3:00 p.m. in london. from new york, i am vonnie quinn. welcome to "bloomberg markets." federal reserve policy front and center this friday. even the u.s. president weighing in. first, breaking university of michigan consumer sentiment data, disappointing slightly for the preliminary reading in july. current conditions were a little lower than expected. expectations did beat estimates, coming in at 90.1. one year and five year inflation coming in at 2.6%, stable there. this is all going to factor into the federal reserve thinking, and thaboy did we get a glance into that in the last 24 hours. this has been a big week.

above 3000. some of the banks impressing investors. kbw baking index up 06%. -- schumberger down 1.9%. generationlow seeming to have investors spooked. alliance data systems the worst performing on the s&p 500. there is a little selling going on in that stock today. let's go to europe, where we are seeing some challenges in italy. the ftse moved down 1.7%, the worst performance in europe. the stoxx 600 is higher.

it is up 0.2%. earnings in europe pretty strong all told. italy with a little bit of turmoil. the euro as well little lower on that turmoil. the italian 10-year yield at 1.26%. we are seeing buying. let's get insight on what is driving markets. joining me is bloomberg macro recorder cameron crise. did the federal reserve conversation change 180 degrees again in the last 24 hours? cameron: we thought so, and then not. it was kind of farcical. yesterday, john williams was talking about the advisability of going early and hard in terms when facedg campaign with a downturn when policy rates are relatively low, which

the market naturally assumes is a hint of the thinking of the central part of the fomc. we had the stock market rally and bond markets rally. the markets started to price a substantial chance of cuts in july. the spokesperson for the new york fed came out and said it was just an academic exercise. frankly a little preposterous. vonnie: is there a federal reserve communication policy right now? it is that someone from the new york fed would come out to clarify a member's statement. is the short answer. at turning points, it is useful for the committee to talk less but say more. the model for better or worse in the modern era is for every single member of the committee, voters, nonvoters, members of

the federal reserve board and regional presidents to say whatever they like about monetary policy. marketxperienced professionals know that there are some people you need to listen to more than others, i don't think it helps the narrative, and it does not help the efficacy of what the fed is trying to do if you have one fed voter saying x and another saying y and a third one saying somewhere in the middle. vonnie: one of the lessons is how quickly the market can reprice, which should be a lesson for everybody. oferon: it is kind irritating as a former practitioner. the market pricing of 50 basis up by for july went roughly 30%. the implied probability went from roughly 30% before williams spoke to 60% after he spoke.

after the clarification, right back down to 30%. it may well be an academic exercise for williams, but if you were the poor sucker that they the top and had to stop out, the loss is very rea l. vonnie: thank you. cameron keeping an eye on the markets all day for us. for more on this, we are joined by ethan harris, bank of america merrill lynch. he literally wrote the book on then bernanke. let me get first to the president's tweets. it seemed like the perfect opportunity for the president to tweet, and he did. talking about quantitative tightening, basically saying he liked john williams' first statement much more than his second, in that the fed raised far too fast and early. he continued on and on.

not that the president has a massive impact on what federal reserve participants are thinking, but do you imagine this has any impact? what is the conversation right now at the fed given the last 24 hours? ethan: i think the fed has no choice but to stick to their guns and act as an independent central bank. be morebow, there will pressure down the road. if you look at the economy now, the fed has never cut by 50 basis points. it has never cut by 25 basis points with the economy as strong as it is now. you can make the case for 25 because the fed wants to be more aggressive than normal, but the idea of 50 with the labor market as strong as it is, with gdp healthy, with the early warnings of the trade war, none of this is saying the fed needs to act aggressively.

i think there has been a communication problem. obviously, the president putting pressure on the fed as to complications, but the fed needs to stick to its guns as an independent bank. vonnie: what is your read on what happened with williams and clarida? was there some mischief happening? lack of genuine understanding of how the markets would take these statements? ethan: i think the problem with theyed is that right now don't understand when somebody asks you a question about this idea of aggressive policy, they are asking you should you go 50? that is the way the market interprets all these aggressive actions, even though going 25 by historic standards would be aggressive. they are answering the question in a way that is confusing to markets. is aber, john williams leading academic expert on monetary policy. he has written a lot of

interesting stuff. when he was at the san francisco fed, he tended to talk a lot about his research. sometimes it was not clear if he was talking about it as an academic or policymaker good that is what just happened again -- policymaker. that is what just happened again. you want tosaying be more aggressive than normal. i think it is important for john williams now that he is president of the new york fed and at the core of the committee, he has to think of himself purely as a policymaker. vonnie: does it illustrate what his academic findings are? if he wants to be more aggressive and thinks this is the right way to be, wouldn't this be a particularly perfect time in the economy to try it out? ethan: and that is right, but what does aggressive mean?

research -- is just read one of his papers to confirm this. when they talk about being super aggressive, they are talking when there is the threat of a recession or deflation, not a slowdown related to this slow-moving trade war. by historic standards, the fed would never think about cutting in the current economic situation. anything they do, whether it is 25 or 50 or whatever, is more aggressive than normal. what he is saying does not tell you whether they should go 25 or 50. his own academic research does not tell you 2550. when he talks to the market, people here 50. he needs to recognize and explain to the public that it does not necessarily mean 50. that is not what the research says. it is a very bad communication. vonnie: what kind of shape is

the u.s. economy in? are we waiting for the outcome on trade skirmishes on the economy? where can we tell now whether there is a -- or can we tell now whether there is a slowing? know there is a slowdown going on. we're getting away from the big fiscal stimulus of last year. we think second-quarter gdp growth is about 2.3%. based on our estimates and fed estimates, it is still a little bit above trend. if you look at the details of the data, it looks better than 2.3% because the sectors that are strong are likely to be persistently strong. the economy has slowed down, but it is still in good shape. i think we need to watch the numbers. in particular the trade sensitive parts of the economy, they are authentic there is going to be -- hinting there is going to be further slowing ahead.

the data of the last month has been significantly better than expected, particularly with payrolls and retail sales, the two most important indicators of the u.s. economy. the fed should be ready to give insurance cut, but let's not panic. there is no way we need a 50 basis point rate cut. vonnie: ethan, you are sticking with us. we are just getting started. let's check on bloomberg first word news. >> talks to raise the debt ceiling have hit a snag. house speaker nancy pelosi will not accept the latest white house demand for $150 billion in spending cuts. democrats see those cuts as a starting point for further negotiation. the white house does not expect a deal today. warship did a u.s. not shoot down one of its drones near the strait of hormuz. president trump said the unmanned aircraft was destroyed

when it approached uss boxer. he called it a defensive action. iran says the president's remarks were delusional and imaginary. president trump plans to nominate eugene scalia to be the next labor secretary. and organized labor are likely to fight against the nomination. scalia has represented a number of companies that have battled unions and tougher labor laws. 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. vonnie: thanks. still ahead, the iconic 1950's corvette sports car gets a 21st-century makeover. we are joined by general motors president mark reuss a little later. this is bloomberg. ♪

vonnie: live from new york, i am vonnie quinn. this is "bloomberg markets." abigail doolittle is with us. abigail: we are ending the trading week with an up day. the s&p 500 and the nasdaq modestly higher. in germany, the dax also higher. the shanghai composite was also higher. if we take a look at what is going on on a weekly basis, a little different story. investors cheering earnings reports. when we go into the bloomberg and see what is happening on a weekly basis, this is a year-to-date chart. we see on a weekly basis, the

dax,l indexes in white the in yellow the s&p 500, in blue the shanghai composite, higher on the year, but now a down week for each of these averages. the second for both the dax and the shanghai composite. let's take a look at microsoft trading higher on a very strong quarter. offng up on its 737 right -- write off. put up a very strong quarter, piper jaffray saying the outlook is exceptionally strong. vonnie: thank you. still with us is ethan harris, bank of america merrill lynch. to continue the conversation about the fed and the bond market, what would be an appropriate level for the 10-year yield in the u.s.? ethan: it's a good question.

the problem with trying to forecast the 10-year yield is it is impacted by incredibly low interest rates overseas. u.s. -- justt the a story of where the u.s. is today. i don't think the phillips curve arenflation models completely dead. i think eventually we will get a little inflation. in 10er rise there is yields is going to be contained by the fact we have negative rates in germany and japan we are going. -- japan. we are going to be and a low 10-year yield environment. vonnie: apparently considering more qe, also looking at how it regards inflation, how it measures, and it's mandate. what do you imagine will emanate

out of the ecb in the next 12 months given we will have a change of presidents? it,n: the ecb, let's face is almost out of ammunition. everything they do is very marginal. if you are an ecb watcher, you get excited if they are going to cut the interest rate 10 basis points or something. year, theythe next are certainly going to keep rates plastered into this negative territory. i think at some point, they are going to have to reach do is quantitative easing. i think having that tool available is extremely important if and when there is another severe weakening in europe. they are going to continue to guide the markets towards the idea that there is no rate hike anywhere in the future for europe. let's face it, these are all small steps.

europe is very vulnerable to a big shock. the fed is the only one of the central banks that has any series ammunition to deal with a shock. it is about these smaller steps and hoping the rest of europe gets its act together, whether it is italy or fiscal policy or whatever. vonnie: what countries, and i'm thinking probably more asia and emerging markets, what countries are dependent on the federal reserve lowering rates? ethan: any country that has a big external deficit, is a heavy borrower in global markets, loves when the fed cuts interest rates. this takes all the pressure off their markets. they can then cut interest rates themselves. it tends to be the weaker players in the market, the was that have had trouble down the road. they all benefit from it. it is not necessarily asia.

a lot of the asian economies are quite healthy. it is more in eastern europe and latin america. definitely this switch by the fed from tightening to easing for the a big boom weaker parts of the emerging markets. vonnie: is there a danger that the fed uses the rate cut to offset some effects from the trade war and then it doesn't have anything when inflation lags or wage growth doesn't materialize? ethan: one of the pieces we wrote recently was called eating the seed corn. one of our concerns as the fed and the central banks battle to support the economy in the face of escalating trade war, over time they tend to use up their ammunition. we will probably see some of that next six months, and we expect the fed to cut by total of 75 basis once. that is using up the third of

their conventional ammunition. it is purely to offset the negative shock of the trade war. we are definitely concerned that inadvertentlyfed enables the trade war. the market looks good, and therefore the incentive to deescalate the trade war is not there. about eatingncern up ammunition to deal with a shock that is a policy shock. it does not have to be happening. that worries me. vonnie: thank you for joining me. that is even harris, they give america merrill lynch. this is bloomberg. ♪ is bloomberg. ♪

vonnie: time now for our etf friday segment. leveraged etf's have long been

popular with short-term traders. with increasing scrutiny, they are starting to move away. here is our etf analyst with bloomberg intelligence. who are the largest providers of these leveraged etf's in the u.s.? >> there are two big providers, pro-shares and direction funds. they got into this early on and carved out a nice niche. this lineup has been pretty profitable for these firms. leveraged etf tend to be higher in fees. they have a dedicated trading crowd. what we are seeing more and more is these firms are trying to reduce their dependency on leveraged products and trying to ofeal to the core crowd residential investment advisors.

firms: why might these want to move away from these types of strategies? >> i think there are two big things that feed into this. one is scrutiny. even though leverage is popular with the traders, they tend to come under a lot of scrutiny from regulators. hone inrt, they tend to on leverage. these companies always have to be on the defensive with these products. the other is sustainable assets. if you look at it from like proshares trust most of their are underwater, meaning they have lost money for investors. if you look at the lifetime was of pro-shares, about $35 billion has been lost because of these strategies. that means they want to be moving into more core products. lucke: have they had any leverage? off

>> pro-shares has had some pretty good luck. they have been launching their core product. i keep my eye on direction. they have gotten approved on platforms that are more appealing. those are two firms i would keep my eye on. vonnie: thanks. president mark reuss on why the company has given its iconic corvette a high-tech facelift. this is bloomberg. ♪ bloomberg. ♪

vonnie: live from new york, i am vonnie. this is "bloomberg markets." let's check in on bloomberg first word news. >> for the second time since the u.s. and china agreed to a trade

truce last month, senior officials from both sides have spoken by phone. no details on what was discussed, and there is no word on when negotiators will meet face-to-face. there are still big differences. the u.s. wants china to buy more farm goods. china wants the u.s. to ease restrictions on tech giant huawei. in germany, chancellor angela merkel plans to serve out her term. there have then speculation about her health. arealifornia, oil producers bracing for a crackdown on new drilling. governor gavin newsom has fired the chief regulator. the mexican drug lord known as el chapo has vanished from his jail cell in manhattan. no one is saying where he is two

days after he was given a life sentence. the u.s. marshals service will only say he is in custody. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. vonnie: general motors has given its iconic 1950's sports car in makeover, unveiling a new high-tech corvette. for more, let's bring in david westin with a special guest. david: joining us, a special mark reuss, the president of general motors. congratulations. it is quite a change, particularly in where you put the engine. you moved it back. mark: that's right. thank you, david. thanks for having me. david: tell us why this is such a special and different car.

you have a mid engine. it goes zero to 60 in under three seconds. mark: that's right. we made a big decision here a few years back, and we have really worked hard to keep the anmula of corvette from attainable he and aspiration standpoint intact. putting the engine in a mid engine location is a big challenge. a lot of the supercars around the world that are very expensive have done it. the attainable, aspirational these of corvette, we were never want to sacrifice that. we took the front engined corvette to the absolute limit in terms of horsepower incapability, and when we go to this mid engine configuration, you can see we get an incredible value of under $60,000. an engine that makes 495 horsepower, 470 foot-pounds of

torque. we think our customers are going to love. a lot of people thought we would lose utility from the corvette coupe we have, but we did not. we can still carry golf clubs. rearave a front trunk and a compartment as well that is resizable. it is sort of the best of all worlds wrapped in a beautiful design. we are very happy. it was a big night for us. david: i should say. one of the things you lost was before on the floor. i have a 1962, as you know. i have that for on the floor. i can't believe you're giving up the stick shift. this, i have a 62 with four on the floor.

it has been important and an iconic piece of the corvette. the corvette started off as an automatic. of peopleow if a lot know that. it started as a two speed powerline in 1963. -- 1953. we have a ton of automatics today. this is our formula here, and eight speed, dual clutch transmission. that enables a lot of the performance from the zero to 60 standpoint because of the gearing. it is lightning quick. it is quicker than any human being in terms of a manual paddle shift. it is a blast to drive. we are doing some things electronically that we can never do with a manual transmission. i think this configuration is going to be delightful. david: a lot of sophisticated technology. you are out there in california. give us an update on cruise and where that stands.

last i talked to dan, he said they think they have a commercial application available in 2019. are you still on target for that? unlike superot cruise, we have a year that we would like to do it. we're going to let safety gate this process. that is at the core of our values as a company. safety will gate it, but that is the target. we are doing some great things. while we were out here, we had a board meeting with cruise, so we get to see the process, see where the engineering has. -- is. activityery integrated with lots of different aroundring sights at gm the world. this is where the most challenging driving is. it was great to see it. it is a great team. kyle and dan and daniel, the whole team is really energized.

david: i am mindful of the fact that we are beginning the uaw for general motors and other car manufacturers are taking steps in earnest after labor day. how can you move forward your relationship with the uaw? that relationship has evolved a lot over the years. what does general motors want to get out of this? what do they want to give their workers? this is a time in the auto industry when there is relatively high volume, which is great. there is relatively high profitability across the whole industry with most of the makers we are negotiating with as we start. we want our workforce, salaried, hourly, whatever, we want you to share in the success that we have and do everything we can, whatever our job is in the company to make sure we make

products like the corvette. those are massive opportunities for us every time we launch a new vehicle with our workforce to really get the ball out of the park in terms of quality and the engineering, design, and marketing of the vehicle. we want to be up to share in the success with our workforce, which i think we do a good job of. we also have to be competitive in terms of how much engineered content we put in the car for our plants to build. are vitallylants important to the competitiveness of how we deliver a car like the corvette for under $60,000. we have got to be efficient. we have got to be excellent. we have got to be quality first. i think that is the focus. i think the uaw bargaining piece of that is probably well ,nderstood that's what we want

and that's all of our employees. david: one of the challenges for all employers across the country is health care. we have an increased percentage of our gdp going to health care. is there any way the private sector can step in and help reform? we have had troubles with it in washington. are there things you are going to propose with health care? something -- not we are not a health care defining company. we work on our health care for our employees to make sure we develop and administer the most competitive benefits plans weekend for all of our employees , including myself. that is really the goal when we look at stuff like this. also how can we be more effective and efficient in delivering high-value for the money we put into the health care system? i think that is the focus. in terms of the reform on the

legislative piece of that, that is pretty tough for the private sector to do that. we can point out where there is opportunities, and i think that is what we do. david: the most important question for anybody who might have $60,000, when can somebody going to a g.m. showroom and buy one of these new stingrays? mark: great question. we have a great new online configurator, chevy.com. you can design your own corvette colors.on it and pick after we unveiled today, will see cars on the road today, and we will put in engineering fleet into service. we will try to put half a million miles on the car before we go to full scale production. assuming we had all those gates of quality, we will be in production in the fourth quarter this year. pretty exciting times. david: just in time for christmas.

mark: big red bow. it would be a great one. i would love that, too. david: thank you so much for joining us today. that is gm president mark reuss. mark: always a pleasure to talk to you. david: vonnie. up 1.25%. shares microsoft shares are higher than 1.9%. is it enough to ease concerns over that trade related slowdown? this is bloomberg. ♪ ♪

vonnie: live from new york, i am vonnie quinn. this is "bloomberg markets."

of microsoft soaring after the company reported earnings that beat estimates, driven by big revenue gains in the company's cloud services. commercial cloud revenue was better, but will that moderate? >> the big question as we go into next year, we have not seen -- microsoft has not seen any trade related tensions. another large software company sap has. do we see something coming in the next quarter or not? as of last night, no problems. vonnie: what can we tell about trade on those results? >> it is a mixed bag. sap had direct results. they had delays in contracts. clout bookings were late. for microsoft, all the bookings were good. they were specific in the way

they addressed this. vonnie: why such a surprise? >> always the issue is some of cloud products, there is accelerated demand from oldest all industries -- almost all industries. people are buying at a much faster rate right now than they ever have before. on a quarter to quarter basis, we get these prices. vonnie: hardware was not, there were problems there in terms of there were some strengths, but that might mean it could be pulled forward. >> in terms of pc's, we saw pc data was very strong. one more quarter after that, comparison is going to get tougher. when you look at some of the gaming numbers, the gaming consoles, there is a newer consul coming out. that is going to be an issue.

the surface tablet, that is also going to be refreshed. vonnie: what does it mean for peers? is microsoft's gaming share taking from epeers? >> it is growing faster than almost every major cloud provider, including amazon. salesforcezed equivalent is also growing very strongly. in cloud they are gaining shirt from almost all of their rivals. vonnie: talk about what we can expect for the rest of the earnings season from your universe of companies? >> it is a mixed bag. there have been some concerns addressed by public consultants. there could be labor supply issues. ibm was lukewarm. they do have to get the red hat indication in, and then we should see some improvement.

microsoft has very good results, so it has been a mixed bag. based on last night's results, we think in the short-term software companies should be ok, but the biggest issue is do we see any macro slowdown? vonnie: what happened with sap? you cannot have two different sets of results? >> on the same day, exactly. sap is blaming china. clear point asa to what is happening, whether it is a company specific problem, or a one-off thing in terms of them that these contracts got pulled back, and the next quarter they will be ok. vonnie: are there any other potential avenues of growth for microsoft? has done well realizing more growth in their core areas and artificial intelligence because they are always beefing up the security of all of their products.

those are some areas we could see some acquisitions, nothing so large. vonnie: thank you for that intelligence. ahead, oil snapped four days of losses after the u.s. down an iranian drone near the strait of hormuz. futures next. this is bloomberg. ♪ is bloomberg. ♪

vonnie: live from new york, i am vonnie quinn. this is "bloomberg markets." time now for futures in focus. oil has seen four days of losses this week. we appear to be stabilizing the session, although just a little. joining me is scott bauer. a 7% decline this week in spite thatings like fears

supplies in the middle east could be completely curtailed after the drone strike yesterday. >> it just goes to show you that fundamentals are dominating the marketplace right now. an incident like that happened with heightened geopolitical risk, there was a little reaction what happened, but fundamentals such as an oversupply and waning demand is dominating this market. last night, we saw the chief of the iea come out and lower the demand forecast again. that is the second time it has been lower this year, down almost 35% from the original forecast in january. vonnie: scott, at what point does the slide stop? we have moderated even those premarket trading gains. we are up only 0.33%. scott: the pressure is squarely on the downside. unless there is some all-out

contentious incident, i see west texas approaching 50 in the next few weeks, maybe the end of the summer. vonnie: what happens if the fed drops interest rates 25 basis points by the end of july? scott: that should be a positive for the commodity space and oil, but on the fundamental side of things, we have such an oversupply and decreasing demand that that is really what is weighing on the marketplace. anchoredhey are slightly to european rates, but what are traders down there -fomc? will happen pre scott: it is pretty stable. everyone is pricing in a 25 basis point move. dowe get that, that is what scoop the market. that is not what traders are looking for.

retail and institutional people might look at that and say we are really going to be in trouble. i think that shocks the market. 25 basis point no is what everyone is expecting. vonnie: scott bauer, thank you for joining us. -- is ourg giant stock of the hour right now. shares have fallen the most since february. it is also having an impact on some stocks trading in the u.s. companye seeing the trading at its lowest in 2012. the company scrapped its revenue target for the year. it seems the main culprit as it was back in february was north american operations. it accounts for 53% of its revenue. we are seeing that drop in additional marketing, billboards, television, and

instead of the move towards more digital markets, the ceo is saying they need to fix things. he says they have clients that are satisfied. they are gaining market share with those clients, but those clients are spending less. vonnie: the goals of digital marketing could be impacting the company. >> they do have a digital marketing arm, but perhaps they have been a little slow on the uptake. they did pay $4.4 billion earlier this year for alliance digital systems epsilon. we are not seeing that flow through into the second quarter results. in the second quarter, they saw digital activities grow 21% in terms of revenue, but that was still a slowdown from 27% growth in the first quarter. if we look at the global breakdown of advertising sales, internet is growing, it is at 47% of global advertising spending. that is expected to grow more

60% in themore than next few years. outie: this headline came yesterday. the idea that is the u.s. spending was down. that carried over to wpp and mnicom, the others, o for example. omnicom is by far not the worst performer on the s&p 500. is this something that reads across the entire advertising environment, or is it more just businesses suffering this decline in spending? >> omnicom came out with results earlier. they seem to be doing better. we have not heard from wpp. we get to hear from them next month. they have signaled that north america is weak for them.

we will get to hear more about it when we hear from them. vonnie: thank you. emma chandra with our stock of the hour. it is time for the bloomberg business flash. right now, a big transaction in the beer industry, ab inbev has agreed to sell its australian operation to japan's sauhi. it still mayays revive an ipo of its asian subsidiary. that offering was told last week. is -- will succeed harald kruger. during that time, bmw consistently trailed mercedes-benz and trails. meanwhile the company let tesla consistently grab the spotlight for innovation.

they plan to launch their new streaming venture in the fourth quarter. litzbox.ice is called b the service costing $7.50 a month, or whatever that is in sterling. a check in markets now in the u.s. we are seeing the s&p 500 flat on the session. citizens financial were among the regionals the beach. the dow is up 0.1%. the nasdaq is unchanged. markets struggling to find a direction with plenty of earnings warnings. this is bloomberg. ♪ ♪ i don't know why i didn't get screened a long time ago.

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left in the trading day in europe your from new york, i am vonnie quinn. this is the european close on "bloomberg markets." a bit of a mixed picture in europe. we have the stoxx 600 pretty flat. that the lies what is going on in the major indices. germany, france, britain are all positive. is a different story. there might be a snap election in the next 24 to 48 ho urs. the ftse down 2%. the italian 10-year yield down 1.6%. yields lower. the euro as well seeing weakness, down about 0.5%. let's move to some of the individual movers in europe. actually, we are moving to the u.s. the s&p 500 for the moment is up 0.1%. the kbw