tv Bloomberg Daybreak Americas Bloomberg April 17, 2019 7:00am-9:00am EDT
expected in the first quarter. germany slashes growth estimates. the economy minister sees the country growing at 0.5% this year. and if this he high watermark with bank on hold? david: welcome to "bloomberg daybreak." i'm david westin. we welcome back alix steel. stanley investment banking revenue was a little light. earnings-per-share was $1.39. i had them at $1.17. alix: we are waiting for that equity unit. here we go. a little bit lighter than estimates. i wonder if that is par for the course at this time.
the exception of jp morgan, all of the banks were light on equity trading. fic.: take a look at this blew past estimates. . it looks that degree like it. but equity trading is a big one for morgan stanley. alix: the stock still up about 1%. looks like it beat top and bottom line. investment banking little light come about as you mentioned, par for the course for banks this quarter. david: we will see. joining us now is alison williams and paul richards. how does this fit with the other banks? a little light on equities. a little better elsewhere. a little light, but i
would almost call that a rounding error. advisory looks a little bit like. we will want to hear if there is some issue with timing. just in general, we are going to want to hear about what they are seeing so far early in the quarter. we heard positive comments from j.p. morgan and goldman sachs, leaders in the trading businesses. what we heard from bank of america, net interest income going to be a high watermark for this quarter, and then you had goldman sachs coming down the pipeline. how does that figure into morgan stanley? alison: for morgan stanley, the pipeline might be a little more important. some of the issues that bank of torica and wells fargo have relate to sort of the much
bigger lending businesses, parts of their portfolios that are invested in longer-term bonds, so there is reinvestment risk. that is part of the reason they are bringing down the guidance. we are going to be looking at deposit pricing at morgan stanley. we've seen pricing coming up on the wealth side and deposit growth as well, but the trading business, the equity trading business, they earn more from that then any of the other global peers. david: we want to turn to paul richards now. are we snatching defeat from the jaws of victory here? these banks are beating on earnings-per-share, but we passed that to move on to interest income a bank of america. did 30 years in investment banking, and i think you are seeing these banks are waking up after a really tough first quarter, and that overhang of the fourth quarter that was pretty rough. are seeing a lot
of things in the making. volatility is probably not coming out anytime soon, probably not until q3. i think equities are probably going to support these banks. lastly, something i don't think people are focusing on, wealth management will probably be beneficial to people like morgan stanley. they should do pretty well with this equity upswing because i think a lot of money is reentering the market that had left in q4. you can get these kind of returns in your stocks and you are feeling pretty good. alix: i just want to give us some more color on investment banking. it is 24% lower than last year. did you view that as a global macro environment, or are they also losing back a chair to peers or some smaller guys? alison: i think it is really the environment. we've seen fees down across the board. keep in mind, it was a very
strong quarter a year ago. m and day fees have generally been -- m&a fees have generally been a source of strength, but it could relate to the timing of deals. twould say for the bank, key metrics that look pretty good are the return on tangible equity, the main target they are focusing on, coming in well above their target range. that bodes well for the year, given this is generally a strong quarter. wealth management, which we were just discussing, 21% pretax margin. this tends to be a stronger quarter, but coming in well within their target range. david: you made a very important point, the volatility is just nowhere right now. you look on any market, foreign-exchange and anything else. what does that do for a bank? paul: it is tough. it is great for an investor, but there's no money because people are not trading. it is volatility that drives the
business, particularly in the electronics side where they rely on people to be trading constantly. when central banks hit the hold button, you got a problem. that's when you start looking at and wealth management. it is pretty challenging. alix: it feels like a lot of the conversation, especially at goldman, was to try to tap into that consumer base to offset trading. where does morgan stanley do that? what does it do instead? alison: they are building sort of a bank within their business, and obviously they've made a big shift towards wealth management, another business goldman is looking to get into. just to continue onto the volatility discussion, that is something that hampered the banks, especially compared to a year ago. we did see some signs coming out of the quarter, but on the
equities side of thing, one thing i thought was interesting from the ceo was that we have continued to see outflows in the equities business despite this rally. at a saying we could be pivotal point if we could get some of that underinvestment, which would be positive for the wealth business and overall for the equities trading business because volatility is important, but client activity, especially with flows, could be helpful. david: paul, is that the way you see it? do you think we will have flows coming back into equities? paul: the last time the s&p was at 2500 was in october. you fast-forward to now and i totally agree with what larry fink said. you've got the mueller report out of the way. you've got the fed on hold. earnings are looking fine.
the market just feels better about the overall global environment. if you can take brexit out of it, which is really worrying me, you've just got a better investing environment, and i think that at least for the next six months, this next upswing might come. tiger even won a major. we didn't have that in october. [laughter] this is just good news across the board that makes investors feel really good. currency is stable. interest rates are low. it is a really good environment. i had to deal with this here, and now even with david. lison, financials have really underperformed for the year. in theory, that is where the value is. are these quarters enough to get value investors in, or are they still going to have this
overhang? alison: i think for the stoxx, the nesting -- for the stocks, the next thing we will be focusing on is the stress tests in june. it is an important story for citigroup, wells fargo really leading the way in terms of their ability to lead excess capital. the fact that they can't grow their balance sheet is one way they can sort of offset that negative, to return more capital to shareholders. now we are seeing evidence of a healthy u.s. economy. it is something we will continue to watch, but to the extent we do get some improvement in the economy, bloomberg economists which i will give a plug to are a little more bullish in terms of what they are expecting on a rate hike. now that we've had the banks
top-down estimates and bake in the negative scenario, could there be a potential for upside fundamentally if that rate environment plays out? alix: they will certainly hope so. just to recap, morgan stanley beat on the bottom line -- on the top and bottom line. wealth management continues to do well, net revenue about $4.39 billion and pretax margin of over 27%. r.o.e. coming in strong as well. alison williams, thank you for joining us. paul richards is sticking with us. coming up, more on morgan stanley and banks, and germany cutting its growth outlook and half. it is the latest in a series of downward revisions. more on that next. this is bloomberg. ♪
david: it is time now for the bloomberg first take come over relook at three different stories today. where we look at three different stories today. germany's growth concerns. the country cut forecasts in half to 0.5%. in china's economic rebound, with outlook and retail sales meeting expectations in the first quarter. still with us is paul richards of medley global advisors. we are going to put of a full-screen now of some of what. the individual banks said though they all seemed -- of some of what the individual banks said. though they all seemed to beat
on earnings, each bank had something slightly different to say. saidrgan was the one that it is good across the board, but citi was flat on consumer banking. bank of america saying we did well on net interest income, but it is going to go down. paul: i would say you are close to a breakthrough on what has been holding us back the last nine months, and that is the u.s./china trade deal. they are putting an element of caution in as a hedge. when you see how the consumer is starting to move, i think it is seeming really good. i think we've got used to this new tax regime, even from a personal perspective, and saying it is not that bad. we are kind of getting over the whole deduction issue, etc. i think the global economy is
waking up as we see these green shoots start to lift, and it feels very good. this is why i think if you can just cement the u.s./china trade his element of caution goes away very quickly, and they are reliant on the consumer to move and drive earnings. david: tax refund -- alix: tax refund. who got that? not me. we talked about overall underinvestment in equities. where do financials sit with that? reporter: we heard blackrock talk about this to the extreme because there is such a large asset manager. if we can get the flows to go back into equities in particular, then we could see their asset management divisions really perk up. as paul said, may be the trade deal could be what is finally the catalyst to get people back into this market. you are up 15%. beenain trade has clearly
higher. however, at what point do you finally sit yourself down and say it is time, i actually need to get back into the market? what if there is more to come for the year, and what if i miss out on that? alix: come inside to bloomberg, and you can see the german government forecast for 2019 and 2020. the white line talks about this year. they now see just 0.5% growth. yet, the bank of america fund survey really encompasses what you were just talking about. sarah: no one likes europe right now, it seems. for the second month in a row, the bank of america survey is showing that people are shorting u.s. equities. there continues to be this concern, and you get the german data out today. germany is really the growth engine for europe. you have these uncertainties over brexit, and that we push those out to october. it is difficult for especially equity investors if you right
now with europe, and there are many investors who have been talking about europe as an underappreciated risk for the u.s. as well because right now, you look at companies in the u.s. that get a lot of their sales from europe, they are outperforming by a large amount this year. however, their eps adjustments haven't really been taken down. it doesn't look like people are factoring the risk of lower sales coming out of europe. david: germany and europe may be on the decline. china got numbers overnight that were very encouraging. gdp, retail sales, industrial output. his china back? -- is china back? paul: super calibrated recovery. it is pretty positive. we think they are managing this thing so beautifully. if you can lock in that trade deal, it gets really good. then watch germany pickup. basically, germany made their bet on china.
the worst thing that happened for germany was probably president trump. you put him in an equation where he's taking volatility out of it, germany still makes really good stuff, and they've got a currency that is supercheap at $1.13 right now. this is why i think you don't give up on germany. they've got political uncertainty in ongoing concerns on brexit, and some pretty problematic neighbors. italy is still a problem. if germany's got a problem, europe has a problem, which means the core issue is china. solve this trade issue and they were start buying cars again. alix: they have european auto sales also, the lowest in seven months. sarah ponczek, thank you very much. paul richards of medley global advisors will be sticking with us. go to g tv under terminal and browse the futures on your -- on your terminal and browse the futures. shares trying to inch their way higher in premarket for netflix.
♪ david: netflix reported more subscribers than expected added in the first quarter, and delivered more revenue and earnings, but investors seem more concerned about whether it can keep it up. we welcome now from atlanta dan morgan, son of us trust seen -- synovus trust senior portfolio owns in netflix. hammered.got dan: obviously the numbers in terms of the guidance adds fuel to the fire on all of the people that are very concerned about competition, especially the subscriber estimate at 5 million
versus 6 million. we've had news over the last couple of weeks about the unleashing of new services. apple a couple+, of weeks ago with apple media. i think this news of slower subscriber growth going into the second quarter has added mass fuel to the fire. david: the disney service doesn't come unto existence until november. would that really suppress their additions in the second quarter, or was it something else? dan: i think it is more of a psychological thing. there's bears out there that are continuing to maintain these concerns. it may take time for these other services to get on, but you still have this kind of black cloud over netflix in regards to its competition starting to impact them? is the growth they had in the past eventually going to start to slow down? i think that is what we saw, at least with the reaction to the stock. alix: what do you do with it? the stock now positive in
premarket. are you buying the dip? analysts still seem pretty bullish. dan: we don't have a huge position in netflix. streaks of the continuing to maintain a positive view despite the lower guidance for second quarter in terms of subscribers, i think the fundamentals haven't really changed that much. we haven't seen anyone gain that many new viewers versus them. they are still the big behemoth in that space, so we haven't really changed our opinion. david: let's go to apple. we had big news yesterday as they settled that case on the courthouse steps, as they say, with qualcomm. is this a win-win for both sides? if so, what took them so long? dan: i think it is. this has been going on forever, this dispute over these royalty
fees they collect versus qualcomm and apple. it has really hurt qualcomm's position in terms of their performance on their stock. they couldn't get out of the med the last couple of years. i saw it was up yesterday after the news came out. i think it is a win for both countries. let's both move on and do our thing, and not get caught up in this. think it is positive for both companies. alix: how do you look at tech in terms of sentiment? forward earnings estimates are not very promising. how do you view something like that? market look at it as the is going to put money somewhere, and ultimately what we are seeing is just good old competition. to me it is similar to what is test -- to what tesla is facing with the german market. just looking into this thing, the fact that disney is getting into that game, it is a big name
with a lot of product, and that is genuine competition. those intech have to -- those in tech have to look at the landscape and put a big question mark about where they want to spend their money. uncertainty when you get competition for the near future. about adding talk subscribers, they are adding overseas and seemed to be full up in the united states. is that a concern? as i understand of, they make more money off of the domestic consumers. dan: that's right. the big conundrum is the amount of money they have to spend to acquire a new subscriber overseas as opposed to domestically. the margin is much higher in terms of what they add domestically. that is a challenge going forward. they have to really rely on
these new international numbers to drive growth, and the cost associated with that is so much higher than domestically, along with content expense and adding debt and all of the other things people are worried about with netflix. david: thanks so much for joining us. y with us.rds sta we talk about that win-win, but not for intel. alix: no, not for intel. david: coming up, the race for autonomy and luxury vehicles. this is bloomberg. ♪
that is helping be sentiment in the market. european stocks pretty much go nowhere. the dax is up this fight the fact the government cut its forecast this year for growth to 5/10 of 1%. in other asset classes, a broadly weaker dollar story. i just want to point out what is happening with bund yields. three or four weeks ago we were at -10. same thing with the 10 year. we are back now to the level we were before the fed went all dovish. so all of the drama about no gross? that is reversing a get -- about no growth? that is reversing again. david: let's turn back to automobiles. the auto has come to new york, so we will have an announcement on the next generation of what we will be driving, or what we will be driven in. for the next step on autonomous vehicles, we welcome steve carlisle, president of cadillac and senior vice president
general motors. tell us about this. to be ablere pleased to celebrate here in new york as part of our overall product cadence. we have a huge investment in product and brand, so we have a new product launch every six months for the next three years. ct-5 is coming along. it is about the third one. we are happy to say it will come equipped with it. david: how much will i drive it, and how much will it drive me? steve: it depends on you. cruise can be used on about 3000 miles of interstate in the united states. our users use it quite a lot.
the level of engagement is really moving up. david: gm has made a push on electric and autonomous vehicles, and a push on china. is ins a sense how much china and the united states. steve: last year was a record year for cadillac globally. we did just under 400,000 units. more than half of those are in china. china is going to be an enormous market for us. the china market itself is enormous. the luxury market is growing very quickly there, as is cadillac. we are outpacing the growth of the luxury segment, so we are very excited by that. all of the products we are launching in the united states, we are launching in china, and they are meeting for mende success. alix: how combative -- meeting tremendous success. alix: how competitive is the china market? how tough is it to operate their? steve: we have a long history there, coming on 20 years. we have a terrific partner
there. it is very competitive. we have a good position and great support. continuedrward to success there. the ev scenario is a different one, and very exciting and very exciting in china right now, dominated by the so-called local players. but i see the international and global competition starting to ramp up given some of the regulations we are seeing. david: cadillac has a big footprint in china. is it affected by the tensions that have come up between the united states and china? do you see any backlash from the chinese consumer or the government? steve: not so much that we can detect specifically. in the market overall, the early part of this year, a certain amount of uncertainty. but then there's other compounding factors such as changes in different tax treatments of automobiles that applies to everybody.
it is so far, so good. it is an enormous market. is 27 million, 28 million, it is still a large opportunity for us. with cadillac and some of our other brands, we are on a strong growth trajectory. david: how about your electric vehicle launch? the cadillac is going to be the lead dog in electric vehicles for general motors. whenever going to have an all electric cadillac? steve: we are a couple years away from that. we did unveil that at the detroit auto show, and we will continue to show more about that, so you can expect it in the 2022 timeframe. alix: what is your overall view when you wrap in ev's? is it going to be more buying startups or smaller companies? how does that market evolve for you? steve: right now we are at kind of an inflection point like we saw in the 1920's, where there were a huge number of entrants
coming into automobiles. you can see the same thing happening here, so it will be kind of a mashup of everything you just said. i think you can also expect significant consolidation over the next five to 10 years. it is just not easy. it is very investment intensive. scale will be very important. the market can only withstand a certain amount of fragmentation, so it will have to start to come together as it plays out. david: when you look at the electric vehicle push by general motors, how much of it is focused on china? if china weren't doing this, would we be doing it? steve: i would say there's more urgency in china, but it is still imperative in the united states and europe and other markets. the way we see the megatrends playing out with consumers and regulations, it is just an amount of time, which is why we jumped in. it is not important to us exactly when it happens, but the
fact that it will happen, and there is no time better than the present to get ready for that. alix: do you feel like there is the will with investors to kind of wait until that transition happens? you have to spend a lot of money now to get the cars going and there's a lot of capital outlay. what is the level of tolerance investors have for that? steve: the incumbents in the industry have a significant invade to check in that we have current market. we have a lot of experience and have a good line of sight in terms of what it takes to be successful and driving battery costs down, the cost of control systems down, drive chains down. we feel like we are on a good
path. we have a foot in both worlds, the present and the future. it is really the present that is informing the future. david: and helping the future quite a bit. you've had record vehicle sales. it has been coming down, but it is still pretty strong. how vulnerable is general motors or the industry if we see a downturn? europe you are not in anymore, but we just had numbers out as morning that were very disappointing. steve: took some very aggressive steps in the fall to start the transformation of the company. a part of that was in anticipation of what might happen in terms of the downturn, in terms of getting our cost structure where it needed to be to withstand any turbulence in the market, but then also to shift our resource allocations toward autonomous. david: on electric vehicles, is it supply or demand? do you see custom nice -- do you
see customer saying we want electric vehicles, or is it the government and others saying we want you to supply electric vehicles? steve: it is both. frombly the trend has been a regulatory perspective, but i think it is one of those things that the more people see them on the roads, the more they hear about them, the more comfortable they feel with batteries in terms of range and durability and reliability, the value proposition starts to come through in the core basic consumer interest starts to ramp up. investments are being made in charging infrastructure and different incentive programs that helps prime the pump. a windsaid, if it is kind of thing, it is starting to accelerate. david: when can we buy ct-5? steve: in the summer. i know a guy. [laughter] david: i that you know a guy.
that is steve carlisle, cadillac president and gm senior vp. here on set,ith us paul richards of medley global advisors. we talked about china and europe. if we wind up getting stabilization in china and more stimulus, how does that reflate? can it reflate the rest of the world? paul: i think it can. we need to look at q4 and what caused the fed to pause. this to me is all about the trade war. i think that as we approach the end game, and it looks very positive right now, i think we will get something by the end of or next month between president xi and trump. because of this elongated trade war, we are seeing central banks go easier, including china, the
ecb, and the fed. that is a terrific environment. from here, anything to china -- anything close to china does well. when you go to europe, a be germany. and then you avoid geopolitical risk. alix: why then would the fed be forced to hike? because they don't want to be tweet -- probably because they don't want to be tweeted at by the president. but i think you need to start marking q1 next year is it possible for them to hike again. if you see enough momentum in this rally, you see a trade deal that gets six months of momentum into this economy, the fed is realistically probably going to throw one more in. it is all about the fed. they are still the most hawkish central bank in the world, in my opinion. david: the theme you've had is that the trade war is going away, and that will be really good for the markets. europe is on deck.
japan has just started up. and we still haven't resolved the usmca. are those not as important, or do you think they will be taking care of? paul: i think they are all relevant. i think the democrats thought about taking a shot at replacing nafta, and have stepped back and said it is a pretty good deal. i think the dollar-yen has to be very careful. when lighthizer and trump go into a trade negotiation, they look at the currency. as i see dollar-yen at $1.12, i would be extremely careful. if that continues to weaken, i think they will all be on the radar of the u.s. what i think is going to happen, it is a good time to take a stab at europe with regards to cars because they are going to go through their own elections. it is thought merkel could take juncker's job.
alix: doesn't you want to take a vacation? [laughter] paul: she would be a very for immobile person in that role for five years -- a very formidable person in that role for five years. i think from the political perspective, it makes sense for trump to continue to naegele them, but it is probably not going to go further than that for now. more noise than actual action. david: fascinating. that is really great. thanks so much to paul richards with medley global advisors. now let's go to uma pemmaraju with the first word news. the indonesian president is et to win another turn running the world's largest majority muslim country. ahead by at least seven percentage points, investors are betting on him to pass measures that could unlock growth in
southeast asia's biggest economy. president trump has vetoed a measure passed by congress demanding that he withdraw u.s. support for the saudi led war in yemen. the president calling that measure a dangerous attempt to weaken his constitutional authority. neither house appears to have the 2/3 majority needed to override the veto. there is concern president trump could end up giving china a new trade weapon. the president wants to make sure china faces consequences if it doesn't live up to its promises in a new trade deal. to do that, the u.s. is discussing a two way agreement in enforcement that would give china unilateral ability to pressure american companies, and the u.s. couldn't appeal going to the wto. 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 uma pemmaraju. this is bloomberg. alix: thank you so much.
uma: this is "bloomberg daybreak ." coming up in the next hour, o of fixed income. stay with us for that. david: time now for the bottom line, where we take a look at three companies worth watching this morning. first-come, volvo and amazon. the head of volvo said you better watch out for jeff bezos
and amazon because they may come into the car business. he put up a quote from jeff bezos that said "your margin is my opportunity," saying we should go to a subscription service for cars. don't buy a car. subscribe to one. alix: this raises a big question. you have these old-school car companies that now need to switch into this ev, high-tech, av kind of world that takes a lot of money. they may not be positioned to take that kind of switch. then you have the tech guys that can take advantage of that. david: that is just what the volvo had was saying. and you might not use as many cars because were sharing a lot of them, and maybe you are better off charging by the hour. of chargingjority station users are now ridesharing. i am watching vale. because thereing
was a disaster in mining. we will see what the downside is. the third company we are watching today is pinterest. for more, bloomberg's taylor riggs joins us now. so we are seeing pricing? taylor: maybe today or tomorrow. they really want to increase the engagement from the existing user base. they don't want to be a social media company. they don't want to be a search engine. they really want to leverage the existing user base they have in market advertising that way. we were talking about netflix and how the growth for these companies is really coming internationally. you can see that when they say user growth will not be what is driving us. user growth in the u.s. they are
rejecting through 2022 to be flat, but it is all international. they are really looking to leverage the current user base they have to drive sales versus high growth rates. david: it will be fascinating to see how it works. when snape went public, that is basically what they said -- when snap went public, that is basically what they said. it did not work well, but they are coming back now. alix: lyft's ipo struggled a bit, but the idea that maybe capital markets are open in a -- that weren't for, they weren't before, maybe there is more room in the markets. taylor: you are seeing the pricing of a lot of these big ipo shares coming down to more neutral levels. we talked about companies like lyft and uber being on par with even the valuation of a netflix. david: taylor riggs, thank you
david: here's who i'm watching today, mario draghi. stepping down as ecb president come this fall, there's a piece on the bloomberg right now saying that it will be hard to fill his shoes. joining us is rick rieder, blackrock's cio of global fixed income. this piece says if you really look back at what he's done, the whatever it takes remarks that may be cap the union together, and how statesmanlike he's been, he's done quite a job. rick: i'm a big fan. i think he's been incredible.
i think it is the hardest job in the world. you think about the demographic dynamic, the leverage dynamic. you've got 19 countries all going in different directions. i've got a chart that showed the temperature in the euro zone against the leverage of growth. you have this incredibly different dynamics. only one engine that is coordinated, and like you said, he's done a really good job of managing it, being innovative in terms of different ideas. pretty impressive, i think. alix: it feels like the idea a year ago was to get deposit rate hikes on the table and move in the direction of normalization before draghi was out. that looks to be off the table. whoever takes his place, how do they manage all of this? -- i'm not sure who it is, but the job they have might
be even harder than mario's. you have a dynamic where it is very hard to get growth persistently. i think ultimately they are going to buy equities. you have to create a catalyst for growth. you can't keep bringing down the cost of the debt. negativeis already at yield. once you get companies borrowing at negative, it is a bubble. you've got to get some catalyst for growth. how do you get companies to invest in europe, not asia and the u.s.? you've got to instigate some demand. the key is how do you get that demand going. david: you have talked about buying equities on bloomberg. say let's getghi that started before i leave? rick: i think that is something they should start debating and discussing the political
hurdles. you got brexit and a series of things. i would start thinking about the way to do it, not just to go out and say i'm just going to start buying willy-nilly in terms of equities. where do you target? you work with the regional governments around things like investment and innovation. how do we get targeted investment to the right place to get the euro zone to be a vibrant economy? if they don't, investment is going everywhere else. create a catalyst to change that. alix: are there bonds in europe that offer value, then? rick: there are some things, actually. , somek there's some bonds of the high-yield market. when you swap on a cross currency basis, they actually like buying bunds. you swap them back, you get 3%. that's not bad.
some of the high-yield market is ok. i think some of the dividend paying stocks are really attractive. you go around some of the big multinational companies that happen to be located in europe, they pay 5%, 6%, 7% dividend yield for u.s. and vector -- for a u.s. investor to swap back at 8% or 9%. option forl world growth would work. rieder will be sticking with us for the entire next hour. germany'srope's and economy. this is bloomberg. ♪
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the last bank on wall street beats on the top and bottom line. green shoots versus a problem child. china's first quarter growth beats estimates, while germany cuts its estimates to 0.5% for this year. blackrock's rick rieder's thoughts on global markets and when he sees the next recession. david: welcome to "bloomberg daybreak." steel --tin west alix david westin with alix steel. alix: you had data across china that was surprising, that spread across to europe and the u.s. has well, so optimism raining here. just how much more upside can we see as investors come in and bring in cash? the bond market pre-much goes nowhere. we are right where we started before the fed turned dovish. all of that drama over the last
12 months feels like yesterday's news. there's also continued questions as to come up when you have germany lowering growth forecasts and calls for fiscal stimulus, what does the ecb actually do? david: we have breaking across the bloomberg right now an interview with mr. whatley, who says he expects stabilization in europe over the next year. that is not necessarily the same as growth, but you've got to put that against the german numbers, really disappointing for growth. alix: didn't they say that last year? they said it is fleeting. it is just car sales, and every thing is going to be awesome. then we hear that german growth forecasts are lower. david: he doesn't want to use tiering. it is interesting. yesterday there were reports not attributed to any specific members of the council that were skeptic of tiering.
identifyingtny himself as someone who is skeptical. that is banks in europe, but what about here in the united states? morgan stanley shares are rising in premarket. bloomberg's taylor riggs has our recap. taylor: investment banking revenue coming in a little light. equities miss, but doing better than expected. that will be a theme that i talk about. they are coming in with r.o.e. of about 13.1% in the first quarter. as we wrap up the bank earnings where we stand, a lot of the focus has been on net interest income and margins. it has been mostly positive news, even though we constantly talk about peak and im for this quarter. jp morgan recorded net interest income at 2.5% on that margin, maintaining that outlook even with a flatter yield curve.
citigroup as well slowly gaining over the past five quarters, and the ceo saying they are expected to grow in the net interest income. bank of america saying that as well, although looking at slower growth this year, about half that of 2018. morgan stanley this morning saying they are seeing net interest income stable, given new expectations of rate races, but in the mid single digits this year. wells fargo is on the others of that, missing expectations, looking at net interest income to fall anywhere from 2% to 5% in 2019. upther theme as we wrap this sic versus equity. as you come into the terminal, you see why. moreility has been much pronounced than equity volatility. actually posted a gain in
that trading. goldman saying it continues to beat expectations relative to equity. finally, morgan stanley saying trading comes in better-than-expected. alix: thank you so much, bloomberg's taylor riggs. here with us on set, none other than rick rieder of blackrock, to tell us all things we need to know about the bond market. constructive on europe a little bit, right? rick: i also think some of the data -- i do think the inventory cycle in autos and data in china will lift europe, but i am encouraged about europe. alix: we just talked about where we are right now in the banking cycle. what is interesting to me is if you look at all the different banks, they were all warning on different things. for citi it was consumer
banking, for bank of america it was net interest income. rick: it is interesting. i watch a lot of loan growth data and the charge-off data. there was a bit of loan growth, which was encouraging. they saw it at jp morgan, for sure. charge-offs are still moderate. the other places like morgan stanley that have, whether it is their wealth business or otherwise, some real stability that is different than before. we cut stability and some of the earnings. there are different dynamics at each of the banks today. some of it is evolution of where their strategies are. the key is when you lift interest rates, and part of why you have an easier situation in the u.s. than in europe, you get to interest rates that are reasonable, it is actually a level of interest. people focused on the yield curve, i am not saying it is insignificant.
but you can create some real earnings power in some of the banks. it is certainly better than being in zero rate world for a long time. david: what about for the investors? there's no volatility anywhere right now, in part because the central banks have said we will keep everything quiet. where does that create opportunity? that makes it really hard to find yield. rick: there are different regimes each year. last year there was only one regime, buy the 2-year note because the fed was lowering the rate. this year it is pretty interesting because you can buy carry. i think volatility is going to be reasonably stable. growth is very stable. buy carry, get income where you can get income. in fixed income, we like that two to five-year part of the yield curve. if you can carry, you can build
a portfolio in fixed income and carry 45%. .e are not at -- four to 5% in today's environment, not bad. we were sitting at zero for a long time. where do you get carry in a less volatile world? david: we've got a viewer writing in a question right now. what is next for the fed? if we have negative earnings growth, if we go into that recession and have a challenge in the earnings on equities, does the fed have to go to zero? can they drive growth? rick: i think when people talk about who has tools in their arsenal, when you go to the bank of japan and ecb, not a lot of tools. depositeeringg -- is tweaking at the margin. i think the fed has significant tools. you can do a series of things around the balance sheet. people talk about qe and a $4 trillion balance sheet, it is
less than 20% of gdp. japan is 104%. the thing that is interesting about interest rates, the fed, if they move rate hired, they may take ash if they move rates higher, they may take a long time. -- if they move rates higher, they may take a long time. alix: walk us through what this means for corporate credit. where is there still value? rick: you are running out of it, to be honest. the one interesting thing, we like this concept of quality carry. there are parts of the high-yield market now that have rallied a lot. the next thing is you say maybe i will buy ccc's. i actually don't believe in that today. i think it is a quality carry. we like secured assets. we like parts of the emerging markets we can talk about later. we are a big believer today in buying quality carry.
be comfortable with carrying a little bit of upside, but don't stretch. some of the leverage loan market, not a big fan today. don't stretch in today's environment. just be comfortable with what you're getting. david: do you stretch on duration? rick: we are comfortable owning. we are comfortable owning some interest rates today. the beginning of this year, we thought we could be a bit longer. now you have a fed that wants inflation. it is a really big deal. can you own to do five-year interest rates -- can you own two to five-year interest rates? it is pretty attractive. close to a 2.5 percent yield to the five-year because the curve will invert a bit if you get a slowdown. you can carry pretty well, maybe by a little bit of credit, maybe some dividend stocks, and
building a portfolio that carries well. by the way, this year, if you debt mix, you have a pretty good yield. david: there we have it, the rick rieder portfolio. [laughter] rick rieder is going to be staying with us. coming up, signs of china's economic rebound. tradehat might mean for negotiations, next. this is bloomberg. ♪
you also had better investment in real estate, better industrial production, and better retail sales. still with us is rick rieder of blackrock. how do you understand the data we got overnight? rick: i think it is pretty good. we do an incredible amount of high-frequency data, particularly in china. the gdp data, we can debate the sincerity of that data or not, but we follow the gas and electricity demand, housing demand. it is pretty good. we saw a pickup three or four weeks ago. you are also seeing the trade data. some of the import data is better. with think it is real. we don't think it is real explosive growth, but we were at a point when they were slowing significantly, and we would have to do more. but it is better, moving up to a roughly stable area. we don't think it is exploding higher growth, but it is good. david: what is the quality? we talked about u.s. bonds.
what about the quality in china growth? rick: the thing about what's driven the growth the last few years is an incredible amount of debt. you've had this immense amount of credit growth. this growth is a bit better. there's definitely been some fiscal, some infrastructure, some regulatory tweaking. theis there a shift in economy from manufacturing to domestic consumption? that takes a long time. but you see it in retail sales and otherwise, it is a bit better. but it is still a long road before you transition that economy away from a credit dependent, export many factoring dependent -- export manufacturing dependent economy. alix: do you play the other asian in markets, or do you want to play europe -- asian em markets, or do you want to play europe that would be stabilizing off of chinese markets? rick: the comments we talked
about before, who is geared to that better growth, some of these european stocks are interesting in places. some of these auto stocks that have been depressed and pay big dividend yields. and globalt em growth, em growth has been moribund. if china lists, em growth -- if china lifts, em growth tends to follow with precision. i think u.s. stocks are going higher, but i think that helps the broad economic paradigm. david: touching back on europe, we got a question from a viewer as we were talking about it that deserves being asked. it is all fine and good to say the ecb should invest in equities. that's been done in japan. did that really work out in japan? how does that really generate true growth in europe as to just inflate -- as opposed to just inflate asset values? rick: there's an extreme there
he dichotomy. japan has a large burden in front of them. i don't think what you do is go into markets and start buying stocks. it doesn't make sense. you have to put some liquidity in the system. dimming it through the debt channel makes less sense. think equities is the best worst option. i think there is a way. if you take weighted cost to debt, it is too low. you need to create dynamism. the ecb can be an engine, work with regional governments and create a dynamic where you are creating equity investment, bring down the cost of equity, invest.can 50% a book, how are they taking risk? more ins are doing terms of m&a and capex. one last thing.
using about the cost of central banks. if you were to build a portfolio of equity and think about companies, what is the worst you are going to grow, 4% to 5%? you've got dividend yield. the ecb is going to end up making money like the fed did and repatriate back to the treasury. theirb can generate deficits and help them reinvest in local economies. i am not saying just like japan. be thoughtful, be directed. work with your regional governments, because there is no coordinated fiscal policy. david: is mario draghi listening? [laughter] rick rieder of blackrock will be staying with us. coming up, private debt playbook. european banks take a page from goldman when it comes to direct lending. more on that next in wall street beat. this is bloomberg. ♪
david: we turn now to wall street beat. first, the private debt playbook following goldman's lead. bnp paribas and barclays are viewing the direct lending market. shares of the asset manager surged by more than 15% as the company reports slowing outflows as it completes the liquidation of the scandal hedge fund. the treasury department on how to sell debt. alix: joining us now, still with us come up rick rieder, blackrock global fixed income cio, and bloomberg's peggy collins. this is barclays and bnp talking about getting into this space. walk us through some numbers in this field. peggy: one of the things we've been seeing from the investing
team, particularly in the world of private equity, is this rush into private credit, direct lending. some of this is because banks over the last several years have pulled back from some of this lending to smaller companies, and private equity firms have moved into the space. now you are seeing banks like bmp and barclays potentially trying to get -- like bnp and barclays potentially trying to get more of that. equity firms are getting a larger and larger piece of this loan market. alix: is there a risk? it is interesting. if you take the private equity side of it, you raise money with 10 year lockups, where banks borrow money in overnight deposits. you would argue i've got a stickier liability than the banking system. i think there was a real efficacy to that we are better lenders. that being said, i do think
there is some overspending -- sorry, some weaker credit conditions. we see it in some of the middle-market lending that has taken place. so much money has been raised. that is pressing into levels of no covenants and no structure, and some of the banks are pulling away and saying, you want that business? you can take it. some of it has been overdone, but do i think private equity is in the lending business long-term? 100%. david: the second story is gam, back in the news in not such a bad way. i'm not sure they've turned it around yet, but they stopped hemorrhaging. peggy: this is some of the best news they've had in months, seeing their stock price rise a bit. we are hearing they are coming to the close of offloading some of these assets in the troubled fund. one of the most important things about getting past that point in the scandal is they've been in potential talks with people about selling some of the business or merging with someone, and what they really need in order to do that is to get over this hump and get some
of those assets sold so they can be forward. this asset management business is under extreme fee pressure, as well as consolidation we are seeing a lot of firms go through to create scale and survive. david: rick, this story out of the bloomberg talking about the enormous amount of money the u.s. government has got to borrow. does mr. mnuchin want to change some of the ways they borrow it? we talked about super long bonds, going 30 years or something like that, and they would have to come to a decision on that. what should the u.s. treasury do in terms of structuring borrowing going forward? david: i do think --rick: i do think you can borrow longer on the curve. however, there is something really important. you can issue hundreds of billions of dollars of bills. you are not going to get that much on the long end of the curve. so should you do it? yes you should.
they have to find a bunch of ways to take the pressure off of just keep issuing bills on the front end. i think the fed is going to change their balance sheet over time to absorb more of that front end, which is a really big deal. the other thing i think is really important, if we are going to do more fiscal spending in this country, you thing about how to do it creatively. this concept we have to borrow to spend doesn't make any sense. public-private partnership. round ofe next spending isn't just let's put more on the national debt. alix: that also brings into the modern monetary theory, which was used for more often guard economists, but this brings the conversation into real territory. peggy: that's right. as rick said, there's a lot of investors out there that have target based funds looking for different options, and they can afford to hold assets for a long time. if you start investing in your
20's in a targeted fund, you have decades to invest in something like a new tip pegs to inflation on health care and education, one of the ideas that has floated around. as you see, the u.s. budget deficit is on a path to more than $1 trillion, so where did we get that money? david: the public-private partnerships but a lot of sense if you trust the government to invest well. alix: when does it ever really work? rick: youth think whether it is infrastructure, building highways and toll roads, ports, etc. you think about the government power in some parts of the world. if the government held the equity portion of that, and then the debt went into the private sector, it is not that hard. companies do it all the time. it happens in the financial markets in receivables, in real estate. you structure it. who is the most efficient buyer of the equity? who buys the senior debt?
for a government, it is not that hard. they are going to collect revenues off of it. would i buy a lot of the debt as the private sector? a ton. i find that we have to borrow to spend is just not the answer. david: that does it. many thanks to bloomberg's peggy collins. rick rieder will be staying with us. predict a u.s.s downturn within the next 12 months. of the school of business at duke joins us next. this is bloomberg. ♪
lots of talk about the extra money on the sidelines, when it will come in. euro-dollar also stronger on the day at .2%. i should point out the tenure bund issuance came in strong. not worried with any kind of issues with germany. the trade balance coming up, shrinking a touch for february, -$49 billion and tighter sequentially. david: the president should be pleased. a little less of a deficit. alix: i wonder what it is for china? something donald trump is focused on more than anything else is the trade deficit. exports were up over 1%. it feels like things were working out a little bit better there. there's not of been any pent-up buying.
still with us is rick rieder of blackrock. is it working? is president trump right? rick: on trade? i think philosophically there are a lot of good things happening. you are seeing global growth picked up. i think the trade is complex. we will see if we get the trade deal done. i think there is real agreement that will take place over the coming weeks and you will get agreements that i would've thought for just around natural gas or commodities or soybeans. it does seem like there is some agreement and of more stability -- and enforceability. what you are witnessing is formal growth is picking up. people get so worked up in the first quarter. the second quarter of the year higheru.s. averages 2% growth in the first quarter. growth in the first quarter
tends to be dos i'll for a number of recent -- tends to be docile for a number of reasons and then tends to improve. i think you are seeing that ,lobally, outside of europe certainly china and the u.s.. david: that is how rick rieder season. the duke cfo of global business outlook gives us a read each year of where chief financial officers think we are. the latest version was released. here to take us through it is john graham, the duke university school of business finance professor. thank you so much for joining us. give us the top line from your survey. what did you learn? wek: we are still -- john: are still in a period of moderate economic growth but the cfos are predicting there is a decent probability we will enter a recession sometime in 2020. david: a decent probability. can we in a down any more than
that? we asked the cfos to assess the probability by one recession will have begun. of say by the first quarter 2020 we will enter a recession. about two thirds by the third quarter, about two thirds of cfos believe we will of entered a recession. we asked about the probability of recession. we also asked about the overall economic outlook. one of the key barometers we have is the cfo business optimism index. cfoswe have been seeing is are becoming less optimistic about the future. the number of pessimists are outnumbering optimists by a two to one margin over the last two quarters. the optimism had been at all-time highs and has been coming down in the last two quarters. that optimism is a good predictor of the future, we
found when we looked at the historic data. about one year out this optimism index predicts the economy slowing. alix: are the cfos making business decisions based off of this? investing less? hiring less? , it looks like we will continue the moderate economic growth, capital spending growth of around 5%, increased employment about 2%, right where we have been. this is on the horizon in 2020, where the clouds are out there. economic uncertainties. cfos are saying we do not expect this moderate growth to continue into 2020, but for a downward trend to be occurring by then. david: that is sentiment from cfos. does it comport with the underlying data? rick: the one thing that a
significant -- we love that survey. one thing that is important. what is happening is company's margins are compressing. when margins compress, companies have to pull back. that is real. -- if running a company my input costs raise i can get pricing power. what is happening is your revenue growth is moderate and that i'm getting squeezed on margins. what happens is you have to pull back on capex and inventory. we are talking about recession in 2019, then 2020, then late 2020. we are so different than we were historically when we had a manufacturing boom bust economy. this is the most stable economy in history because it is service oriented. service economy does not move.
we close the output gap, inflation rises. i think it will be more stable than people think. are we moderating? ?e moderate closer to 2% 1.5%? i think that is fair. it is like the fed. we look at the dots. we do not know. the next six months feels good. i think is your investing, think about that and where we will be six months hence. alix: to that point, john, what did you hear from the cfo surveys about whether they would be about a pass on cost. which sectors have pricing power and which are getting hurt on the margins? john: as your speaker just said, i agree it is difficult to pass cost increases on these days. companies are trying year after year to reduce their own cost and shift towards automation as needed to keep costs under control.
i do not have a specific sector that is standing out right now as one that will do particularly better or worse than the others. is the universal feeling among the cfos that things are going relatively well right now. however, they're expecting things to unwind in 2020. david: one of the indicators of future growth is earnings. that affect the stock market directly. we are in earnings season right now. there's a lot of talk of earnings recession. where do you think the equity markets are and where they headed? rick: the consensus is the marching story is real and we are going into an earnings recession. -- ink some of the data think the consensus is earnings recession. i think you can see a better lift off of that. the other thing that happens around earnings season is companies on blackout in terms of buybacks. companies buying back historic amounts of stocks. when they observed -- when they
emerge from blackout, their cash flow is good. part of what will that the equity market is a couple things. growth is picking up, you emerge from blackout come and you have this dynamic. everyone says earnings recession but i think it may be better. i think larry fink said the equity market -- you see all the signs. goinge amounts of money out of equities and bonds from retail investors. immense cast and bonds. whenever that happens, if you track it months hence, that money tends to flow out of cash. i think there are technical signs. alix: it sounds like fear of missing out to me. do you think it is broad-based or other sectors that will do better and will not be touched. -- i do notnot
think multiples are that high. it gives stable discount rate and the growth is stable, i do not think a 60 multiple -- i do not think it is cheap but i could see it grinding up as long as the earnings are reasonable and growth is accelerating. i'm a big believer, like the gentleman just described -- all the investment we track where capex is going, it is going into technology. the sectors you have to be invested in are the ones lined up with the evolution of technology. commerce is shifting so fast. i think you have to be lined up alongside those. who is on the right part of the cycle in terms of technology. traditional businesses cannot get the pricing power. david: every company. alix: john graham of duke university, great to get your perspective. rick rieder will stay with us. david: we now turn to bloomberg
first word news. in indonesia, the president is set to win another term running the world's largest muslim majority countries. ies ativate polling agenc the president ahead by at least 7%. he is running against a former army general. him tors are betting pass measures that could lead to growth. president trump has vetoed a measure passed by congress demanding he withdraw u.s. support from the saudi led war in yemen. the president calling the measure a dangerous attempt to weaken his constitutional authority. in france, donations pouring in, with more than $920 million already being pledged to rebuild the iconic notre dame cathedral. the french cultural minister saying the immediate priority is to secure the cathedrals all.
it is a gaping hole in the middle of the country after a fire collapsed it during the devastating blaze. 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. this is bloomberg. back to you. alix: coming up, one of the best oil fields in the world. poised to be an energy giant as it pushes into shale. -- oil into the only argentina. this is bloomberg. ♪
board chief officer. alix: time for follow the lead. a deep dive into stories making headlines and moving markets. today, we are looking at argentina. it has one of the best oil fields in the world. experts say the shale rock in the back him where to is better than the rock -- the shale rock vacack him where to -- in muerta is better than the rock in the permian. i asked the ceo about his hopes for oilan, exports, and whether oil could ever be like agriculture in the country, a $20 billion plus industry. wei think with vaca muerta have the opportunity to do that again. definitely playing an important role.
vaca muertaep in was about building the foundation. international companies [indiscernible] we have the opportunity to bring a different level of investment. investment that have changed energy in the united states. put argentina in the position to be a huge supporter. theseat we will need types of companies. [indiscernible] the first of that kind is the one taking that risk. alix: how much money do you think the midstream investment will cost? >> it is a good question. i'm not sure i can extrapolate
all the money required. i think it is going to be for the next 10 years in the order of millions of dollars. alix: do think there is the appetite of foreign capital that wants to come in? >> you have to start somewhere. if you start with companies that invest hundreds of millions of dollars, they'll be a good start. we need to prove they are profitable and we have the market. , we wille are growing cover the spare capacity we have fast. alix: you need it. >> we need it, yes. alix: when you talk about foreign investors, what do they say about the global climate? >> political climate is always a concern in argentina. [indiscernible]
they look at how consisted we can be in maintaining [indiscernible] this is in the back of the mind of almost every investor. alix: what is the risk in the october elections? election.k in october i think the october election -- the main thing we need to take who is is that no matter next, we are argentinians. i mean the different political parties. policy that allows the investor to believe that different parties agree on the uerta andvelop vaca m the rules we put are here to stay.
we are here to produce oil. i have produced oil in russia and china, in saudi arabia and iran. we look at resources. here we have a huge potential of resources. i am sure with the resources we will do what we need to do to muerta a success and a possible place. alix: that was part of my interview with vista oil and gas ceo. my first ride in a helicopter ever. was not scared. rick, do you like argentina? rick: is a tricky situation. we do have to follow the election. in october, it looks like a dead heat. it has created a tremendous turmoil. 54%other country running at
inflation rate. 1.9% or 2.1%..s. they do that in argentina and a couple of weeks. growth contracted. it is a tough dynamic. from a debt side, we've done a little bit tactically but we're keeping our exposure down. as we get close to the election, then you have more stability. they have drawn money from the imf. it is a tricky place to have a lot of investment until you get to that election. david: the relaunch lots you felt that way about mexico as we came to the election. do you feel better about mexico? rick: markets are incredible. we still have a few months in argentina. as you get closer, then you think about the you buy a little bit and you start getting your position on? mexico is a tricky place.
there are things that are happening around the government we have to be careful of. that being said, you talk about a different economy in terms of growth and stability of inflation. we do like local rates in mexico. we have invested there and feel good about it. i really like em. i like yen. it is the countries i'm concerned about -- i like em. it is the countries i have to buy that i'm concerned about. it is tricky. we think being tactical in em makes sense. we do not have the exposure we have had historically, but we're ok with some exposure. alix: there is also that testy $58 million loan from the imf for argentina. in brazil, when the election happened you had a year rally before things started to get more difficult. -- do we get another year rally?
what do we look at? rick: if that were to happen again, as you get into september you start to wait in? i think so. it depends on the elections are going. inflation is in the 30's. you thought it would stabilize a bit. we have to see where it is going economically. news or yout the are close to getting that news, it is a hard place to make a lot of investment. , theyk if it is a win have the dynamics an initiative that will play out. it gets harder. brazil getting a fiscal plan through his heart. -- through his heart. -- through is hard. david: rick rieder of blackrock. thanks for being here. alix: morgan stanley analyst call underway.
alix: when i am watching is banks. bny mellon stock down over 8%. the ceo warns the yield curve pain looking at net interest income and fees, both short of forecast. they cannot make the kind of money they want to with the yield curve so flat. david: we got so far in a bank earnings without any talk of yield curves. now it has come up. alix: also watching morgan stanley. those shares eking out again. taylor riggs has been listening to the analyst call. taylor: shares are rising because they are given strong forecast about the rest of their pipeline and how the back half of the first quarter quarter strengthened on week beginning of q1. james gorman kicking off the
call and saying activity was not as robust in the first quarter but ceo dialogue is encouraging and client activity picked up in the back half of the first quarter. a lot of the conversation has been on expenses. they continue investments in tech. e andability r.o.e., rotc efficient ratio is in line and the higher and of the management target. 27.1%,margins came in at that is up from 24%. that is right in line with management expectations. that is the key theme. that is a strong number. we are getting the call turned over to the cfo and he is continuing volume declines and lower asset values in the fourth quarter did impact their wealth management business but they are still producing solid results. much.taylor, thanks so it raises the question to me, what is the right bank?
david: been a very quarter to quarter -- it may very quarter to quarter. this is an earnings call that does not have a but with it. alix: not yet. maybe that shift to wealth management and dominating in equity is the right play. david: james gorman has been after that since the beginning. wealth management gives him a solid base. alix: we will look at banks as we head to the open. that does it for bloomberg daybreak. good to be back. ,ext on bloomberg -- the open analysts still staying bullish despite the weaker outlook. this is bloomberg. ♪
jonathan: coming up, a forgiving market. disappointing guidance from netflix, the stock positive. chinese economic data bouncing back. of a spilloverg europe as germany cuts its growth forecast. 30 minutes away from the opening bell. futures positive eight points on the s&p 500. the euro a little stronger, just under 1.13 and treasury yields creeping higher to 2.61. we begin with our top story. investors hoping the chinese economy is bouncing back. >> we are close to recovery. >> we are talking about china stabilization. >> that is pretty much in the data. >> is baked in the cake. >>