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tv   Bloomberg Surveillance  Bloomberg  July 16, 2019 4:00am-7:00am EDT

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>> fighting on two fronts. trump says china wants a deal as steven mnuchin considers heading to beijing. trading revenue will be the talking point. asking for the european parliament's backing to be the first woman to lead the commission.
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nejra: welcome to "surveillance," with another record on the s&p 500 yesterday. we could have another flat day. what will earnings bring? thanksunderperformed -- underperformed -- banks underperformed. the fed decision is a big focus point at the end of the month. yearrday, we saw the 10 bund yield dropped the most in four weeks. edging up a basis point. coming up, great interviews for you today. the acting managing director of the imf, david lipton at 10 a.m. london time. we begin with citigroup vowing to keep cutting cost despite managing to save more than expected.
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trading revenue dropped 5%, investment banking slumped 10%. the chief executive says this year it aims to return 12% on tangible equity. nancy pelosi says the house will vote on a resolution condemning president trump for his attacks on four female lawmakers. says the comments won't distract them from pursuing their agenda. have beenent's tweets widely condemned. >> if you are the leader of a great multicultural, multiracial society, you simply cannot use that kind of language about sending people back. [applause] out decades ago. thank heavens for that. says the door is
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open for talks with the u.s. if president trump lifts sanctions imposed in 2017. left the the u.s. bargaining table but they are welcome to return. brexit talks becoming more hostile as the divorce looms. officials in brussels say a meeting last week was the most difficult in three years. bloc may consider concessions to avoid a no deal, as the pound enters the summer the weakest ever for this time of year. eight-year high hunger, according to a u.n. report, citing economic turmoil and climate stock. "things are not improving at all." 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. thank you so much.
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officials braced for the wto to give the green light on u.s. tariffs on 5-7,000,000,000 dollars of imports. says he may travel to beijing with robert lighthizer for negotiations if talked by phone this week are productive. president trump his conviction that china wants to do a deal. tom, visiting london this week, and trevor, great to have you both here. i am so excited to have you in london, we got china data this week. there is a question of whether this signals a bottoming in the economy or not? tom: june numbers were better
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than the second gdp data. they pointed to an uptick out of the quarter. we are still cautious. we see a bunch of one-off factors boosting june data, in particular deep discounts as auto dealers try to shift. that drove retail sales stronger. until we see an increase in long-term loans to businesses, we don't expect a bottoming out or a turnaround in china. nejra: trevor? trevor: similar view. we're are expecting to see some improvement. the chinese, at the moment, are applying slightly more subtle forms of stimulus than in the past. i wonder at some point whether they will lose patience and open the floodgates, as we saw in 2015.
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world economy is at low ebb. it is good to see improvements. in the end, it will come down to fixed asset investment and capital spending. nejra: great point. when it comes to stimulus and infrastructure, the numbers have been up-and-down. what do you expect in terms of stimulus, targeted, broad-based or more fiscal? tom: china does not want to go back to shock and awe stimulus. they did that in the past. it left them with the legacy of enormous debt and overhang of industrial and real estate overcapacity. they don't want to go down that route. if push comes to shove, if nothing else works, yes, we will see lending ramping up and the investment coming through. nejra: well china take a more preemptive move on stimulus to better offset potential impact of trade tensions? tom: we have seen them moving.
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cuts in reserve requirement ratio. nejra: has that fed threw two economy? tom: not yet. through to fed economy? tom: not yet. they have something like the u.k. public-private partnerships. they put in strict controls to keep that from being abused by officials. that is one of the reasons investment has not picked up. they could pullback regulations and allow public investment to come back more strongly. nejra: in terms of this week, trevor, we are looking for interest from earnings. i was interested to see that global earnings revisions have been tracking chinese pmi more strongly than they have been the u.s. pmi's. does that fill you with concern or hope given what you think about the chinese economy?
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trevor: global manufacturing cycle is the most synchronized part of the world economy. china is an important player. we are seeing a three-year many cycle layout in business confidence. 2009, 2015, 2019 is another low. the stimulus in china and the fed rate cuts and monetary easing moves around the world could set foundations for another upturn in manufacturing. things look bad at the moment. we are assuming that over the next few months, enough stimulus will be put in place to extend this long business cycle by another three years. nejra: if you agree and if you agree with what he has said, what does this mean for the european economy? tom: the situation for europe is complicated. we are not in recession. grace continues. growth is not strong enough to continue reducing unemployment,
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continue pushing wages higher. that puts mario draghi in a difficult position. they have not got much policy space but they need to find a little bit to get the economy out of the funk and to get them past risk from brexit, concern on the impact of u.s. tariffs. we were expecting action. we are expecting it likely at the september meeting. nejra: same question to you both, in terms of what you expect from tensions -- further escalation over long-term? tom: the politics are important. we are coming up to the 2020 election. the history of past u.s. presidential campaigns shows tough on china is a vote winner. i don't think we will get further escalation but it will be difficult for donald trump to provide concessions required to get a substantial deal done. trevor: i agree.
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we are not going to get mission accomplished. he wants to keep the dialogue open. periods have periodic where it seems manufactured by the white house and then solved by the white house, and then stepping away for a while. if things are coming to a positive conclusion, a few months down the line, it will go off the track again. nejra: thank you so much. conversations. for with "surveillance," the first woman and the first german and more than 50 years, if she wins the backing of the eu parliament for the top job. facebook steepening cryptocurrency woes. stephen mnuchin calls libra a national security issue. this is bloomberg. ♪
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nejra: economics, finance, politics. let's get the bloomberg business flash. viviana: the new designer boosting demand for the u.k. luxury brand. store sales rising 4% in three months ending in june, twice what analysts expected. new designs delivering strong double-digit percentage growth. sales in china rising. investors a 50 basis point premium as it finished the winding down of the scandal.
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europeane buying crh's distribution arm. of just overlue 1.6 billion euros. other -- beat other bidders. $730 million burrito that for bill ackman. the value of stake in aaa hit ag -- in chipotle three year high. investment this year through july 9. that is the bloomberg business flash. nejra: thank you. onparliament set to vote ursula becoming the next president of the european commission. she needs a majority. some lawmakers are not backing her as she did not campaign as an official campaign in the may
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election. paris, great to see you again. she has addressed parliament. issue likely to make it. is she likely to make it? reporter: we were told this would be a tight vote. that speech has gone down quite well. she spoke in french, german, ambitiousaid out and eco-environmental agenda, which is something she is trying to use to appeal to green lawmakers, which did well in the european elections. she talked about being carbon neutral, gender equality, things that sound good to progressive years in europe. the vote is tight. it will be secret. that may make things easier for her. some of the lawmakers i spoke to will tell you she needs more than 400 votes.
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anything below that would get her the nomination perhaps but make her look weak. she needs something above 400 votes today. nejra: what happens if she loses? reporter: that is the nightmare scenario. officials in brussels simply do not want to talk about this or go there. to put it simple, there is no plan b. everyone expects her to make it. this is the result of long negotiations, a record 19 our summit, a compromise between the french and germans, who do not think there is a plan b. they hope today they get her nomination cleared and through the finish line. they do not want to think about the implication of the vote being rejected today. nejra: maria, great to have you with us. thank you. europe when we look at
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and the prospect of further stimulus from ecb, markets are pricing and 85% probability of rate cut in july or september. the conversation is turning to the asset purchase program. some people are speculating we could see them buying unsecured bank bonds to ease the sting of any further rate cut. is that something you think would pose a conflict of interest problems for ecb or something they might consider? in at: we are a long way this stage. in some sense, ecb is running out of assets to buy. morerily government bonds, traditional asset classes, more likely than the bank debt. nejra: in terms of your outlook, looking to european assets, i spoke to someone the other day that said there is no more for where the bund yield goes from
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here. is it a no-brainer to buy bonds in europe whether on the rate front or qe? trevor: good question. there is always a two-way oull. disinflationary backdrop, growth slowing down, likely we will see stimulus from major central banks, but that has been factored in the big drop in bond yields in the past six months. at some point the markets say, now we need reflation with stimulus. yields have to go up again. we do not think we are there yet but we think there will be rotation this year from the bonds and the bond proxies in the start market, to deeper cyclicals as the world economy starts motoring again. we are not there yet. it is not a no-brainer to keep buying government bunds. anra: perhaps if you are
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investor with a global mandate, might that push you more toward em? trevor: i think so. if the fed cuts rates significantly to weaken the dollar, the combination of lower rates and a weak dollar, makes it easier for central banks to cut interest rates. we're expecting to see a range of em central banks to move in that direction in the next week. leyen facing the vote. on the politics front in europe, trevor, if we combine that with what we are expecting from monetary stimulus, how are you position in europe at the moment, if at all? trevor: lovely to see an unfamiliar face in the european parliament. we are mildly overweight european equities. our favorite is the u.s. benefiting from the quantity tilt in the market as well as interest rate
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sensitivity and the fed will be first mover. things are fairly positive in europe, looks better than japan. you might compare them. there quite industrially based. japan looks terrible at the moment. europe is looking ok. i wouldn't say brilliant. you have brexit risk looming. if you were to see know deal and a drop in pound, it would be uncomfortable for european exports. nejra: perfect. the u.s. and brexit conversations, we are still looking at nigel speaking in eu lyonament as ursula vonda it is facing that vote -- von der leyen facing that vote. steven mnuchin becomes the latest critic of facebook's cryptocurrency. this is bloomberg. ♪
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nejra: this is "bloomberg surveillance," and there are two tech events. libra on the agenda with the senate banking committee later. jay powell has criticized it and steve mnuchin has weighed in calling it a national security issue.
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the house financial services committee grills representatives from facebook and google, amazon and apple as part of an ongoing antitrust investigation. trevor, we were talking earlier. you said u.s. is your preferred market. within that, is tech a preferred sector? trevor: it is the sector that has been leading the market higher. if you look at economic fundamentals, combo of a generally lower falling interest-rate environment favors stockmarket companies where they have strong futures earnings potential for growth stocks. u.s. economy is not too weak and signs of some re-acceleration in the next six months is possible. nejra: all right. lots more to discuss. trevor stays with us. next, european officials tell bloomberg brexit is getting more hostile. could brussels grant concessions
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to avoid a know deal brexit? we will talk about that next. weakness in sterling. bloomberg-dollar index treading water over the past couple days. cable trading lower. stoxx 600 struggling for direction. the euro off a little. crude on the back foot and the 10 year yield has two days of decline. 2.09 handle. steady today around -25. this is bloomberg. ♪ hey! i'm bill slowsky jr.,
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excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. europe braces for tariffs.
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headings --n considers heading to beijing. this will be the talking point for goldman sachs. making history, the european parliament backs a bid to become the first woman to lead the commission. this is bloomberg surveillance. we've got u.k. data breaking on the bloomberg now. march to may, the employment rate stays at 3.8%. it's been under pressure for the past couple of days. it's less to do with the data and more to do with the comments that we heard from both the prime minister and boris johnson and jeremy hunt, they would remove the backstop plan from any brexit deal with the eu. let's check and see what else is moving in the market. we are standing by with the stock movement. >> they issued a profit warning
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today, revenue might be as much as 20% lower from the following year. this decline of 25% is on track for the biggest loss ever for the company. the soda tax has hurt them and unfavorable weather and competition. telenor is another big loser. they are down 5%. they have cut their outlook on increased competition. and thewere off earnings report said that even when you exclude the one-off, the numbers don't look good grid burberry ends on high note. shares are up 9%. the earnings meet estimates. they grew at a rate was double what was expected. they have been able to attract more sales. nejra: thank you so much. let's go to the news. >> citigroup is vowing to keep cutting costs despite saving more than analysts expected.
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they saw a revenue dropped 5% in investment banking slumping 10%. they willive said return 12% on tangible equities. we are likely to get more trade talks between the u.s. and china. they will remain by phone for now. steve mnuchin said if they are productive, the white house trade tang may trade to beijing. the president indicated tariffs were cheese -- squeezing the chinese economy. this is why they want to make a deal. europe is bracing for $7 billion of u.s. tariffs. the wto will give the u.s. the green light over the 14 your dispute of illegal aircraft subsidies. given to airbus causes damage to the u.s. the wto could rule this summer. steven mnuchin has concerns about facebook's proposed
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cryptocurrency. the plans of already drawn criticism from president trump and democratic lawmakers. it's a national security issue. the potential for illicit activity is high. >> the treasury department has expressed very serious concerns that it could be misused by money launderers and terrorists. >> global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. nejra: thank you so much. the former u.k. attorney general has warmed the next prime minister that a no deal brexit could lead to the government's collapse. a second referendum would solve the political crisis. they are suing or's johnson if he suspends parliament to force rights it. brexit.
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>> the chances are almost zero. that's because the labour party is part of a conservative government. in that case, the labour party is a remain party. if there were an election, they said they would be a leave party. they are as confused as they ever were. assessment is your of the prospect of a hard exit and no deal now. we have had this commentary overnight that is sent the pound lower. a are talking about removing the irish border backstop plan. trevor: it reminds me of alice in wonderland. sometimes iys believed six impossible things before breakfast.
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the uk's leading on the 31st of october, there will be renegotiation with the irish backstop removed entirely. there is a one in a million chance we will leave with no deal. the whole thing is utterly inconsistent. it's about getting a new leader in place. there will be some cold hard realities. nejra: is there any kind of consistent investment choice to make? trevor: hedge all of your bets. i mean that. sterling in particular. we could leave with no deal. i think it would be chaotic. to thed be very damaging u.k. and european economies. there would be a 15% slide in the pound. the more likely it is part will take control. they are putting too much on a second referendum. if parliament takes control, it
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could be the only way to unblock the situation, to have another referendum. that may be happening, the pound would go up. you have this knife edge move. it's almost been like a pegged currency for three years. if brexitdown 15% were canceled, you have to choose a emerging market currency. all your bets. you've got more signs that the labor market is shrugging off the brexit uncertainty. growth, of the wage that's coming in better than expected. 3.6% is what we are looking at. is that change anything for the prospect of rate cuts and stimulus from the bank of england that a lot of people tell me is let's going to happen only hard brexit and what the bank of england is leaning toward? reasons theof the
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labor market is strong is companies won't invest. the uncertainty, you not putting your money in capital spending. -- there are low-quality jobs being created of companies won't invest. what would happen after a mobile -- no deal brexit? it would make everybody core. .- poorer they would let the price level rising incomes would go down. initially, yields would stay lower. there is very little prospect of any tightening for years. you talked about the productivity and what companies are doing in terms of spending more on labor rather than investment. what does that mean for u.k. equities and whether you would buy them and what companies you would look at?
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trevor: we tried to divorce them from the company they are associated with. the u.k., 70% of revenues come from overseas. we look at the earnings prospects and companies that make up the market. we are neutral on the u.k.. it's slightly cheaper than average. valuations aren't compelling enough to pile in. neutral on the u.k. market for years, is one of the big underperformers. there are heavy resource type exposures. china is coming off a lead weight. nejra: trevor is staying with us. we have plenty coming up, including the bank equity trading miss lowers the bar for jpmorgan and goldman sachs. high-fashion, burberry stock
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surges and new designs go down well in china. this is bloomberg. ♪
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>> this last a jury verdict. this is the second case to go to trial over roundup causing cancer. $75 million in punitive damages was too high. they have vowed to keep up defending the popular weed killer. bad news for costco and walmart as amazon shoppers snatch up potato chips and toilet paper. sales during the first nine hours of prime day were triple what they are on a typical day. that's according to commerce iq.
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the uphill stretches beyond electronics and other big-ticket items. amf is ending. 3.7 billion euro attempt to buy the company. euro perpted a 35 share bid from the two. they value the company at 3.4 billion euros. bill ackman has made $730 million betting on burritos. the value of his stake in chipotle surged as it hit a record high on monday. this is more than three years after a food safety crisis. they have returned it 48% on the investment this year through july. that is the bloomberg business flash. nejra: thank you so much. at citigroup, boring banking is in. the lender reported earnings
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monday and trading revenue fell more than estimates. this week. report they are bracing for more disappointment. these are the details. >> the trading revenue slumped 5%. they had cost cuts at $100 million more than analysts expected. that allowed them to be profits. they need to look elsewhere for profits beside trading. on netthey missed interest margin. that's reflecting poorly. optionslready seeing riced in for wells and jpmorgan, wider moves today. they might be setting the bar lower for the banks yet to report. bank of america reports. they do have a strong wealth management business. that might offset some of the slump in trading. justuestion is is this
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citibank or industrywide? this forecast goes back as far as may. you can see the blue bar estimate for this year versus last year. it looks like this is an industry thing. every one of these big banks looks like they are going to have lower trading profits compared to the orange which is last year. why is this happening? when we look at the second quarter next, it only one above 21 time last year. it averages out it 50, making it difficult to make money on volatile markets. the white line is the move index. up, but theyk still missed on fixed income trading. blamed traders holding back over nerves as the trade relations worsen. did fall. major banks citibank is in the white. you can see the brackets
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tumbling. a lot of this is investors putting in more concern, saying a fourth quarter design across wall street. nejra: thank you so much. today, we are asking the equityn, can the u.s. rally keep going even of bank earnings fail to impress? still with us is trevor. what is your answer to that question? trevor: yes, it can. the economy doesn't really matter. you will start to see a pick up in global growth. that will drive economy and earnings higher. when you get the most volatility, stocks returned 10%. in may and september, you have seen 9.1%. trading.ften thin
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you've got all sorts of things. aroundalso got brexit trade tensions. there are a lot of reasons why there will be dips. yesterday, the s&p 500 closed flat. tack lifted it even though we did see banks underperformed. volatility, it is rising comparatively. it's approaching a level of 7. we have seen selloff at that level like we did at the end of 2018. does a chart like this make you more ready to buy the dips? trevor: i've been working financial markets for the last 30 years. i've never come across this. i do look at volatility rate closely. you tend to find the two years into a tightening cycle from the moves to trend higher. i was taken by the idea that last year was too quiet for banks to make money.
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first -- worste since the 1930's. i think the volatility will come. easingwell be the fed that we are expecting this month. we put a lid on volatility. at the end of the business cycle, it will rear up again. you've got to be prepared for spikes in volatility. there are doubts of turbulence. it's important to protect downside. nejra: this next chart you will be familiar with. trend of the treasury ten-year yield. it has been down down down. at the end of the chart, we did see a breakout there in 2018. doesthis move make you -- this trendline make you nervous we could actually see a backup in rates? does this convention we will have lower for longer and just keep buying? trevor: that's a difficult
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question. it's about having governments deal with their debt burdens. the falling trend of yields is not a sideways trend. keep government bond yields below inflation, you are bailing yourself out very gradually. beifferent solution may revolution, where people come in and print loads of money and theory-- modern monetary . you can see a rising trend in yields. difficult question. my best guess is yields will be very low. would a government bond be losing investment in real terms, but a gradual slow death kind of way. are you convinced the fed
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is going to embark on an easing cycle? could we get a one and done with a rate cut in july? think the whole psychology of central banking is you want to start the cycle. you want to make the market feel there are more rate cuts if needed. that's what underpins the recovery, it underpins the markets into recovery. 0.5% and youtes won't get anything out of us for the next three years, i think keep the door open to doing more. has 10 different reasons to cut interest rates. inflationch is after being below target, why not been above target? if the fed is really changing its reaction and trying to
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create inflation, they are trying to create profits. nejra: that explains why you are bullish. trevor, it's great to have you with us on the show today. up next, burberry stock surges as new designs go well in china. are they out of the woods? we talk luxury next. this is bloomberg. ♪
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nejra: economic finance and politics, this is bloomberg surveillance. are looking live pictures of the european parliament. they are right there on screen. we are waiting for the vote to confirm her as the eu commission had. a number of people are speaking. nigel farage was there earlier. now let's turn to one of our stock movers, burberry is surging. they are up the most since 2012 after new designs went well with the chinese market.
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the rebound is helping stored sales grow 4%, double what analysts perspective. join us is our consumer reporter in paris. what are they doing differently? are they still a trenchcoat maker? they are known for forging alliances with pop culture alliances. -- figures. they opened a couture house to people like kim kardashian who has millions of followers on instagram. they have brought those people with them to burberry. the new designs are bringing attention to the house. that message is being amplified of the internet. nejra: what has got investors so invested today -- excited today? robert: it's a lot flashes and what we are used to seeing from her paris. a sleek,ed to seeing
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happy look. pop is a much more sensibility. he has brought a new print plastered all over the billboards. see and shoes, investors this new look which seemed risky might be able to resonate and take off for consumers. is burberrybriefly, out of the woods, particularly if you take into account chinese consumers? robert: they have to face quite a few challenges while the same-store growth which as an important number is being boosted by the designs. they are still cutting their exposure to wholesale in the u.s. where they do a lot of business. department stores are struggling. they are pulling out of malls that don't have that luxury appeal. they are trying to move upmarket with new products.
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if they see encouraging signs, it is still early to see how they will perform in the long run. nejra: great work. thank you so much. it's great to have you with us. surveillance continues in the next hour. tom keene joins me in new york. we will talk to the acting managing director of the imf. do not miss that. we will talk to everything from the future of central banks and cryptocurrency. european equities are searching for direction. u.s. equities hit another record yesterday. this is bloomberg. ♪
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tom: this morning, the future of united states and europe and the
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future of the united kingdom. pound sterling is weaker. david lipton from the international monetary fund. the future of a great bull market, the proverbial punch bowl is full. this rings different than prime minister johnson. this is bloomberg surveillance from new york. i am tom keene, nejra: as well. what do you expect within the campaigning of johnson and hunt toward july 23? nejra: we already heard over night from both of them. they are looking to remove the irish backstop plan. that is causing concern. sterling is weaker today. data shows the labor economy is shrugging off the brexit risk. the only thing you can do is hedge. they had an idea of a
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possible undershoot of weaker sterling because he calls where we are somewhere in the vicinity of average. in new york city with first word news, this is viviana. >> a delegation may had to china for trade talks. there is ahin says good chance he and the u.s. trade representative would go to beijing. the white house expects china to announce large-scale purchases of american foreign products. cortez andcosta note her three allies say they won't be abated by attacks from president donald trump. she says she's not surprised by the rhetoric he uses. the president has kept up the verbal assault on the form i nor the lawmakers. beingused them of
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communists and hating the united states and israel. officials are bracing for brexit talks to become more difficult. they described a meeting of the go she last week as one of the worst encounters of the last three years. the eu is considering concessions. they could offer that to avoid the chaotic no deal brexit. vladimir putin's military buildup has left the defense industry with the debt hangover. billion buying00 weapons. the deputy prime minister says companies are spending as much on annual debt payments as they make in profits. they plan to write off some of the debt, but not all. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. tom: thank you so much. data is coming up. we've got to send this to dr. lipton in a moment.
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this is the german index. these are two molding statistics. quacks it's more bad news coming out of germany. dsis is after they had bun rally. we are moving lower. these are the expectations come in worse than expected. we are working in real time, which is what we like to do. there is a drop down in the 10 year yield in germany. let's go to the data check right now. what an interesting hour with dr. lipton. futures are flat. i don't know what to say about that. above 97. is back let's go to the next screen. the vix is showing an ever greater bull market. talk aboutnejra sterling. we've been struggling for
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direction and european equities for love the session. we hit another record in the u.s. yesterday. i talked about it and we moved over again to -27. cable took a little bit of a hit. that was better than expected wage data out of the you take they will seek to remove the irish border backstop plan from any brexit deal. tom: thank you so much. it's a joy to do much of this hour from harris. jean-claude trichet a will join us. it's a moment to stay for europe as we see voting. is the imf managing director, david lipton of the international monetary fund. that barely describes his contribution to american economics. i guess congratulations on your
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new position. --was an important emotion promotion. right now, we need an update on what your economists see of the global economy. what is the blue book on a july morning? we will be coming out with an update of the world economic outlook in a week or so. we see the global economy is sluggish. investment is slow. trade growth is slow. it slowed to 1% in the first quarter, euro .5% in april. usually it grows faster than global gdp. when you look at the whole picture, you have to be concerned that this sluggish growth needs to be responded to. this came up yesterday three times. i'm going to ask you and i
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respect your research capabilities, the you believe the economic data out of china? is that a valid statistic created out of real evidence? do they make it up as they go? think there are always flaws and shortcomings. we've been providing technical assistance to try to improve the quality of their statistics. it's a huge and complex economy. data capture of the events, they have much faster growth years ago and it's been slowing for quite a number of years. it's in the low sixes. economy will stay in good shape, it could slow even more if the trade and technology tensions intensify. you write onelp
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of your appendices. i will do it with less grace than you will. we have a president who borders on mercantilism, who is not multilateral. how do you address the trade policy in the global slowdown? david: i think it's important to acknowledge that the discontent about trade and technology we see in the united states and europe comes from real frustrations. it's important that the difference in views in the world be sorted out. china has over the years had a set of trade practices that warrant terribly consequential when it was a trillion dollar economy. now it's a $13 trillion economy. see is for the trade tensions to be replaced i dialogue and resolution and
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action. nejra: it's great to have you on the show today. you said a moment ago that beggish growth needs to responded to. should central banks globally be cutting rates and resuming quantitative easing? way,: let me put it this our baseline is for sluggish inwth slightly stronger 2020. our baseline is not a slowdown 20 or a recession. the first admonition is do no harm. it's important that trade tensions and technology tensions not tipped the world into recession. the reason for that is we have fewer tools. we have less policy stakes than we had at a time of the global financial crisis. monetary policy has been
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expansionary. do no harm.le is all policymakers should be responding in a data-driven way to see what comes. the u.s. economy has very low unemployment and we haven't yet seen any inflation. it's muchan economy, slower this year than last year. central banks have to keep an eye on the circumstances of their particular jurisdictions economies keep their on the right trajectory to achieve their objectives. all need to be ready in case there is a significant slowdown to respond much more forcefully. nejra: in the case of a significant slowdown, which hearts of the world the you expect to provide the biggest downward drag?
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david: that's hard to say. we don't know what is coming. i think europe is in a situation where policy tools are somewhat less ready at hand. saying, draghi has been it's important that they're not be an overreliance on monetary policy in the event of a downturn, especially a severe downturn. all policy levers should be used. us, david lipton is with the acting director of the international monetary fund. the changes at the ecb and changes at the imf, we will drive forward that debate. can give her the torah of frankfurt would be the former
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european central bank president. of frankfurt would be the former european central bank president. stay with us. this is bloomberg. ♪
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nejra: we are with tom keene in new york. steven mnuchin says he may travel to beijing with the trade representative negotiations of talks by phone this week are productive. president trump repeated his conviction that china wants to do a deal. still with us is david lipton. it's great to have you with us on the show, dr. lipton. are we in a moment where we are
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facing a reversal of words? what should the imf to from here? david: it's great to be here in paris to celebrate 75 years of the imf. institutions of promoted growth and financial stability and cooperation toward that end. i think it will continue. where there are misgivings about multilateralism. i think there is a tremendous amount to be gained by cooperation. the developing world needs trade and investment in order to grow and boost living standards. they have the possibility of being an engine of growth to the global economy. it makes sense to find ways to get along and cooperate and continue to promote growth in trade. and it willa moment
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be a test for our new managing director, our membership will rise to the challenge. nejra: in the spirit of talking about the future of the imf and the managing director, should the search stay with european candidates? that has been tradition. should it be broadened out to emerging-market candidates or even someone from the united states? david: for the last couple of times there's been a selection, it's in an open merit-based process where any number country can propose a candidate. the past traditions matter because european countries have banded together and gotten broad enough support that their candidates of prevailed. i think this process will similarly be an open process.
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countriese european again pushing for a european candidate. i hope we end up with the best person for the job. the you come along in heritage of the american representative. you are active managing director as well. time for ait's been change. it's been time for a shift. without getting into the process forward, what would be the catalyst to finally get a more or am 11 managing director? what will drive that forward? seen thethink we've process over decades is more and and financeg-market
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ministers and central banks gathering experience on the global stage. we have had some serious contenders. prominentere will be and serious contenders this time around. it's all about politics. you have to get the votes. i candidate has to impress enough backing to make it work. tom: give us a window into the politics you just described. moves therecarney so he can see the toronto maple leafs play the washington capitals or president draghi will move over and switch chairs, once the politics like? in the basement of the imf, do people have placards? how does it work? david: it's really very simple. we have nothing to say about it. it's a choice that will be made by our members. i view my job is acting managing thistor being a steward of
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organization. we have things week to finish, things we need to advance. i want to deliver a strong and credible institution to whoever comes and brief and prepare the incoming person. that's what we're focused on. we leave the politics of the politicians. nejra: the imf will have to adapt to an era where digital money comes more to the forefront. what is your take right now on cryptocurrencies and the prospect of libra from facebook? david: we put out a paper just yesterday. i had an op-ed in the financial times on the subject of libra. generically, it can bring advantages. --e of these interventions innovations are doing for transactions what the internet did for information, they make
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it instantaneous and free and secure. the question is how do you handle the downside? how do you handle the risk? so far, they have not been stable. the idea is to come up with a stable coin. they have technology they plan to use to do that. and for to operate governments to be comfortable with that, they will have to be looked at by regulators. will there be a monopoly? will the payment system be safe? will there be liquid activity through one of these stable coins? garnerey be allowed to what has been the problem with central banks. there are a lot of issues that need to be resolved.
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requiresis technology experimentation. you have to experiment to get the benefits. we should look for ways to go forward. tom: thank you so much. he is the imf managing director. thank you for your generous time this morning. my political conversation of the day, we are thrilled to bring you someone described as the congresswomen of the 12th district in michigan. deborah dingle is in the next hour. this is bloomberg. ♪
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nejra: we have tom keene in york. joining us is bloomberg -- chief ineap washington dc. i know you were just listening to her interview with david lipton from the imf. loads of great comments from him. he said the race line is not the world economy stalling. in 202020. a pickup is that what you expect as well? >> it's a complex picture. clearly, the world economy is not in a slump. we don't think it's on the cusp of a downturn. growth is subpar. financial markets are telling us something. inversion, it's
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not the powerful indicator it was. that's why we see what i think is going to be a measured but not a panicked response. nejra: david lipton said central banks need to respond with more force. if they do, will it work? >> there are two concerns. the first is leaving aside the fed it, there is very little firepower in global central banks. the second concern is limited firepower and a backdrop of heightened policy uncertainty, if the basis cuts of rates is not that much. if you combine that with the uncertainty of not knowing if a presidential tweed is going to break your supply chain, the impact of monetary easing will be limited. tom: very quickly, are we going to move outside the imf tradition?
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it's not the world bank. are they really going to break the mold? >> i don't see any energy right now. there are some great emerging market economists out there. former chief of the rdi. there are some huge talents there. what you need to see is an emerging market consensus behind one of the candidates and we don't see that right now. tom: we've got to leave it right there. up, john claude touche. ♪
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♪ bloomberg "surveillance," nejra cehic and tom keene. week german -- weak german data.
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asker sterling this morning we do a lot on international relations. john claude trichet will join us. here is viviana hurtado. viviana: stephen mnuchin and house speaker nancy pelosi are working out details of a debt limit deal. both sides say it should include an agreement on a two-year budget plan. the treasury department accelerated its estimate of when the u.s. would run out of money to make payment obligations. that could happen in september. the u.s. will likely get a green tariffs -- green for tariffs on europe. the tariffs would be imposed on helicopters and aircraft parts. the trump administration may also use duties to gain concessions from the e.u. on american farm products.
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iran says the door is wide open to negotiations on its nuclear program if trump lifts sanctions. media the u.s.e was the first to leave. billionaire tech investor peter thiel called elizabeth warren the most dangerous democratic presidential candidate, telling fox news that is because she is the only democrat talking about important issues like the economy. he is the tech industry's most prominent supporter of donald trump. 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 am viviana hurtado. this is bloomberg. tom: thank you so much. it has been a joy to speak to david lipton of the imf and return to the european central
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bank in the future of this important european and global institution. boards as a farmer president, jean-claude trichet. this is an important time for your. is this a -- europe. is this a generational shift? jean-claude: yes, certainly the fact that we have changed practically all of the major jobs in the european union, in the euro area, with the change of the president of the commission and the president of the ecb. big, important generation change. it is still in the making because it is today that ursula vonda lyon will be i hope accepted by the party. also madamethis and
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lagarde is an idea of a europe that needs to move forward away from austerity. you fought the austerity battles for years. do you see a europe that can move away from a dramatic -- germanic and dutch austerity? jean-claude: i would not say frankly at the president moment -- present moment we are in austerity mode. the central bank has a monetary policy which is very accommodating, even more accommodating than the u.s. at the moment. is as regardsrue to the fiscal policies, we would probably benefit if some countries which have room for maneuvering could be more open to utilize their room for
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maneuvering. that is important not only in terms of macro policies but to rebalance the competitiveness of the various countries in europe, particularly inside the euro area. onemain reasonably confident the capacity of the europeans with all of the constraints they , the chances and fortunes isy have to embarq on what employment. tom: what you suggest it is time for the ecb to move to a former -- formal dual mandate? if they are focused on inflation, should they be focused on jobs in a more broader mandate like the u.s. central bank? jean-claude: i don't think so, frankly speaking, not only because the fact that they are
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pursuing price stability in a totally symmetrical way. it is obvious the accommodation of monetary policy is based on this idea that price stability must be symmetric. thatp of that, it is clear all the elements central bank is responsible for to facilitate growth. there is absolutely no chance that renegotiation of the treaty would change the present mandate of the ecb. don't forget, the mandate is you must be sure that you are getting price stability, without inflation and without deflation. you have to back and support the other policies of
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the euro area and european union. there is something in the treaty which goes in the right direction in my opinion. nejra: how unconventional and creative does the ecb need to become now? we are hearing everything with intentionally rate cuts on the table, a resumption of quantitative easing, and including some assets not included for. -- before. does it need to get more creative? jean-claude: it has been creative if you compare with the united states of america. the ecb has experienced all the tools the u.s. fed has experienced, but on top of that , which is annt insurance policy, we have the full allotment at fixed rate which does not exist in the united states and which permits
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every commercial bank to have access to all the liquidity they would like to have. andave negative rates negative rates are not practiced in the u.s. it is not that we do not have extraordinarily nonconventional and bold instruments. the problem is more to see exactly when it is appropriate to utilize them. as you know, we have had some speeches by not only mario , suggestingothers andnflation remains too low if inflation expectations are not correctly anchored, they could move. the problem is not the tools. they have all the tools necessary. nejra: in that case, if the fiscal side should do more of the heavy lifting, you talked a moment ago about some countries
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using their room for maneuvering. loosen theiry fiscal pursestrings? , when i was i think speaking of some countries that have room for maneuvering in the fiscal area, i was thinking in particular, not exclusively, to the netherlands and to germany. not surprisingly, these countries are also the countries where you have a very high level very high level of cost competitiveness and current-account surplus. area, we have clearly an which is not negligible. perhaps 40% of the gdp of the euro area. we obviously have some room for maneuvering and if this room for maneuvering is utilized, it
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would be better in terms of equilibrium, balance in the country's concern. you have current account surpluses and it would be good for the rest of the euro area, and what remit to rebalance cost competitiveness in the euro area. the euro area as a whole has some room for maneuvering in terms of fostering domestic demand in approximately 40% of the gdp. trichet, a-claude pleasure to have you with us. lots more to discuss. brexit was a key theme in last night's debate for prime minister. readers, radio listeners, families, that we would be out the end of march and we failed that trust. >> brussels will get at long
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last, somebody that has that clarity. >> if you get this wrong you will end up in an election before brexit and the one person who will never deliver brexit is jeremy corbyn. >> it is also agreed there is no need whatever to have heart infrastructure, to have physical -- hard infrastructure, physical checks at the border in ireland. >> the reason we have not gotten to the place we wanted to be is not because of calm leadership. she had the wrong deal. ♪
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♪ i think the chances of a second referendum are almost
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zero because the labour party, if there is a conservative government which there will be between now and the first of october, the labour party is a remain party. if there were to be an election, they say they will be a leave party so they are as confused as they ever were. nejra: that was gina miller earlier today. for more on brexit and the next steps, former ecb president jean-claude trichet is still with us. can europe's economy withstand a hard brexit? think the no deal brexit would be a catastrophe for the united kingdom, no doubt on that. of course, it would be bad for the european union as a whole and for the euro area. the proportion would be more or less in the proportion of gdp.
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the relative damage for the u.k. would be significantly higher than for the rest of europe. envisage theto hard brexit that i hope very the leave choice is a deal and perhaps for remain after a. i would say from my standpoint, it would be in the interest of all taken into account if there is a change in the public pinion in the united kingdom -- public opinion in the united kingdom. that is not for me to debate. debate at date -- the the bank of england has moved towards rate cuts in the event of a hard brexit. lower for longer for global central banks, when will europe get away from negative yields? jean-claude: that is an
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important question, of course. everybody wishes that it would be possible because of the full success of the central banks the world over to get out of the altar accommodative policies. i -- ultra accommodative policies. in thefull confidence open market committee and bank of england making processes to do what would be the best. my main message, and i think it is the message of all central banks of the big advanced economies, we are not the only game in town. you cannot count on the central banks to settle old problems. the other partners have a lot of hard work to do. at the present moment, all the burden of the difficulty of the
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advanced economy is on the central banks. i hope very much that message would be understood by the --ial partners, because and we have flat inflation and that is the problem. tom: will it be seamless from der layden or will it be a different town? jean-claude: i don't think there would be a new town because what has -- tone because what has done has been done with the support of 27 other countries. it seems to me, i have to say what was quite surprising for some and quite remarkable was the unity of the 27, unity which does not mean aggressiveity.
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we are saying if you want to stay, you are welcome. all the 27 are saying, we would like to have a deal that would be respecting the interests of the u.k. and the rest of europe. i am not expecting a dramatic change. i am expecting for the u.k. to make up its mind. it is what was not done until now. absolutely all the solutions were rejected by the house of commons, it is quite extraordinary. it is what we have observed. tom: one final question. i spoke with jacob kierkegaard yesterday of the peterson institute and he spoke up the vibrancy of france. what does france need to do to jumpstart innovation into 2025? you mean the vibrancy of the overall start
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ups? culture vibrancy of the , the vibrancy of france. movedo they need to do to forward to excellence within france? jean-claude: i think that we have a particular microclimate in france which is due to the fact that you have a lot of engineers that are coming from excellent schools and are enterprisesmbark on and businesses. you have an immense wave of startups, particularly in the i.t. domain, artificial intelligence and so forth, and that is something special because of the dedication of the french to great schools in parallel with the universities. from thisting a lot
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framework of critical embarking on startups. tom: jean-claude trichet with us, wonderful to have you, the former president of the european central bank. different talking with david lipton and jean-claude trichet. it is a bank earnings day in the united states. citigroup doing well, wells fargo some real challenges. ♪
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♪ this is bloomberg "surveillance." ryanair says the grounding of the boeing 737 max 8 will hurt its growth plans until next summer. they expect the plane to return to service by the end of the year, but the date is not certain. ryanair says it remains
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committed to flying the 737 max 8. the new designer at her bury is boosting demand for the u.k. is boostingrberry demand for the u.k. luxury brand. new designs delivered strong double-digit percentage growth, sales in china rising in the mid-teen percentages. the british software maker plunging the most ever. sales are suffering from price competition. over to california where a federal judge gave a possible when to assible plaintiff who alleged exposure to round up cause cancer. thejudge said he saw
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behavior reprehensible. that is the bloomberg business flash. it has been an interesting "surveillance," this morning. right now, we take timeout with luke kawa of bloomberg news. he has three bloomberg terminals at his desk. what do you see about the unique is of the bull market? luke: recently, last week we almost had a time in which you could get healthy rotation, may be bank leadership, but it is always tack and only tech. tom: it is bank week. we know tech is over owned by institutions. ane: i was talking to investor in options about crowding risk and the recommendations i am getting
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from the community is heading into earnings, single stock implied volatility is fairly low so the recommending stock replacement strategies, if you really still love it, why not just by the call or buy something near the money? i'm waiting to see if we get air pockets on tech mixes -- misses as opposed to other misses. even the misses so far, you have not seen follow-on days of selling. you recover so the market seems to be in a forgiving position. i want to know where the equities are more vulnerable than bonds and what has been and everything rally. luke: this goes back to the u.s. dollar. if you look at what stocks have been tracking over the past five
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sessions, it has nothing to do with on d yields. it has more -- bond yields. it has more to do with the u.s. dollar. that is the junkie as part of the junk bond in the u.s. that has been suffering. you can chalk it up to energy. it is easy to see the dollar fall along. tom: two years ago, energy getting hammered. in the next hour, this is really wonderful. thomas michaud will join us to look at the two big to fail banks. this is bloomberg. ♪
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♪ tom: this morning, the domestic and global success, and the
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dominance of the too big to fail banks. we consider the first mover, winner take out -- take all. republicans, say something. kevin cirilli and moments. that ringsunt, different than prime minister johnson. from our world headquarters in new york and london, nejra cehic in four francine lacqua. is britain exhausted -- britain exhausted by the debate? nejra: you see exhaustion in corbyn andse jeremy boris johnson are talking about ripping up backstop for the island. tom: what is the significance of one guy is wearing a suit coat and the other is not?
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is that a symbol? there maybe jeremy heat -- jeremy hunt was feeling the heat more. oh, you are feeling the heat. tom: i should take my coat off like prime minister hunt or keep it on like prime minister johnson. right now, our first word news. high level delegation may head to china for trade talks if phone discussions are productive. steven mnuchin says there is a good chance he and robert lighthizer will go to beijing. the white house expects china to announce large-scale purchases of america farm products soon. alexandria cause ceeo cortez and her three allies say they will not be baited by president trump. the president has kept up the verbal assault on the four
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minority lawmakers, accusing them of being communist and hating the u.s. and israel bracing for brexit talks to become more difficult under the new u.k. government. as onescribe the meeting of the worst encounters of the last three years. the e.u. is considering possible concessions. over to russia where vladimir putin's huge military buildup left the defense industry with a debt hangover. he spent $300 billion buying weapons but the deputy prime minister says companies are spending as much on annual debt payments as they make and profits. the kremlin plans to write off some of the debt but not all. 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 am viviana hurtado. this is bloomberg. check,ickly to the data
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somewhat quiet although weak sterling. oil.ack under 60 american the vix, 12.61, grinding ever lower. stirring -- sterling cannot find a bid. nejra: u.s. equities will find a bid, futures unchanged. forx 600 struggling direction. yield droppingd and cable down. conversationte with our chief washington cirilli,dent, kevin perspective on the uproar in washington. what is your observation on a tuesday morning after a fractious weekend and monday? kevin: here we go again.
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republicans increasingly aren't comfortable about the president's tweets and remarks. senator pat toomey from pennsylvania, he was critical of the president's comments as were more moderate republicans including susan collins and bob portman -- rob portman. interesting, i was just skimming through mike allen's note and he says more and more democrats will call for an impeachment lane as a result of this rhetoric. i talked to republican strategists who feel that what the president was trying to do, all disagreeing with his racial rhetoric overtones, elevate them to be the face of the democratic party. hour, who at the 5:00 came out to the podium on
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capitol hill? alexandria a cost ceeo court to -- alexandria or cost ceeo cortez -- it is getting lost withaoc was feuding speaker nancy pelosi in the second half of last week. that tension is there. tom: let's look at a liberal, richard cohen writing for the washington post, beautiful craft of english. drink,nt trump is not start sober drunk on hate. strategy going back to richard nixon's southern strategy and president reagan's indifference to civil rights. the united states' oldest scar, race, is being ripped open. walletsght fatten some
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but he feasts on the country's sole. kevin: they are having an identity crisis. from overureen dowd the weekend. illustrates the tension between nancy pelosi and aoc and quite frankly, it is what everybody has been chattering about, divide between them in the halls of congress, at the staff level and it is bubbling over with senior staffers. the bottom line if you are outside of washington trying to figure out what this means, speaker pelosi was on the phone with stephen mnuchin yesterday. i asked him about the debt ceiling negotiation. it looks like they are continuing in earnest. nejra: you brought up treasury secretary steven mnuchin and who said a trade call with chinese
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officials is likely this week. tell us about that. kevin: yesterday, giving that press briefing in the brady room where i was able to ask him about the debt ceiling and colleagues asked about u.s.-china trade talks. he had positive rhetoric and said he fully intends to have a principal level call with officials in china and their counterparts as early as this week. he mentioned he would be doing so with bob lighthizer and despite reports in the last 24 hours, commerce secretary wilbur ross will like to be a part. tom: kevin cirilli, thank you so much. who knows where we will be tonight in a fractious washington? we look at the fractious banking sector. we are thrilled to bring you thomas michaud.
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us. kawa with luke on bank share underperformance. why can't your group be fully valued given the cash that is there to's deploy? thomas: there is a revenue growth slowed on happening and then has been the first -- story since the first half of last year. we spent a good part of the rest of the year cutting estimates and we did so just last week before earnings start. world,t's go to your slice and dice revenue growth across every sector. for,at what we are looking revenue shortfall and earnings shortfall? luke: in terms of the net income drop we are expecting, and maybe eps buybacks put us back into positive territory. we are not yet worried about the revenue decline.
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that is a stark difference from the 2015 and 2016 earnings recession. topline growth will correlate most with nominal growth. in tom's part of the world, banks seem to be so close inching in on getting the same kind of dividend yield as utilities. when are yield hungry investors going to treat the banks like a defensive play? thomas: i think we are close to that point now. you have great dividend yields and strong balance sheets. capital in the banking industry is the highest in 80 years. cycle still in the credit where we have very little cost. the industry is in far better shape today than it has ever been. tom: let's bring in nejra cehic. nejra: with earnings season in general with expectations so low, could companies that do
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well be disproportionately rewarded? case,that is always the and something that was written three years ago that sticks with me, earnings season is the cheating season. you can easily tiptoe over it. that is the case with every earnings season, particularly this one. what will be key is what we are seeing in the context of the economic data and the hint that we are bottoming out. i am wondering how much companies will be able to either vindicate that or continue to be conservative and set themselves concerned about the near-term environment. thomas: what is the talk going to be like on the conference calls? the outlook for the second half of the year will be important to investors. nejra: what will you be listening for in particular on
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those earnings calls for the second half? trade seems to be the obvious thing, but is there anything more? thomas: it is all the macro issues and what they are doing in the domestic u.s. economy, what that will mean for loan growth and credit quality, which will translate into net income interest growth. also having a big seat at the table will be fed policy, monetary policy, and what will happen in the interest margins. the second quarter is the inflection point downward to margins for the first time since december 16 -- 2016. tom: we need to rip up the script. luke tower will visit cooperstown -- luke kawa will visit cooperstown this weekend and we have to find you the one person who has had the privilege of playing on doubleday field. what is it like to stand in left
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field of doubleday field? luke: we had a chance to talk about that earlier. i went to middlebury college and we played a tournament at doubleday. it was a dream, and when i went back with my kids, it was a great story to tell. tom: did you always beat bowden? not have a chance to play them but we would've had a good chance. tom: we will continue on banking with thomas michaud, chief executive officer of kbw. really important bank perspective. from citigroup to jp morgan, we will look at the earnings. the operating income growth at jp morgan has been extraordinary over the last 10 years. this is bloomberg. ♪
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♪ viviana: this is bloomberg "surveillance." ryanair says the grounding of the boeing 737 maxwell hurt its growth plans until next summer. the discount carrier will cut flights. remains committed to flying the 737 max 8. the new designer at burberry is boosting demand for the luxury brand. sales rose 4%, twice what analysts expected. new designs delivered strong double-digit percentage growth, sales in china rising in the mid-teen percentages. shares of ag bar plunging by the most ever.
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full-year profit may fall as 20%. sales are suffering from the soda tax, rockstar and rubicon drinks. that is your bloomberg businessweek. of bankis a week earnings. tom showed with us -- thomas michaud did with us. on the state of banking, can american banks take share from deutsche bank? how tangible is tangible? thomas: it is happening not only with deutsche bank but with other european banks. what has been the big story is how far away the american banks have hold in terms of profit -- pulled in terms of profitability ahead of the european banks. i am surprised at is not the
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primary policy issue because negative interest rates are crushing europe. tom: the operating income growth of american banking has been extraordinary. do you still see exit -- operating revenues that can put on margin and increases? thomas: there is some positive operating leverage in the industry, that is for sure, but the driver is share repurchase. tom: this is critical. they have come through a new stress test. are we looking at share buybacks and an 8% coupon in january between dividend growth and share buyback? thomas: yes, you will have a good high yield return back to shareholders. growthings for share this year and next. last year when we thought rates would go up, we have 11%.
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more than half of that 6% as share repurchase and for the biggest banks, it is 100%. you asked earlier why banks trade at discounts. there is that concern there is not a lot of organic earnings share growth and credit cost. nejra: citigroup yesterday talked about cost-cutting and that offset to some extent the bad news of the trading revenue, but you talked about the challenge of revenue growth. grow that. banks organically or will there be consolidation? thomas: there will be consolidation absolutely. way cannot purchase their beyond 10%. you will see more bb&t and suntrust. i don't know if you will see a large number of them because there are not as many banks as there used to be, but there will
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be a steady drumbeat of consolidations. about $800eal, million. you will continue to see more acquisitions to generate more earnings-per-share growth in scale. scale is necessary to compete with the bigger banks. nejra: how do the bigger banks generate revenue? thomas: my opinion is, banks should grow when it is appropriate to grow. it is hard to manufacture growth. if you push too hard, that is how you make stakes. -- mistakes. they are creatures of the economy and it is not many times they have grown beyond gdp growth, so they use capital management and positive operating leverage. fed policy matters. net interest margins are going down.
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they will have to manage their way through race lower earnings-per-share growth period until we get steadying out and monetary policy. tom: why aren't we seeing more regional mergers? is it because they do not have a leg up on technology versus the majors? thomas: first of all, there are fewer banks. in the late 1980's there were 15,000 banks and now there were fewer than 5000. congress with dodd-frank added the $50 billion layer for increased regulation. tom: you want to stay under that. thomas: we changed that with the crapo bill last year so we will see 80 or so banks with 50 billion, you will see consolidation and aperiodic bigger bank like suntrust and bb&t. tom: thomas michaud with us.
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it is a busy bank day, including a troubled wells fargo. there chief executive officer in the 4:00 our, their -- hour, their path forward. this is bloomberg. ♪
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♪ >> finally, i just want to say to you -- nejra: happening now and strasburg, members of the european parliament debating
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ursula or lan's pitch to become ecb president. how did her pitch go down? maria: she is fighting hard to lock her nomination, but the vote be very tight. it is a secret vote so that may make things easy. the issue is not so much her track record. she did not run in the european elections and we were told for weeks and months, the next head would beat somebody elected through the european -- would be somebody elected through the european elections. she was nominated by emmanuel macron and the truth is, any of the european parliament believe these deals are bad for european democracy and give european institutions a bad name. tom: thank you so much, rhea
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taddeo. 2 -- maria tadeo. too short of a visit. coming up, this will be an important discussion. we will be joined by the democrat from the 12 district of michigan -- 12 district of michigan, debbie dingell. please stay with us. bank earnings, today is a major day. we will look at the state of american banking. thomas michaud says focus on revenues. this is bloomberg. ♪
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we're the slowskys. we like drip coffee, layovers- -and waiting on hold. what we don't like is relying on fancy technology for help. snail mail! we were invited to a y2k party... uh, didn't that happen, like, 20 years ago? oh, look, karolyn, we've got a mathematician on our hands! 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. ♪ bloomberg "surveillance." nejra cehic in london, tom keene in new york. with us as thomas michaud.
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banking, your good competitor, both of you coming out and prospering in the banking business. what does it signal, these two combinations? thomas: it talks a lot about how there is so much transition in our industry and a lot of consolidation the we advise on and within our industry. it is a signal we are trying to become more important to our clients. we are delighted with the link up with a great retail firm. we have a great retail presence that we can bring to ever clients, so we are each looking to get bigger with more scale. -- tom: and more geography as well? thomas: we have 350 offices around the country as well as a good presence in europe.
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kbw has expanded on the stable presence in europe and we have a footprint we have been able to do in concert with our partnership. nejra: what is your take on the european banking industry, particularly with the developments at deutsche bank? thomas: it is critical at the moment, and one of the most important benchmarks for banking today is how consistently can a bank earn a return on a tangible capital? jp morgan, we will see their earnings today and one of the important things as we will be looking for the company to drive to 17% return on equity next year. banksf the european cannot earn their cost of capital, are stuck in the mid-single digit return on capital, and the main problem is the negative interest rate phenomena or the zero interest rate phenomena in europe. banks were not built to make
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money with zero or negative interest rates. until you get the banking sector healed, it is hard to get the rest of the economy to move. textbooks will say it is something american regulators did well following the crisis. nejra: that is a message for the ecb if i ever heard one. let's get the bloomberg first word news. viviana: u.s. treasury secretary steven mnuchin and house speaker nancy pelosi are working out details of a debt limit deal. it should include an agreement on a two-year budget lan. the dead jury -- plan. the treasury department accelerated -- the u.s. is likely to get the green light to billionpe with up to $7 in tariffs over illegal subsidies to airbus. rule inect the wto to
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the u.s.' favor. tariffs would be imposed on helicopters and aircraft parts, and trump may use duties to gain concessions from the e.u. on farm products. -- theys the country door is wide open to discuss their nuclear program if president trump left sanctions. they said the u.s. left the bargaining table and is welcome to return. he was the lead negotiator on the nuclear agreement the u.s. left last year. peter thiel called elizabeth warren the most dangerous democratic presidential candidate, telling fox news that is because she is the only democrat talking about important issues like the economy. peter thiel is the most prominent supporter of trump in tech. 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.
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i am viviana hurtado. this is bloomberg. an extraordinarily important time to speak with debbie dingell, not only because she is a congresswoman but far more, the heritage and all that she carries of democratic politics worldwide. moments ago, we heard from vice president biden. he said the president's comments are shameful and damaging. what response do you need to see from republicans to the president's three days of comments? rep. dingell: i come from michigan. district borders mine. the number of my michigan colleagues came out strongly against the president's comments yesterday. it has no place in the united states of america. it is divisive and creates hate
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in this country. we cannot tolerate it. we have got to stand up to it. the president is supposed to unite us, not divide us. tookpresident trump michigan by 10,704 votes, 2/10 of 1%. into1th district flip thousand 18. what do you and speaker pelosi need to do to have moderate democrats research themselves in the coming weeks? have --gell: we cannot i cannot talk this morning. we have to get together. i have been talking with my colleagues how we can pull ourselves together, get in the same room, and have an honest exchange. we all share the same values. that is what our strength is. we cannot do a firing squad
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where we are hurting each other instead of helping the american people, which is our job. tom: is the democratic majority in the house at risk? rep. dingell: i don't think it is at risk, but if we are not careful -- we need to talk about the issues that matter to the people, why they elected us. we have to be working for the people and deliver prescription drugs and health care. this court case in texas will be very important involving seven people with pre-existing conditions not guaranteed health care. people want to see us do something on infrastructure. it is broader than just roads and bridges. it is from broadband to rebuilding our schools. one of the issues i continue to hear is people want to see us clean up washington. there is too much money in
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washington -- politics. tom: the president talked about the swamp. how does it look this tuesday morning? rep. dingell: trump hotel is not far from here and he is making lots of money and he has lots of issues with his cabinet. when i was in business before i came to this job, i bent over backwards and it did not matter what i did, somebody might say something. peoplecan't believe how are letting some things slide these days. the american people deserve a transparent government. congresswoman, what sort of message showed democrats like yourself put forward on immigration? rep. dingell: the fact of the matter is that we are a country of immigrants. my great-grandfather came over from germany. and not that long ago.
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this country is strong because of our diversity. we need comprehensive immigration reform. let's be really blunt. it is so contentious we have not enabled to do it. we cannot treat children like they are prisoners, that they cannot brush their teeth. they are getting sick. that is not who we are as americans. we need to remember who we are as americans. tom: we just heard from kevin cirilli about this extraordinary moment in washington. i want to circle back to what republicans need to do. george romney was a michigan republican from another time and place. everyone is looking for the middle ground. some suggest debbie dingell represents the middle ground. where is the middle ground of
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the republican party? rep. dingell: i think we have got to come together. compromise is not a dirty word. i had some philosophical discussions over the weekend about should you give in on anything? we need to make progress. progress is what a progressive is. we need to keep moving forward and listen to each other. we have to put each other -- put ourselves in each other's shoes and gain perspective. we stopped listening to each other. we take positions and this is what is right. maybe we get to the right by listening to different perspectives and building the right position. nejra: if we talk about progress, do you expect much progress in trade talks between the u.s. and china, or just more hard rhetoric from the president as the campaign ramps up? rep. dingell: i would like to
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think that we are going to -- i think -- i respect the president on some things he is doing on trade and i have said that. i am more focused on nafta because you cannot just do a nafta deal because we are desperate. we need nafta. my workers have been the losers. it has cost them jobs and i have shuttered plants across my district. we are seeing the same thing and china. our workers deserve a level playing field and we have to work together to get there. appreciated, congresswoman of the 12th district of michigan. coming up, the governor of wisconsin -- former governor scott walker with david westin at noon. jay and is out.
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out.j is they have increased their operational sales guidance. a little bit of a left up. , tommyup, jp morgan showed with us of kbw. -- tommy show with us -- thomas michaud with us. ♪
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♪ good morning, everyone. bloomberg "surveillance," tom keene in new york, nejra cehic in london. j&j doing good. they come in with some guidance left. we will have more on that coming up. let's go to single best chart. bring up j&j.
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important with thomas michaud. crisisw this well, the 2007 and there is two groups of banks. i want to focus on wells fargo because you have citigroup and bank of america getting their act together, jp morgan up. wells fargo has rolled over. how important is it for wells fargo to get management integrity fast? thomas: historically, wells fargo has been a high performer. clearly, they have lost their way and need to fix it to get back to doing what they built the company to do. this can be fixed with the right management team. they need to focus on banking and make sure they have their culture. tom: how do you find the piece of meat to run the country?
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of someone character who rights as complex as wells fargo? thomas: you need to spend time with the individual because i think there are a lot of very smart financial people at wells fargo. you need to make sure you set the culture and mission right, and are able to change the organization and get it moving. wells fargo, 262,000 employees. nejra: what are you expecting out of jp morgan? thomas: we expected to remain very profitable and we are expecting some revenue sluggishness like we talked about earlier. we think net interest income will be under pressure because of the margin being down. in jp morgan's case, this will not be a quarter forbade loan growth.
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those will be 2 -- four big loan growth. -- for the loan growth. investment banking is one from a theng perspective and second quarter was not a big investment banking quarter, so we are looking for modest revenue growth, lots of share repurchases. nejra: would you expect jp morgan to see the same in terms of the trading activity? thomas: yes, and we can have a much bigger talk because the trading business has had tremendous structural change. there are so many headwinds to that business now whether it is volatility, fewer public companies, the rise of passive and index funds, and do not forget the volcker rule from years ago which took them out of the business of using their own capital more. of you tolcome all
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bloomberg "surveillance." we morganp earnings -- jp earnings. don't get a first look at this. they did not send it to you last night. sonali: i am seeing it as you are. common% return on we look20% on -- when at the earnings, what is the jp morgan distinction? as you look at the 30 and 40 banks we cover, what separates them? sonali: there 19% return to common equity. there return capital for shareholders that invest, looking at the first read of headlines they are in line for net income. provisions or credit losses are
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a little high. tom: what do you see? nejra: i am looking at the second quarter epf coming in at $2.82 so maybe on the estimate -- versus the 2.29 year run year. we are waiting to see how the trading unit did. sonali: we knew they were going to be down. they are coming in. from citigroup yesterday, i would look at debt capital markets revenue because that is the one place citigroup was up yesterday. we will want to see that across the board for all of the other banks as well. tom: right now, mr. diamond saying the usual -- we had a strong second quarter, diversified mobile business model, market performance was relatively steady on slightly lower credit volume.
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the single headline i find -- 4.1dinary is 4.1 year percent revenue growth year on year. that is a pretty good number. thomas: we had been looking for 1.9% on an operating business so we would love to see if there is nonoperating numbers in there. trade web was a big investment. i don't know what jp morgan's position was, but the headline number looks strong. tom: a meaningful increase to our dividend and repurchases, that is the story. sonali: we already knew it. average total loans up to percent. that is -- up 2%. that is much lower than a year ago. 7% total growth in loans. nejra: second quarter equity sales and trade revenue coming in at $1.37 billion so a miss on
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the estimate. investmentter revenue, $1.78 billion, a little bit of a miss on both of those numbers. i am being told that shares are starting to climb. sonali: if you look at the trading numbers alone for equities, it is not surprising. jp morgan has one of the biggest equities businesses so we expected them to be hit hard. from citigroup yesterday, it was cash equities and prime that would hit jp morgan. fixed income is better than expected and across the street, that is something we wanted to see after such a poor environment for many people. nejra: you had your eye on the net interest margins. ats year net interest income
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about $57.5 billion. 50 billion's.t -- $50 billion. thomas: we were looking for the net interest margin to be 2.46% on the quarter. the language on the conference calls and the outlook going forward will be an important driver for investors. tom: the south side will be on the call and they will grow mr. dimon and the team on use of cash. are they becoming more like utilities where it is all clear from the regulators and they massively deploy cash? return i think capital is an important part of the story. we just got a good window into that what the see car results because these banks have to go to their regulator because of
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the size. we know what repricing and dividend actions will be. the income statements are more viable than utilities and will be good yield stocks, good capital return stocks. they are more vibrant than what investors think of as a utility. tom: james dimon, investing in digital projects to deeply engage with our customers. that is the big bank advantage, technology. this goes back to ef hutton. we had a portfolio manager here last week talking to us about how the technology spend was a primary reason for his investment pieces and why he was investing in jp morgan. the banks that invest our winning. thomas: the big banks are some of the best fintech companies. jp morgan is one of the best in
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the world. tom: we remember jordan wall struggling because they invested for years, and ag edwards, and on and on. say you don't have the technology to compete, as that 2022? thomas: these banks are not sleeping giants. the incumbent companies will not yield to take knology companies so they are working hard -- technology companies so they are working hard. sonali: does jamie dimon have more deals on his docket? tom: was not in the earnings? sonali: it is something we have been reporting on. nejra: i will pick it up and just the second. you have got to head to radio, but thank you for joining us. we still have thomas michaud with us.
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just to reset on some of these headlines, jp morgan interest income $15.75 billion. at saw at least 58 billion after cutting annual net interest income outlook. that is what we have been focusing on. second quarter equity trades and revenue -- let's carry on the conversation. on more deals potentially being on the table, earlier you were saying that is not in the cards for the big banks. haves: the big four would trouble buying another depositary because you cannot buy above 10% of the deposits in the united states. i expect the bigger banks to be more active in fintech investments and nontraditional
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deposit taking in terms of buying other banks. they have got exes capital to deploy in the story of the big banks -- excess capital to deploy and the story of the big banks as they are getting more on the offensive. acquisitions might be a big part of it though not a main driver. tom: jp morgan return 13% plus two shareholders. since 2005, operating income has billion, $36 billion, $43 billion next year. these are growth juggernauts. do we understand they are profitable, the bedrock of our financial system or are they pilloried in washington like 2008? thomas: when you look at the banking industry, my firm
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measured the fines they have paid. they have been paid by global banks, over 90% of the fines we have tracked. it is a small number, so most of these companies have stayed out of trouble. some of these companies are very vibrant. a difference maker on that previous chart is how many shares did you have to issue in the crisis to recap? true.- tom: thomas: numbers do not match a earnings-per-share. wells fargo, there cfo in the 4:00 our. -- hour. ♪ we're the slowskys.
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we like drip coffee, layovers- -and waiting on hold. what we don't like is relying on fancy technology for help. snail mail! we were invited to a y2k party... uh, didn't that happen, like, 20 years ago? oh, look, karolyn, we've got a mathematician on our hands!
6:59 am
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. ♪ david: big day for the bank.
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jp morgan, goldman, and wells fargo report earnings this morning after citi brought mixed results to the markets yesterday. congresshalls -- hauls tech in. and retail sales do this morning will give us the latest read on the consumer and whether they continue to drive economic growth. welcome to "bloomberg daybreak" on this tuesday, july 16. i'm david westin, right here with lisa abramovitz. consumer very much the strong actor here. he saw a decline in lower-than-expected revenues on both the end of men banking and equity trading side. itilar to citigroup when comes to the traditional bread-and-butter markets. the consumer doing great. david:


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