tv Bloomberg Daybreak Americas Bloomberg July 31, 2018 7:00am-9:00am EDT
volatility in 10 year yields and commits to rates lower for longer. markets pare back from hawkish that's. names flirt toh stabilize the tech rout. -- european inflation hit its highest level in years. "bloomberg:me to daybreak." procter & gamble just came out with their earnings. alix: just a cap slider, coming at $16.5 billion. earnings coming in at $.94 a share, better than estimated. when you see a kind of consumer low growthhis in the they have, it is interesting to see what kind of organic revenue they are going to have going forward area it is pretty paltry.
david: they had a target of 2% to 3% growth, the people were skeptical as to whether they can do that organic growth. charter communications is also out. they exceeded a little bit on the revenue line, $10.9 billion. is subscribers, whether they can hold on to them . you can see they are unchanged right now in the premarket. alix: their video net was down. david: that is their challenge. they are trying to get into business more, but it is a really competitive is this, as we know.
markets, it is earnings, some ego, but all about tech. as of up despite the fact that three losses0 had in a row. the dollar-yen the want to watch, reversing from hawkish that's on the yen as the boj didn't want to shakeup markets any. across thee to that board is buying bonds, particularly in the long end. that is flattening the curve. now for bloomberg's first take come a are joined by gina martin adams and tracy alloway. want to kick it off with the bank of japan. they lowered their inflation expectations, said they would have more volatility on the backend of the yield curse. tracy, what is the longer-term market application for a 10 year yield that is going to move 10 basis points up or down?
tracy: i am seeing people read this in two ways. i think the consensus is that you have the boj basically commit to longer-term easing. they are tweaking their policy, but it is all about making a more sustainable over the long term and the tweaks are fairly minor. i know they are doubling the training range -- the trading range from the 10 year, but it is practically nothing. if you have rates in japan that continue to remain stubbornly is, the curve flattening going to be sort of exported away from japan and hit us here in the u.s. we will have potential inversion of the u.s. yield curve. reporter: i think it is also about when the fed is going to stop typing policy.
you have an interesting dynamic starting in the middle of next year. the fed will largely be done with the tightening phase. by the summer of next year we will be talking up the fed finishing tightening. what the rest of central banks fairlyomes than consequential. i think this is why currency markets have started trading on what the ecb and boj are going to do going forward because the fed, we've priced that in. we've priced in the commitment of the tightening cycle, the yield curve threatening -- the yield curve flattening to basically zero. if it is not as strong as expected, the u.s. curve may start to shift a little bit. we've been in this flattening phase for year. these modest steepening's always peter out at a certain level. the surprise is that maybe we don't flatness much as the expectation.
this has been the most anticipated trade out there. david: our second story is europe. a lot of data out of europe this morning. thanre a little higher expected on inflation, just a little lower on growth. in germany, retail sales really came in quite strong. if we can check my terminal right now, we can see what's going on with the euro and inflation rates. is headlinember inflation, which import leading includes energy, and the blue number is the euro. tracy, the markets didn't react too much to this. there are some positive numbers coming out. tracy: i think with the headlines miss in terms of the actual economic growth, it wasn't a miss in terms of the ecb speculations. i think they were forecasting like .5 percentage points quarter on quarter.
for the ecb, it is reasonable news. same thing for the inflation data as well. a lot of the strength we seen coming through from energy prices, and the ecb has been telegraphing that. a ton the was unexpected, but the uncertainty for the central bank will come about later in the year when the structure have those energy prices lower down and the feedthrough affect into prices begins to take away. then they will really start looking at core inflation having a long, hard think about where that is going and what the boj is doing, what happened in japan .ith bond purchases a complicated picture for central banks overall. david: there's also the question of the underlying economy in europe. gina: without a doubt it is
growing at a much slower pace than the u.s. we are left with much faster growth. gdp for me is a very lagging indicator not particularly representative of broader economic growth conditions. but if you look at things like personal consumption growth, the pmi's, they are all little slower than we would like to see at the beginning of this year. that is certainly reflected in asset prices at large and the ecb, when they are constantly hedging when they will get to the quantity tightening phase. i think that growth is a little disappointing in general. that is one of the reasons why they can consistently move forward. if growth continually disappoints, sustainability of this higher numbers comes into inflation. alix: european stocks don't have a lot of tech stocks, and that can't be said for u.s. equity markets.
faang stocks continue to get hit. my question, whose selling? tracy:. momentum guys we talk. we talked about this yesterday. you got to keep up momentum confidence. when you take a not to confidence, you have a lot of momentum, the systematic guys that keep selling. that's the fear, that want to take off it just keeps going. to your point in that europe not having a lot of tech exposure, the rest of the world has an insane amount of tech exposure in benchmark indexes. this is where it gets really important. if you take a look at what's been happening with the share price of tencent in china, that is down some stunning numbers. whenever $43 billion from the peak, and that is a big player -- $143 billion from the peak, and that is a big player there. david: let's turn to apple. the analysts expect revenue to
be up 15%. they are expecting some good things out of apple today. gina: revenue is the key for all stocks in the s&p 500. where you miss on the revenues coming you are getting disadvantaged in share price reaction. 15% growth is a pretty high bar, frankly. but that high for apple, 15% growth compared to 8.5% growth for the index at large, you're looking to double the growth potential out of apple relative to the s&p 500. alix: which is supposed to be more of a value stock now than anything else. if samsung is any indication, there are some rough indications about the market. this is a long-running issue for apple specifically, and a lot of people will be look at the results today, taking a read on
the u.s. consumer and people's willingness to pay $1000 per phone. that is the big question mark covering over phone sales. , at least. -- phone sales, at least. you've got to constantly be doing something new and innovating. the market is constantly expecting you to up your game. >> i have to get rid of my iphone 5s. [laughter] alix: thank you both very much. a reminder, you can all find the charts just used and throughout the show on to tv . coming up, more on the boj's policy tweak. we discussed how markets view this. that's coming up next. this is bloomberg.
♪ givingr: credit suisse investors reasons to stay with the bank through its restructuring. quarterly profits were higher than expected. first profits beat estimates at standard chartered, but the british bank is struggling to contain costs that rose more than expected. standard chartered indicated those were likely to decline over the rest of the year. shares fell the most in about six months. second-quarter profit rose quite
four-foldt bp -- rose at bp after they announced their biggest deal in almost two decades come up eyeing -- decades, buying bhp's shale assets in the u.s. we spoke to ceo bob dudley. >> i think it speaks to more confidence than we had in a long time. we had the confidence to raise the dividend for the first time in 15 quarters. we have momentum, and people are pleased. reporter: that was your bloomberg business flash. allowedhe bank of japan for more range of trading around its target, as explained by governor hirota. >> the bank will continue with the purchase program, but with more flexibility in terms of the amounts. while doing so, yields may move upward and downward to some
extent due to the economic activity and price movements. we see the range of 10 year yields double from the current 0.1%. teneo tobias harris is intelligence's vice president for japan. welcome. did market three acts this decision or relative non-decision by the bank of japan? >> markets reacted in the sense rally and yen selloff moderately. they pulled this right out of the ecb's playbook. there's been a lot of discussion about the yield curve, whether banks are suffering from a flat yield curve, whether they need to introduce more flexibility. they did that to the extent of widening the bend.
there was a change in forward guidance. that was tied to what they expect out of further inflation. >> it would be very difficult to see them going hawkish at a meeting where they have to admit they are not meeting inflation targets. alix: tobias, why did they have to adjust how much the 10 year yield can move? think between the speculation in the market is something was going to have to change an pressure from the financial sector, i think the had totion is kuroda give something to his critics. i think the political context going forward is that kuroda was not in the position to make a hawkish move here. the first line mentioned the fact that you have a consumption tax decision coming next year. i think the last thing kuroda was to do was make it harder
for abe to make that decision. i thought it was unlikely you would see major moves away from the easing program, and that is really what we got serious that's what we got -- what we got. david: that sounds like it is not just lower for longer, but lower for forever. when is that going to change? >> if you look at the next couple of years, it is hard to see how a political context will make it easier for kuroda to diverge from the abe government. next year you have the consumption tax decision, and then already you are getting concerns about what sort of slow down your going to get after the 2020 olympics is the bank of japan going to be able to back off when you have those concerns going on about a recession once the 2020 tokyo olympics are over? going forward, it is hard to see when the bank of japan is going to be able to step on the brakes. alix: good point. the issue is also we saw the
steepening of the global yield curve in every country. if you come inside the bloomberg, this poses the problem. green -- the, our bottom line is the 10 year bond yield. back in 2010 and 2016 we saw a spike in the tenure yield -- in the 10 year yield for japan. a stronger yen hurts the economy. they can't have it all. >> they can't. the broader point here is inflation incredibility. i think what has been happening markets kindtly is of commits themselves that maybe the boj will be happy with 1% inflation target. ,ike many other central banks they are struggling to get to the targets. there was a perception maybe
they would be stopping a little bit earlier. i think this reinforces the message. it is understandable for a central bank. inflation expectations have been a problem for quite some time. david: what is going to be required to get the japanese economy going again? you have a> leadership election coming in under two months. the major question even though it is looking likely that abe will have another three years as prime minister, i think he's going to immediately face the question of is he a lame-duck. does he have any more policy tricks to pull out of his hat? the politicalt calendar, you are wondering whether he's going to have the strength and time and political capital to really drive further
labor market reforms, for example. preoccupiedbably be with foreign affairs in his third term, and keeping u.s. -japan relations on an even keel. it looks like we will have another round of trade talks starting august 9. but the idea that we are going major new domestic reform packages going forward, i think it is the unlikely. alix: dollar-yen, what happens to it? >> i think it goes higher in the short-term. there's a bit of catch up to do with equities. the best correlation to dollar-yen has been with the u.s. s&p 500 recently, to the -- we expect 114 in terms of the short-term forecast. over the medium term, it is not the most exciting currency, so we see it around 111 to 114.
but look, i think we've gone through the first half of the year where just about everything went wrong for the euro. we had weaker growth than we expected. we had italian political tensions coming back, and on the other side of the equation very strong u.s. growth and higher u.s. yields. while the euro is weaker, it is not that dramatic. that is a sign that we are more confident that the euro is going to start strengthening in the second half of the year, whereas we expect european growth is really going to pick up. expectations of ecb policy change will still probably not until the fall of next year start coming into play more and more gradually. alix: we saw yesterday business confidence, the outlook sort of rolling over. clearly there are trade fears starting to percolate when it comes to new orders, for example. what gives you the confidence the euro is going to be up to admit some kind of rally? 's have beenhe poi
relatively stable. internal demands stabilizers. the diversions between rates in europe have become more stable, growing anymore unified way. mark,is a big question but for the u.s. as well. this sort of situation where the u.s. has been isolated from the rest of the world in terms of the trade fears, that may not continue forever. it will that ultimately
be there for the u.s. as well. david: there have been some suggestions it has tapered off some. it will be there for the u.s. as well. >> it is not uniform. last year was kind of remarkable, but it is not uniform, and there are signs of softness in china, but they are generating a policy response. there's still a lot of room to grow outside the u.s. in terms of capacity in certain countries. if you look at some of the commodity producers and prices, the picture is pretty good. alix: good to see you. thanks for coming in. tech rout in the last three days. can apple save it? this is bloomberg.
seven points. you have that disappointing growth number out of the eurozone. the market trying to digest that. in other asset classes as the boj does not do much with its yield curve control tinkering on the that. edges, you have dollar-yen up by 4/10 of 1%. as we expected some kind of big change from the boj that did not happen. the other currency pair you have to watch is the lira, continuing to just beat against some record lows. the turkish central bank says it is going to take them three years to get to their inflation target of 5%. a little bit of selling coming into the short end but the 210 spread is two/10 spreadthe is flattening -- 2/10 spread is flattening. emma: president trump is taking
aim at fellow republicans today. the koch brothers in real -- the koch brothers a joke in real republican circles. -- to north dakota's credit senator. north korea is reportedly building new intercontinental ballistic missiles just weeks after the summit with president trump. that is according to the washington post which cites u.s. spy agencies. in turkey, the central bank is disappointing investors looking for signs that monetary policy would tighten. bank has nowentral promised to waive foreign costs when needed. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries.
i am emma chandra. this is bloomberg. alix: 13% inflation, no big. david: 13.4%. alix: tech is continuing to correct. the nice he faang index -- the all ahead ofdex apple's third-quarter results this afternoon. stop the be enough to negative sentiment we have seen from these tech stocks? on the phone is -- webb, adon is alex bloomberg opinion tech columnist. paul, i want to get your take on what you are doing with these flying tech stocks right now. where is the bottom? the stockbook being
, i didr -- stock dejour keep a smaller piece as far as the other faangs. i will continue to hold them and facebook itself if it drops further, i would like to see it stabilize. probably would be concerned and may well turn around and reshuffle the deck. alix: what we have heard are some calls for caution. credit suisse says the hedge fund clients, their retail internet stock made up half of their overall positions. you have outflows into triple q's etf. what do you think it is going to take to stem the tide? paul: i think what will happen
is the fundamentals in most of strongh names are pretty , so i don't know if it is a matter of show me something else fundamentally. somene we need to see acknowledgment of a business change that might be permanent is facebook, but i think the stock has reflected that already. it is a matter of taking some market and some names that have run too far, maybe too fast. bring you inlet's on this. is apple a company that has not run too far too fast? alex: expectations for apple over the past few years have been significantly tempered. it often happens after they report their numbers even if they are quite good, you will
see an immediate decline in the shares. apple even with a slight correction is still trading at historic highs. that might mean that some people feel it is a good opportunity to get out, even if the outlook is good. read onex, we got a apple when it came to samsung, saying that they are seeing more competitive -- competitive price pressure and they are worried about the high price point of some phones. did we learn anything from samsung with regard to apple later today? samsung does some tech oblations that say they made more profits from the iphone x than their own. looking at that outlook for the business does give some indication and it was not particularly punchy.
this coming quarter which is apple's fourth calendar quarter, there might be a week or two of new iphone sales at the very end, but it is christmas that people really care about. it might be a slight indication of how expectations are shaping up for the next iphone, but it is too early to tell how strong the sustainability of the brand is. alix: paul, what are you doing with apple in the quarter? paul: apple's quarter should be ok. i worry about the forecast. that is a stock, if it does rise to $200 per share plus, i might take some money off the table because unlike some of these other faangs, i do worry about apple long-term. have seen this before, but they need to come up with a new trick. they have a growing services business but at the end of the
day, 70% of their operating income comes from the top -- comes from the iphone and it looks like for the iphone x, people are starting to push back at paying over $1000 for the phone in the smartphone market itself is beginning to look like the pc market, going from the 90's to the 2000's where it has become mature. apple long-term will face a growth problem unless they do something fairly dramatic and i am thinking fairly dramatic might require an acquisition of some sort, probably a big one. they will need to pick up some cloud computing and proprietary content. alix: -- david: people have talked about a major acquisition and apple certainly has the cash to do it. is there any deal they could do that would not be dilutive given their profit margins? alex: very tricky to get there on the margin side. when you look at things like
cars, people are looking at the prospect for topline growth which means irrespective of the margin, the ultimate profit level itself continues to grow. it is incredibly tricky. even with these services business which is what they are saying is growing at a great pace, it has to do with icloud and things like that. it is not a very profitable business, it has about a 30% growth margin. definitely looking forward to that number. eks and alex webb of bloomberg opinion, thank you for joining us. david: we now turn to the cbs board, who met and had it intense discussion about the ceo , in response to the reports from friday about possible sexual allegations against mr. monyes.
they came out and said they would maintain a law firm to decidedo it, also they not to have their annual shareholders meeting. we are joined by paul sweeney from bloomberg intelligence. it did not feel like there was that much that actually came out of it. paul: it was really a surprise. the market was anticipating they would suspend monyes at least temporarily pending the investigation and might want to get a bit of closure, but they chose not to and that illustrates the power and the influence that les has. we just had cowen downgrade them for what he describes as a huge overhang. he was talking about the fact that they have not taken any action.
it may freeze the company and not allow it to move forward and might result in the merger with viacom but a lot of analysts don't think would be good for cbs. paul: the company is going to report earnings on thursday. and what is going on with les, he is so emblematic of the company, it is obviously an outside influence on the company stock. we have a whole issue with viacom -- we have the whole issue with viacom. cbs investors are not in favor of that merger unless they get an extremely favorable financial arrangement. there was a lot of noise around the stock which has kept a lid on the stock. alix: when you put the numbers islike a $2 billion loss, it a large number and the shareholders want to get involved to stem the tide. it does not matter as long as you can tolerate it. paul: les was already in a very
tenuous position with his dealings because national amusements owns 80% of cbs and viacom. in the end, he is just a hired hand, a very well paid and influential hired hand but it is the redstone's company. shari redstone owns 80% of the company. if she could exercise that power, they would've already merged with viacom. you have the irony of this really strangely structured company and you are saying to the major shareholder, you don't get to say. alix: it does point to the fact that if shari redstone wants this to go on forever, she can do that. paul: it kind of shows you the influence that les has even though he is not a controlling shareholder. he has the support of the public shareholders and he wields that
as well as anybody does but obviously his position is arguably weekend which raises the odds that shari will win in her strategy to put the two companies together. that is a positive for viacom and a possible near-term concern for cbs if they are forced to merge at some point. david: a second outside law firm because they already had an investigation going. alix: insert funny joke about lawyers. david: thanks so much to paul sweeney of bloomberg intelligence. coming up, credit suisse gives investors more reasons to stick around. we discussed their second quarter next. discussbloomberg -- we their second quarter next. this is bloomberg. ♪ >
emma: this is bloomberg daybreak. hour, danan the next peterson, citigroup global economist. this is bloomberg. alix: we turn now to wall street beat. first up, credit suisse's wealthy win, offsetting trading weakness at the swiss bank. uncertain martin condition -- market conditions cloud -- outlook and finally tens and -- are the best days over for tech stocks? david: joining us now is lisa abramowicz. the not, credit suisse
do as well in trading but they did really well in swiss banking and private wealth management and you talked about why -- and they talked about why. have inverted those proportions and we are primarily serving -- when they create a new product, we will typically raise $2 billion. that is a very profitable business and is driving recurring income which is really high-quality revenue. david: ultrahigh will people. lisa: who doesn't want to manage money for ultrahigh wealth people? it is impressive that credit suisse did get inflows because ubs, one of their rivals, ditzy withdrawals. that said, their model is working for now.
there are some questions about what happens if there is a turn in the cycle and their free-flowing cash coming into wealth management firms becomes a little bit less free-flowing. they did have a good quarter with investment banking, they did disappointing with trading. hex: what is interesting is said the global capital markets there drive -- international wealth management. that is what goldman sachs wants. he says they don't care if they take a loss there. lisa: definitely reminds me of what goldman sachs is trying to do. imagine they are dealing with a lot of wealthy people in their banking business, why not also on the other end say we can do a pretty good job telling you where to invest. alix: what about that bank working in china that lowered --
you just keep lowering -- david: although some people were saying -- were going to other way and saying you have to have more money. alix: this is a stark story. shares of as much as 21% today. has -- ist manager -- the manager. flagship -- and then they booted him because of some issues into a probe with his record-keeping. unbelievable hammering of the stock. lisa: there are a couple things here. it is not good when a top portfolio manager gets ejected for risk management procedures, problems with that and record-keeping. you don't want albums with record-keeping and risk management -- you don't want
problems with record-keeping and risk management. you can't neglect to talk about the fact that the gam multi-bond fund which he managed trailed 96% of its peers over the last five years. the performance says a lot. how do you get money in if you have issues with the person at the top and if you have had this dramatic underperformance for so long? this comes at a time when there is going to be a shift in monetary policy see you do not have a clear-cut path with bonds. david: the fundamentals do matter and you have to make money from people. maybe that is what he's are taking -- they sort of taking a closer look at the record-keeping. alix: it is not just him that is going to prevent the flows. lisa: this also goes to the heart of the issue we have seen which is consolidation within the asset management space. if you cannot prove yourself at this point, investors are
punitive. they will not wait around any longer, they will not pay the money for fees because it could get an index fund. that is a bit more knee-jerk than it was 10 years ago when people are more educated. tencent has lost more than facebook has. lisa: i think it is telling that you are saying and i had the same reaction. who would have thought about tencent. tencent shares have tumbled 25% from january, raising $143 billion in market value, that is more than facebook but nobody is talking about it. this tells me how dominant chinese tech companies have become and yet we focus a lot on the faang stocks but the chinese tech firms are massive. alibaba is the world ticky largest financial company.
this is something that has been happening in the corner. tencent is not going out of business, it is just that the pace of their growth -- the pace of their growth has slowed. david: it is a broader point, it is not just in the tech area. we don't realize how big china is and how fast it is becoming even bigger than it was in all sorts of areas. alix: my question is where the money goes. where are you going to? lot -- thanks to lisa abramowicz. png -- we will talk about that next. this is bloomberg. ♪
household staples such as pampers and tide. organic growth not so much? >> not so much. not so much this year, organic growth for fiscal 2018 was at 1%, missing that 2% gold a procter & gamble put out there. this is not unexpected because they were not anywhere close for most of the year. coming in a 1%, missing by a full percentage point is a bit more than people were expecting. bloomberg intelligence's review said they are not going to make 2%, so why do they keep saying it when nobody believes them and they are not doing it? brooke: managing expectations as part of the reason why you have to have nelson come in here and push for these changes.
they make these promises on cost cuts and we don't see that filter through. part of what he is trying to do on the board, hold management more accountable and force them to take definitive steps that will improve the business. alix: what about pricing power? brooke: they did say they're going to roll out price increases on pampers in north --rica, sharman and puffs charmin and puffs. they said they had to lower prices on their luvs brand because of competition through -- competition from private labels. you did see that weighing on the results and it is going to be harder for them than other companies to push through price increases to counteract the tariffs. david: what about the input cost? epf did beat estimates this quarter. they are able to offset some of the impact of the tariffs and
the rising raw material costs. the question is, are they going to be able to continue to do that? ans is very hard to predict especially in their markets were you are seeing so much competition, so much pricing pressure, are they going to be able to push those through? wages are not picking up as much as they need to as well. brooks of the lynn, thank you very much. coming -- brooke sutherland, thank you very much. -- what that means and where monetary policy goes from here with former boj member sayuri shirai. ♪ retail.
under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. alix: boj walks a tightrope. commits to japan
extraordinary policy for longer. faang's bloodbath. flyinge on apple, high tech names flirt with pressure. you have high inflation on growth. european inflation hitting its highs level since 2012. u.s. inflation data on deck. david: welcome to bloomberg daybreak on this tuesday, july 31. i am david westin alongside alix steel. alix: rain all week. i have not taken a vacation. in the markets, we are tracking earnings. it is the second biggest earnings week for companies in the s&p. futures up, can they hold it after the bell? the dollar-yen is the one to watch. there have been hawkish bets in the market that the boj would tweak.
curve, 28 basis points. we have seen a steeper curve in anticipation of the boj but now you are seeing some heavy selling -- heavy buying in the backend and crude up by 4/10 of 1%. david: now it is time for the morning brief. we are going to get personal spending data for the month of june. also today, the federal reserve begins its two day meeting on monetary policy. after the bell, all eyes will be on apple. they noted states market will react to what has been a tech driven rout. alix: the bank of japan making changes to its ultra-loose monetary policy. is bloomberg's chief asian correspondent. walk us through. >> there is a lot to walk
through and on the one hand, they took the steps basically reaffirming their commitment to massive monetary easing. they lowered their inflation forecast, made it clear they are nowhere near exiting or tightening policy but on the other hand, they took these measures to alleviate the side effects of their easing program, some flexibility in the yield and take some pressure off of the banking sector. they are making tweaks to their stock market that will alleviate some of their concerns about the distortion being -- distortion being affect -- distortioning affect. they are taking these baby steps to alleviate pain around the edges and perhaps take the first steps toward an eventual exit strategy. i think with a pretty dovish outlook overall. alix: balancing keeping the yen
weaker while dealing with the backend of the curve. what is the significance of a 10, 20 basis point move? what does that do to the market? enda: this is where opinion divides quickly. it is effectively doubling the range. it will offset some of the pressure spilling over from that, but the issue is there are economists who consider that to be more than just a tweak and perhaps an outright interest rate move. one of the notable steps they took was they effectively could not have the level of deposits caused by the negative rate. there were a lot of tweaks in today by the boj but the overarching message was that they remain committed to this
massive monetary easing program that they have and what they are doing is more about sustainability. alix: thank you so much enda curran. david: for more on the bank of -- on the boj action, we welcome sayuri shirai, a former member of the bank of japan and a former professor at the asian development bank university. -- is it a baby step in the direction of really tightening or is it a way of making sure they can continue on their easing policy by alleviating some of the extraneous problems? sayuri: it is both. what the apd to suggested.
[indiscernible] they gave the impression to people that this is just a minor modification. actually, i think if market conditions pickup, this is suggesting that the boj is able also they target but did not say that they will maintain current interest rates until october of next year and they did not mention anything in their outlook. this includes the possibility that the boj may take steps toward normalization. that is my feelings. they said quite specifically they are not doing this to alleviate pressure on the financial community. is that right? will this relieve the banks some? this is -- this activity
is good for the markets but in terms of the issuance company and banks, this interest rate is still too low. i don't think they are fully happy but it is better than nothing. i would like to mention one thing. remember in september 2016 when to -- they said the same thing that they are not going to get to their target. immediate -- they immediately started to reduce, so given what they say and what they are doing, that is what i am suggesting. there is a very big possibility that the boj might expand this and it is also possible
that they change this framework year. october 2019, next sayuri, i am going to say something kind of radical and show a chart to the audience that shows japan's output gap is widening. what is the argument to be made that things are actually pretty good any lot of ways in japan? sayuri: when you look at the economy growth, last year it was 1.7%. this year, economy growth is is -- 1.1%, gradually, it but at the same time, we have seen activities ongoing, directed to the 2020 olympics, so it looks fine and so at the moment, the economy looks good but when you look at economy growth, it is gradually
decelerating. we will see what happens after 2020. at the moment, it is good, a good time for the boj to make this kind of policy change. david: simply put, i am sure it is not a simple answer, is abenomics working? the boj did it and it contributed to the depreciation of the japanese yen and that contributed to the higher thatrate profit, so in case, it was very successful but in terms of achieving the with of 2%, ihievability don't see it happening. alix: thank you so much for staying with us on this, sayuri shirai former biaggi policy -- former boj policy member.
kailey: this is bloomberg daybreak. a sign of optimism for pfizer after they decided to delay drug price raises. they increase their profit outlook for the coming year. they also had second-quarter earnings that beat estimates. archer daniels midland posted profit that was better-than-expected. cropcapitalized on
disruption from south america. second-quarter profit rose fourfold at bp. they cashed in on surging oil prices. abouteinsured investors their financial strength after bp announced its biggest deal in almost two decades. they have agreed to buy shale assets in the u.s.. we spoke to the ceo. >> i think it shows more confidence than we have had in a long time. it is the sixth quarter and a wrong -- in a row where we have delivered on expectations or exceeded it. we've got momentum and people are pleased. kailey: that is your bloomberg business flash. alix: babe -- bp out with better-than-expected profits. a different story when it comes to exxon, chevron and shall. -- and shell. joining us now is tamar essner,
nasdaq energy analyst and kevin holt, of invesco advisers. kevin, let me start with you on earnings. what do you like about shell and bp? say between the two, i think royal dutch, they had weaker upstream earnings than bp. bp came in with a pretty strong upstream earnings. both have weakness in the downstream, which we saw across european and u.s. names. there appeared to be downtime and maintenance stuff that the companies had not disclosed, but overall, you saw out of royal dutch, a $25 billion buyback. bp, the dividend increase, so i think investors are feeling more confident that these oil prices are going to stay in this $50 to $60 range. alix: is it, tamar?
tamar: there are a whole host of factors. the most important factor is going to be what happens with the sanctions on iran windows get imposed in november. i think the trump administration will continue with an aggressive posturing in terms of targeting zero output from iran and full reduction of those exports. if that happens, you can't have a -- you could have a real break out in prices. i think there will be some waivers on the sanctions and they will not be as heavy as they might seem. david: the trump administration has been very aggressive and they want to keep gas prices down going into the midterms. can they accomplish both? tamar: there is an inherent contradiction, so i think the posturing externally will continue to be aggressive but some of those waivers might want the teeth -- blunt the teeth.
china could increase their level of purchases of iranian oil. 3, a or like november release from president trump at the end of the day. if we are in potential for bigger spikes, kevin, i am going to show the audience this chart. flow.l majors free cash we are not seeing a lot of movement. exxon's free cash flow is pitiful at the end of the day. chevron also weaker, shell as well. why is it that you do not have the kind of profit and free cash flow we see from these higher oil prices? kevin: as you look at a full-year basis, it is more difficult, but other than exxon, you are starting to see free cash flow generation when you look at the models on a full
year 18 or full-year 19 basis. they will be shrinking shares and buying them back in the market. --o think it is kind of there are some winners and there are some losers. exxon is behind in terms of production development. we saw their weakest production going back to the year 2000, but the other companies are in better spots and you are seeing production growth. you are seeing that free cash flow coming through which is giving bp and royal dutch and chevron the confidence to start returning more capital to shareholders. alix: the question becomes, for you tamar, if you look at underperforming stocks, is that where investors think the prices will be in two years? tamar: that is a big part of it, that the futures curve does flow downward. that is not necessarily the
greatest outlook. a lot of these are hedged, so we don't get the full earnings. that energyea is has contracted so much as a sector. the 1980's andn this year when all the trading investors,d by index talking about such a small portion of the market, it does not have a strong institutional sponsorship. kevin, is there a name on your list that you would be looking to get into in the energy space that you have not yet? kevin: we are pretty overweight right now, but i do think that this cycle is very sustainable. i think the integrated oil companies and the state oil cutanies like saudi, they over 50% -- they cut capex over
50%. as you look into the u.s., and i think there are different risk tolerances, i think chevron is very well-positioned. good production growth visibility for the next five years. side,n the kind of emp you look at our top holdings on marathon oil, which i think -- has done a great job. notttle more risky so it is a fully integrated oil company, but i think they have done a tremendous job moving unconventional assets and you will see free cash flow generation out of them and hopefully a share buyback. david: i understand you are not moving around your money a lot and you sort of stay for the longer run but where in the energy sector do you see a mismatch in terms of valuation
of the assets? that is to say the underlying assets are worth more than the company is giving credit? kevin: we are looking at long-term returns on capital and we are studying the cycles we have seen over the last 80 years with an energy. they are relatively printable. whereas six months ago, we saw disproportionate opportunity in the emp stocks, now it is pretty balanced because emp stocks have had a move off the bottom. it is a balance between the integrateds and the emps. the permian stocks where up until two or three months ago, we thought they were fully valued and now they have pulled back a little bit and people are looking at some of the more diversified names which historically are not as this -- interesting to investors but now diversification with some of the issues have become more
attractive, which feeds into the chevron and marathon of the world. from an intrinsic value standpoint, both of them have 30%, 40% upside. alix: interesting, especially when chevron got their lease millions of years ago and paid nothing on it. -- permian oil production is still around record highs. what does that wind up doing for the wtf brent spread in the market? how do you parse that? tamar: the level of growth in the permian has defined a lot of this as well. i think the growth is going to start to hit some real snags and we will see a curtailment into q1 of next year. those differentials could widen for quite a while. some companies that have the capacity to do so will move into
other basins. other companies will not be able to do that. we will continue to drill, but to defer completion until a time that is more economic for them to do so. we expect the spread could remain wide for a while. david: tamar essner of nasdaq, thank you for being with us. kevin holt is going to be staying with us. coming up, faang's retreat. this is bloomberg. ♪
a lot of this coming from facebook and netflix. a lot of people say sentiment went too far, too fast. bank of america shorting some of the stocks. take a look at what that is doing to some of the etf flows as a measure of sentiment. we actually have some positive flows around google because earnings were better than expected on the 23rd and 26th. on the 27th, you had investors pull out about $144 million. invesco q2 qt the index has a quarter of its holdings in the faang index -- qqq index has a quarter of its holdings in the faang index. tina martin adams said that facebook and netflix were sort of the -- gina martin adams said that facebook and netflix were sort of the keys.
-- the investment community really messed in terms of advertising growth and they thought that maybe it would be infinite but that is only half of the story, that the rest of it has not played out yet. there has been a lot of concern with facebook about data privacy and fake news and what that means. alix: a great set up. thank you taylor riggs. still with us is kevin holt of invesco. intel is in their top 10 holdings. if tech doesgh have that value for you. kevin: the faang stocks are traditionally into value territory. one of the things we are seeing whether it is considered growth over value, we're looking at everything and tech is so interrelated when you are looking at intel, it is related from a derivative standpoint to
these social media names but when you look at these social media names, there is a question in terms of how are they monetizing this personal data? i always compare it to the cable industry which had these -- which had similar data to these set-top boxes. the same kinds of issues coming up with these social media names but the older tech names were you have the cash flow and earnings, we are much more comfortable with those business models and knowing how they are making money. alix: kevin holt of invesco, thank you so much. coming up, the fed's preferred inflation gauge. pce numbers for june are out in just a few minutes. this is bloomberg. ♪
europe a little bit softer, especially the dax. they yen gets pummeled after the boj nonevent, and the lira continuing to grind lower. the curve flattening in the u.s. responding to the boj lack of action. interesting data coming out right now. core pce year on year coming at 1.9%. lower to 1.9%. misstle bit of a mess -- for the core pce year on year. personal spending and personal income are bang in line with estimates, up 4/10 of 1%. the employment costs index, up 16's of 1%. that is a broader view of how much people make and that is also missing. david: look at the increase in personal spending.
a big revision for personal spending last month. peterson andn dana michael mckee. .evin holt is still with us where is the inflation? michael: that is a good question. we saw in the gdp numbers that people were spending more money and we thought that was because of the tax cut, and that you would have greater personal after-tax income. i am looking at the employee costs and they are not rising. i mean, they are rising but not as much as they had been. half a percent in the last quarter, then 9/10 of 1% in the first quarter. people's after-tax incomes did not go up quite as much as they were expected to. david: is this just simply good news? when you put these numbers together with 4.1% growth in gdp, that sounds pretty good. dana: for the consumer, it is
not so bad. , think with respect to income we did see very large upper revisions to after-tax income in the gdp report. real disposable personal income was revised up significantly over the last several years and the savings rate which was pretty close to 3%, and had been following comment has been pretty steady around 6%. in the last reading it was close to 7%. even though we have a number of measures of numbers and wage inflation, the story is still pretty good when it comes to income for consumers. alix: the cost index up 6/10 of 1%. it is great you are making money , but if you are not able to see wage increases, how does that help the economy? michael: when do we see businesses have to pay people more? it does seem we are seeing
companies continue their efforts to hold down costs as much as possible to help the bottom line , which may be exacerbated because we saw all of these companies warning they might see their profits hit by the tariffs. that puts more incentive on them to keep costs lower. , a value an investor investor, you are not moving your money around a lot. when you see numbers like this does this tell you you on the right path because you have to be -- you do not have to be in their -- there data day? step: we kind of take a back and look at some of the fiscal and monetary policy we have. rates are going up a little bit but not very much. , itou look at inflation continues to be relatively benign. things are moving up a little bit that not a lot. i hate to say goldilocks scenario, but things are pretty stable.
with some of these tariff issues outstanding in the back half of the year, you have some pressure on raw material cost for industrial companies. that gives them more ammunition not to raise wages, so we will have to see how this tariff stuff plays into wages. alix: getting a lot of shade at the eci. wages and salary rose 4.2%. a large part of that is the cost of the employer, medical costs and social security. the overall, will be better, maybe just not the wage number. david: just not disposable income potentially. it is reasonably good news. inyou look at this right now terms of inflation and overall growth patterns, are we seeing the sort of capital formation, especially when we are talking about personal savings?
does that lead you to believe we will have an easier time with capital formation? tax reformieve the should go a long way in terms of incentivizing businesses to do that. the cbo raised its expectations of potential gdp growth in part because they think the tax reform will incentivize increased activity as well as general investment, which is a supply-side shock. that is in addition to the demand side shock where businesses with lower corporate tax rates should feel more keen to invest. as we look at the end out minutes -- announcements of post-tax report, a lot of establishments are looking to invest and hire more people. roughly $3 billion worth of major wage increases may be in the pipeline from those announcements alone. alix: how do you play the consumer discretionary space now? kevin: it is probably a pretty interesting question, because if
you look within discretionary, we think traditional retail, although a number of stocks have had a pretty good bounce this year, it is tough to understand what their protracted ability is not onlyability is, within more competition but within price to spread -- price transparency. ,he cable stocks, i think things like that are potential ownership. you have to look for businesses with moats. we think the cruise lines have a good moat around them. there is not really a substitution for that type of travel experience. given the dislocation with the investing in consumer and discretionary stocks even know the backdrop is quite solid. david: the fed meeting today and we will hear from them tomorrow, we are not expecting them to change anything. what will be the discussion,
given these numbers? how will this take into account what they have to say? michael: probably a little bit like we are talking here, where is the inflation? they are expecting inflation to rise and expecting employers to pay more money as the rate goes down. it gives them more flexibility and seals the deal that there will be no rate increase tomorrow. we will talk about what the odds are that growth will fall off in the third quarter from the second quarter, and that will take more pressure off. that raises the question of what happens in the fourth quarter? we get the statement tomorrow, but little else so there probably will not be a lot of information for investors unless something comes up in the minutes. david: dana peterson, michael holt, thank you for being with us today. alix: the brookfield numbers, we have some breaking news. --okfield property managers
i don't know, what is this news? anyone? ok. david: they are buying for citi but that had been talked about before. alix: ok. david: big real estate deal from brookfield, that had been reported before that it was likely to happen. up onealty trust has gone the news. let's get a look at the headlines outside the business world. kailey: in china, the ruling bureau says the country will continue leveraging at a measured pace. the government will try to curb the increase in housing prices and try to promote structural reform in the second half of the year. north korea reportedly is building new intercontinental
ballistic missiles, according to "the washington post." the missiles are being built at a factory that made the north korean rockets capable of reaching the u.s. president trump is taking aim at fellow republicans today, the millionaire koch brothers. he said they are opposed to strong borders and powerful trade. network political criticize the president and will not support the challenger to heidi heitkamp. 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 kailey leinz. this is bloomberg. alix: thank you so much. just want to recap the eco-data. personal income and personal spending are coming in at 4/10 of 1%. core pce at 1.9%. the consumer cost index
increased for the most since 2008. social security, medicare, as well as help services, the overall compensation of workers is moving and the s&p hitting the highs of the session. david: can apple save the day? investors will be watching apple bill,bers out after the ending a rocky season for tech. this is bloomberg. ♪
now to your bloomberg business flash. proctor and gamble is feeling the heat from new competition. they posted quarterly sales that missed estimates. rival products include diapers from amazon. they are also dealing with higher commodity costs. brookfield asset management is close to an agreement to buy for citi real estate trust at about $6.8 billion. that represents a 10% premium. samsung is starting to be hit by the slowdown in the global stock -- smartphone market. shipments of smart are declining after years of rapid growth. samsung's chinese rivals are grabbing market share. alix: for more on tech, we are joined by ramon llamas joining us in boston.
the talk will be apple after the bell. what specifically are you looking at? ramon: i really want to see how services will be rolling around this quarter. if you look at the hardware categories, tablets, pc's kind of having a slow decline. they will still be very popular. take a look at how services will ramp up. if you look at cloud and app store and music, that is where a lot of the growth has been in previous quarters and that probably will continue. alix: did you learn anything from samsung's quarters when they were talking about weaker sales on the high-end devices, consumers holding onto devices longer? what does that mean for apple? ramon: this is endemic of the entire smart phone market and a lot of them are trying to figure out how to get people to upgrade their phones more often. if you rebound -- rewind to when conference,s wwdc
they are introducing a lot of capabilities. you cannot rely on phones you had two and a half, three years ago. you have to upgrade to the eight or the iphone x in order to stay current. a lot of apple fan boys and fan women want to have the latest and greatest. who wants to be stuck with yesterday's technology? alix: apparently i do. i still have the iphone 5 sc. david: she had to give up her flip phone. when will we see real price pressure? the average price keeps going up to like $696. one where they are be price pressure on the iphone? ramon: when the iphone has reached the same points that samsung has had and some of the other incumbents have had, because they are facing pressure from down below, looking at the chinese investors competing with
$300 smartphones in china and other third world countries. apple could go that route and it is poised to do that with its se edition of its phone, but as you glow slowly westward -- go slowly westward, you have to compete at lower and lower price points. for them to sell and iphone x in some of their markets, that will be incredibly challenging. ,hat is still a long ways off because when everything comes out later today we will find out what we have known all along. iphone x is the leader of the bunch and priced at $1000, people still want to buy it. alix: will that be enough to stem the tide on the tech selloff? this is the saying market cap -- faang market cap and it does not include apple, but it does trade like one. laggede has actually
most of the faang names. are saying and a lot of analysts are saying it will be about the services more than the iphone unit services. we know where that growth will come from, about 2% is the general consensus. just because you have a , whattion in the handset can they get out of the accessory side? drop,uld see the stock that if they come in above that, it could provide a catalyst. david:'s apple an entirely different stock from netflix or facebook -- is apple an entirely different stock from netflix or facebook? apple at this point, we are past the point where we are expecting growth. ramon: apple has not been valued as a growth stock for a while.
apple has- romaine: not been valued as a growth stock for a while. a lot of investors have embraced apple moore is a value stock been a growth stock, which is probably good for them. parabolic growth that we get out of facebook and netflix, we may not necessarily get that because that is not necessarily how the stock is being traded. david: will the services for apple be enough to make up for the lack of alternative products? ramon: it is only about 15% revenue based on last quarter's numbers. they have made a lot of progress. this is a $9 billion business. it was half of that six or seven quarters ago, so they are making progress but it is slow progress. they will not come out with some blockbuster number that no one saw coming. this is steady as she goes, and
there is a reason why you see names like warren buffett making it one of its largest holdings, because it continues to deliver in a study and slow manner. alix: are we looking at a $1 trillion market cap? ramon: i think to reach $1 trillion, let's revisit this after the holiday quarter at the very latest. at the very beginning, let's take a look at how things wrap up at the end of the quarter we are at now. if we are going to see a refresh is to some of the things that tim cook put out, mainly to watch and home pod, these are devices that a lot of people say should be the next wave of disruption for apple. has not really made that yet. if you put that in with some of the other categories and lump services on top that -- on top of that, we will get $1 trillion. alix: will we ever see the
replacement cycle analysts have been calling for? ramon: that will still hover around two years, two and a half years. it will probably hover at that point. i think what will be most interesting to see will be how apple tries to force people to upgrade their own devices, depending on the new platforms, because again you do not want to get stuck with last year's technology and hardware running next year's programs. alix: it is really going to happen. david: how vulnerable is apple to a possible trade problem with china and will we hear about that? ramon: i think we will hear just a little about that. tim cook likes to keep these things under wraps more during apple is but where manufacturing the bulk of its iphones and devices in china, and what that means to export those devices to the rest of the
world and what it means to sell in china because china is one of the major markets that time and time again, apple brings up and says, we did remarkable, double-digit growth year over year and quarter over quarter. just for today's earnings call, we will get the very beginnings of what that could possibly mean. as far as historic results from calendar q2, do not expect much news. alix: i want to broaden this out to all of earnings season. bloomberg intelligence had a great report out yesterday. the top handle are the s&p earnings beats -- excuse me, what they will see from their sales revisions as well as earnings revisions. softerll be a little bit but the blueline and purple line are revisions to 2020. will we be in a better environment over the next two years than not? romaine: analysts seem to think
so. expectations for 2019 are up about 10% over a month ago. analysts are putting out there 2020 forecasts and they look fairly strong. all of the talk we have had about a potential recession and inversion of the yield curve, fundamentals coming out of corporate america are still strong despite the imaginations in the market, and analysts seem to be holding the line that this is a bullish sign for the market. alix: ramon llamas and romaine bostick, thank you very much. metals losing their luster with gold and silver in decline. president trump's former campaign chairman goes on trial. bloomberg users, go to gtv and look at all the charts we have been talking about. save it for future reference. this is bloomberg. ♪
♪ alix: precious metals are in a bear market. that is pretty unusual for these guys moving the quickly. the cash is finally worth something when you look at the three-month t-bills versus gold. yields are starting to rise in real yield -- david: might as well get some cash. alix: the opportunity cost will be way too much. david: is this part of global growth? alix: the richer that india and china wind up getting, the more gold they can buy. it is more truly just about cash, if you earn more cash you will not want to buy gold and silver. what are you watching? david: mr. manafort goes to
trial in alexandria. he is withdrawing his challenge to mr. mueller's ability to prosecute him. he could go to jail for 30 years. alix: how long could this go on? david: three weeks is the trial, but the question is really whether they will get mr. manafort to testify against president trump. alix: and? when will we know that? david: so far, not. jones,oming up, kathy charles schwab fixed income to strategist. this is bloomberg.
coming up, the bank of japan avoiding major changes. the nasdaq stabilizing after a three-day rush to exit tech stocks. earnings and focus to stop the bleeding. apple focused on sales and services growth. 30 minutes away from the opening bell. futures positive up by six points on the s&p 500. euro-dollar up to 1.1728. the bank of japan keeping interest rates steady and maintaining its target on the 10 year yield but indicating it would lead the yield -- let the yield fluctuate by 10 basis points. >> the bank of japan is keeping accommodation in place as far as the eye can see. >> markets are telling you this