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Speaker 1: This is Bloomberg Surveillance. We think that the Fed will

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Speaker 1: be able to achieve its target over the medium term.

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Speaker 1: Core inflation has already started to pick up. Monetary policy

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Speaker 1: has been relatively ineffective, unique discal policy. I think something

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Speaker 1: actually like utilities, which has been a sector that's spreadingly unpopular,

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Speaker 1: is going to continue to surprise on the upside. Bloomberg

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Speaker 1: Surveillance your link to the world of economics, finance, and

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Speaker 1: investment on Bloomberg Radio. Good Morning, Michael McKay, Tom Keane

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Speaker 1: remains on vacation. David Gura sitting in today. David, I

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Speaker 1: can't keep up with all the headlines on the Bloomberg.

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Speaker 1: Will just get Ford out making sixty eight cents in

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Speaker 1: the first quarter. The consensus estimate was for forty eight cents.

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Speaker 1: That's a kind of a blow away number right now.

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Speaker 1: We've also got our earnings out just a moment ago

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Speaker 1: from Bristol Myers UH seventy four cents a share estimate

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Speaker 1: of sixty five. I have sense and Mr Meyer's boosting

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Speaker 1: their earnings per share forecast. And then of course this

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Speaker 1: Abbott Laboratory St. Jude News absolutely and I think you've

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Speaker 1: got dream Drew Armstrong here on the line of covery pharmaceuticals,

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Speaker 1: the health industry for us here and Drew just talked

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Speaker 1: to us a bit here about the significance of this

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Speaker 1: deal again, a twenty five billion dollar deal. Uh, Drew,

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Speaker 1: not with us yet. Sorry, we'll get to Drew just

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Speaker 1: a moment, but it is here. He is here, all right, Drew.

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Speaker 1: This is quite a deal this morning. Yeah, it is indeed. Um.

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Speaker 1: You know, we've seen a huge amount of consolidation in

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Speaker 1: medical device industry over the last few years, Mectronics buying

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Speaker 1: Comdient and now this latest thing with Abbott and St. Jude.

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Speaker 1: A lot of these deals have been focused on, you know,

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Speaker 1: getting scale and getting cost in the medical device industry.

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Speaker 1: You know, a lot of people make pacemakers, a lot

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Speaker 1: of make people make cardiovascular devices. And we've seen an

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Speaker 1: effort here to consolidate stuck out costs to be able

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Speaker 1: to compete with these hospitals that are consulting and who

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Speaker 1: are the main customers for these companies. This looks like

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Speaker 1: a long term deal. Abbot, according to press release, says

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Speaker 1: it will hurt earnings for share in two thousand seventeen

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Speaker 1: and two thousan Yeah, these are two of the giants

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Speaker 1: of the industries. I mean, it's going to take a

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Speaker 1: long time for them to be able to actually come

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Speaker 1: together and consolidate. Uh. They have a lot of long

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Speaker 1: standing ops. These are very diverse company and it's probably

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Speaker 1: gonna take a long time for them to build an

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Speaker 1: integrate and get the kind of costs out of the

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Speaker 1: companies that they need to do. What's this combined company

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Speaker 1: going to look like here in terms of what it's

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Speaker 1: going to produce, where it's going to be headed. Well,

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Speaker 1: I think you know St. Jude is a has a

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Speaker 1: huge focus on a basketball products, uh, and Abbot is

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Speaker 1: a much more diversified company. They sell nutrition products, adult nutrition. Um,

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Speaker 1: they moved recently even into food like energy bars and

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Speaker 1: things like that. They also make amble their own large

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Speaker 1: cardiovast division as well. Um. And then in addition to that,

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Speaker 1: you know, continues to sell some generic drugs around the world. UM.

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Speaker 1: You know, I suspect that, given me, given the acquisition nature,

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Speaker 1: the company will stay headquartered Chicago. But both of these

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Speaker 1: are massive multinational companies with operations spread all around the country.

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Speaker 1: Is in some aspects there some aspects go ahead. I

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Speaker 1: was just gonna say it's obviously not an inversion deal

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Speaker 1: unless you want to move your headquarters to Minneapolis. Uh.

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Speaker 1: They may actually be the first non inversion mega deal

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Speaker 1: seen in the healthcare space. And uh in sometimes I

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Speaker 1: just wanted to follow and aska very quickly before we

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Speaker 1: let you go. Uh, this is a mega deal. You

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Speaker 1: mentioned that we have seen a number of them in

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Speaker 1: this space. How have they worked out in general? Well,

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Speaker 1: you know, I think honestly, we're a little bit too

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Speaker 1: early to uh to assess that. Um, you know, most

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Speaker 1: of these really big deals that we've seen in the

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Speaker 1: healthcare space, they haven't down over the last few years,

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Speaker 1: and it takes longer than that. A lot of these deals,

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Speaker 1: as you point out, to have a long closing timelines

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Speaker 1: and even longer timelines it could be fully integrated, And

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Speaker 1: it's hard to assess them until you're you know, five, six,

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Speaker 1: seven years out and you really know what a combined

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Speaker 1: company looks like after it gets through destruction, through the

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Speaker 1: disruption of going in through mega transaction like this. So,

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Speaker 1: you know, for the recent spin of deals, I really

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Speaker 1: do think that maybe a little bit too early for

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Speaker 1: us to say one way or another whether or not

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Speaker 1: they're working talk to me in UH and I think

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Speaker 1: we might be able to make a go at judgment.

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Speaker 1: All right, Darius, write that down. We're gonna be interviewing

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Speaker 1: book them all again. Drew. I'm strong from little Bard

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Speaker 1: news covers the healthcare industry investors seem to like the deal.

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Speaker 1: At these those who are holding St. Jude stock in

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Speaker 1: the pre market twenty eight percent gain in the last

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Speaker 1: five minutes. Abbot shares right now down four point two percent.

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Speaker 1: You wouldn't be surprised to see the Acquirer fall a

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Speaker 1: little bit, David. The markets were lower already. This hasn't

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Speaker 1: had a major impact. It was the Bank of Japan

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Speaker 1: today that actually has knocked everybody down. What they didn't

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Speaker 1: do the back in Japan declining to add stimulus to

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Speaker 1: their already extraordinary policy. Let's get everybody caught up to

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Speaker 1: date and where we are at the moment. SMP shares

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Speaker 1: off by futures rather off by sixteen points three quarters

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Speaker 1: of a percent, DALF shares down one forty three eight

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Speaker 1: tenths Nasdaqi many futures off by twenty three half a percent.

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Speaker 1: In Europe, a down day across the board following on

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Speaker 1: the Asia losses. Stock six hundred is off by four

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Speaker 1: points one point one percent, the docks in Germany hundred

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Speaker 1: and twenty one points lower one point two percent, and

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Speaker 1: the foot seats down sixty eight points right now one percent.

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Speaker 1: Bond market one eight three is your yield on the tenure,

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Speaker 1: the five year going for one point three one percent.

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Speaker 1: Eighty one basis points for the two year bonds were

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Speaker 1: a little bit higher earlier today they have moved lower

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Speaker 1: in the last few minutes or so. West Texas nine

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Speaker 1: is down a tenth, but Brent Crew eighteen unchanged. We're

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Speaker 1: over the forty seven and forty five dollar marks that

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Speaker 1: we crossed several times yesterday. The real action today the

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Speaker 1: currency markets, the yen getting hammered on the back of

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Speaker 1: the Bank of Japan nondecision. It's lost three percent or gain.

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Speaker 1: We call it gain three in a way if you

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Speaker 1: want to turn and put it in a end terms

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Speaker 1: one oh eight oh eight year o going for one

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Speaker 1: thirteen forty seven and euro yen gaps as well, one

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Speaker 1: twenty two sixty five right now. So an awful lot

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Speaker 1: going on in the markets. And this is a bloomberg avounce,

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Speaker 1: and we are David Gray and I busy trying to

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Speaker 1: keep up with it all. We're brought to you by Investco.

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Speaker 1: Don't settle for average in your portfolio. To Investco, the

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Speaker 1: right approach means investing with high conviction. Find out more

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Speaker 1: at investco dot com. Slash high Conviction. A great lead

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Speaker 1: on the Bloomberg this morning. I have to read it.

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Speaker 1: Even when they do nothing, central banks have the power

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Speaker 1: to surprise and bewilder and chewing on that for a while,

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Speaker 1: surprising and bewildering people who were long going into the meeting.

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Speaker 1: Certainly helping make it, helping us makes sense of all

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Speaker 1: of this this morning. Julian Emmanuel, equity strategist at UBS,

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Speaker 1: I guess we should probably start with the big deal.

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Speaker 1: Uh where's UBS on healthcare? Do you want any of

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Speaker 1: those companies have it or uh? St Jude. We are

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Speaker 1: actually quite positive on healthcare. It's been one of our

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Speaker 1: preferred sectors for almost two years at this point, and

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Speaker 1: certainly it's been difficult the last several months as the

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Speaker 1: political winds have certainly buffeted the health care sector. But

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Speaker 1: what this points out is that this is this is

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Speaker 1: a place where there's so much cash that's being thrown

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Speaker 1: off amongst a large slew of these companies. That consolidation,

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Speaker 1: whether it's um in anticipation of a future growth trajectory

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Speaker 1: or in anticipation of regulatory activity down the run old

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Speaker 1: and getting ahead of that is is something that we

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Speaker 1: think is going to continue. We're joking a minute ago

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Speaker 1: about the Minneapolis and version there, but I wonder if

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Speaker 1: this is a sign of something that that the the

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Speaker 1: great version deals of the past now or at least frozen,

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Speaker 1: or we're not going to see more of them for

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Speaker 1: a while here, the mega deal, the contours of the

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Speaker 1: megadeals are going to change. Well, it's certainly more more

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Speaker 1: than coincidence that you had you know, obviously the Blockbuster

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Speaker 1: deal break up a month ago that would have involved

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Speaker 1: in version, and now you have an on short type deal.

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Speaker 1: And you know what we'd expect in general is is

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Speaker 1: just a continuation of domestic consolidation for the most part. Well,

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Speaker 1: what's your your rationale for being positive unhealthcare for so long?

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Speaker 1: Was it deals and mergers or uh? Is it a

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Speaker 1: a really strong cash flow business? Well, it's all of

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Speaker 1: the above, and actually, uh, you know, the consolidation story

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Speaker 1: has been a positive for certain, but when you when

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Speaker 1: you look at it, um, the Affordable Care Act and

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Speaker 1: and all that that has engendered have been tail winds

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Speaker 1: for the earnings trajectory. And in an environment where earnings

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Speaker 1: growth is as challenged admittedly as it is, healthcare has

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Speaker 1: been one of the more consistent performers. Uh. Just we're

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Speaker 1: gonna have to take a quick break. We'll set up

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Speaker 1: to come back and ask you about this. But were

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Speaker 1: you as positive about Japan as as you were about healthcare? Well,

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Speaker 1: I guess the governor Corona didn't get Janet yell and

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Speaker 1: skip script from the previous evening. Well he followed exactly

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Speaker 1: the same script. Well, well he he didn't, but he didn't.

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Speaker 1: And and the bottom line is that the markets, certainly

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Speaker 1: having come off of the bottom in February and rallying

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Speaker 1: as much as we have uh in the U S

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Speaker 1: and and to in a certain extent globally, um having

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Speaker 1: been de risked. When you surprise the markets, there's a

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Speaker 1: price to be paid. And Corona s is the markets

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Speaker 1: all right? Julian Emmanuel is with us. He's an equity stratus.

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Speaker 1: Tot ubs will continue our conversation with him here on

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Speaker 1: Bloomberg surveillance. I want to repeat another earnings number that

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Speaker 1: really caught my ford. First quarter just at earnings per

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Speaker 1: share sixty eight cents, that's twenty cents better than the forecast.

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Speaker 1: Revenue comes in a little light though, thirty five thirty

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Speaker 1: five point two billion compared to thirty five point seven expected,

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Speaker 1: which raises the question of what they did to uh

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Speaker 1: to get the earnings per share up so much, and

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Speaker 1: we'll uh look into that as well. As we mentioned futures, well,

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Speaker 1: they've improved a tad after all this news flow SMP

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Speaker 1: futures right now down fourteen points This hour of Surveillance

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Speaker 1: sparty by mont Kisco Volvo. Visit Montkisco Volvo dot com.

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Speaker 1: Here's Michael Barr with the latest news headlines. Mike, thank

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Speaker 1: you very much. It looks like another they're embarrassing failure

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Speaker 1: for North Korea. South Korea's defense ministry says the North

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Speaker 1: launched a powerful intermediate range missile today, but it crashed

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Speaker 1: moments after liftoff. Republican presidential candidate Ted Cruz has named

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Speaker 1: Curly Fier Arena as his running mate. Crews made the

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Speaker 1: announcement even though he is mathematically unable to become the

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Speaker 1: Republican nominee. Outright front runner Donald Trump mocked Cruz, saying

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Speaker 1: he is the first presidential candidate in the history of

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Speaker 1: choose the vice presidential candidate. House panels approved a six

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Speaker 1: House Arms Services Committee agreed to the measure. Sixty two

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Speaker 1: plus Mobile Act and on your radio. This is a

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Speaker 1: Bloomberg Business Flash and I'm John Tucker. This updates being

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Speaker 1: brought to you this morning by Sector Spider et s

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Speaker 1: Right by a single stock when you can invest in

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Speaker 1: the entire sector. Visits sector spt r S dot Com

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Speaker 1: or called one the six six sector e t f

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Speaker 1: A stock index futures in the US, they're dropping after

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Speaker 1: the Bank of Japan unexpected to refrain from adding distiblished measures,

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Speaker 1: signaling equities will slide for the first time in three days.

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Speaker 1: S and P futures they've improved just the tad right

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Speaker 1: now they were down fourteen points. That's down seven tenthsuper percent.

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Speaker 1: The down future is one hundred thirty seven points lower,

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Speaker 1: that's down about eight tenths percent. And the tech heavy

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Speaker 1: nast deck At futures right now nineteen points lower, that's

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Speaker 1: down four tenths of a percent. And we checked the

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Speaker 1: markets for you every fifteen minutes so during the trading

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Speaker 1: day right here on Bloomberg Radio. Let's gotta check out

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Speaker 1: news from around the world. Now, here's Michael Barner. All right,

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Speaker 1: thank you, John Tucker. It's Michael McKee, not Michael barr,

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Speaker 1: along with David Garraw and we are here with Julian Emmanuel.

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Speaker 1: He is an equity strategist for UBS and uh, we've

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Speaker 1: been busy just keeping up with all the news we

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Speaker 1: talked the Abbot deal, we talked about earnings four earnings,

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Speaker 1: we talked about the Bank of Japan, and all of

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Speaker 1: that kind of misses the point of what you do

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Speaker 1: in the sense of I'm asking you minute by minute

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Speaker 1: would you trade on these things? And you're supposed to

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Speaker 1: be looking longer term and figuring out your strategies. So

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Speaker 1: once you bring us up to data, what you think

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Speaker 1: of the markets these days? If we weren't talking about uh,

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Speaker 1: individual stocks because of the breaking news, we'd be asking

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Speaker 1: you about valuations, about where we're headed at, about the

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Speaker 1: impact of central banks on a on a macro scale. So, uh,

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Speaker 1: where are we where? Where? What do you think? Uh?

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Speaker 1: This warning about equities uh in general as opposed to

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Speaker 1: uh the individual stock Well, so if you look at

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Speaker 1: a longer term chart, essentially this bull market is now

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Speaker 1: a bit over seven years old, but it's been in

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Speaker 1: a holding pattern for the last two years. UM. But

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Speaker 1: what happened in January and February, to our mind, was

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Speaker 1: very significant. It really was in a lot of ways,

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Speaker 1: the bursting of what we like to call a negativity

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Speaker 1: bubble um. Whether you think about it in terms of

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Speaker 1: you know, very pessimistic sentiment or at the bottom the

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Speaker 1: SMP five hundred dividend yield seventy basis points higher than

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Speaker 1: the ten treasury and both of those measures historically are

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Speaker 1: very good predictors of positive forward returns six and twelve

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Speaker 1: month basis. In terms of valuation, Uh, there's no question

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Speaker 1: that we are at the high end evaluations based on

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Speaker 1: the post financial crisis environment, although we are below prior

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Speaker 1: bowl market peaks sufficiently below that. If we get the

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Speaker 1: economic growth that we expect to get in the second

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Speaker 1: half of sixteen and into two thousand and seventeen, there

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Speaker 1: is the potential for multiple expansion. You're not gonna believe this.

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Speaker 1: We have another deal there, another deal crossing here in

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Speaker 1: the healthcare space. Ab V gonna buy STEMS Centrics. This

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Speaker 1: one's a little bit smaller. Five point eight billion dollars

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Speaker 1: in cash and stock. That is literally just crossing. So

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Speaker 1: we'll get you more details on that, David as they

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Speaker 1: come across. Absolutely, Julie, what's your outlook for for volatility here?

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Speaker 1: Volatility has been kind of low, but going forward, what

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Speaker 1: do you expect to say? Well? So, so, again, the

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Speaker 1: backdrop is looking at last year UM coming into the

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Speaker 1: FED starting a hike cycle and and presumptively we expect

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Speaker 1: two more hikes this year. Markets do tend to get

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Speaker 1: more volatile, and admittedly we are in the late stages

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Speaker 1: of a bowl market, and again volatility is the norm

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Speaker 1: there um. It's certainly within the smaller cycles. Uh. You

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Speaker 1: go back and forth, and what we would say is

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Speaker 1: the rally off of the lows in February really has

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Speaker 1: taken perhaps a bit too much risk out of the markets.

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Speaker 1: I think there's an element of complacency in the near

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Speaker 1: term and we're certainly seeing that this morning with the

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Speaker 1: reaction to the end, despite this very positive backdrop of

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Speaker 1: m and a occurring well, do we think that things

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Speaker 1: are going to improve more quickly than a twelve to

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Speaker 1: eighteen month timeline that you're talking about, because we are

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Speaker 1: seeing some confidence expressed by these companies in terms of

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Speaker 1: some of these deals, and we're all so seeing over

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Speaker 1: and over again better than forecast earnings. Now, granted, earnings

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Speaker 1: per share our a game that they're not real, but

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Speaker 1: the forecast was so negative that to see companies coming

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Speaker 1: in um at such a high beat rate, should we

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Speaker 1: continue be negative or should we start to feel more positive?

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Speaker 1: You know? Within two thousand and sixteen say so. So

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Speaker 1: basically the story of the last several months was the

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Speaker 1: fact that, as you alluded to, expectations were so diminished

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Speaker 1: that they were easily beaten. But because the sentiment had

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Speaker 1: gotten so negative during that time, it powered markets ahead.

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Speaker 1: But now we're in sort of a more of a

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Speaker 1: show me type state. Uh, you know, you've had you've

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Speaker 1: rallied sixteen percenters so off the lows. Valuations again are

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Speaker 1: are starting to get towards the upper end of the ranges.

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Speaker 1: And so what we really are gonna want to see

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Speaker 1: is the path to true growth. And I think again

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Speaker 1: that speaks back to healthcare, which does have a path

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Speaker 1: to true growth and clearly a sector that's spending its

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Speaker 1: cash um opportunistically as well. You mentioned healthcare. What other

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Speaker 1: kinds of companies do you want to hold right now?

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Speaker 1: We like financials here, we think basically, when when you

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Speaker 1: think about this low interest rate environment, UM, financials have

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Speaker 1: had some time to adjust and the sentiment is very

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Speaker 1: very depressed in terms of financials. And actually when you

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Speaker 1: think about two thousand and sixteen and the back and forth, UM,

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Speaker 1: it's very much a game of psychology and as far

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Speaker 1: as financials are concerned, investors have been underweight there and

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Speaker 1: what we're seeing is that better than expected because expectations

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Speaker 1: are so low. Is um causing positive price reactions there,

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Speaker 1: And we think that when you look at the market

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Speaker 1: on a longer term basis, financial leadership is very positive

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Speaker 1: for higher equity prices generally in the months ahead. Julian

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Speaker 1: Emmanuel form b s thanks for coming by this morning. UM,

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Speaker 1: I haven't even had a chance to look at who

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Speaker 1: the advisors are on all these deals this morning, but

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Speaker 1: I guess you want to check that out if you're

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Speaker 1: interested in following Julian's advice and investing in financials. Here's

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Speaker 1: the deal on Abby. They're buying stem Centrics. It's a

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Speaker 1: cancer drug maker five point eight billion dollars two billion

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Speaker 1: in cash, the remaining three point eight billion in stock

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Speaker 1: UH stem Centrics investors eligible to receive an additional four

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Speaker 1: billion in cash if what they say are certain regulatory

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Speaker 1: and clinical milestones are achieved. By the way, VY reporting

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Speaker 1: first quarter earnings UH dollar fifteen dollar thirteen was the

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Speaker 1: consensus forecast, but they're lowering their forecast for the rest

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Speaker 1: of two thousand sixteen. Is they digest this acquisition the

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Speaker 1: lightest deal. The other, of course, Abbot Laboratories agree to

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Speaker 1: buy St. Jude Medical, and a deal that values the

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Speaker 1: maker of heart devices at billion dollars. Again, that is

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Speaker 1: a silly five cents in cash point eight seven or

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Speaker 1: eight shares of Abbot Commons don premsend a total of

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Speaker 1: protiately eighty five dollars a year. Bloomberg Surveillance on Bloomberg Radio.

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Speaker 1: Coming up, we will recap it's merger Thursday. Who could

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Speaker 1: have thought? And we'll talk about some of the earnings

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Speaker 1: and figure out what that means for the markets ahead.

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Speaker 1: This is Bloomberg Radio.