We did get japanese factory orders which were disappointing down 7. 8 in may they were expected to fall only 5 were down full 1. 5 as you can see in hong kong a little more than that in shanghai 2. 6 . European equities are lower, down around about 0 where do we look on the screens 0. 1 there we go, down 0. 2 in france, italy holding on to slight gains we did get some better than expected german Industrial Production data up 0. 3 in may. It was expected to fall slightly treasury yields back about 2 . Similarly the german yield is back above 0, negative 0. 4 and were up 0. 23 . Deutsche bank announcing it will pull out of Global Equity scales, scale back Investment Banking and slash 18,000 jobs as part of a Global Restructuring plan you have been following this story obviously throughout the weekend. And i thought your comments earlier with dom chu were interesting. You sort of term this as ripping the band aid off. Finally. Perhaps a little too late. Finally exactly. So 18,000 had cut from 96,000 to give it proportions. That bit is not really the surprise from whats been leaked other the last month people are saying could be up to 15 to 20,000 job cuts. Of that, 18,000 will fall disproportionally on the Investment Bank. So, clearly the head count in the u. S. Is predominantly Investment Banks well see a lot of job cuts there. In terms of color i hear from sources around 18 will be instantaneous, day one, out the door a lot of people will sadly been taken by surprise by this 20 will be drip fed over the coming months depending on closing various operations theres a 76 billion of assets going into a bad bank to be wound down that was sort of expected. When it was leaked this bad bank term, that scared some people, but i dont think its really an issue. They have an earnings issue, not a creditability issue. No need to raise capital, they say, at all. That is a slight win relative to expectations the big edline, equities business closed globally if they shut down some of equities, it would be a regional thing, not global. Thats really grabbed the headlines a big, big change. It strikes me that that element of it exiting equity sales and trading globally says something about Deutsche Banks strategy about how much sunk cost there was other many years. I remember 1998 99 bought Bankers Trust for 10 billion market cap is less than 20 so, there you go and in a sense the conventional wisdom has been proven somewhat correct that these large european commercial Banking Institutions werent going to be able to do it but also says something about the equity globally is not a great source of profit for the industry. Exactly right and i think, you know, equities has not been profitable. Deutsche banks 2018 revenue globally was 2. 3 billion jp morgan 6. 9, Goldman Sachs 7. 8 Morgan Stanley 8. 7 million that gives you a snapshot that u. S. Guys had over the european guys how big a gain is this to the u. S. Guys . Not dramatically probably means more to some of the European Investment banks. If they can grab that market share than it does to the u. S. Guys as it does to the Deutsche Bank strategy, they have always been stronger within trading within the macrorelated products fixed income commodities, currencies, derivatives and rates. In that sense, you can think maybe this will work exiting a less profitable area they werent as strong in. Keeping more profitable area they were strong in. That supports their Corporate Bank which is very profitable. Will this work the difficulty is on two levels, one, the other parts of the Investment Bank, typically the stronger guys are the guys that can offer a corporate full service. They cant offer equity trading. Secondly as to whether this is just too little too late and they have already lost some of the potential that this could have had if it had been three years ago. Why do you think it took so long i think was it denial leadership i dont think it was denial they knew the problems so that would be denial. They still hoped to turn it around and still be someone for everything in all kind of circles. I think also the political issues of making job cuts even if its heavier in the Investment Bank than the retail bank has been incredibly hard to get over the line. Look at how the talks with Commerce Bank fell away even though there now is political will in germany to support one of their important flag carriers but has taken so long to get to that point. Do you think commerce job deal can come back no, because that requires 30 to 40,000 job cuts for it to make sense across db and Commerce Bank together all in domestic Retail Banking jobs which would then be framed domestically as theyre doing these cuts to rehire Investment Bankers. That was, a, whether it would have worked any way but b, politically unpal atable to be approved on the political front and thats why that fell away. This is the alternative. Again because there were these various alternatives for a long time, they didnt do any of them instead. I ask the question because Deutsche Bank as all of you know has been on the top of the watch list of the banks over in europe that have the most issues, yet were hearing about all these changes now finally. Thats what the share price said in the past month thats the realization that thats not really the issue and that were not talking about this bank isnt thats a systemic issue. Its can they get back to profitability over the long term just to the other point you say in their defense for this terrible share Price Performance over the past five years, decade, one year whatever you want to say, negative Interest Rates in europe, the retail bank, of course, is also not profitable theyre not doing as much surgery to that part of the business few job cuts will come to that and also dont have an Interest Rate cut that makes them profitable in that part of the business any time soon. Well talk about a source of probably particularly high Interest Rates wework is seeking to raise up to 4 billion in debt ahead of an ipo. Sources say the company has met with ceos of jp morgan and wework has filed paperwork for ipo recently valued 47 billion. Infusion of cash could assure investors they could fund work for years perhaps until it can become profitable which is an interesting idea well pile on debt before we sell stock to reassure Equity Investors that we have a lot of cash to burn because well be burning a lot of cash. To make us look better well take on a ton of debt. That is the issue even if youre a believer in this Business Model which is entering these longterm expensive leases and releasing them on a shorter term bases to get scale and kind of meet those ambitions you need to buy and enter a lot more take over a lot more buildings and spend billions more. I guess, mike, well have a real test of what investors are willing to pay for when this one does come around because were happy to take on losses with an uber or lyft this one by all accounts is going to have the most struggled financials to kind of commit. They did do one debt raise. They hadnt traded particularly well, but they got the deal done this is a pretty accommodating high yield market. This seems almost like a Credit Facility because 3 to 4 can go up to 10. So its not necessarily a straight bond deal it sounds like its more of a Credit Facility which is why you have to be talking to the ceos. Banks, obviously their institutions are big real estate lenders and should know the business well see. Meantime, boeing losing a big order for the 737 max to rival air bus. Saudi airline will buy 50 air bus a30 jets in a deal with 5. 5 billion at list prices. The airline had committed to buying the 737 but the deal was never finalized. They did get the big win from the iberia alliance which was a big, positive surprise outside of that, a little slippage is to be expected the share price 1. 6 im not sure this was a locked in deal from the Saudi Airline any way. Right now the way boeing shares have traded it clearly suggests the market is saying, okay, this doesnt jeopardize the longer term order book which is the only real basis for the boeing investment. Not yet. Thats the point incrementally you have to look at the signals as to whether something is going to look like a lost generation in terms of models. Yeah. Google is denying a report in the New York Post its in talks with dish network to create a new u. S. Wireless carrier. The post says alphabet director and former ford ceo was speaking to dish in a statement to website 9 to 5 google, a Spokesman Says the claims are, quote, simply false. It would be interesting if, in fact, it was true. It would. The capital needed to build a fourth would be substantial. You look at the price competition, its hard any way to consolidate as we well know in terms of politically, but why would you want to enter that part of the business look at what google did localized with google fiber. Its a different business obviously but that capital intensive were going to wire the world type of an idea and they retreated from that. As verizon did with fios. Still to come the fed taking center stage for the markets this week after junes up beat jobs report, well talk about expectations for rate cuts here is a look at the biggest premarket winners and losers in the dow. Is where people first gathered to form the stock exchangeee, which brought people together to invest in all the things that move us forward. Every day, invesco combines ideas with technology, data with inspiration, investors with solutions. Because the possibilities of life and investing are greater when we come together. We have had great economic numbers that came out. We saw that over the weekend you saw it on friday we have just spectacular numbers. Were doing better than any nation on the planet were very honored by that were paying Interest Rates which the Previous Administration essentially didnt pay, so we had tremendous numbers coming out and thats a big thing our economy is doing incredibly. That was President Trump yesterday afternoon taking yet another shot at the feds Interest Rate policy meantime, it will be a busy week for fed watchers jay powell will answer questions about the economy and fed policy that testimony coming after fridays strong june jobs report casting doubt now on whether the fed will cut rates this month. Well also get the minutes from the feds most recent meeting on wednesday afternoon. Joining us to talk about the economy and fed, david, Jim Osullivan our guest host peter still with us. Jim, you first, are they going to cut in july more than likely. Thats the signal they sent. The appearances from powell in each of the previous two weeks i think they have laid the ground work here obviously the employment report was pretty solid, but theyre worried about the traderelated uncertainties hanging over the economy. Inflation is very muted. They have clearly given us the signal theyre going to go by a quarter point. The future of the rally is hanging on this . Well, i dont think every word, move and Everything Else from the fed. I think everyone is fixated about it but for good reason that the Market Expectations for the feds rate cut are extremely important. But at the end of the day, lit turn out to be earnings and what will take place over the course of the next quarter or two and we think the Market Expectations are simply too high for earnings you look out to next year, youre talking about 11 Earnings Growth. This year, were just trying to hit these incredibly lobars of 1 or 2 . Thats what the bond market is telling you. You have lower expectations and so were waiting for the fed because thats what they need to keep equities higher. Youre negative stocks . We just reduced on june 17th and reduced our equity allocation to under weight by 3 thats a significant move for us we reduced the quality of stocks we want our customers to own and move money offshore. Where offshore . We like some of the latin american countries we like a lot of the south asia countries. We like brazil and growth wise as well. Jim, the jobs number seem to give the mark a little bit of an occasion for a rethink of maybe just how much is going to be behind a july cut or how dramatic the fed easing is going to be. How much suspense do you think theres going to continue to be about exactly where we are in terms of what the feds expectations are, whether this is just going to prove an insurance cut or whether its going to be necessary matters. That will be the case well constantly be watching new data when that comes in. Certainly at this point theres some evidence of slowing so theres some moderation there. Meanwhile, the fed is pointing not so much to the current numbers as the uncertainties related to trade to justify some easing the signal is its not dramatic easing the numbers weaken significantly, thats a different story. Youre pushing against powerful forces, though, being negative stocks. Its not going even g the fed moves once this month and you get progression on trade, those are absolute positives for stocks, no i would agree with you that they are positives for stocks over the longer term what we look at is principle evaluations as really whats going to drive it. Lets put us back to where we were last october and november everyone was worried about the fed overshooting now what we talk about is the fed saving the day whats really different about this economy versus that and the answer is not very much. So whats happened now is rates have come down significantly and then the question is what is growth thats where valuations and portfolios have to consider what they own. Peter, where do you think the fed ends up at the end of the month . Well, theyll cut, but to mikes point, what would they do after . Is this the beginning of a rate cutting cycle or is this a one or lets play it thereafter . Important question is what will it do . The bond market is already cut for the fed. If youre buying a home, well, you just saw the average mortgage point drop 75 bases points over the year you got three rate cuts if youre a home buyer. What behavior is the i argue its probably not much of an effect but theyre at least going to try and see what happens. Does it affect the dollar i think the dollar is already weakening. The dollar index is at 97. Top that over 100 a couple years ago. The dollar is fighting whether its its own worries about debts and deficits but you look at the euro the euro trades really well and all the issues that europe has and negative Interest Rates and lagarde. It has issues and rate cuts will not help. This is a great question of what jim cutting Interest Rates is going to do whether it gets the stock market to go up but does little to spur corporate investments and other areas that would help the economy. There presumably is some read through which does affect business investment. It would be a different story if it was done 20 . I dont think theres any doubt that there is some passthrough from the equity market to the broader economy. Mortgage rates are down but housing is up. You look at the q 2 gdp numbers, that looks like it picked up in the Second Quarter the residential investment part along with Consumer Spending at the end of the day as well, you have to keep in mind that the fed is not trying to get back up to 3 plus growth. They would love that if productivity is soaring. Theyre trying to prevent the downside and happy with 2 growth unless productivity is a lot stronger. You suggest with the cautious stance on equities that earnings forecast probably have to come down they look vulnerable going into next year and the multiple maybe have to adjust, but what about this promise that a lot of investors start with, look, theres no recession, then usually you dont get big down moves in stocks that stay that way. Is that legitimate or not . One of the things we advise clients to do is not to market time you miss 40 days over the last ten years you took your turns down by 10 . You cant do that. What you can do is decide where you want to be in the market the fed was originally in a posture to prevent us from dealing with potential recession. Thats not what theyre doing now. Their policy has changed materially as a result of that, were actually taking bullets we might expend in a difficult situation and spending them now to maintain the growth or some amount of growth in the future thats not a particularly bright forecast so, i hear you, but if you have already made as much money as investors have made over the course of the last eight to ten years you want to rebalance your portfolio now. What do you make of the president s fed nominees and does that alter the likelihood of what the next couple years of action is going to be. Well, from whats known about them theyre viewed on the dovish side. Theyre not going to determine policy even the st. Louis fed research persons boss, of course, was on the dove it side already so, i mean, they are leaning that way already in terms of dovishness i dont think one or two other people especially if they have different sort of frameworks generally theyre not necessarily going to influence people dramatically. But they add to the dovishness to the fed right now again, do they mean the fed will be moving aggressively without the economic numbers being weak . No but they certainly wi