Tip auction. It breaks even under 2 . Im interested in the demand and the yield that it goes for. And federal reserve, the governor Jerome Powell will be speakingen a panel on washington. And Michael Mckee interviews Robert Kaplan at 7 30 a. M. Eastern. Is going to be an exclusive interview. How do they square that . And that Balance Sheet. David that exciting base book. Jonathan i want to know what the rest of the week looks like. [laughter] lix it has them cringing. David ok. Bank regulations frames the news with preposals kicking around including bringing you back glass seeing toll free up banks in other ways. An exclusive interview with bloomberg, former chairman paul volker thought he thought it would be a bad idea. What i would oppose if they do that and thinking that the Investment Banking operation, trading operation is going to stay super vacation and regulation which is i assume may be the thrust of this. But that just doesnt fly and thats where we were. Nd thats what broke down. David were joined by marty schwenneker. Welcome back to the program. When heard this, i thought they just run out of things to do . What about tax reform . What about health care . They decided they want to take that and by the ways the government might shut down next week. I know. Youll excuse me, this bill may be dodd on arrival. Alix oh, no. David this early in the morning . Its true that jeb has been on dodd frank case for a number of years. He had a bill in 2016 that went nowhere. This one goes even further. It would repeal the rule which youve just discussed. It would eliminate stress testing to just once every two years. And theres a lot of things in this bill that banks frankly wouldnt like and its probably not going to go anywhere. David marty, who is deciding which bills go forward, dont go forward . You already have the health care thing that didnt work out so well. Now it sounds like we have to do it again before we get to tax reform. Is paul ryan really in charge . Well, he says mess and in london yesterday, he said that there will be a resolution to the budget bill next week. And time is running out. From our understanding is they havent even decided where that bill will start, whether it will start in the senate or in the house. It sounds that neither body wants to kick it off. So it is a very good question whos going to take charge of keeping the government running . And theres a lot of other stuff going on besides repealing oddfrank. David how big a problem are they, the Freedom Caucus . You cant imagine a Republican Party shutting down its own government but it could happen. It could happen. It looks as though the republicans are going to need democratic help to get a very clean extension through. And theyre trying to do it quietly behind the scenes as to not bring up the Freedom Caucuses very strong feelings about how we run the government and how we spend our money. David marty, im sure youre going to sort it all out for us in washington. Alix are they on vacation or are they back . David no. David larry told us yesterday that he didnt feel the tighter regulations could hurt the u. S. Economy. He did weigh in on what does need to change. Just the fact by changing the tone of regulation will ease some of the issues. Many bankers are saying we dont want regulation. Many bankers are saying we just need to amend components of doddfrank, components of the volker cruel and many of those things are valid. Alix joining us is the Global Equity strategy. Upgraded as recently as the end of march. Great to have you, andrew. The s p financials are down 8 since that peak in february. Do financials need some sort of regulation rollback for the next boost hire . When we look at it, the key driver of financials is nothing other than the direction of the u. S. 10year bobbled yield and the expected raise in the fed funds rate. The key to financials is basically the 10year bond yield. And what weve seen since the end of february is the 10year bond yield fold and thats taking financials with it. Alix you have the spread between two and 10 about 103 basis points. Youve got break evens rolling under 2 . Can you make a case for buying financials here . We and on a global strategist much prefer japanese, indian and european financials rather than the u. S. When we look at u. S. Financials, we are concerned about free aspects. One, the evaluation is higher than elsewhere. Secondly, provisioning looks low relative to create spreads. Growth is , loan lower such as auto. So we would highlight areas elsewhere in the world, particularly europe where low growth provisioning and Interest Rate trends. All look better than people expect. Jonathan there is a narrative out there that says its being made up by dead issue in the market, a record First Quarter into the United States you. Buy that particular story and if it does resonate with you, isnt that good for the banks anyway when you see fixed income trade popping in a lot of these banks . Depends what banks youre talking about. But if youre talking about u. S. Banks, its not ambiguous. Loan growth has slowed down. Nevertheless, if you look at bank lending conditions, they tend to leave loan growth by about six months suggesting that loan growth will pick up. If we look elsewhere, the best indicators in loan growth in europe credit to marlin m1 with consistent with loan growth picking up more than people realize. In terms of of your second point, i dont believe thats right. For example, when you look at european banks, three quarters of lending, two quarters were bone by danks. In the u. S. , its only 20 . So if you get disintermediateuation, it hurts the european wholesale banks much more than it benefits them because the benefit will go to the Investment Bank but they well be u. S. Investment banks due to Corporate Bond issuance. So i think it is a clear negative. Having said that, i think the chances of disintermediateuation going to u. S. Levels is somewhat limited because 88 of european corporates employ less than 10 people and clearly, a small family firm caught issue on orporate bond. David what would really drive the Financial Institutions in those places . Just a point of clarification, around 80 of the improvement in the european profits come from lower provisioning. Or me, the key to banks is basically provisioning trends. And i personally think in europe, the free drivers of provisioning particularly for retail banks which are collateral value and employment banks which is almost similar to u. S. Levels and the level of Interest Rates, if Interest Rates are very low, it doesnt cost you to roll over an m. P. L. , suggests provisions can surprise in europe. What i said was in terms of expectations. Elies the expectation now is there will not be a deposit rate rise in europe. But i think there would be a deposit rate hike in september. Alix you want to talk about europe and i promise you well get to that. You have a 2,500 call on the s p. Youre not digging financials here in the u. S. What gets us there and what sectors do you bet on to get us there . What has got us where we are yeartodate, its basically tech and that is one of our biggest overweights. But, you know, if youring and if youre asking why are we still constructed on the s p, its for three key reasons. One, earnings revisions are still positive and the key driver is the acceleration of nominal g. D. P. Relative to nominal wages and nominal wages are far more in constrain than what we felt. The second key driver is the socalled value relevant valuation. We look at the equity risk premium in the u. S. , thats around 5 25 . The third key driver i still think is something of a bond for equity switch with risk adjusted returns in equity being much better than bonds and that encourages the bond equity switch. Jonathan andrew will be staying with us. Coming up, an allstar lineup of guests including Robert Kaplan and david zero boss of jefferies. From new york city, youre watching bloomberg. This is bloomberg daybreak with your business flash. Two trading firms combine according to a person familiar with the message. C. G. Ave agreed to buy k. Holdings. Virtue makes as much as it can. K. C. G. Has six times as many workers. The worlds biggest feud Company NetflixBeat Estimates. Revenue grew. Among the reasons, price hikes on net cafes and u. S. Sales. Overall, necessarily has been able to raise prices 1 amidst weak consumer demand. Bill oreillys departure looks like a nonfactor for the profit machine at fox news channel. Oreilly was the much watched star in the u. S. Hes leaving the channel over allegations of sexual harassment. One analyst says his exit may cause a couple of Percentage Points in ad sales before factoring in the channels expected grace. And thats your bloomberg usiness flash. Jonathan a candidate can win on the first ballot if they take on a 50 or more of the vote but the election goes with second round. The winner in round two is then named president. The first round will take place april 23 and the second round may 27. So far, the support is up while republican candidates have been declining. Le pen has remained unchanged at 22 . Some stability for french debt. 94 basis points. A remarkable calm gripping european markets. The euro firmer. Still with us is Credit Suisse head of equity, andrew, what is your base case at the moment . Andrew my base case is that we overreacted to the reactions which occurred in brexit and trump. Jonathan what do you mean overreaction . Where does it come from . Andrew well trump lost the popular vote by three million and it is the most unpopular popular president and bricks was brexit was only a 4 swing. And i would also point out there have been some recent european political results which have gone against the populous vote. So, for example, in holland, we w the populous builders lose by 8 points when in january he was meant to be the largest political party. And of course, we had the president ial populous candidate in austria in december lose. So i do think that this hopefully, that will be an environment where the polls have basically right. Jonathan with that in mind, where is the missed price in market . And if the base case is mack ron wins which we assume is the friendly outcome, the consensus is a wall of money ready to go in europe . What are you advising clients . Andrew well we think because by le are always breaking Political Risk that they people are waiting to put more money into europe. When we look at europe, it is our most preferred region. The have a 3,80 target on year end stock. And we think its very simple. Ian growth could be stronger than u. S. Growth again. Youre playing nearly a 20 discount. And youve got earnings revisions relative to Global Markets being better with 11 Earnings Growth. And weve got the fiscal and Monetary Policy which are highly supported and we have a european cycle which is three or four years behind the u. S. Cycle given, of course, where unemployment is. So political accidents aside, i think the euro stocks is the place to be. David so andrew go with in europe. You do anticipate real fiscal loosening. Which countries do you thinks particularly will benefit from that and which may not as much . Andrew well, i think its relative. That we have in the past seen fiscal tightening and now its more fiscal loosening. No country is going to admit theyre doing it until a after the event but in election years typically countries ease political ease. France will. Italy. Germany is increasing fiscal spending. But theres another issue here but because growth is stronger, particularly nominal term, corporate and overall tax receipts are stronger and that allows better fiscal revenues allows governments to be easier on fiscal spending. Jonathan one of my colleagues point out how tough it has been to have a longterm horizon and how you need to shorten your time horizon based on whats happening in the First Quarter. Once yaw get past the French Election, how quickly before everyone starts worrying about say italy and the prospect of them having an election that could go the wrong way as well . Andrew yes. I mean i fully acknowledge the ndamental problem of the eurozone is fundamental flow of europe has not really been addressed. We know that. And that will always, i think, cause some degree of discount in europe. But bottom line is that i dont think a country exits the euro until a majority of the population wants that to be the case. If you look at the euro stat data, particularly in areas like france and even in italys the vast majority of the population still want to remain in the euro but i do agree with you. Italy, not france is the weakest link and we consistently highlighted that and italys had the worst growth in europe on a g. D. P. Per capita basis, worse than greece in 2000. Its done the least reform. Its got the worst government debt. The worst banking position. Its most vulnerable to tapering. So italy, above all else had 60 of electorate to support the euro skeptic or e. U. Skeptic parties. So italy, i agree is the weak link. David Andrew Garthwaite will be staying with us. And we have a remarkable lineup of guests. And that will include dallas fed president Robert Kaplan, home depot founder ken lang gone and avid zero vose of jefferies. This is bloomberg. Jonathan from new york city, lets get you up to speed on the market this thursday morning. Futures positive up 43 points on the dow. A couple of date of marginal loss observe the benchmark in the United States but we are positive on the week so far. If we switched up the board, treasuries coming up the back of five yields of gain. This week, a big repricing on one day and we reprice back higher again. 223 to yield on a 10 year. Remarkably flat. Were up about a basis point in todays session. The euro is a remarkable calm that its gripping european markets ahead of the firstround vote in france which nobody seems to know the outcome of. We stay firmer at 1. 07. Crew catching up a bit. The saudis, they want the cuts to be extended. Surprise, surprise. I wonder what they think when keeps away. Emma and france had that killer bond auction. Some companies have Pricing Power over in europe. Ecessarily up. 2 . Organic growth with necessarily up over 3 . A full percentage higher than previous stimulates. Estimates. Earnings for Second Quarter that were 15 15 cents above estimates. Executive devices gets 13 of its revenue which supplies apple. And amex up by 2 . Revenue falling but still wind up beating estimates. The revenue is because it lost its contract over at costco. And the interday. You have the Saudi Oil Minister saying we talked to country, not all of them but we may agree to extend cuts. What matters is iran and russia on. Im betting they were not a part of the talk. Jonathan a little bit of verbal intervention. Next, Robert Kaplan joining bloombergs Michael Mckee. Thats a conversation thats coming up shortly. And a conversation with the Prime Minister of canada, Justin Trudeau in a Bloomberg Business week debrief at 11 30 eastern. Youre watching bloomberg. Jonathan the story of the market so far this morning on the week so far as well. Here are the scores for you. Futures up 40. Positive six on the s p 500. Were positive on the week as well despite a couple of days of marnal losses on the s p 500. Ill tell you whats happening on the other side. France got to weigh some shorter dated data. The targeted range lower but the yield was lower than the previous auction. The bid to cover ratio was stable and it is remarkable how calm markets are in france on sunday. Thats the french bond market. Thats firmer. The euro firmer as well. Were up about a third of 1 of the dollar. The pound grinded back hard at 12794. We can talk about a bond market and more. From dallas with a very special guest is Michael Mckee, bloombergs international ditor. Michael thank you very much. We would like to welcome the president of the Dallas Federal Reserve bank to Bloomberg Radio and worldwide. Thank you for having here in the big d. Welcome to texas. Ichael the consensus up 1. 5 . The yield curve flattening. 10 years coming down a lot. But the financial conditioning of the index are loosening. So what is really going on out there . Is there something happening that were not picking up . Well let me start with the last part on the 10 year. Own sense is the 10 year is reflecting the fact that expected g. D. P. Growth is going to be maybe sluggish as it has been the last several years. And also theres some geo political events, particularly whats going on in europe. Potentially other geo political events that might be causing people on balance to be on the u. S. Dollar, be in the 10 year. In terms of g. D. P. Growth for the First Quarter, the key underpinning to this economy still still is the u. S. Consumer, household Balance Sheets in the United States are in relatively good shape. How old Debt Services are in good shape. And the consumers got the ability to spend. The question is will they spend . And i think theres also some uncertainties for them. The Health Care Reform discussion may have some Chilling Effect on some consumers because theyre n