tv Bloomberg Daybreak Americas Bloomberg July 18, 2019 7:00am-9:00am EDT
alix: stranger -- netflix needs to get stranger. the stock plunges after a subscriber miss. honeywell delivers yet again. the company posting solid sales growth. the good come of the bad, the ugly. morgan stanley is on deck. the ecb rethinks inflation goals. the central bank will study a ,evamp of its inflation targets bemoaning the limits of monetary policy. welcome to "bloomberg daybreak" on this thursday, july 18. lonely here in new york. david westin ditched me at nbc. [laughter] david: there's this fascinating report you flagged about the ecb reportedly rethinking its inflation target us morning. alix: you some money flooding into european debt. you saw a little selloff.
the german ten-year -32 basis points. what is that going to do at the end of the day if they rethink that inflation target? david: and what does it mean? peggy collins pointed out the u.s. is taking a look at the same thing because central banks are saying we had this to %,rcent, it is not -- this 2 it is not working out. do we have to take a different approach? phillip morris the latest earnings coming out. it really highlights those that can take this environment and deliver to boost their forecast, and those that just can't and don't have the pricing power like netflix. david: then you have honeywell
somewhere in between. it beat on earnings-per-share, a little soft on revenue. it does seem to be weathering the storm of trade uncertainty at the moment. alix: in the market, let's look at how that push and pull is playing out. netflix well off the lows of the session. euro-dollar taking a steep leg lower on the news about that reflation rethink -- that inflation rethink by the ecb. money flowing into european bonds. after a pummeling over the last few days. david: it is time now for bloomberg first take. we are joined by jackie simmons in new york, and here with me in washington is peggy collins. jackie, let's start with you and those netflix numbers. we knew they were going to be a little soft, but it was a lot worse than we expected.
reporter: that's right. they are having to spend to keep up, and they have this influx of competition set to rise, so it couldn't come at a worse time. they are working for -- they are looking for growth markets like india, the second-biggest market that they've been pinning their hopes on, and even there they can't escape the threat of competition. the noose is tightening for netflix. here ineggy, washington, when it comes to --flix and how big a problem to netflix, how big a problem is the streaming we are seeing from the likes of disney and hbo? peggy: we are seeing apple coming out with a streaming service, disney, and others like at&t and comcast. the competition is mounting, and they are showing some weakness internationally, which is where
we are seeing a lot of companies really do well. if that is starting to struggle, they could be in for the long haul. alix: this also highlights that some companies are having a hard time passing through priced increases. what have you noticed so far? reporter: it is a mixed bag. you are seeing around the world luxury companies are feeling certain macro events. industrial space took a massive hit. i think they were down the most since 2008. we will see a lot of terrorist -- a lot of tariff concern and economic outlook concern. if you look at the investments they are having to make in technology, if you look at the week consumer market in china, ise --iggest market, it
it is eh. alix: that's a good way to put it. if you look at this chart, the top panel is sales growth, and the bottom panel is earnings growth. we thought the trough was first quarter. now it looks like the trough is the second quarter. do we have to see more downgrade for the back half of the year? reporter: one interesting part is bank earnings. a lot of them are pointing to weakness in the second half. if you look at where they came in on net interest income, that is definitely starting to weigh on the outlook. that is going to have an impact presumably on banking deal activity, growth plans. uncertaintyof across the board, and it is hard to plan in advance. people are going to be very cautious, i think. david: we saw a sort of divergence between the consumer on the one hand and the really
commercial investment on the other hand. how much does that give us concern about the future of the economy in the second half? peggy: what we really saw in the bank earnings was consumers holding us up, and that has been a broader thing across the economy. it has really been the strength across the board. in terms of bank earnings, we defaultsg descending and consumers really bolstering deposits and taking out loans. alix: to what extent -- david: to what extent is that what the fed is doing with its loosening policy that helps with defaults, for example? jacqueline: we are starting to see some cracks in the credit market and the clo market. it is just a question of planning, a question of thinking about the companies that have the most exposure to some of these g7 countries were you see tradeyou
slowdowns. david: let's go to the third story, the g7 meeting in europe. even as the ecb is talking about changing the inflation picture, one of the problems on this is trade. it shows the extent to which trade is slowing down. how much is this weighing on global growth? peggy: i think it is weighing on global growth a lot. i don't think we have seen the full effect yet of the tariffs and the tensions that continue. we had a report yesterday that also talked about how this is a big concern. the concern is, what will companies do because of the uncertainty? that it's really hard to quantify. do you slowdown hiring? do you slowdown investments and potentially even mergers and deals because you are not sure where trade and the borders across them are going? alix: let's pretend that the ecb does this and changes their whole dynamic.
if you are a ceo in europe, are you going to go invest some money into capex? jacqueline: probably not. i think you are seeing between the americas and europe, you're definitely getting the sense that europe is the slower cousin, and the growth is just not there. therefore, you are probably not going to race to make huge investments, do deals, set up shop overseas. i think you are seeing a little bit more concern and slowness in that market right now, and the uncertainty is weighing even heavier. david: at the same time, the ecb can do what it wants, whether it is target or monetary policy. can it really stimulate growth? we heard earlier it really is a fiscal issue. we have the oecd saying the same thing. monetary is not going to do the trick. jacqueline: you basically held of -- you basically have all of
these threats to the economy and trade is hovering over everything, so i really think if you're a company right now, you are in pause mode. you really just have to wait and see how this plays out. alix: if we have the ecb moving on this inflation targeting, does that put more pressure on the fed to rethink their own as well? peggy: i'm not sure if it is more pressure, but we certainly are seeing now with a report out from our colleagues in europe that the ecb is looking at its inflation target and potentially allowing be numbers to float a little bit above or below. the fed has been conducting a strategic review all year, and that is one of the things they've been talking about as well. is the 2% inflation target working, or are changing dynamics across the globe mean that we have to shift the way that we set our target and let it float or not? alix: in the meantime, just go by bunds. peggy collins and jackie
simmons, thank you very much. coming up, it is cloudy with a chance of no yield in an ever lowering yield world. some say u.s. treasury yield could go to zero. more on that next. at the break here, we want to leave you with some earnings of the morning. you've got honeywell better than estimated. organic sales coming in strong. phillip morris revising their full-year forecast. netflix continues to get pummeled after losing subscribers. this is bloomberg. ♪
right policy mix because what we see today is a slowdown coming everywhere, and also the need to address various risks that could concretize together. alix: that was muska vinci -- that was pierre moscovici. joining us now are jens data ceo andte founder, and adam pozen, peterson institute international economics president. the euro starts to rally a little bit, there's something new coming out from the ecb. we had the speech from draghi,
we had other board members talking dovish, and now this coming in just when the euro was starting to get some momentum. clearly if they are going to change their inflation target, it is going to allow them to be more easy over time, essentially. for a long-term perspective, they can go further in that direction. david: adam, you were actually part of the monetary policy -- inng in the e england. what does it mean to rethink the target? the passing grade is a 1.7% rather than 2%. does it change the nature of the target? adam: i think it is the other way around. similar to the fed, i don't think they want anyone to think that 1.7% is a passing grade. they realize they are failing and they want to get it up. people focused on the short-term implications of draghi's speech,
but he made the point that the ecb should think of its inflation target as symmetric, not asymmetric, going forward. david: suppose the ecb says it is 2.2%. does that do anything? does that change inflation expectations? adam: i think that's the right question. if you are going to change the target, you need to change it meaningfully. not even sure 3% is enough. years, say for a few you are going to catch up, but your target is 2%, it implies you have to average 3.5% for for five years anyway to catch up. you might as well be on -- for four or five years anyway to catch up. you might as well be honest about it. alix: does the fed ping-pong president trump tweeted that he once a weaker dollar and the banks manipulating the currency? jens: i think we are already
moving in the direction you are describing. we have a u.s. president that is clearly very vocal about not wanting the dollar to be strong at all. other central banks are easing for legitimate reasons. there's is a debate going on about whether we can actually have currency intervention in the united states. if not really had it for decades. i think that is something everybody in the markets should be aware of that is an entirely new risk that everyone should be -- entirely new risk that is around. we could have another leg of dollar strength if the ecb goes down that route. it could certainly be within the next six months. i think that could be a serious discussion within the u.s. administration about other any form of intervention is something we want to entertain,
and that is entirely new. that is a risk investors have not had to face for a long time. a chief investment strategist wrote yesterday, "behold market is sitting in zero and negative yields," basically equating it to quicksand. what do you think? adam: if we have a recession, we will get to negative yields. we will at least get to zero. so what is your probability of recession? there's no question that 250 basis points or whatever it is right now of room to cut isn't enough to offset a recession in normal circumstances. a the question is, do we have recession, and how bad is it? that's why you had that comment moscovicivi -- from that we need fiscal policy.
i just want to push back on one thing jens said. policy intervention is not going to matter unless the fed is very aggressive, and the fed is not going to be very aggressive unless we have a recession, and if we have a recession, the odds of u.s. dollar strength remaining are not very high. adam: i don't think we disagree on that --jens: i don't think we disagree on that. if we have a currency intervention, it is something that is going to be coordinated between the treasury and the fed. obviously this is a very controversial thing. a year ago when the fed was tight in, it made no sense at all. now we are going into an easing cycle. it is starting to be something the fed could entertain over time, but obviously it is something they would be very reluctant to get into. it is not just about monetary policy. it is about global cooperation. it is not unilateral
intervention of the dollar. you have a breakdown in global coordination. that is definitely a side effect that is worth considering. agreemente is a g20 that has successfully kept japan and china from manipulating for the last five to 10 years -- not 10 years, the last five years. you would break that, and that would be really stupid. david: i want to come back to this negative yielding debt for a moment because i don't quite understand. i will put a chart up that says we are up to $13 trillion of negative yielding debt around the world. we are being told it could get larger. what does that mean in the real world? what does it mean for other asset classes? where do you invest if you have negative yielding debt? adam: i think it is the other way around. it is because people feel there's nothing else to invest in you get the negative yielding debt. if you want to call it stagnation, if you want to go to be technology slow down, whatever it is, it's a
light, but not this late. is this telling us something more ash this light -- this light. is it telling us something more about their future? was a actually thought it mistake. it is just such a huge miss. the second quarter is usually light for them, but not by this much. andestimate was 5 million, they came in almost half that amount. it was still surprising. the fact that they lost 130,000 subscribers in the u.s. was very surprising, too. we haven't heard about them losing people. it was a little bit of a profound quarter for netflix, no doubt. analysts isrd from that wasn't good, but the back half they have their old trusted next season's of, say, "stranger things" coming out, therefore buy the dip. do you buy that?
their bigave all of shows that are going to be back in that second half. the estimate they gave for the third quarter was very good. we are looking for 800,000 domestic and 6.2 million international. that's 7 million. the estimate was only 6.3. that makes up for the fact that the second quarter was light. arounde still averaging 5 million subscribers per which puts their base at about 160 million. we will see if they can hit that number with that backloaded content going into the second half. david: and they are just playing against themselves. what about when they are playing against disney towards the end of the year, undercutting their price? and that's before you get to --&t and the time warner/
that's before you get to the at&t/time warner. dan: it has just become a battle over content, new subscribers, and you've got to have new content to drive people to your service. right now, netflix is spending the most amount of money of all of the streaming services. david: that is the key issue. it is really a battle about money because it costs a lot of money. disney has multiple uses for their content. they can get revenue from different sources besides just streaming.
does that put netflix inherently at a disadvantage? it has one real revenue stream. and the otherght, is disney has that huge library and disneys, marvel, . then you pull in the fox deal, and they have a lot of content. it is the new series that can lock people on, and that is what i think netflix has an advantage. alix: dan morgan, thank you very much. good to see you. coming up, moments away from morgan stanley earnings. this is bloomberg. ♪
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could be considering a revamp of its inflation targeting. european stocks now flat. technology in europe not really participating. they disappointed in their cloud sales growth, weighing on that sector. you can really see how all of this is playing out. euro-dollar now flat on the day. morgan stanley earnings breaking just now. earnings coming in at $1.23 a share. that looks like it was a beat, if it is comparable. you have revenue coming in -- .o, net interest income equity sales and trading coming in 2.13 billion dollars, missing estimates there. you have fixed sales and trading also coming in a little bit billion.one $3 $1.13f a mixed -- at
billion. kind of a mixed picture. joining us now is alison williams. that is kind of perplexing. i would have thought that would not be the case. usually net interest income holds up better. alison: that is a little less important for them. the important thing is that overall revenue is better than expected, so that is a positive. marginally better, but still better. equities trading a miss, fixed trading a miss. this makes goldman's quarter look better. they were the only one across the peers to have a beat and show again. we haven't seen the wealth margin, but that is something we will be looking at. bank of america yesterday hit a record in their unit. the same factories that helped back of america should also help morgan stanley. these look like they are better -- fees look like they are better. that's really been a bright spot
this quarter. i think all of the peers have basically feet. sequentially, that revenue is up 70% to 90% across all the peers. alix: if you are a morgan stanley -- david: if you are a morgan stanley shareholder, what do care about most? we've seen some likeness in trading, but which do you care about, growth management or equities trading? about thecare more growth management. things were probably we getting for the equities trading business exiting the quarter, and maybe analyst estimates didn't catch up that much. i will be focused on the opportunity from a competitive standpoint where they've really gained the most chair across trading over the past few years, with deutsche bank now seeing their pullback. that seems like an opportunity
longer-term, and i think that is more important for business. alix: wrap altogether for us. we have all the big six banks out. what is your big take away so far? alison: muted trading environment. estimates probably coming down out of this quarter, just because trading, we got a little bit of excitement at the end of the quarter, but that -- thately s immediately sated. the revenue environment has weakened. it comes down to cost. we haven't seen the cost numbers yet for morgan stanley, but i think that is the differentiator in terms of the movement and estimates from here. the near-term revenue environment obviously softer, and then the other thing to watch, one is just the whole global macro yield, political uncertainty.
that drives sentiment. that tends to be an indicator for deals. it remains constructive. i would add the word fragile just because it does seem like that could go either way, and the key concern is, will that eventually feed into the u.s. economy? could that be a risk to some of the core businesses for the banks? alix: thank you morgan stanley beating on earnings, net interest income, but you had equities trading down 14%. alix: still with us our adam posen of the peterson institute for international economics and data.ordvig of exante do you want to be a banker when your central bank is cutting rates? adam: no, but if you want to stay in business, you've got to figure out a way around it. havesked, do you want to your wealth management business,
which is steadier, which is percentage-based, which is fee-based? that's where you want to go. going on in's europe, i want to take into account how interest rates affect bank profits not because they care about the banks, but because they are worried they are not effective on the real economy if the banks cut back. rates another reason why may go to zero, but they are probably not going to go that negative. david: so how do you make money as a banker in this monetary environment? jens: i think the specific banks that have a big push in technology so they become the ch company-- the finte are going to do well. those in traditional businesses are going to be very pressured in their margins. i think that is what you are seeing in the stock market. in europe, you've got a prelude
to what could happen in the united states if we see the yield curve continuing lower and lower. there's going to be traditional bank entities under very much pressure from that direction of the yield curve. alix: let's tie these conversations and we've been having throughout the last half-hour. we talked about the bucket stimulus the ecb could prepare if they even revamped their inflation target. tie into what we could see from central banks to what banks will be able to do and survive. adam: i think what's going to happen is a big shift in both europe, continuing in japan, probably in switzerland and the u.k., into buying a lot of assets other than government bonds. once you've cut to zero, which the ecb has basically already done, that is your best form of qe. that is your best form of stimulus. there's real constraints, given the lack of german debt
issuance, on what kind of government they can buy. this is a problem for the fed because of course, in the fed cents, they are much more constrained in what they are able to buy. they are looking at whether they should be buying baskets of municipal funds. david: it feels like since 2008, have seen central bank sticking more and more ownership of the economy. can we avoid politicization of central banks? the central banks are controlling a lot of the economy, and a growing portion. adam: i don't think they are controlling a lot of the economy. they are trying to affect the overall course of the economy, and there are some risks, and there are some political risks. first, they are not taking voting shares. when central banks buy, they are
only buying stuff with a certain objective quality level. in the u.s., it is aaa, essentially. it is not corporate. it is guaranteed. it's not like having a discretionary manager. it's always a basket. pull by what sector, but it's less of a factor than you would think. with president trump's attacks on the fed, there's an article by one of your colleagues in "businessweek" this week. that is motivated going back to an old tradition in the u.s. of wanting easy money and attacking the new york bankers, being borderline racist on that as well, and coming up with conspiracy theories. it is not about the politicization in the sense you mean it. alix: wrap it all up for us in a meat boat. with -- in a neat bow. with that in mind, what is your
sense on trade? jens: we will have essentially another round of quantitative easing in europe. the bank of japan is already maxed out on its qe. debate abouthave a buying assets. you look around the world, and you think about whether there is any yield left, and you can actually see it already. there's a huge move already going into emerging market fixed are in where the levels historical norms. i think that trend is something that can really accelerate if we get something concrete. david: jens nordvig stays with us. adam posen of the peterson institute for international economics, thanks so much for being with us today. let's get an update on what is making headlines outside the business world. viviana hurtado is in new york with first word news. japan, almostoto, 30 are believed to have died at
a suspected arson at an animation studio. three dozen others are hurt. a man burst into the studio's, "you die." then he set the studio on fire -- the studio, yelling, "you die." then he set the studio on fire. more troops have been sent to the u.s./mex ago border. they are stationed -- u.s./mexico border. they have been stationed at ports of entry and crossings. >> there were no sanctions on iranian oil, no you been sanctions on iranian oil. nobody has the right to confiscate that ship, so it is piracy, pure and simple. viviana: the u.k. says the ship was violating sanctions by heading toward syria. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries.
i'm viviana hurtado. this is bloomberg. david: as i listen to the foreign minister their talk about oil in the strait of hormuz, to what extent is it really affecting oil price? i can't quite figure it out. alix: it is not. weak product demand is leading oil prices. i will have much more on that today on "commodities edge" at 1:00 p.m. eastern. as we had to break, the big thing with equities and revenue down at morgan stanley, wealth management really surprised to the upside come with revenue up 2%. cio says, guggenheim's learn some history. we will tell you more in today's wall street beat. this is bloomberg. ♪
viviana: this is "bloomberg daybreak." coming up in the next hour, sachskostin, goldman chief u.s. equity strategist. here's your bloomberg business flash. unitedhealth is highlighting its strength as it expands into more areas of care. the health insurer boosted its profit outlook after posting better-than-expected earnings in the second quarter. unitedhealth overall mentorship increased by more than -- overall membership increased by more than 700,000 in the past year. novartis raising its profit forecast for the second time this year, expected to rise as much as a mid-teen percentage.
here in new york, today a judge decides whether financier jeffrey epstein will remain in jail. epstein has been locked up since he was arrested july 6 on sex trafficking charges. prosecutors say epstein is a flight risk and an unrepentant criminal. that is your bloomberg business flash. alix:. different than -- alix: thank you so much. different than his last sentence. meyer at, scott guggenheim saying binging on low debt is not a great idea if history is anything to go by. then ray dalio gives gold the thumbs up again. the era of quantitative easing might be coming to an end. another battle in salt reduction war. ponczek,s now is sarah bloomberg cross-ice at reporter.
still with us, jens nordvig of exante. there's this notion going on that if the fed does begin aggressively cutting interest rates, we could see a rally that includes high-yield bonds. scott is coming out and saying that is probably ill advised. if you look at history on average since 1986, through cycle, while people believe maybe now is the time to get into the riskiest of credit, he's saying probably not the best idea. alix: i'm thinking you disagree with that. jens: i think what's dangerous about doing these historical comparisons is this cycle really feels very different. a lot of people argue that what the fed is doing it's kind of crazy. like we had just a flip aced on essentially no u.s. data. is the u.s. recession really
here, or is the fed being way more preemptive than previous cycles? i think a relationship in high-yield bonds is also different, and the hit to high-yield bonds will probably come later. that would be my best guess. alix: let's go to the second-story, and that is ray dalio. it is the battle between socialists and capitalists, and gold is where you need to be. where do you sit with that? put the two together. jens: essentially what you've seen over the last six months is , in the hole currency complex sort ofld fits, you had a fight between negative forces that would start to take hold in the u.s., but also it a lot of other
we had a narrow range in the euro-dollar the last six months, but gold has been different. there's easing everywhere, and nobody can find anywhere to go, but gold really stands to have a left off. that makes a lot of sense. there's a shortage of reserve currencies, so that the sysmex a lot of sense to me. -- so that system makes a lot of sense to me. sarah: ray dalio is saying we will get to a point where qe and low interest rates aren't going to work. he fed central banks are going to have to figure something else out, whether it is currency devaluation or something else. his argument is we could be in this very long period of extremely low real interest rate returns. and that type of environment, investors don't want to hold debt. they want to go somewhere else, therefore gold. alix: all right, the last story between newinsult jersey, connecticut, and new york.
sarah: the battle is back. alix: did it leave? sarah: no, it didn't leave. [laughter] the salt tried to rule tax unconstitutional. they want the irs to come out and say we can't have this cap on salt anymore, but it is just another step. this is one of the most contentious areas of that 2017 tax law, and it is not ending. alix: are you going to move to florida if it doesn't work out? [laughter] jens: 1.i would make is when you have poly cheese changes like this, --jens: one point i would make is when you have policy changes like this, there is risk involved. alix: thank you so much for joining us.
david: the rollout of 5g come on the next generation of cell phone technology, continues today with a in announcing the next stage of its -- with verizon announcing the next stage of its 5g program. erwin,ome now tami verizon communication business group ceo. >> today we are announcing the fiunch of the 5g wi-fi mi- device. it is really built for business
company -- for business customers. have an ongoing commitment to launch 30 markets in 2019. david: what you are announcing today in part specifically addresses the needs of business customers. if us a sense of what you rolled out so far. what is the breakdown of households and businesses? i'm talking to hundreds of customers around the world, and the degree of interest and excitement for 5g in business is really significant. businesses are seeing the potential impact of the currency and capability of 5g to really change their businesses in a meaningful way. while consumers are interested, and certainly 5g will allow a lot of kid abilities for consumers, things like load latency -- a lot of capabilities for consumers, things like load latency and great battery life, is really important for how with
think about business. alix: can you give me a sense of how many business customers versus consumer customers you have? tami: that is not a number we typically share, but certainly consumers like it because it is a mobility play. businesses like it because it changes everything about their industrial application. alix: have you had to put more money out to expand, for example? yesterday ericsson said their profit got hit because they were expanding 5g in asia. have you noticed anything along those lines? tami: we really haven't. this is all part of our build plan to say, how do we show up with the best technology and it? the world in doing this is something we've been building for years as we work with partners like ericsson and samsung and nokia to really build that. we are the first in the world to launch 5g, and now enable others to work on that network. david: give us a sense about the time horizon. obviously this is an investment,
like ericsson is having in asia. at what point do you think this will turn from an investment to turning cash positive for verizon? tami: i think this is a cash positive investment already. it is part of what we do to continue to build the world's best network. we continue winning metrics at jd power. this is a continual investment to really lead the world to the next generation of technology that will enable incredible solutions and keep abilities. we have a chance to work with partners around the world. one of the things that is really exciting is they are coming into our alleys. we've defined these alley capabilities where people can come into live 5g ecosystems. our customers and partners are doing it, and they are creating incredible solutions. i happened to be in cambridge this week, and watched people in action taking the applications and solutions to solve the world's biggest problems with that. david: verizon has said they
want to have 30 locations by the end of the year. are you on track for that? is it a coincidence that we are seeing a lot of midsize cities? we are not seeing new york or los angeles. tami: we are absolutely on track to deliver the 30 markets. we started with markets where we had really great partnerships. mayors and governors have been part of this, legislators have been part of this, to make sure we have good public-private partnership. you will see big cities as we continue to roll. alix: thank you so much for joining us today. tami erwin, verizon business group ceo. kostin,up, david goldman sachs chief equity stratus, will be joining us. -- equity strategist, will be joining us. this is bloomberg. ♪
trading slump and cutting profits. the big ecb re-think. the stroh bank -- the central bank rethinking its inflation targets. iran says it could close the strait of hormuz. the foreign minister talks u.s. sanctions, instability in the middle east, and oil prices, saying the u.s. can always come back to the negotiating table. welcome to "bloomberg daybreak" on this thursday, july 18. i'm alix steel in new york. david westin is in washington. about there's a story the send her back -- about back" being the
new chant at trump rallies. it is not very pretty. alix: it is not, and you can see this being the 2020 issue. what does that mean for things like budget, debt ceiling? david: they have until the end of next week to figure out that debt ceiling, according to treasury secretary mnuchin. they will run out of money before they come back in september. i'm not sure how they were was all when they are talking -- how they will resolve when they are talking this way about each other. alix: here's where we are stacking up. s&p futures are down just two. euro-dollar now flat. edlyecb are report thinking about revamping their inflation target. intohe money is going over spain and portugal. crude finally participating in some kind of rally, 4/10 of 1%. almost $13ow has
trillion in negative yielding bonds. loeys, jp morgan's chief investment strategist, says, " the whole market is sitting at those levels." he joins us now on the phone. if you take a look at that, what -- what would lead the u.s. to zero, and how long would it stay? each madee and japan a big policy mistake. europe telling everybody that sovereign debt was too risky. we got into a recession, yields the market did not believe that control over real rates. the central bank tried to keep interest rates low and more quantitative easing.
the process they created -- in the process they created a liquidity trap. they weakened financial institutions. the u.s. hasn't made an economic mistake like that yet. i'm not predicting there will be one, but at some point we will have a recession. thatreflection -- recession is an inflationary shock. they will have to do more quantitative easing, and then you have that risk that you banks,your insurers and and at that point interest rates .re still low japan, five years, easily. and it stays there. the longer it stays there, the more you weaken the banks. alix: does eight actually pick up?
bloomberg reported today that they could go to 3%, 4%. what does the ecb actually do? how does that trickle into the fed and the boj? jan: i think they are out of ammunition. there's not much more they can do. they can make things worse. that's what they are really doing with negative interest rates, for negative impacts on the consumer and the banks. it is game over for them. is on to -- it is on the fiscal policy. point, central banks need to pass the baton and stop doing damage. alix: good to catch up with you. thank you very much. loeys, jp morgan senior advisor long-term investment strategy. thank you very much. david: morgan stanley is the last of the big u.s. banks to report earnings this morning,
giving us a broader picture of how the banks are doing overall. they beat, of course, but their stock is down a bit in the premarket. now let's take a look at the banks and earnings with david kostin, goldman sachs chief u.s. equity strategist. give us your sense on the banks. we do have some pressure brought to bear on them by the fed and its cutting of rates. david k: well, the tension in the equity market tends to be between increased valuation that lower interest rates would support higher equity prices. on the other hand, earnings have been generally a bit weaker, and expectations are that in 2020, those earnings will have to be coming down. between an-war increase in valuation that might come if rates remain low, which is general expectation, contrasted with some of the weakness in earnings. you seen a couple of major companies already report second quarter results, and things are
getting a little weaker, given some more cautious outcome, fx, railroads, netflix last evening. we think about the outlook for equities broadly speaking, the market for the s&p 500 just a bit below 3000, which is the target i have for the end of this year, if you think about that, low interest rates, and everyone is expecting, that the fed will be cutting twice, once at the end of july and once in september. the market is already pricing that in. that's why we had a big rally in the market, up 20% year to date. fund managers are beating the index. it is a challenging environment. the expectation is that rates
will stay around this level, a little bit lower by the end of the year. most portfolio managers with whom i interact look at rates and 1.9% between 1.7% for the end of the year. alix: you come inside the itomberg at ea , basically looks at sales growth and earnings growth. the idea is we are around the trough, and it is going to get better. do you buy that, or do you think we will have to see downward revisions? david k: broadly speaking, in aggregate context, it will be a relatively weak earnings season. margins are compressing by almost 250 basis points. we will have therefore probably negative earnings in aggregate across the market. most fund managers are stock pickers, and they choose
individual companies. the median company is actually doing pretty well. we are looking for something in the vicinity of 4% positive shares growth in the fourth quarter. is the aggregate gets affected by some but is having negative earnings this season, and that is going to drag down the overall. if you are thinking about it from a sovereign wealth fund you'reive or assets, going to see pretty weak asset earnings. the median company will be about 4% positive this quarter. david w: if you are a stock picker and you want to get off that median, you want to go at?er, what do you look as we look at the bank earnings, there seems to be a theme that it is more on the corporate side , particularly we are not seeing corporate investment. do you really rely on a consumer
if you want to get off of that median? david k: the answer is yes, in the sense that it is the consumer. the unemployment rate right now is about 3.7%, one of the lowest in 50 years. wages are rising about 3%. that's one of the reasons the economy still continues to grow. consumer confidence is reasonably positive. but from a financial perspective , a very flat yield curve is a challenge. there's not a lot of net interest margin for the driver of earnings. mortgage rates have come down a lot. there is some drivers of the revenue lines coming on the consumer side, but less so on the net interest margin side. alix: david kostin is going to be staying with us from goldman sachs. union pacific just out with earnings, a totally different story from csx. that stock was dragged down with its peer, but they beat taken quarter estimates at $2.22 a
share. their carloads were a little bit light, but they did wind up beating on the bottom line and operating revenue. that's not getting a nice pop in premarket. we will speak with the ceo of union pacific later this morning. that's at 11:00 a.m., lance fritz. coming up, the rest of the transports having a really rough go. we will break that all down with david kostin, next. this is bloomberg. ♪
union pacific posting second-quarter earnings that beat estimates. total carloads were down 4%. shares of united rentals are lower in premarket trading. construction and industrial equip into rental company trimming the upper end of its andnue -- the construction industrial equipment rental company trimming the upper end of its revenue. volvo's second quarter earnings were better than expected. truck sales rose, driven by a 30 brought percent jump in the usa and canada -- driven by a 30% jump in the u.s. and canada. that is your bloomberg business flash. alix: thank you so much. what has been striking over the last few days is how transports have underperformed as the s&p keeps rallying. if you come inside the bloomberg, the blue line is the s&p, the transports the white
line. technically they are supposed to move together. time.is for more, david kostin is with us. how do you understand that? do we have to look at transports differently then we would years ago? david k: i think the biggest risk is around labor costs. the idea of labor costs, unemployment is super low. if we look inside the market, industrials are the category among the most sensitive industry categories, interns of rising wage inflation. the ratio of their labor costs and their sales is extremely high relative to some of the other sectors of the market. individual companies in each sector have very low and high they were costs.
that's one of the issues you hear from companies that the ability and challenge of attracting new labor and retaining the labor, and the skills mismatch, from when people are applying. the idea of finding companies that have relatively low labor sales, their ratio of whether you look at their salary, health care, stock compensation, most companies in the united states around 13%. these are some companies at the lower end of that distribution. alix: would retail be at the highest? we heard about workers getting more strength in the retail industry. why am i wrong? david k: you're not wrong. there's just distribution. in the retail sector, rates may be low.
it also has to do with corporate margins. labor costs may be a large share of the revenues, but the margin is maybe much higher. we have a basket on bloomberg we trade in which companies with costs are with companies with high labor costs. low labor cost portfolio trades around 13 times more earnings. you get less exposure to major risk. sixntral risk in the next months is what needs to be taken into consideration. david w: what about industrials and the threat about trade? i will put up a chart that indicates there's a declining total of gdp coming from trade, in part because of trade
disputes. how sensitive are companies to that? honeywell notwithstanding because they came out with earnings that were pretty good despite that. david k: i think you want to think about it in a couple of ways. where's the central focus of trade? it is with china. with many companies, the share of cost to cost structure out of isolated. ofthink about it from a sort trade barrier. as much u.s.ing product on the agricultural side. the other side is a higher input costs then u.s. companies that are reporting -- that are importing. that is a challenge. read you see that most acute?
in terms of the trading pattern, what has happened in the equity market, companies with very high percentage of their revenue out of china, 20% to 50% of their sales. those stocks have been very weak for a variety of reasons. companies with less exposure overseas have not. that is a pretty consistent pattern. it comments in washington, is very difficult to assess in terms of this trade negotiation. the recommendation would be focused more on companies and businesses that are more to mystically facing. we talked earlier in the segment about financials. companies that are less import sensitive, so software companies, for example, it is not subject to the tariffs. we may have some challenges, but generally speaking, they are
less expensive. that is how to filter how trade comes into the equity market. david w: what about the secondary effects? some of the business uncertainty and people being afraid of making long-term investments. onthat a particular weight the equity markets? jan: i think it is an excellent observation. the economic policy uncertainty ,s at extremely elevated levels given the discourse. you are an washington, d.c. as you indicated. it is not likely to be shifting anytime of the year. high,ertainty remains that digitally could curtail business decisions going forward , so that is a concern that is
legitimate. that?es one tackle the equity market and investors are always forward-looking. what are the sources of risk? perhaps these companies are less .eliant or important some companies think about altering their supply chain to the extent they can. obviously that takes many years in some respects, but to the extent that on the margin, they can shift their supply chains, .ompanies are trying to do that they don't have to try to pass on to consumers very significant price increases that come from tariffs. alix: david kostin of goldman sachs, thank you very much. always good to have you on set with us. david w: coming up, honeywell bux trade tensions. the company -- honeywell bucks
david w: it's time now for the bottom line, we relook at three companies worth watching this morning. first up, netflix came out with earnings after the bell yesterday, and disappointed, particularly on lack of growth. they lost subscribers in the united states. they are down 11% almost in the premarket. which you"the crown," love, is apparently going to save them. i'm watching blackstone, their ing estimates. they had $41.5 billion in the second quarter. that is really putting it on page for the goals for the year. that is so much money. we just saw yesterday $11 billion raised for a secondary fund as well. the third company we are
watching today is honeywell. for more, we are joined by brooke sutherland. the numbers look good, particularly in the space, but your skeptical? brooke: i am little bit. raised earnings guidance, but not as much as anticipated. when you look at their third quarter guidance, they are calling for 2% to 4% organic growth. that is a pretty significant deceleration. this sticks in my mind with the general theme of a slowdown. it is not immune to the effects that we heard from csx earlier this week, dover missed on revenue this morning, so i think this is all part of the same theme in my mind. david: honeywell in the past has been willing to take chances. in this environment, i wonder whether they are really trying
to play it safe. brooke: so many people have piled into honeywell, and i think a big part of that is because ge has had so many problems, 3m has had problems. if you are an industrial investor, you're pretty much left with honeywell and roper. those shares have really taken off over the past six years. that's why i'm being nitpicky on just numbers because it gives me pause. if you look at the way this can have plays out for the back half of the year, there's opportunities for disappointment and for investors to be left with two highly valued a stock. what you are saying about playing it safe, this feels less about keeping the bars low and about we actually see headwinds here. they talk about a potential cycle slowdown, tariffs, brexit.
there's a lot in the background that could make this a tougher second half. alix: who is this worst for? brooke: 3m is the big one coming out next week. they are very exposed to china, autos, electronics. investors are expecting yet another guidance cut at 3m, which is going to be very problematic for that management team that's only been there about a year. alix: brooke sutherland, thanks very much. coming up, tensions in the middle east. iran says it can close the straight of hormuz, but doesn't want to. it is an -- the streets of hormuz, but -- the strait of hormuz, but doesn't want to. it's after the break. this is bloomberg. ♪
looking at a symmetrical inflation target. lower rates for longer is the theme. technology taking a hit in europe. in other asset classes, all of that playing out in the currency market and the bond market. you get move into bund. yields down three basis points. the move out of treasuries and into the bund market. data in the u.s.. jobless claims coming in in line with estimates. also you have a blowout philadelphia fed business outlook number coming in at 21.8. crushing estimates. the fed number coming in at 21.8. you're looking at the details within that and you have prices paid rising, you have new orders rising, employment index rising, prices received rising, anyway you look at it a stronger philly
fed number. goingback to juppe -- back to geopolitics, rising tensions between the u.s. and iran. bloomberg sat down with iran's foreign minister and asked them about the recent incident in the strait of hormuz. >> we said that boat was not going to syria. we cannot tell you where it is going because the united states with its policy of zero oil sales would prevent us from selling that. the united states is preventing us from doing transparent oil sales. >> you see that as united states directing britain? >> unfortunately. there are no eu sanctions applicable to non-eu member states. the eu, unlike the united states, does not impose its sanctions on third parties. that is what the united states does. the eu has objected to that all along. if the united kingdom was not in ship, itn disease the
was a ship that was carrying cargo and it was not destined to syria, but it is immaterial where it was destined. none of the business, there were no sanctions on iranian oil, no yuan sanctions on iranian oil, no one has the right to confiscate that ship. it is piracy, pure and simple. >> you have denied being behind the attacks on the tankers in the strait of hormuz. who did them? >> the united states and its allies have made this body of right next to our coastline -- we have 1500 miles of coastline on the persian gulf , it is not the gulf of mexico. it is right there. it is a very crowded place. >> is it dangerous because it is so clouded -- so crowded?
>> it is dangerous because it is so crowded. the last time it was so crowded the united states navy shot down an iranian civilian plane with 290 passengers. we understand. it is dangerous. that is why we want to avoid a dangerous escalation. we cannot give up defending our country. your revolutionary guard has said it can close the states of hormuz, but what will be the situation where you would do that? >> we have the ability to do it but we do not want to do it because the strait of hormuz and the persian gulf are a lifeline. we play a major role in securing it. it has to be secure for everybody. >> do you think you can control the revolutionary guard? some people look at iran and say we are on a different tangent. >> i do not need to control anybody in iran.
iran has a sophisticated system of government where everybody does what they are supposed to do and we are not supposed to take measures that undermine our security. , a lotook at that region of people would say the big issue is not so much america and iran, it is saudi arabia and iran. arabiartunately, saudi believes they can purchase their security and they pay is a commodity and they buy. they are willing to fight all their problems until the last americans. saudi's have hired americans as mercenaries. >> that is how they see it. >> do you see the saudi's as america's mercenary force? >> we see the presence of the united states as conducive to greater instability. it causes instability. it exacerbates tension. it greets a false sense of
security for its clients who believe they can get away with murder, as they did with a brutal murder. they do get away with the murder of innocent civilians in yemen on a daily basis. >> they have made no secret of the fact that they want regime change in iran? would you like to see regime change in saudi arabia? >> we do not. we believe it is the business of the saudi people to decide about the government and we do not have any alternative to the current ruling regimes. that is not our business. it is the business of the people of those countries to decide. we do not want to see regime change in any country. we're a status quo power. we are content with our size, we are content with our population, we are content with our resources, we are content with our geography. we do not seek anybody else's territory.
we have no i on somebody else's resources. they can live happily ever and after if they wish to live in peace with their neighbors. the problem is they are not living in peace with their neighbors. it is not iran. if you want to look at maligned behavior, everybody in the region, everywhere in the region we have a problem, you have a saudi footprint, uw you footprint, but not everywhere you happen iran footprint. in libya and sudan you have a saudi and uae footprint but you still have a problem. if you want to look at malign behavior you want to look elsewhere. david: that was iran's foreign minister. for more on the u.s. iranian standoff we welcome barbara lee, former u.s. ambassador to the uae. welcome, good to have you here.
barbara: great to be here. david: my fundamental question is that negotiating with the united states we are walking -- we're watching. he said we could close the strait of hormuz if we want. is that towards a diplomatic resolution or are we growing apart? barabra: that was a fairly thuggish turn of phrase, reminding everybody that iran could close the strait of hormuz and disrupt shipping as it has years,er the past 30 most notably the 1980's. reminding international shippers and the neighbors that iran can disrupt shipping is a not so veiled threat. sense, what the foreign minister is engaging in is political theater. both sides are doing that.
they are at an impasse. there is a lot of jockeying for leverage. that is the way you could look at iran's activities. david: we had an agreement called the jcpoa that president trump said was not good enough and did not go far enough. in another part of the interview, he said we shot ourselves in the foot by pulling out of that. as our leverage greater today before we pull out then less? barbara: we have a series of tools and the most prominent tools in use by the administration our economic or sanctions. they are having a devastating effect on iran's economy, on purchasing power, on the iranian public. as to whether they are actually which are to ends, change iranian behavior in the region and try iran to the negotiating table, to use the
words of the administration, is an open question. they are not having that effect as yet. when that might occur is an open question. too people believe there is elastic of a connection between sanctions and what the administration is driving for. departing the nuclear agreement was one thing, and i think in the grand scheme of things we have left ourselves exposed in terms of collective action. i also think the administration's course does not take us where they want to go. david: on the subject of collective action, europe plays a large role in this. that is another thing the minister talked about. where are the europeans? i read in the financial times that now vladimir putin wants to participate with the europeans
and avoiding the payments process. barbara: this is a quest that is not likely to succeed in its intent. it is as much of a political gesture as anything else on a part of europe and russia. ares clear the iranians beside themselves with anger at the europeans inability to pressure the united states back into the deal or to back off of sanctions. i do not think that will bear any fruit. david: given the fact that you were ambassador to uae, there are other countries in the region other than iran and the united states. how the other countries perceive this conflict? barbara: there is a great deal of uneasiness among the six in terms of the gcc any possibility of a military conflict. they would be on the flood lines, they would be in the middle of it. nobody wants to be in the middle
of it, and i do not think this president wants to go in the direction of a conflict and i do not think the iranians do, either. that is just a bumper sticker, if you will. where we are right now can lead us into inadvertent conflict. david: a lot of armed conflicts -- barbara: were not intended. david: they both took positions that took them there. barbara: the president saying -- youd: the president saying cannot have nuclear weapons, iran saying we will continue enriching and radium -- enriching uranium -- are we on a path? barbara: it is not so much the administration saying you cannot have uranium, it is the looseness of language and the sometimes incoherent message out of the administration, the discordant voices that suggest all in for full surrender.
on the other hand the president saying continuously i do not want a military clash. the iranians may be tempted to think they have room for maneuver and i do not think they do. , former u.s.a leaf ambassador to the united arab emirates. the question i keep going back to his what does it mean for the price of oil? alix: is all about the man and your product stocks leading the oil price. demand concerns trumping the geopolitical risk. we will break that down in commodities edge. do not miss that at 1:00 eastern time. david: we cannot wait. let's get an update in what is making headlines outside the business world with viviana hurtado. wherea: we begin in japan almost 30 people are believed to have died in a suspected arson at an animation studio. three dozen others were injured. survivors say a man burst into ,"e studio yelling "you die
and then set it on fire. the suspect has been arrested. the trump administration is sending 2100 more troops to the u.s. border with mexico. the troops will have a number of duties including being stationed at ports of entry and working at migrant detention camps. viralight -- the latest sensation. face app shows what people will look like when they get older because there are some people who want to know that. you may be giving up a lot of privacy. it says it may share details with third party advertisers. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. alix: that was our producing staff for bloomberg. an amazing story. coming up, ministers and their
viviana: i'm viviana hurtado in the hewlett-packard enterprise greenroom. later today, lance fritz, union pacific chairman and ceo. david: the g7 ministers just wrapped up a meeting in france. maria tadeo is there now with bruno le maire, french economy and finance minister. maria? maria: so much happening here. we talked about digital tax, we talked about labor, we also talked about the dollar.
to talk about all of this, i am joined by bruno le maire. has been ais g7 breakthrough when it comes to the digital tax. the americans are saying not so fast. where are we? minister le maire: we are moving on and that is the most important thing. we can call that a breakthrough or a step in the right direction. we are moving on. digital taxation is a key issue. you have a key business model and this new business model of the 21st century is not taxed at the right level. i think it is in the interest of all countries, including the u.s. cap a fair and efficient taxation of these new business models. we want to have the taxation system of the 21st century for the business model of the 21st century. and you make it clear president macron is committed to this.
you said we could be looking at lifting our own national tax. can you take the step that united states of america should pull the 301 in france? minister le maire: we need to have a decision. i will not be satisfied by a statement or report. we need a strong decision on international taxation. as soon as there will be taxation of digital activities adopted, and adopted at international levels, france will raise its own national taxation. adopted national taxation because of the lack of progress at the international level. if the international community has been able to pave the way for decisions, we would never have adopted national taxation. we have decided to move on because the international community was not moving on. maria: i know you had a one-on-one with steve mnuchin. the administration has said they think the dollar is too strong. do you worry they will try to talked on the dollar and what
does that mean for the euro? minister le maire: it is up to every nation to take its decisions as a sovereign nation. as for what is the concern, we think and we view the military policy must remain in the hands of the central bank, which is an independent central bank. the ecb is independent and it is up to the central bank and only the central bank to take decisions related to monetary policy. this is the french position, this is the european position, and it will stay the position. maria: speaking of central banks, you all agree you have concerns about libra and facebook. do you think it is a threat to the euro and the dollar? minister le maire: i think we have technical and political concerns about libra. those concerns are shared widely by all members. we are obliged to stick to very
strict rules related to money laundering, the threat of terrorism. be obligediraq not to stick to the same kind of rules. then we have the political question. i think the sovereignty of the state which is based on the possibility of having sovereign currency must remain in the hands of states. tools of exchange becoming a sovereign currency without state obligations. maria: and you talk about the european central bank. we are going negative. the market is rolling in a rate cut. do you worry that could have repercussions on the real european economy? minister le maire: i see advantages in low interest rates for the debt. it might be interesting. the key question for the u.s. is the lack of growth. we have growth around 1.2%.
that is not enough. we cannot explain to the people -- people are waiting for stability. we have stability, but they are also waiting for growth, for prosperity, for jobs. i think all of the 19 members of the eurozone should think about the possible tools they might use to feed growth within the eurozone and you up a stronger role, which would mean more possibility and more jobs. maria: i have to ask you about the imf. will we see european at the job. weezer names like mark carney. is he european enough or will we -- we see names like mark carney. is the european enough? minister le maire: i will not play the game of name dropping. we want to have european appointed" -- and chosen as the next leader of the imf. we're in the process of defining
the leader. i hope we can reach a consensus by the end of july. the candidate must be a strong one with all of the skills required for important posts. maria: thank you so much for being with us. always good to see you. that was bruno le maire, the french finance minister. europeans keeping an eye on the imf. alix: coming up, more unwanted am watching as the morgan stanley analyst call underway. equity trading down 14%. if you're jumping in your car, tune into bloomberg radio on sirius xm channel 119 and the bloomberg business app. this is bloomberg. ♪
talking about the equities number that was a big miss. we know morgan stanley is the biggest equity trading shop. a decline there for -- the cfo coming out in an interview saying we are still number one. we did over $2 million in revenue, no one else has done this in a long time except one competitor yesterday, arguably talking about goldman sachs. they expect to maintain their market share in the second half. one of the bright spots is morgan stanley is all about wealth management. the good news here is they hit record revenue and profits. james gorman kicking off the call highlighting the gains in wealth management. finally, we are getting a few questions that were kicking off the call from gerard cassidy of rbc and ubs, both talking about composite data and how sticky those are. morgan stanley forecasting three cuts for 2019 is the forward curve is realized and they said
they are prepared for that. the actual deposit rate will depend on how competitive the environment is. we know it is a very competitive market. jonathan: great stuff -- alix: great stuff. thank you to taylor riggs. i think we heard allied financial how do lower their rate. so much for deposit beta. david: it always comes back to the central banks, whether the ecb or the fed. alix: which raises the point of bloomberg broke. ecb will have to have a lower inflation target. david: big story. alix: that does it for us in new york and d.c. coming up, barry now, i inside's partners managing will join him. this is bloomberg. ♪ we're the slowskys.
check it out! now you can schedule a callback or reschedule an appointment, even on nights and weekends. today's xfinity service. simple. easy. awesome. i'd rather not. jonathan: from new york city for our audience worldwide. i'm jonathan ferro. "the countdown to the open" starts right now. trade uncertainty weighing on the outlook. ♪
coming up, trade uncertainty weighing on the outlook for growth, pushing south korea to cut rates. jpmorgan out with the major multiyear call, looking for 10 year treasury yield to head to zero. netflix shocking investors reporting a drop in u.s. customers and slower growth overseas. with 30 minutes until the opening bell, here is your thursday morning price action. future is down .1%. no drama. to 2.07% and bleeding lower, this is the stock to watch. netflix down hard in the premarket by more than 10% off the back of dreadful earnings. let's begin with the big issue. an uncertain outlook for earnings. >> if you think about the ark of earnings season, you star