates. Citigroup wrote about this yesterday or the day before that they have real problems with. Egulators what leads to the fines are the revelatory scrutinies. You at all concerned that the will not be a banker there with the expertise and the track record to be with to do your business adequately . Len we would be concerned of Morgan Stanley was not the lead partner and they have been great for us. I think what supports Morgan Stanley is one of the outliers to the Investment Banks and maybe bank of america and wells fargo to other ones, where the retail sales would also have the client base that is really strong, and that is fueling the Investment Bank and when you are just an Investment Banker what traits like goldman, it is not as strong as an you have the Asset Management arm, even Goldman Sachs. Jonathan they have done terrifically well because people want that stable income. When i look at the numbers to come out today, it cuts to dealmaking and these guys are getting regulated out of this traditional debt trading business and that gets more expensive, so they want the fee income and the deals. Right is the revenue come from . Revenue now comes from Asset Management, like gathering, and when you think about him and a transactions as opposed the Stock Offering or Something Else, it drops the bottom line. When we pay Morgan Stanley or Goldman Sachs for an m a fee, yes, the bankers were card into a great job, but that fee is their labor and that will drop, so i think we have to watch the margins only watch earnings, even though m a may be a smaller piece of the overall revenue pie, my guess is margins are much higher. Megan lets move on to the oecd issuing a warning saying that loose Monetary Policy is risk slipping the Global Economy into a low growth trap. This comes the sender we got several ;mi numbe pmi numbers, including china. Growth explict to the euro area last month. Lets talk about that. Have we exhausted Monetary Policy . We look at japan extensively. Wheres the fiscal stimulus and Infrastructure Spending and tax of policies that we need to get a more longterm judiciary of growth on the table both in europe and also in the u. S. As well . Len i was talking earlier on bloomberg about pushing that too far in terms of negative Interest Rates or qe. Obviously, i have been wrong, but there is a diminishing effect a little bit early and predictions. I think you are right. What we really need is an Infrastructure Bank and politicians cannot get it right. Republicans want to control Infrastructure Bank, the democrats want to control it. Nobody is this a grain that we need wean nobody is disagreeing need more highways. People do not vote on it. People do not vote on that stimulus spending even though they complain about our crumbling infrastructure. They cannot get the will to make it actually happened. Len have you driven in new york city lately . [laughter] megan try d. C. David you are in a particular segment of the credit business. How does this loose Monetary Policy effective business . When you have artificially low Interest Rates, lets argue they are artificially low for eight years and their predicted to go up in july, but you create risk capital that should not really be in play. You create an environment we cannot earn a reasonable overturn on a riskfree asset, so you are forced to take risk. Imagine it in germany where negative Interest Rates that money under the mattress and you pay to put money in the bank. For our business, it has created artificially low returns because we do not want to take that risk and we did not migrate toward the second mezzanine preferred to get the higher deals, which stays safe, but what happens when you stay safe is our yields when i took one of the companys public in 2008, the weighted average yield was 16 today, the way the average yield is Something Like 10 or 9 . Significant dropping yield because what we did not want to do and you saw this on wall street journal today they have taken massively more risk, and we did not want to take that risk. We chose not to, but that is causing the returns. Jonathan that takes us to number three, abes aboutface time and how they had a News Conference earlier where they announced they would announce the much anticipated over two hike by years. In delaying lane it until 2019, he said he is increasing it to 10 . Previously, he said it would enoughe economy strong for a tax increase early next year and he also said at one point that we will see that in october 2015. The question i would have for you at this point is i look at what the boj is doing and with the japanese equity etf market diminishingmarket marginal returns with that extra little bit of stimulus, not just from the boj but the ecb. I do not see asset prices going up every time they pulled the trigger anymore. Look at the markets, we start to see the opposite effects at some point when the guys with the trigger and they say, it aint going to work and i will go the other way . Hours ands three lets give him a lot of credit. He is walking a small tight rope. He has a population of 90 million from 60 million and a debt to gdp about 40 and he has to balance both of them. You have to give him credit for trying to do everything he can to make it work him up but if he falls off that tight rope, he will go down a long way, and that could be one of the triggers. Circa china, but do not forget japan. Both are about the same size with the u. S. Economy about 70 anddp and 30 for china japan, and if anyone of the engines fall and i dont think it will be us megan what can he actually pull out of his hat . In hishints this morning details, but what is left for him to do . The aero has been shot, have they hit their target is the question for debate. a reform of the system he has to restructure the system and it is hard to restructure that system. If they turn into america, theyre not going to, he is not going to go this way, but if they turn into the United States of america, where we allow people from all these Different Countries to come here, work hard and achieve the American Dream and they create that in japan, i bet you get the trouble. Jonathan matt miller pulled up the chart and it was on debt. It is not called the widow maker for no reason. People try to bet against and for no reason. So have a huge capital gain far this year, but when do we start to see the credit risk premium . Len wendy start getting it in france . For the french that, trading almost a par with germany, let me just tell you, france is not germany, it is far, far weaker than germany. When you start getting a risk premium in portugal, where portugal jonathan well, portugal has it under control to some extent. Len sure, but if you take those economies, really . Arethen take america, we probably the safest the economy in the world, and one of the most stable and diversified, and why are we not trading even lower in terms of the treasury yields . I am not sure anything is very easy for the hedge fund and they lose money on the currency trade. Jonathan we did, so those are the stories that matter to markets right now. Teachers softer. About 19 minutes away from the open. Lets get stocks to watch a with abigail. Abigail under armour and nike with shares of both the Sporting Goods friends low after under armour lowered its fullyear forecast in response impacted by the Sports Authority bankruptcy. Profits were taken down by as much as 13 . Ceo of the company says the 2016 results are impacted but the Brand Momentum has never been stronger. Meanwhile, we do have two at morgan of nike stanley and bank of America Merrill lynch. Also trading lower are the shares of Las Vegas Wynn resorts after the games revenue in the month of may and fell 9. 6 , more than analysts expected, as compared to the drop of 9. 5 in april, so a little bit worse. Wynnlas vegas sands and will drive 60 of the revenues, so that is the reason the numbers are weighing on both stocks today. Megan thanks. Lets go to first word news with vonnie quinn. Vonnie thanks. Police in the United Nations are asking iraqi forces to spare children who are caught in the bundle. Unicef estimates some 20,000 children are trapped in the city. Family said not been able to leave since the began offenses to retake the city from the Islamic State more than one week ago. A french ship may have detected signals to the black boxes of the egyptair plane that crashed into the mediterranean. Egypt Officials Say they received signals from the seabed in the search area. The voice recorders are considered essential to finding out why the plane went down. Board. On president obama is returning to the side of the first president ial trip. He will travel to indiana, a city that has been revived by a surge recreational industry. The Unemployment Rate has all in from 19 in 2009 two little more than 4 . To president will argue voters to put another democrat in the white house. Global news powered by our journalists and news bureaus around the world. Thanks. Corporate debt has ballooned by nearly 3 trillion since 2009. What is behind that rise . We will discuss that with len tenenbaum, next. Jonathan futures lower, risk off in global markets. By about. 5res down of 1 . In europe, we stumble toward the close and the dax now down by. 9 of 1 . That is the situation in the equity market. Breaking news with david. Auto salesot ford and they are down 1. 6 and estimate had been to be down. 49 1. 4 9 . We are trying to figure out if there is a downturn in auto sales, which we saw in march. Earlier, we had it up above what was expected. Those are ford auto sales and now we turn to Business Development companies. They provide small loans to Small Businesses. They closed over 2. 2 billion across more than 30 deals. The founder, chair and lender len jointly with his you on the credit market. He is 5 billion in assets. Lets talk about your business. What exactly do you do with these bdcs . Len we work with over hundreds of equity sponsors in lending money to midsize and smaller businesses like legal zoom, which you may or may not know, we lend them 183 million and i think we hold 70 million of that and we helped the private equity firm by legalzoom. What does that tell you about how that middle level is working right now in the United States . Where are we in the credit cycle . Great question. We have 100 50 companies and monthly financials. Monthly financials have a very good inside scoop on what is going on. Last year was pretty decent. In the First Quarter this year, and maybe you saw that in auto sales. I think there is a question that the u. S. Economy is starting to slow. David why is it that you have to supply this into the credit markets . ,hy dont thanks do it including regional and smaller banks, what is the whole you are filling . Len thanks can be more aggressive and less aggressive as you saw on the discussion with megan about regulatory and it causing problems for the banks. Not only investment things, but certainly commercial banks. That lack of lending to smaller businesses, which of course are riskier assets, higher default rates, more structured, more diligence, more work, really is taken up by this Business Development companies, so in 1980, an act was formed to lend money to Small Businesses. This is an federal statutes, correct . To try to encourage that lending, but as you say, it is riskier, so you have the higher yield reasonably. Len we do. David what yields to you look at from out of the loans . To 9 re yields or 8 typically for the loans. Just today, we provide the first lien and we call it the first lien with a second lien loan and about 4. 5 times the debt to keep itthat the cash flow, so buys it at seven times cash flow and we lend the first 4. 5 times and they put up about three times a little as in terms of equity to support the loan. David it sounds like a good approach. Lets talk about that because your company has had a little bit of a tough time over the last few years. Your value is down overall. What happened and what went wrong . Was it something wrong with the theory, the timing, what has happened . I started the company 10 years ago and in 2000 eight, we took a finance company public, one of two public one of two companies to go public, a difficult time to go public. From 2008 onwards, we did well. To the lastr, even nine months, it has been tough. Andave activist investors the bdc industry under fire. Fortunately, i had to leave my way out of the problem and we did. We have seen recovery in the Asset Management stock price because of that, but it was not easy. I think the industry itself has changed, which is part of the problem. It is under fire, not only for us, but hedge funds and money market funds and caesar under ice cream. That is one of the issues. I think another issue is it has been such a low return environment for so long that fees are too large for gross returns. Megan you cut fees. We have. We took them down in her main vehicle. That would cost the asset manager around 4 million a year and it is well worth it. You have to return more to shareholders and give them the benefit. I believe that in the cycle eventually, we do really well in the cycle, so we positioned the portfolio so conservatively that we take down the yield and i think we could do a risk on trade, which will happen in a dislocation and we could really make money. David it seems like the bbcs has had something bdcs had accounting problems and you have had them as him, why is that . Why does it attract accounting difficulties . En there are a lot of questions about the fees upfront, so far accounting issue, which is really small how big is it . Inut 2. 6 billion dollars assets, under 50 million in shares, and the entire problem is about 3 million or 4 million over three year period. It is the question of what to do with the points upfront . When we originate alone at 98 cents on the dollar, we make a next her two we make and next her two cents. Differentem is Accounting Firms account for it differently. The problem is pretty small. Megan len is sticking with us. We will be right back. Megan welcome back to bloomberg. I am megan murphy and we are here with the ceo of Asset Management. I wanted to ask you about another corner of the credit market. You talked about how you believe you have a lower risk model. Do you think that what has happened there and the problems they had thought is indicative of wider problems across the industry . Problems aretheir about disruptive technology. Disruptive Technology Makes efficiency for the country and it makes banks act better as a competitor. The problem with lending and me to scotteloquent there are 100, is they try to institutionalize, especially as they try to go public. They did things that maybe they should not have done in terms of managing earnings. I think it is difficult to manage a Public Entity and difficult to grow as they did without significant problems. That another think player will come in and really change the market . Have lending club, a thousand other ones, and i think those companies, some of them are going to succeed. The real mogul on that real estate side, chile and does a great job there, and she is trying to do the same idea in disrupting real estate. These destructors are going to come out but it will not be easy. Len is sticking with us. The opening bell is up next. The futures in the United States softer. Jonathan this is bloomberg. We are moments away from the opening bell. Europe, losses as well with the dax up by 8 10 of 1 and the ftse 100 down by over one full percentage point. I will bring you the moves in the price action and other classes with the eurodollar at and dollar yen at 10920. U. S. Treasury yields coming in by three basis points and crude much much softer as we head into the open. 48 a barrel, down by over 24 percentage points. Gm, may u. S. Auto sales falling 18 , the estimate down 13 , so board the big player, a disappointment overall sales, g. M. A disappointment for them as well, sales down 18 , the estimate, 13 . We are about 40 seconds into the session. Abigail all averages down roughly 4 10 of 1 following a week lead in both europe and asia. Snap a fiveday winning streak if it finishes down. One section we are following under pressure, Goldman Sachs recently in the last few weeks has cut highlevel investment taking jobs, dozens of highlevel Investment Banking jobs, weighing on all of the big banks, including citigroup, Goldman Sachs, shares are down. Turning to retail, a bit of a mixed bag. Deliveredays it positive comps sales quarter to date. We do see lands end trading down on that news while michael kors is trading higher after the Company Raised its 2017 profit forecast. Chills of salesforce. Com are trading lower, demand where soaring on the news that salesforce. Com is acquiring demand where for 75 per share and thisa 56 premium is a good acquisition for salesforce. Com. A soft session in the first couple of minutes, the s p 500 closed down the month of may for its Third Straight month again, will the street last . As jpmorgans head of equity strategy maintains his s p 500 target price of 2000 points, nearly 5 down from its current level. He joins us around the table. If i take the data points over the last month or so in the position of the dollar and put it all on the table for an investor, and said ugly month the chinese currency, they had a very different outlook for equities, you are hanging in there, why . Limited upside to equities, especially in the short to medium term. I think the dollar is at the epicenter, it is the one to watch and the dollar strengthening that we have seen over the last few months, as people get excited over a potential height in june, and the reason is fundamental earnings and the remaining u. S. Remains very challenged and we have seen very quarters that we have seen five quarters off track for s p, we have seen margins detract. There is clearly a disconnect between fundamentals, earnings and where prices are. When he to see some form of earnings we celebration in order for us to turn more constructive. Analysts t of david we hear a lot of analysts saying artemis estimating what the fed will do . Q3 is literally on the borderline, so some people are saying the u. S. Is already in a earnings recession. Some form ofet surprise, but estimates are still quite high for the second half. If you compare secondhalf earnings of this year, expectations are quite high. When you lay this all out for a client, what advice how do you express this view as a trade . Dubravko as far as the u. S. Is concerned, there is limited upside, given worthy multiple is given where the multiple is. Away from a lot of your momentum type trades, the at across sectors, industries or even stock level, more towards value and that would correspond to emerging markets as an area that has much more upside potential than s p. Where do you see opportunity in this market, sector wise in terms of where you would choose to invest . A lot of the market, just to touch upon wyatt is always there, it is a massive liquidity bundle, but he talk about negative Interest Rates and renting in japan, that money has to go somewhere and it is coming to the u. S. Economy as a safe haven. That was another safe haven for work families around the world, away from their countries. Seeing real issues in sectors and the Consumer Sector in our portfolio is slowing and asserted happening this quarter and that is continuing. The Consumer Sector in general is slowing, health care is under fire as the state start having problems, medicare reimbursement cuts are fundamentally, you are seeing cracks in the economy, and why we are still playing it safe. Chartan check out this from s p global ratings, showing how much u. S. Nonfinancial corporate debt has ballooned since 2009, a jump of almost three choice 3 trillion. It looks good for a set of custard a group of tech companies, but s p pointing out the cash the debt ratios are other lowest levels in a decade, for the other 99 , so my question with the how out of whack is the Balance Sheet with where spreads are actually trading, fundamentally . Len lets strip out what really happened. What happened is debt and the inversion trade were a lot of the money is trapped oversea overseas. Being taken here because activist shareholders want to get paid their dividends and get paid or distributions of the companies dont want to take the inversion trade, because we think with the new president , regardless of who it is, they will have to want to repatriate that money. Jonathan we are talking about a group of about five u. S. Tech companies with that trend. For the other 99 , the cash to debt ratio is really not that pretty, and that they are ugly. Len you have to get rid of your cash, so that is another reason why they are trying to finance into our oe, so the more debt you have, the more on more return on equity you have. David that is assuming those companies will earn those and their what would it take to get those earnings going again in the United States . Dubravko in order to get backngs in the u. S. , we go to the dollar, the relationship between the dollar and earnings, typically what we see is a 2 move in the dollar and a 1 movement in eps. If we can get some sort of dollar stabilization or dollar weakening over the course of the next few months, that could provide some form of relief. There is still some discussion about the consumer, can the consumer exit exit the closet and start spending . Windfall,d a huge oil r morgan our data suggests the remaining portion could provide more boost, but limited. David what you are seeing is up is up is an uptick in earnings a good thing or a bad thing . It means money in consumers pockets to spend, are the good for earnings or not . Dubravko i would say they are good, we need earnings to increase from the current levels. Len what is going to take the dollar down . Dubravko the only scenario were that could happen, a more dovish fed, a fed that disappoints on the downside, that would provide supplements. Carol do you see that do you see anything that could knock the fed off its current course . China, brexit . Look,ko if you historically, when was the last kind of the fed was physically hiking, when we had to with three consecutive quarters of earnings contractions. You what people forget is as Interest Rates, not versus what everyone else is and they are negative Interest Rates. The spread over europe is wider than. 5 . Dubravko our whole year has been fed hiking, we see it as a negative because of the dollar. If you could see a situation where rates would rise and provide some form of growth, but at the same time, the dollar will not strengthen, and maybe you get a slightly more positive outcome, but im not sure how likely that is. Len it sounds pessimistic. David realistic. You are both staying with us on bloomberg. Coming up, as energy is on the rebound, is that the place to put your money . David this is bloomberg. Coming up, cap paper civic airways ceo ivan chew. You are watching bloomberg. Latest carmaker to drive workers away from silicon valley. Automakers are trying to compete with googles self driving car project. Hsbc is cutting a number of Senior Investment ranking jobs according to a person with knowledge of the matter. First quarter profits fell 15 at the Investment Bank. The ceo has outlined a threeyear plan to cut thousands of jobs. Opec ministers say the oil market is moving in the right direction. The cartel was holding it by annual meeting in vienna. They signal the strategy allowing low prices to eradicate surplus production and that is working. Lets go down to Abigail Doolittle taking a look at nasdaq stocks. Ofgail we do have shares whole foods popping. The company is an early stages of a turnaround, but should be successful and will likely reinvigorate road. The 50 drop from the peak of providing an attractive and a treat entry point, highwith a relatively bearish Short Interest of 12 . Also trading higher are shares atcosco, on an upgrade Goldman Sachs. High visibility catalysts including a transition to a new credit card and a potential member fee hike. David after record lows for crude at the beginning of this year, we have seen oil prices currie,again, but jeff the global head of Commodities Research at Goldman Sachs says more softness is ahead. As a move toward the end of this year, the market is likely to start something in, which is why we have this market drifting back down to the lower 40s by the end of this year. It is more of a transient tightness. That was jeff currie talking with us. Now we turn to jpmorgans head of equity strategy. And len tenenbaum. We want to hear about your perspectives. I read your note and you think it may be time to get back into the water and energy. Why is that . The trade continues to persist, throughout the year end. You look at expectations on the earnings side, they are quite low and if you look at whereoil is is our and net analysts resume net analyst revisions are, there is disconnect with a little bit of lag, so i think you likely continue to see some positive earnings surprises. Technicals can play quite an Important Role in the energy space, as well. Represent up to 40 of wti open interest, and they have covered their shorts and the current long. There is a number of supporting factors for energy. The one risk i will mention is the fed. Is a that tries to hike headwind for the Energy Commodity conflict. David is there a particular sector in the energy where you are going . Dubravko we have been moving more toward bmps. At a lot of the stocks, with the folks that we have been focusing on quality. Balance sheet robustness, decent break even, so plays that i would call higher beta plays rather than mega cap energy names. Len, i want to bring you back in as well. We cannot trade out, so when we invest in energy, we are stuck for five years and the highyield index, so that when we think about default rates in energy, there currently running around 13 , remove remember 1999 and 2000, saudi arabia was going nuts, the default rate back then is just about 9 , so we are exceeding the last oil depth in terms of the full rate and we can go as high as 20 , this year. If you think about that, there are still a lot of downward rusher in energy and bonds have rallied to sustainable levels, so i am interested at 65, 70. Havenot think where they rallied back to is sustainable in the long term. One thing i will say, positive for u. S. Energy production, i just heard of a 1 billion project getting approved for shale expansion in ohio, im sure that is in the medic of that coming back. Megan do the fundamentals of shale work at these levels . 45, they have gotten the cost down so much, it is amazing how productivity comes in when you need it to come in, so it does work. At 35 30, no. He said if we get some stability, that is really what it is about and you will see production revamp. David we had a guest yesterday who said at some oink, the price is high enough for field to come in, but he doubts if the credit is there because the credit markets have changed so much, that the smaller and midsized players will not be to get the credit. Dubravko credit is always a concern, you have to Pay Attention to how the credit theets are trading, question is, has the market already priced in a lot of these negatives . When i think about the energy cycle, i tend to think about it in three phases. Earlyone is some form of warning, where Companies Reach out, searching or supply of credit. Phase two is some form of right refinancing. We are now close to phase three which is facing bankruptcies and supply is getting washed out. Fundamentals, you could say asserting to curve the corner. Will this trade be volatile, yes but if you look over the course over the next nine months, i still like it. Megan until the banks take their losses, it will not clear the way for new credit. Thanks so much to jpmorgans head of equity strategy and len tenenbaum. Coming up, it is Bloomberg Markets with betty liu. We have a lot ahead on the show, so we are going to continue this conversation on the markets. Richard clarida and is joining us clarida is joining us. We are getting the secular outlook from pimmco. Also, we will be talking to several Airlines Ceos and among m, cap the pacifics we arecifics getting that take from him in a moment. Megan one bloomberg , coming up. Jonathan we are about 24 minutes into the session, let me get you up to speed. About half ofy 1 , s p 500 off i 4 10 of 1 . Nine is down by what tens of 1 and the dax is down by 83 point. Curve is flattening with a 10 year down by about three basis points. The big move in the fx market, dollar yen, one dollar nine cents, a much stronger japanese yen, down by 1. 35 . It began in japan, with the Prime Minister delivering the worst kept secret in japan by delaying the sales tax hike. This was a particularly Interesting Program because we covered everything from jeff currie on commodities to carolyn e percent on tech to the broncos to dubravko lakos. What is really going to spur that Global Growth . David this also sets up for tomorrow with ecb and friday, jobs day. Jonathan what interests me is because that is you become a bit of an ideas exchanger and the buyer spec in january was the fed hike, scary place, strong dollar, no good and the bias seems to have shifted to a market that is much more comfortable with what is happening with the chinese currency with the exception of mr. Dubravko. We were allee, panicking about the yuan and now, people seem to be taking it in stride. Megan he was all about the dollar and how core that is to earnings as well as the look outlook for the economy. Jonathan it is very much risk off across the board. It carriedlower, through to europe and asia. That does it for bloomberg. Thank you very much for joining us. Bloomberg markets is next. Betty it is 10 00 a. M. In new york. From new york, im betty liu. Mark in london, i am mark barton. Betty lets head straight to the markets desk were julie has the latest on the breaking numbers on the manufacturing side. Julie in the u. S. , we have better than estimated numbers, the 1. 3, 50. 3 was the estimate. 50 is the dividing line between expansion and contraction, so we are seeing this better than estimated number, it should be noted that around the globe, the numbers we have gotten a manufacturing in china and the euro area show a beat of that 50 line, but of every slight one. We are seeing an expansion, but is not a huge one, even if it is indeed better than estimated, so this number coming up a little it better than had been estimated

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