Today. Alix a really exciting couple of hours lined up. The theme is Capital Markets. They will be talking about mifid, regulation, tax reform. To help highlight that, i will be joined by david solomon, coceo of Goldman Sachs. Jonathan i want to know who at goldman wants to move from london to frankfurt. Alix nobody. Jonathan nobody i have spoken to. Alix i am asking him that. That is my last question. Jonathan lets get up to speed on the markets. Futures are firmer as we end the winning streak on the s p 500 in yesterdays session. We pop higher. In the fx market, the euro showing a little strength, up 0. 1 as we march toward Mario Draghis decision. In the treasury market, 2. 40 on the u. S. 10year. David thank you so much. Thats get an update on what is making headlines outside the Business World. Emma chandra is here. Emma the Chinese Party has elevated president xi jinping to the same status as mao zedong. It would give xi more power to enact policies after crucial reshuffle tomorrow when the new topll elect a political body. In the u. S. , republicans are sending out mixed signals about the state of 401k retirement accounts. The top congressional tax writer indicated their status is still under review. House ways and means chairman kevin brady says sitting plans is still on the table. Ipoi arabia says the aramco is on track for next year. The government plans to transfer ownership of its stateowned oil company to the market. React. Hatzker in riyadh. It was announced in vision 2030 we should have at least under management. Emma global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Jonathan thank you. President trump is expected to announce his pick for the fed chair. Investors agree on, flatter yield curve from here. All potential fed leaders are seen as more hawkish. Youll spreads will narrow past decade low levels. Saywellus now is steven , Neill Nuttall. Great to have you with us around the table. Is that the appropriate trade ahead of this regardless of who is the chair . We wouldm not sure think about it as a trade. There are many other things to think about. We know in a relatively short space of time, it is likely the Current Administration would have appointed five of the seven governors, including the chair and vice chair. It is not just about the chair. The chair is important. It is also not just about the level of the policy rate. It will be about deregulation. Stepping back from that, adding all of that to the potential tax package, it is the overall macro backdrop in the states. Stephen, as you sit around the table, what is the conclusion you are making ahead of the decision . The first point i would make is we have a controversial view. We would argue the curve steepen spirit jonathan how . Fives we would argue move higher. You asked about talking to many different strategists, we have seen that in europe with the reduction we believe will happen year,from the ecb next higher european yields is something we think we will see. David where are you on this steepening versus flattening on the yield curve . It seems certain. Yet. Nt see any inflation what do you see changing . Neill in the short term, we believe the market has partially discounted the more hawkish appointments, taylor or walsh. If we get that, we think there will be a backup in the 10year through the 2. 40 level where we are sitting now. In our view, that will be a pretty parallel move across the curve. Beyond that, it will be the on the outlook of Monetary Policy, the outlook of regulation, and whatever fiscal package we might get. Jonathan is this is a difference in degree or difference in kind . Steven i would tend to agree that data is going to drive things, particularly inflation. I think what is confused confuses maybe too strong a word, frustrated, janet has been the low level cpi if we see that pick up next year, whoever comes into the fed, they are going to need to respond to that emma particularly with unemployment so low. David i want to explore this steepening yield curve. It is kind of a brave call. This is showing the data going the other way on various approximations. It is all going down. What is going to turn this around . I think a key point we focus on is the work our rate strategists have done on the reduction in global here we qe. A key in the market is why have longterm yields been so low . We addressed not so much the relationship between u. S. Qe and u. S. Yields, but global qe and u. S. Yields. You will not only see a reduction in the Balance Sheet from the Federal Reserve but less fine from the ecb, that will have a fairly Significant Impact driving u. S. Yields higher. Jonathan when qe was first introduced, what it really did was generate Inflation Expectations and drive treasury yields higher. They pulled back. Is kind of counterintuitive to say when they pulled back, yields rollover. It is the way we look at on a more global perspective. When the fed first started doing qe, they were not alone. You could argue they were successful. Since then we have had very aggressive buying from the japanese, very aggressive from the ecb. If you look at it from a Foreign Exchange perspective, a lot of those investors have looked for yields abroad because yields in the eurozone, in japan have been suppressed so much that it has pushed money abroad. Jonathan fed chair nomination, who is it going to be . Steven i will go with a very safe bet and say janet yellen. Jonathan really. Neill . Neill this administration shows it has a great ability to surprise people. We would probably go with powell. Jonathan Neill Nuttall and Steven Saywell sticking with us. Fantastic show coming up over the next three hours. U. S. Commerce secretary wilbur ross will be joining us in about 40 minutes. The markets, about two hours and 20 minutes away from the cash open after yesterdays losses. 0. 1 onpositive about the s p 500. About 0. 25 on the dow. This is bloomberg. Emma this is bloomberg daybreak. Ship will only be able to about half as many of its iphone x smartphones as planned this year. About 20 million phones will be shipped. Apple has been struggling to resolve technical issues with the new face authentication issue. Oil production cuts through the end of the year, opec will be working on an exit strategy, the goal to reinsurer investors it will not flood the market with oil once the limits expire. From vw. Ilestone fixtors have approved vws of missions detection systems. That is your Bloomberg Business flash. Jonathan European Markets are preparing for the end of qe. The European Central bank meets in todays gonna and mario draghi is widely expected to announce plans to start tapering bond buying program. The euro is rising. Strategists are beginning to agree on one thing, shorting german bunds. For more on how markets are preparing, still with us Neill Nuttall of Goldman Sachs and Steven Saywell of b. N. P. Paribas. We think they will announce tapering to start in january. Extended forill be six months. Having said that, an alternative may be nine months and 20 at the buying, which would be largely equivalent. Jonathan a consensus bills once again, short bunds, and a great reason to do it. I feel like i have been told this many times. Is this time different . Steven at the end of last wasl again last year, it at alltime highs at around 2. 20. Being short bunds if you got the right end of the curve has been inappropriate trade. N and april great a appropriate trade. We believe investors have misunderstood the breadth of the recovery. David is there significance to the question of whether he goes to september, not so much because they are buying bonds, but if it goes to september, they have signaled they are not going to consider rate hikes until after september . Our view is the market is focused on the ecb finishing that program by the end of next year with a Balance Sheet around 2. 5 trillion, no more than that. The path to that as stephen suggested is around 30, cutting from 60 to 30, possibly 20. We would expect them to go through to september, possibly giving themselves a bit of room. With this hike coming after that, i think the market is expecting a hike not before 2019. Anything from the ecb that challenges that would move the market, otherwise that path of getting to zero by the end of next year is premuch priced in. David how potentially significant is that getting to the end of next year . It would be the first time we had a Second Central Bank coming off of qe. We had the fed saying theyre coming off of it. Is there importance for the market in the second when saying no more . Steven he gets back to that opening theme in the reduction of global qe being important. We think it is that huge flow out of the eurozone recycling that large counter cycle surplus. View isd make here, our there would be at least a six month gap between the end of qe and a sixmonth hike. I always think someone somewhere has stumbled on bloomberg tv by accident and they are wondering what on earth we are talking about. I want to make it very clear as to why. Offlix had an offer today 1. 6 billion in bonds. You dont have to worry about the duration or stuff, just what is at the bottom of the screen. It had a yield of 4. 8 . Neill, it interests me because i wonder how much longer these marketes can come to the bonds at 4. 875 . How much longer will that last as we talk about the withdrawal of stimulus, the Federal Reserve unwinding the Balance Sheet . About these talk spreads, they are at extremely low level. We know credit spreads typically start to widen before the end of the expansion phase of the business cycle. Our view is we still have something in the region of two years to go of the expansion phase. We are getting to the point where we would expect credit spreads to start to widen. Given the carryover over treasuries, it is expensive to short at current stages, so we would suggest we are probably some way off that, but you are right we are getting to the end of that phase of the market. David Neill Nuttall of Goldman Sachs, Steven Saywell of b. N. P. Paribas staying with us. This has been an instrument married a here at bloomberg. We unveiled our new European Headquarters in the heart of london. It is the first wholly owned and designed bloomberg building in the world. It has been rated the most environmentally Friendly Office building in the world. You have had a chance to tour this. Jonathan i was fortunate enough to do the walkthrough in june. I was jealous of my colleagues and former colleagues in london who get to experience this over the next decade and beyond. Have you walked over there . Steven it looks amazing. It looks fantastic from the outside. Almost literally designed by bloomberg. Norman foster was the architect. He said Mike Bloomberg was there every step of the way in the design and construction. It is mikes building. Jonathan a commitment to the city of london as we discussed brexit. That is one hell of a commitment. David and it is not in frankfurt. Jonathan i dont see many banks or institutions out there building big headquarters in frankfurt apart from the ecb. David our very own alix steel will be interviewing ken bentsen in washington, d. C. This is new york, and this is bloomberg. U. K. Chancellor of the exchequer Philip Hammond wrapping up testimony in the house of commons after european president spoke to the European Parliament in strasbourg, saying the outcome of brexit is fully in the u. K. s hands. Still with us, Steven Saywell and Neill Nuttall. Tell us how brexit negotiations are going. Steven our assessment is they are probably going in line with expectations. Once the u. K. An ounce their ,xit announced their exit the European Union was they did not stance was they did vote. Surprisingly other discussions around trade have not started. We are not surprised at the lack of progress so far. Jonathan until then, cable hanging out around 1. 32, and we might get a rate hike in the next couple weeks. What do you think of that . I think it is dangerous. We have a controversial view that the bank of england wants to hike rates, and the main reason is we believe growth will slow substantially next year, we are calling for just 1 growth in the u k next year. One of the strongest indicators we have is the overall net positioning indicator. Very few clients actually want to hold long sterling in this environment. They either want to hold short or cover that. The market is flat. There is significant potential for short positions to rebuild again in sterling if we get negative news. Jonathan that is all well and good. I wonder what that means for the bank of englands that ability if they dont deliver in the next couple weeks. Steven i think a lot of analysts are focused on that. We would look at the probability of a hike in november. It reached 90 in the market, but given the more dovish rhetoric last week, it has eased back to 75 . I think the point we would make here is the bank of england has been clear, if did he continues to come out in line with expectations data continues to come out and model with expectations, there is a strong need for a hike. Neill we agree with stephen. We believe the forwardlooking view for the u. K. Remains challenged. We are flat on sterling. My best guess is our next move would be to go underweight. David has mark carney given himself a way out . Around . He turn that neill inflation has been picking up in the u k and part of that is in response to the fall in sterling following the referendum. The thatink looking forward both growth and inflation will start to ease. Jonathan no credible central banker should have changed their view on the next year in two months. What are these guys doing . The benefitive them of the doubt, there could have been a plan here. If they talk very tough on inflation, that could support the pound, and that could mean they dont have to hike. Maybe there is a plan to talk tough but not have to deliver the hike. Jonathan i have seen that before. He was called the unreliable boyfriend. I can see the headline in the Financial Times if he does not deliver this time. Still does Steven Saywell, Neill Nuttall. Great to have you with us. Alix steel will interview ken bentsen, the sifma ceo. David ricks, have eli lilly ceo. About two hours away from the cash open. So many earnings coming out this week. More than a third of the s p 500 delivers through the week. Futures positive. Will we step back to another record high . This is bloomberg. David this is bloomberg daybreak. We have some breaking news now, General Motors just out with its earnings. It beat on both revenue and earnings per share. They came in at 1. 37 per share. They reported profitability across all segments, including 200 million swing in latin america. This is significant because there is an softness in the marketplace for vehicles. They had some downtime because they were switching models. They showed they can even make money even when there is a bump in the road. Chuck stevens will be joining us , chief Financial Officer, to go over these earnings. Revenue coming in at 11. 4 billion. It looks like a beat from caterpillar, even after we had those Machine Sales numbers yesterday that were absolutely solid. Expectations from the Analyst Community has been drifting higher. This is a stock that is up 42 so far in 2017. We will talk about that company in the old economy later. Lets go to alix steel live at the sifma annual meeting in washington, d. C. Alix thank you. Im joined by ken bentsen, ceo of sifma. He is the guy in the thick of it. Thank you for being here. Ken thank you. Alix i want to start with mifid, the evolution of the buy side versus the sell side relationship. What he thinks is going to happen is you are going to have companies able to Price Research in the u. S. Like europe without becoming a residential Investment Bank. What do you think . Ken that is what we are trying to work for. What we have been working on in the u. S. Is to get the fec to int sec to recognize sec order to get the buy side and sell side to comply with these rules, in order to comply we are not in conflict with the u. S. Law. This is a very settled matter over many years of discussion. What we are asking for is not the question of whether we are for or against unbundling, but we want to make sure we are in compliance with the u. S. When our clients on either side are complying with European Market alix u. S. Banks dont have to worry about mifid. Do you agree with that . Ken we hope so. We have petitioned the sec in the normal course of business. They have been receptive to that. We have been trying to bring them up to speed with what is happening in europe and why that would impact the u. S. We are hoping that they are going to come out soon. This rule takes effect on genworth first. Alix what is the biggest thing you need clarity on . Ken they will need clarity from a dealer side that if they take on bundled payments for research , which would normally have been out of the soft allergan, that they are not deemed a registered Investment Advisor as opposed to be deemed a dealer. From the buy side standpoin