Needs more bases the route the Indo Pacific Region because of what he called chinas significant technological advancements. Meantime, china says the Iran Nuclear Deal is irreplaceable and says the agreement is the only way to resolve issues with the countrys nuclear program. The Chinese Foreign ministry blamed the United States or the tensions with iran. Last year, the u. S. Pulled out of that deal and we imposed sanctions. Reimposed sanctions. Global news 24 hours a day, onair, and tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. Im Mark Crumpton. This is bloomberg. Vonnie it is 1 00 p. M. In new york, 6 00 in london, and 1 00 a. M. In hong kong. Welcome to bloomberg markets. From bloomberg World Headquarters in new york, here are the top stores on the bloomberg and around the world we are following. Retail therapy. Retailers post broad gains, flexing the muscle of the american consumer. Can a strength continue to drive Economic Growth . Investors parse a trio of Bank Earnings today. How markets are positioned ahead of a busy reporting season. Big tech raises for a showdown. U. S. Technology giants are headed for their biggest antitrust showdown with congress in 20 years. We will tell you what is at stake. Powell speaking on Monetary Policy a bank of france event in paris. You can watch this event real time on the bloomberg. He has been saying that the fed will act as appropriate once data comes in. He mentions he sees core pce at 1. 7 for the year. Taylor riggs is with us halfway through the trading day. We have had a turnaround. Taylor we are seeing a little bit of red on the screen, a little turnaround. Theot some optimism from banks this morning, now trying to figure out the direction of the market. Big tech is under pressure, getting a lot of antitrust regulation and hearings. Certainly, that is weighing on big tech. I wanted to look at some of the big tech stocks we are following. Arrow electronics reported secondquarter earnings that missed. They are also starting a reduction program, not necessarily the size, the fact the size missed, but that they missed is pretty concerning. You are seeing that go into the other chipmakers. Terminal,e into my one thing weve been talking about is the record highs the last three straight days. A little bit of a turnaround now, as volume has slipped. 3 . Perhaps winning for some direction, getting back to the fundamentals in earnings season driving the market one way or another. If there is any good news, it is all about the airlines. Betterthanexpected retail Sales Numbers that came out. Youve heard this from the bank executives, too. Highlightingigroup strength in credit cards and the consumer. Perhaps that filters out to the travel industry with these airlines. Certainly getting a boost, perhaps with the holiday Summer Travel season continuing. We know that United Airlines will be reporting earnings after the bell around 4 15. Vonnie taylor riggs, thank you for that wrap up. Earnings for big banks well underway. Wells fargo posted its small and lending income since 2016 as the pain of lower Interest Rates begins to have revenues. Lets bring in the hondius capital chief Investment OfficerShawn Matthews to talk about all the risks. You say one of the major risks is in credit markets. Absolutely. Looking at the debt markets, we have 600 billion of negative corporate yields. 10 years ago if you would have said corporate debt could have negative yields, you would say no way. It is pushing people into the equity market, as there is no other alternative out there. Really, the equity market is being driven by cheap debt. The corporate buybacks of equity have been substantial. Citigroup, they said they grew 12 or 13 , but you take out the tax cut and corporate buybacks, and the earnings are flat. It is all being driven by cheap debt. It could go on for a while more but there implications to that. Vonnie that has been the case for a while, so what happens when the fed consensus expectation now to drop rates by 25 basis points. Shawn they are pushing on a string right now from an economic standpoint. If you look at what has happened in japan the last 20 years, europe as well, they have not been able to increase their economic output because they lowered Interest Rates. I think we are getting into that trap as well. We will lower Interest Rates but we are having Financial Assets continue to go higher, which is bifurcating the world as well. Only 52 of the country owns stock. They will do well because of that, but you have a substantial amount of people that are not doing well. Eventually, they will demand higher wages. We are starting to see those now especially in the u k, europe as well, and the u. S. , where it is 3 plus. If productivity gains do not continue to go up, youll have Inflationary Pressure from the bottom, which will cause Bond Investors to be more concerned inevitably, which means you will have higher rates. Vonnie that is what weve been aiting for, but the fed chair saying in france there increased in certainties. Shawn absolutely. Part of the issue is all the problems that came out of 2007, it took a while to heal the marketplace. You are starting to see which pressure at the bottom, Financial Assets going up at the top, which is putting pressure, and the middle class has been stagnant for the last 20 years. Unemployment,low everyone thinking the phillips curve is dead i think it is just dormant but as you push lower, that Employment Group will look for higher wages. I think you are starting to see some gains. Vonnie at what point do we see something toppling . If i follow your argument correctly, we would have a domino effect on other asset classes. Where does it begin, leveraged loans . Shawn that is the great unknown. Leveraged loans, certainly they are par or less because nobody mark sent to market. The commercial mortgage space has some issues as well. Pynesse seeing some top there. This could go on for a while. The problem is, when you are looking at your capital and how to deploy it, you want to make sure not to take undue risk for the return you are getting. Right now in a debt market you are taking too much risk for the opportunity and return you are getting. Vonnie we have to leave it there. Shawn matthews, cio of hondius capital management. Back to those comments from jay powell. He said at the bank of france in paris that the central bank is carefully monitoring the Downside Risk to u. S. Growth and control accordingly to its expansion. To talk about that, lets talk about this with ira jersey. We just had Shawn Matthews talk about how the fed has been spurring Financial Assets i dont want to put words in his mouth but essentially enthusiasm is not bubbles. The fed chairman is saying there needs to be most likely a 25 basis point drop. How do you make sense of it all . Commentsr powells were very similar to what he said last week. Increased uncertainty makes it seem like the fed will cut. Ist the fed is trying to do appease markets and the economy by cutting just once or twice, probably two times, so that way they dont need to do more later. The fed does not have a lot of arrows and its quiver. They can only cut nine times and then they can do some type of nontraditional Monetary Policy. They dont really want to do that if they can avoid it. It is this Risk Management issue that he is trying to get across. Vonnie what is the urgency, are they being led by markets . He did mention seeing core pce at 7 , granted, which is not to percent, but we are seeing growth and there is plenty of employment happening. What is the urgency to cut rates right now . Ira i think it is just Risk Management. When you look at the Global Economic environment, the u. S. Is holding on ok. But will we be immune to what is going on in europe and other places where growth rates are slowing a lot . They want to get in front of that and make sure the u. S. Does not slow. We had good retail data today, good data on employment. But the Manufacturing Sector is still sleeping. Data,of the manufacturing production orders were flat month on month. That is not good. Manufacturing sector tends to lead the Services Sector by a little bit. I think the fed wants to get in whereof that situation manufacturing is weak, and then services, and then you have a bigger problem, and have to cut more. We had the Franklin Templeton cio earlier on that said the economy is healthy, this is a mistake. When will we know if the cut that is coming was a mistake . Ira probably a not until next year, frankly. Unless inflation and wages continue to push up higher and you get a significant rebound in the Manufacturing Sector, you will not necessarily see that. People were saying it was a mistake to do quantitative easing, that we would get a ton of inflation. There are other factors other than easy Monetary Policy that will cause inflation. From a Macro Economic perspective, it is a much slower elephant moving along, in a more meandering way. It will be quarters, not weeks that will determine whether or not they made a policy mistake. Vonnie concern over the leverage loan market ebbs and flows. We just had somebody saying this is potentially where things topple over. Janet yellen have been talking about this as well. But it is going strong. Loans are still being issued and there are still buyers for them. Ira there are some markets in the credit market that might be a little frothy. That is driven in part because Interest Rates are so low not only in the u. S. , but globally, where you wind up having people chasing yield. There are people that are just yield hungry. If you are, you are willing to take more credit risk in an environment where the credit matrix is not improving all that much, but you get that extra spread over riskfree assets. Instead of buying a five year 1. 25 , you end up buying another fiveyear debt that is a couple hundred basis points above that, because you need that yield. So there is a risk. If the economy starts falling , it may start to show up in the credit markets. Vonnie i read jersey, thank you. In adent trump commenting Cabinet Meeting, talking about the fed and china. All of a sudden, everybody started saying to turkey, ok, we will sell you the patriot missile. Then they said, we will sell you the patriot missile. By that time, turkey had already signed and paid a lot of money to pressure for the Missile System that they were not allowed to buy here, foolishly. Turkey is a nato member. 100ey also ordered over f35 planes, substantially over 100. They have plans to order more. But because they have a system of missiles that is made in russia, they are now prohibited from buying over 100 planes. I would say lockheed is not exactly happy. A lot of jobs. I have always had a Good Relationship. We have the pastor who came back at my request. He was going to be in jail for 25 years. I called president erdogan and i said, listen, he is an innocent man, he is a pastor, a religious , he is notnot a spy the things they said. We had a couple conversations and i was able to get him back, along with many other people i ble to get back. The press does not want to write about it. I guess we have 21 back. I got anyone back. Either, unlike the 1. 8 billion that was paid by the Obama Administration to get hostages back. I dont pay. Once you pay, it doesnt work out. We have a situation where turkey is very good with us, very good. We are now telling turkey that because you have really been forced to buy another Missile System, we are not going to sell you the f35 fighter jets. It is a tough situation that they are in, and its a tough situation that we have been placed in, the United States. Weh all of that being said, are working through it, we will see what happens, but it is not fair. I dont stick up for countries, i dont stick up for turkey, other than i have had a Good Relationship with president erdogan. He wanted to buy our patriot missile. We would not sell it. He really wanted to buy it. When he made a deal with another country, russia, to buy the system that he didnt even want, all of a sudden we say, we will now sell you the patriot. Because he bought a Russian Missile, we are not allowed to sell billions of dollars worth of aircraft. It is not a fair situation. Do you have something to add . [indiscernible] china, we are doing with first of all, peter is a friend of mine, a tremendous contributor. He spoke at our convention, the Republican National convention. Peter is a brilliant young man, one of the most excess of people in Silicon Valley. I guess he was an original investor in some of these companies, including facebook, i understand. He made a very strong charge. One of the top, maybe the top expert on all of those things. He made a very big statement about google. I would recommend to the various agencies, including perhaps our , who wereenerals with us, to maybe take a look. When you say google is involved with china in not a very positive way for our country. We will all look at that. I know our other agencies will be looking at it. We will see if theres any truth to it. Made bya big statement somebody who is highly respected. We will look at that. [indiscernible] we will see what happens. We were sending hundreds of millions of dollars are you talking about guatemala and honduras . We were sending hundreds of millions of dollars to formal and honduras. Vonnie the president at a Cabinet Meeting, he allowed some cameras in. He says turkey will not be able to buy the f35 fighter after the country began taking delivery this week of a Russian Missile defense system. Also made some comments on the google claim by peter thiel, says he wants william barr to look into the allegations that googles work with china is seemingly treasonous. Stocks taking a lead lower after those comments. This is bloomberg. Vonnie this is bloomberg markets. Im vonnie quinn. Positive and marcus is not the only executive on capitol hill today. Google, facebook, amazon will be in the hot seat this afternoon during a hearing with the House Judiciary Committee on antitrust. Lawmakers will investigate whether the companys dominance stifles innovation and prevents entrepreneurs from starting new businesses. Joining us is jennifer rie, our Senior Intelligence analysts for litigation. When the bigots and concrete moves on antitrust litigation . Jennifer we will be waiting for a while. There is a lot of excitement because there are these highlevel executives coming to speak. It will be interesting what they have to say but this is just one of a series of a broad look at this committee is conducting in the power of big tech. It all started last month when they looked at the effect of traditional news from these companies, and then moving on to this innovation. There will be other hearings. Ultimately, what they are looking at is whether there is a there isere, whether legislation needed to curb the power of the companies. That will take a little while. Are they aligned in their message these companies, or does each have a message for lawmakers . Some feel like they should regulate themselves. Jennifer they are all different and they are engaged in different businesses, perhaps with the exception that they are all doing advertising. They will be aligned in the fact that they face more competition than the regulator like to say they are, that they compete in a bigger market than many say they do. Theoretically, what theyll be things, saying the same staring the conversation into how effective they been for consumers, competing in a Broader Market. But they all do different businesses. And the allegations about their conduct are different. We will be following the hearings in bringing analysis through the afternoon. Our Senior Analyst for antitrust litigation. Loan taken by clover technologies, a company that recycles computer waste, is in the spotlight, after losing a third of its values. The company is an example of the perils in leveraged loans. Ledobal chase for yield has to lax underwriting. Joining me now is reporter lisa lee of bloomberg news. Or is this thee beginning of what may be a domino effect in leveraged loans . Lisa it is one case but it is very illustrative. There are so many cases like clover out there in a leverage loan market. 60 of the loans in that market have only loan only, which means there is no subordinate debt. That means there is more volatility when something goes wrong. And it is covenant light which means lenders have little to no recourse to get a seat at the table if something goes wrong. Lost a third of its gone you quickly, started to nosedive, people ran for the exits. Did we see any contagion, did any other loans go this way . Moment, no, because the Federal Reserve is lifting up the markets. The question is if there are more like this. Liquidity