Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20240714

Listen to the exchange. Sen. Harris i do not believe you are a racist. It was hurtful to hear you talk about the reputational two ors whostates senat built their career on the segregation of race in this country. This campaignhave litigated on who supports civil rights, im happy to do that. David number one, you dont want to be saying im not a racist. Number two, the thing that struck me as i think a lot of democratic voters in the primaries are saying, who can beat President Trump . Joe biden did not come across as someone who can beat donald trump on the debate stage. Alix it is the optics of a split screen like that. It just shows how much the Democratic Party has really changed in the last 30 years. David that was pointed out very explicitly, saying it is time to pass the torch. Alix which they kind of already said it some point before. In the markets, nothing is happening. Wait till sunday, when markets start opening for trading. Maybe a little volatility because the russell rebalancing at the end of the trading day, but really it is going to be about the g20 and any headlines overnight. Inflation holding up in the euro zone. Core coming in at 1. 1 . Crude pretty much goes nowhere. It is a wait and see after an unreal six months for the markets. David its time now for bloomberg first take. We are joined by Sarah Ponczek and mark cudmore. Mark, its been a pleasure having you from singapore a week long. Lets start with the g20. President trump saying he hasnt promised he wouldnt put more tariffs on chinese goods. [indiscernible] mark i think hes retained very much the same line all week. It is not that much ebb and flow. Hes been very consistent that hes going to take a hard line on china, and china has been consistent that they want to negotiate on equal terms. I do think that actually, despite the fact we are hyping up this event, it is probably not as binary as people are thinking. Most likely would get that base case handshake statement, and we dont know whether or not there will be more tariffs or a trade deal. Sarah it feels like its been going on for a long time. At least the g20 is finally here. Maybe we will get a little bit of substance, but it is hard to know if we will actually get a true outcome. Investors have been woodland down there base cases to say we are probably not going to get a deal. Theres probably a 0 chance of that actually come to fruition this weekend. What we will likely get is potentially a resolution, potentially just another kicking of the can down the road, and no further hike in tariffs. If we do get a further hike or a warning that we are going to see one in the near term, then we could see markets finally take that in and come back a little bit. You look at the recent performance we seen for semiconductors, materials, tech, we seen a build up in the markets up until this point. Alix mark, you played to the bear case in an article. Heres the bull case. Is it is a good thing for the world when america has good momentum and a resilient fed, no matter what comes out of osaka this weekend. Mark i think that those savings steer quite fast when the leverage markets start coming down. Argument that andy made, and it is slightly unfair to attack in here [laughter] seeing pmisnot slump, but the pmis are already way lower than when the recession started in 2007, and the big come later on. Alix in the meantime, it was rally, everything definitely in june and the first half of the year. Total returns for the first half of the year the highest since 2010. Sarah, does that continue, and what is that contingent on . Sarah many people have been trying to reconcile the fact that stocks and bonds are rallying together. Seam time, there are many people out there who are going to bonds as a hedge, but also seeing i need to get yield somewhere. If bonds are yielding so little, i really have no other option than to stay in stocks. However, something i found so interesting this year is if you look at etf flows for the first half, they are so decidedly defensive. On the equity front, you have really only seen flows into the very defensive areas of the market. It is all about low volatility and dividend yield. Weve also had a record first half or bond inflows as well, which goes to show you the s p rally. David all of that is because both bonds and stocks went up. If one has to give, which is it going to be . Mark i think the first stage will actually be bonds a little bit. Stocks will probably trade around highs for a little longer until we know it is deftly turning down. Stocks tend to turn down a little later, but once they gain momentum, they will go much further. David we got the second round of stress tests out yesterday, and basically everybody passed. It is pretty extreme nearly it is pretty extraordinary if you look at it. Alix it is almost like everyone gets a trophy. [laughter] david at jp morgan, look at that. It is up 10 billion. Pretty extraordinary come overly pretty extreme area, really. Sarah this is where we are, i guess. The worries about the Global Financial crisis may be starting to move to the back burner. Every single bank passing, and you have a record amount of payouts. Analysts were expect and 150 billion. Around the space, you are seeing a rally in the premarket day from jp morgan to Goldman Sachs to bank of america, Deutsche Bank in particular. Good outcome for the banks. Alix based on that, if you are going to buy banks as a payout, how much more can we actually get . We are a quebec we are at a record 170 billion. Mark certainly it seems pretty extreme at the moment. I do think it is an important take away that banks are much more resilient. We are not going to have a repeat of the 2008 crisis. Many traders work on the psychology that they look for the last thing they are used to. Because of this experience of a systemic financial crisis, they are looking for the next thing to be similar. It is not going to be similar. David one thing i am interested bair onad sheila yesterday, and she said when you are late in the cycle, assets are high, defaults are low, and there is a false positive been generated by the stress tests. Should we worry about where we are in the cycle . Sarah that absolutely makes sense. I dont know if we should be worried about where we are in the cycle. Cycles dont die of old age. However, we are at this point where now, the Federal Reserve is supposed to lower Interest Rates once again, and that is only going to put more pressure on the banks. Alix did you see that goldman and Ally Financial are lowering their deposit rate now for some of their high yield products . So much for that deposit beta we were super jazzed about for a little bit. David let the good times roll. Alix i guess. Bloombergs mark cudmore, it was so great to have you here. Sarah ponczek, thank you very much. We have some headlines from the iraqi Energy Minister ahead of saying theeting, opec cut may not deal with the glut. They may need to deepen their output cuts. Should also point out that all of the countries are producing less than their actual cut. So if they even went to target, theyld be creasing would be increasing the production. David by question for you in the opec plus dynamic, how big a role does iraq play . Do we will listen to iraq . Alix now. I think no. I think iraq is going to pump whatever they want to pump. Saudi arabia is going to tow the line and get an agreement from russia in some capacity. Coming up, its showtime. More on the highly anticipated meeting between president s trump and xi that could determine the next chapter of the trade war. We will speak to the asia policy institutes Vice President. This is bloomberg. David President Trump and ahead of xi are just their meeting at the g20 in japan, with both getting lastminute posturing. We welcome from osaka shawn donnan. Prison trump hasnt committed on no new tariffs, but thinks something President Trump hasnt committed on no new tariffs, but thinks something could happen. Who is he talking about bullying . Shawn theres been two features to todays events that they g20. One has been done on from building suspense ahead of the big show tomorrow, his meeting with xi jinping. Himself and xi himself referencing bullying and unilateral practices. We also saw him reference in keeptically the need to Global Supply chains intact, which seems to be a reference to huawei and the u. S. Blacklisting. Weve got the stage set for a pretty important meeting tomorrow. The world is watching. Here in osaka, certainly the suspense is building. David and we will be watching you over there in osaka. Thank you very much. Of course, there is some other business being done over there. We are also focused on the g20 meeting going on. There are some discussions with japan, india, things like that. Alix you had a great photo of the three of them, trump, abe, and modi, all happygolucky. This is a photo which, to me, was staggering, the picture of mbs stark in the middle. I year ago it was like saudi arabia because of the murder of khashoggi. David and he is the one that stands out. Alix exactly. It is interesting to see if you end up getting some kind of deal with china in some capacity, does that make trump go a little abe or europe, or is it happygolucky . David he hasnt made edge much he hasnt made as much a deal about japan back home. Its been all about china. President trump is thinking about his position before 2020, and china is front and center. In the meantime, we are going to go back over to osaka now to stephen engle. Talk to us a little bit about what is going on with india and japan. Thats right. Donald trump earlier this morning did mention he expects big trade deals with both of those countries. Disputesed various with those two allies come on auto tariffs those two allies, on auto tariffs, and to which india has responded with tariffs of its own. Both xi jinping and donald trump have both had bilateral today with india and japan, with the russians. It is all setting up the stage for the big meeting tomorrow. That is what everybodys looking at. We are trying to read the tea leaves and find out what Robert Lighthizer possibly talked about with liu he. Right now, the big leaders are all behind me at a cultural castlearound the osaka in preparation as we are all waiting for what is going to happen tomorrow. Alix thank you very much. Joining us now, wendy cutler, Asia Society Vice president and executive director. Oft do using we will get out tomorrow morning . We will seexciting a resumption of the trade talks, and then a truce imposing further tariffs and trade related action. Im going to be looking closely at how they characterize any resumption of talks and whether we sense that both sides are really into a successful conclusion, or they are both little holding back and trying to figure out their own politics and seeing if they can get a deal based on their own terms and not caved to the other. David lets talk about what they are unlikely to agree upon and what they could agree to. President trump apparently doesnt want china to be number one. Thats not necessarily something china would agree to. On the other hand, china once to continue to develop the way it has been and retain economic sovereignty. Those are things they probably wont agree to. What could they agree on . Wendy they could agree to proceed with the talks in a way that produces balance, that produces followthrough, that is based on mutual respect. Theyhe key will be how do sort through those remaining issues, which some have characterized the 10 remaining issues . Those can all be solved. However, you really need the political will and the willingness to giveandtake, and we are just not seeing that. I think both sides think they are coming from a stronger position and they can wait the other out. Alix based on that, do you think the tail risk are underpriced . Guest certainly. I definitely dont think there is going to be any concrete agreement, and i think the best we can hope for is a resumption of talks. This is a battle for global hegemony. If we do end up getting a trade agreement this year, i think it will end up being temporary in nature. I dont think we can get a lasting deal whatsoever. David a lot of talk has been about the trade in soybeans and theres a lot of talk on currency. The talk on the u. S. Dollar and remember and renminbis. I think the natural path for the cn why is much weaker for the cny is much weaker, so i think the natural path is to see that explosion through the seven handle and whether trump can convince china not to allow that to happen. Alix how do you hedge risk right now . Christian with difficulty. Volatility is low, so options are cheap. David let me ask you the unfair question from a bank of America Survey that says people think it is 65 likely that they will kick the can down the road, not impose new tariffs, but agreed to talk. What about the other 35 . What are the chances that it would be much better than that or much worse than that . Wendy i think the odds are higher they are going to resume and kick the can down the road. I would almost give it 80 , unless something goes really wrong. I dont think it is in either sides interest to leave without talks resuming, but again, successful conclusion is completely another thing. David wendy cutler, thank you so much. Christian lawrence of rabobank will be sticking with us. All 18 banks, including in battled Deutsche Bank, past the feds test. This is bloomberg. Mberg. Alix all 18 banks pass the second round of stress tests, good news especially for Deutsche Bank. Joining us is bloomberg intelligences senior bank analyst. What were your takeaways from yesterday . One is we think the fact that they are showing progress on their process in the ,. S. Is a key posture especially among some any negative headlines and concern over the past year or so. From the u. S. Bank perspective, goldman wellhead of estimates. All the banks basically meeting or beating. Goldman was the biggest surprise, especially its dividend was really positive, giving support to sustainable earnings confidence for them, and i also think sort of sending a signal to different types of investors that actually look at dividends, dividend yield that is more competitive with the other peers. Jp morgan, bank of america, still over 120 . I think the fact that their payout was better than expected is also positive. Bank of americas payout ratio perhaps still the most positive. There dividend was a little light, but still a 20 increase. Alix if you are wells fargo, youve got to have some kind of payout. Have we topped out in terms of payout . We are already at a record 170 billion. Is it the best it is going to get . Alison it will be interesting to see what happens over the next year or so. These are the indicated payout plans, so we also have to see what happens with earnings and the fundamental outlook. We are basically getting to a place where the banks are sort of managing to the capital ratios that they expect over time, so that sort of limits the potential upside. I think thats why you maybe want to start focusing more on the dividend yield than the gross in yields you are getting across these stocks. David this is no doubt good news if you are a shareholder in one of these major banks. What about for the activity of the banks . At the height of the stress tests, we heard you are really constraining growth in this country because we cant do things in terms of financing and lending that we should be doing. Does the passing of these tests indicate the willingness to take more risks . Alison i think the passing of the tests really just indicates the health of the banks. Obviously, their ability to withstand these stress tests. The banks came in with higher capital ratios last year, a lot of that related to the taxes, but at the end of the day, banks are still going to look to Investor Capital and healthy loan growth if they have those opportunities, but we are at a point where we are late cycle, so it is that balance between looking for healthy growth and being prudent. Alix thank you so much. Interesting, though, we were a week or two away from Bank Earnings coming out. That is going to be for the outlook. Fascinating conversation. David you wonder whether it will cause things to be overpriced and things come down again. Alix absolutely. Coming up, the dollar is an input for the fed, not an outcome of policy. Thats according to San Francisco fed president mary daly. We will bring you birds exclusive interview we will bring you bloombergs exclusive interview with her, next. This is bloomberg. The latest innovation from xfinity isnt just a store. Its a save more with a new kind of Wireless Network store. Its a look what your wifi can do now store. A get your questions answered by awesome experts store. Its a now theres one store that connects your life like never before store. The xfinity store is here. And its simple, easy, awesome. Alix this is bloomberg daybreak. You made it to the end of the Second Quarter, to the first half of the year, and the g20 is just moments away. S p futures going nowhere. It looks to be the best first half of the year in years for the s p. European stocks a little on the upfront. 1 . Dax up by 5 10 of jeremy hunt, the foreign secretary of the u. K. And running for prime minister, says he will not bring mays brexit deal back to parliament, and that it would be better for the u. K. To leave the eu with a deal. I mean, ok. Sure. [laughter] alix i feel like it is the same conversation. The cable rate actually moving a little higher on that. David but parliament says, are you kidding me . We are not going with that deal. Alix it is the same conversation that he says hes not going to bring the deal back, but we dont want to go without a deal, and we will bring some the key you. David how do you say groundhog day in british . Alix i dont know. I think thats an american thing. David its time for an update of whats making headlines outside the business world. Viviana hurtado is here with the first word news. Viviana we begin with less nights democratic president for debate. It had a breakout moment for kamala harris, putting front runner joe biden on the defensive over race. Pass forok biden to fondly recalling his relationship with segregationist senators. At one point, shes tried to step above the fray as candidates interrupted each other. We are going to let you all speak. Sen. Harris hey guys, you know what . Americans do not want to witness a food fight. They want to know how we are going to put food on the table. Viviana harris has struggle to catch fire this campaign. She is aggressively courting African American voters. House Speaker Nancy Pelosi her immigration bill. That infuriated progressive democrats who wanted to vote on their own bill. The house passed the legislation President Donald Trump is expected to sign. A smiling President Trump telling Russias Vladimir Putin not to interfere in next years president ial election. The lighthearted warning coming as the two men are the g20 summit. The president rejected the conclusion by intelligence officials that the kremlin meddled in 2016. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Hurtado. Na this is bloomberg. Alix wow. David wow. Alix that was one of the takeaways from the last 12 hours of japan. And then putin says, would you translate and then he laughs. Alix this is quite a serious issue. , we have annt out exclusive interview with putin with an amazing outlook as to how he looks at the world, and that basically liberalism is dead. David that is time has passed and National Populism has taken over. People should read it. Alix and by the way, election meddling is a joke. Today marks the end of the Second Quarter and the first half of the year. Lets look at the winners and losers. Here is bloombergs taylor riggs. Taylor we know we hit a record high on the s p 500 just days ago. It is very risk on tech, financials, Energy Leading the way. Even though we had a rally in the bond market, you are seeing that the rate sensitive sectors leading the way. The u. S. In the first half of the year up 17 can outperforming in purple and yellow, countries like the asiapacific region. Interestingly, they are still up about 10 for the year. Then it is all about the dollar. In may, we had the dovish pivot by jay powell. That meant you saw a little bit of dollar weakness in the end of the first half of the year. Ruble was the big outperform her. Positive trade talks within the new nafta with the Canadian Dollar the mexican peso strengthening relative to the u. S. Dollar, but dont forget it is all about trade with the asiapacific region. In the southncy korean currency some of the weaker performers relative to the u. S. Dollar. David thanks so much. As taylor just said, it is all about the dollar. Mckee askede mike San Francisco fed president mary daly what that could mean. The dollar is the treasurys responsibility, so when we are meeting our judgment about monetary policy, we are really thinking about the inflation mandate and full employment mandate. The dollar is one of the financial variables we track, but we dont think about it as an outcome of our policy, largely as input of our policy. Michael it would likely go down, would it not . It depends on a number of factors. The dollar fluctuates more than on just the u. S. Economy. It fluctuates on geopolitical issues, debt ceilings, etc. Siri would tell you that would happen, but that is not necessarily what could happen. Onhael if you do a rate cut july 31, how do you feel about the debate on whether it should be 50 or 25 basis points . The new theory that it is better to take stronger action earlier. That is a theory that is not as new as it seems. It is just the first time weve had to think about in a long time. That came out of research after the Great Recession in the initial recovery, that using your tools early and staying away from the zero bound is important. It will depend to me on how the data comes in. Significant weakening will call for different actions then if we are just getting headwinds that we are slowing. It is too early from my perspective to know whether we should use the tool at all, and what magnitude of the tool we should apply. David still with us his Christian Lawrence of rabobank. You heard mary daly saying we dont think much about the dollar, and it is not clear what the effect would be. President trump has a decidedly different view. He says if you cut the rates, we get a cheaper dollar, and that is good. Christian i think even with aggressive rate cuts, i expect from the fed, i think the dollar can mean relatively well supported. Theres a shortage of dollars offshore. The more we see in the way of protectionism from the u. S. , the more that increases. Inseen a huge leveraging up dollardenominated debt, so theres always going to be a bid from that perspective. Even with rates being cut in the u. S. , the u. S. Dollar still looks like a highyielding currency compared to the likes of the euro, sterling, aussie, kiwi. Alix if we see more dovish Central Banks a more dovish Central Banks elsewhere, the move would be dollar negative. Christian that would take some of the shine off the dollar, but when you look at other factors that can provide support, you end up with a situation where im not a huge dollar bull. I dont expect as dramatic a rally, particularly with rate cuts from those differentials, but it can remain relatively well supported. Alix does that give support in any way to other Central Banks to ease more than they might otherwise or not . Christian it does feel like a bit of a repeat in 2014 and the fx wars. We have the ecb was a far more dovish stance. I think we will see this turn to a more dovish stance across the globe, not only in developed markets, but emerging markets as well. David does that mean you would go long in the dollar . Do you think it is skewed to the upside in terms of value . Christian i think flat is basically the stance im taking from that perspective. Willest rate differentials wait, but other factors will provide the support. Alix is there a way to look at the g10 currency with a stronger dollar or a weaker dollar . Christian i certainly think that is going to pan out for the rest of this year. Certainly with the reduction in rates in the u. S. , or the reduction in the curve, i should say. That is support and that is supporting for emergingmarket currencies. On emergingll weigh markets further. Two cases. Aid out Goldman Sachs strategists saying the volatility is high for em, the persistent return isnt , making currency the tactical trade. Morgan stanley says em currencies have lagged, and there is catchup potential underway. You seem to agree with both of them. Christian i think it is more of a tactical play in the short term. As we look out further to next year, we will see more in the way of weakness emerge as we start to see the Global Growth scenario worsen further. Of course, it depends on where we are looking. Central european emerging markets linked to the euro are not going to benefit from the reduction in u. S. Yields to the same extent. If we are looking at chile and peru, they are likely to suffer more as long as we see trade wars continue, because that is dampening Global Growth and trade. David im curious about how you analyze it. Goldman said you take the yield and divided by the volatility. Is that the way you look at it . Which currencies are more volatile, and therefore you must have a higher yield to justify . Christian that is how we look at the volatility adjusted carry. I also tend to adjust for liquidity as well. If we take the mexican peso, it is the fourth most attractive carry currency adjusted for volatility. If we adjust for liquidity as well, that is number one. Thats one reason why we seen the mexican peso perform relatively well this year. When we did get that selloff on the back of trumps trade terrorist threats, we soon saw that reversed, almost immediately, because the carry trade players came running back into the cup that attractive yield. Alix moving to a broader Interest Rate conversation, if we come inside the bloomberg, Interest Rates at the lowest level in 18 months. At 1. 48 . They are how low does it go this cycle . Christian when i was last speaking to you back in march, we were calling for five rate cuts by the end of 2020. Alix it seemed crazy at that point. [laughter] christian i remember your eyebrows flying up. Of course, now weve seen three being priced in by the end of this year. We seeing this huge repricing of the curve, but certainly i maintain that we are going to get a july insurance cut, and we will see further rate cuts down the line. I think it is inevitable that we see loser policy everywhere. I think in europe, we see the ecb take rates down to minus 0. 8 . I think that goes back to the fx wars dynamic echoing back from 2014. David but when everyone hurries into one side of the trade, does attempt you to take the other side . Christian certainly from a tactical perspective there is room for a pullback in yields. Weve moved so far, so quickly come of that positioning is heavily skewed towards lower rates. But i am of the view that really, lower rates are a structural phenomenon that is going to persist. It is not going to change. We dont have productivity growth in developed markets. We are not seeing wage growth emerge in ways we hoped. We are basically stuck in a world of lower rates. 80 basis points cuts in europe . Really hope that doesnt happen. David coming up, this weeks edition of Bloomberg Businessweek is dedicated to what it takes to be a thief. This is bloomberg. Viviana this is bloomberg daybreak. Hour, up in the next Sullivan Cromwell senior chairman. Viviana this is bloomberg daybreak. Heres your Bloomberg Business flash. Boeing may need up to three months to fix the latest Software Flaw on its 737 max. It has nothing to do with the Software Problem linked to two fatal crashes. Boeing has told customers the jet mayfly again in september. Group sets the price at berlin entertainment for 6. 1 billion. One of the investors is the Danish Company that controls the lego empire. Now to a bloomberg scoop. Weve learned the white house is developing a Capital Gains tax break that would largely benefit the wealthy, a move that may be done in a way that bypasses congress. The Trump Administration plan would index Capital Gains to inflation. It would also probably face legal challenges. Im Viviana Hurtado. Thats your Bloomberg Business flash. David thanks so much. There was news yesterday out of washington that apparently the administration is considering redoing Capital Gains tax, not just to cut the rate, but to index it to inflation. Basically, it doesnt go up if inflation goes up. Part of the reason it is interesting is they are saying perhaps we dont need legislation to do that. We can just do that is a regulation. Alix if you did, what is the take away . What is the upside . David people with a lot of Capital Gains wouldnt pay as much tax. Alix so what do they hope to get out of it . David that is a fascinating point because i cant believe that is a central part of President Trumps base going into 2020, people that have huge Capital Gains. Isont know how much of this President Trump and how much is stephen mnuchin. Alix theres going to be a trickledown . David theres ongoing debate about whether you cut the Capital Gains tax, whether that encourages investment. My recollection is historically , that has not proven to be the case. That is what some conservative economists would argue. Stephen moore argues that, for example. Alix from politics to oil, you have the opec meeting coming up monday and tuesday in vienna. The question is that 1. 2 Million Barrels a day cut, will that continue or be steepened . Bloombergs Annmarie Hordern joins us now. She spoke recently to the Iraqi Oil Minister. It sounded to me like we might see a cut and might even need a deeper one. Annmarie thats right. These are the two biggest lines coming out of this interview i just had with him. Thats that hes saying russia might be dragging their feet. They are the ones that might need to produce more. He is saying that they recently gave a statement in favor of expending the opec plus deal. It looks like russia is coming basically said watch this space. It is not 100 confirmed whether or not they have this cut, so the g20 will be very could a call. Could be very critical. Iraq would be up for potentially cutting deeper. Alix right. You brought up putin. If you wind up having supply not dealing with the supply glut, what does russia wind up doing . What do the iraqi Oil Ministers say about where he thinks russia is going to come down on all of this . Annmarie he thinks the recent signs that they are in favor of this rollover, but you bring up an excellent point. Russia can live with 40 a barrel for oil. This is the big dynamic between russia and saudi. The 20 a barrel difference. Russia would like 60. The saudis need 80. The range we are now is good for russia. They need to bite their tongue to stick on with cutting more productions come about at the end of the day, it is going to come down to what president putin wants to do. He really becomes the energy czar. Just quickly on prices, the Iraqi Oil Minister said he thinks 70 is more fair for producers and consumers. Alix really Indepth Research there. Talk a little bit, going into the opec meeting, as to where countries are actually producing. All of them are really producing below the target which they are actually allowed to pump. What about the semantics we can expect when all the headlines come out . Annmarie i think thats what makes the iraqi thing interesting for possibly cutting deeper. What makes some people shake their head is they have yet to comply. They have yet to comply with the current agreement. They say they will work on complying, but they have yet to comply. A lot of countries havent complied fully. Russia only recently just complied. Many had a deal with the contaminated oil crisis. The ones that are cutting the deepest are really carrying come deepest, thathe are really carrying, are the saudis. Alix thank you for joining us on the phone. For markets, it is really wait and see until the g20, and until monday to start trading. In terms of the dollar, kinda flat. Commodities really flat. No big positions being taken on. David coming up, shares of vws truck unit fall on the first day of trading. We take a look at the plans to lead other markets. Alix if you are heading out soon, hear us on serious xm channel one and on the Bloomberg Radio app. This is bloomberg. David what im watching today is the new unit that spawned off from volkswagen as their trucking unit. They decided they wanted to spin this off because they thought there was unlocked value to be had. In the first day of trading, not so good, down about 2 or so. In part because they said they would to be very ambitious in the United States. Matt miller caught up with the of traton. Tr he said they also want to go into china. There is a Growth Potential there. [indiscernible] in the next five years, it could be doubled or tripled in volume. David he has some high hopes, i think it is fair to say. People think it is a very valuable unit, but we wonder if it is tied to Global Growth a bit. Alix is this a time where you really want to be expanding that capacity when it feels like global car demand is slowing . Not to mention the whole ev thing down the road. David and trade issues as well. Alix but if you are going to ipo, wooden trucks be it david higher value added be it . David higher value added, no questions. Alix how do you deal with trucks and emissions . David thats a great question. Alix thats part of the issue, particularly for german carmakers. They have a lot of emissions standards they have to meet. David i do not know the answer to that question. In the United States, there is a separate set of emission standards for trucks. That is in part why suvs got popular, because they were graded as trucks. Alix i see. That ipo not off to a stellar start, down by about 1. 5 . In the markets, it is wait and see for what happens in the g20. If you want to look at a trade barometer, i like to look at the dax, up 6 10 of 1 . Yields go nowhere. Eurodollar goes nowhere. 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Trump we are going to have a meeting with president xi of china tomorrow, youve probably heard. Alix countdown continues to President Trump and xis meeting tonight. World leaders continue in japan. The june buy everything rally. The bidding mentality boosts assets. Can the secondhalf deliver on earnings and growth . Deutsche bank passing the banks final round of stress tests the feds final round of stress tests. David welcome to bloomberg daybreak on this friday, june 28. We are not in osaka, japan, where they are all gathering for the g20. They had the family photos, as it is called, but just before that there were various leaders getting in touch with each other. Look at President Trump with president macron. Alix its not over. Keep watching. David then you hold both hands together. I think there is a relationship there. They like each other. Alix do they . David i dont know. Alix you could argue thats a lot of grandstanding. The first handcheck they ever had went on for like 20 minutes. David look at this. Alix but what did they actually agree on . Definitely not when it comes to climate, and that is macrons thing is the paris climate accord. In the markets, weve been talking about it all morning. It is wait and see for the g20. Not a lot of positions are going to be taken on ahead of the meeting on saturday morning. Eurodollar pretty flat. Yields pretty much go nowhere. 2. 02 on the 10 year. Oil not moving as well. You have to think theres not going to be anything happening over the next eight hours. You can go home. David everyone is waiting for President Trump and president xi come a meeting in osaka just hours from now, with hopes the two leaders can move towards a trade deal, something President Trump has consistently said he hopes for, but is willing to do without if it is not a fair deal for the United States. Pres. Trump i spoke to president xi. Terrific president , a great leader of china. Spoke to them this morning at length. We will see what happens, but we think we will have a good deal and a fair deal, or we are not going to have a good deal at all, and that is ok, too. David we welcome the senior fellow from the Peterson Institute of economics. Welcome to new york. Could you have you here. Guest thank you. David play this from the chinese side. President xi recounted that he doesnt want any bullying practices. Hes talking really tough. What is his situation . Guest i think he doesnt want to be seen as caving into a lot of u. S. Demands. It is not a democracy, but he still has to worry about his base, as President Trump does. He would like to reach an agreement, but he doesnt want to pay too high a price. David what is too high a price . Givings i think it is into a lot of demands, changing the ways their economy works. Things thedamental u. S. Side has been looking for. David we keep hearing about it being 90 of the way done. If that is true, that sounds like theyve agreed to a lot of the fundamentals, or is that an exaggeration . Nicholas i think that is an exaggeration. There are a lot of fundamentals to be decided. That figure from other people in the administration. Alix that is a good point. If we have this meeting and there is some kind of handshake, what are you looking at in terms of the rhetoric we will hear out of china over the following 48 hours versus the u. S. , and what does the difference in language tell you about where the chinese actually are . Nicholas i think they will reach an agreement for what i would call a standstill, not imposing more tariffs and a greeting to resume serious negotiations i think thats the best we can hope for out of this meeting. I think both sides will probably declare it a success. David we spent a lot of time talking about the state of the was economy, somewhat less about the chinese economy. Are there certain things president xi would like to get out of a deal that would help him perform his own economy . Nicholas one of the big things it is subsidies of state companies. Thats one of the asks from the u. S. Side. It would help him quite a bit in terms of chinese economic growth, but he wants to have a big state sector. It gives him more political control. He has a tradeoff between controlled one side and growth on the other. David what does he want with respect to the state owned enterprises or private enterprises . When he came in, he talked about reforming away from state owned enterprises. He seems to have changed his position. Nicholas he did flip back after the first couple of years in office. Hes talked constantly about making the state sector bigger, and that has certainly happened. They sported lots of resources into state companies, and many of them have gotten quite large. Alix so how is the state of the economy . You take a look at large, medium and Small Businesses in the growth rate. What do you see . Nicholas the Smaller Private Companies are growing or slowly compared to a few years ago. They used to grow twice as fast as state companies, and now state companies have pulled ahead. Theres been a big turnaround in terms of where the growth is coming from. It is coming now more from state companies, which are musts less efficient which are much less efficient. David theres a perception that president xi has time on his side. President trump has an election coming up. Do you think thats fair . Nicholas that could be part of his thinking. Its very hard to know. I think he can withstand more popular pressure. If trump would go ahead and put on the tariffs on the last 300 billion, he would get a lot of pushback. There would be a lot of consumer goods, apparel, toys, footwear, things people by everyday. Weve been insulated in the u. S. From the effects of the tariffs so far. I think trump probably does not want to go ahead if hes threatened. David thanks so much for being with us. Hes from the Peterson Institute for international economics. Still with us is liz young of bny mellon. At s p options, they seem to indicate a lot of volatility until july 1, and then it drops off a cliff. What are you seeing, and what is the best trade . Amy first of all, that shouldnt be the case. We seen options come in, and typically this is a pretty boring time of the year. Think this time is totally different. What happens out of g20 come of those headlines will be very meaningful. The other thing is if you are cut, wanting that july fed and you have tariffs go to well, is that going to affect that . Theres a little game theory. I think options could continue to be morbid. A little down the line asked to be more bid to be more bid. We have the debt ceiling expiration in september, so longer term option prices are still fairly attractive, and i think you should be owning them. Buy vol. Alix liz, what do you think . Liz amy makes a good point that if we watch what happens with trade discussions for the next couple of days, if theres good news out of that, or at least we get a message that things are going well, then i dont think that there really is a need to cut rates in july. If the fed is looking at a global slowdown, and if the biggest risk to global loath to Global Growth his trade, theres no reason to cut rates in july. The market once it and is pricing it in. David if President Trump really is gaming the system with the fed on this, how does the fed react to that . Do you say it is just going to , isurage him on the trade there a moral hazard going on here . The fed to main an independent position and make sure they are data dependent on economic data, not on market data come over just what Jerome Powell is really trying to do, but it is a very delicate dance. Amy it is so fascinating to me because it is so inextricably linked. So than any other time in the past 10 or 15 years. Thats what i think is so fascinating about it. In the options market, to this degree, isnt really pricing and the moral hazard between these two men right now and what they going to do. Alix what would that look like . If the market priced in this moral hazard, what form would that take . Amy i think that is really tough, too. I think we will find out next week. Any inkling of this whole thing gets resolved, you will see that rate curve change immediately. The other thing is the term structure options. Each bucket in the future is going to start to shift, and right now we have an average upward sloping curve. I think that starts getting bumped right away if you see those events change. David are options actually underpriced right now because easing theres more risks than people are pricing in . Amy i think so. People are in it hoarsely bearish, but there are some detailed events. We havent even talked about iran, which is just floating in the ether. Underpriced,ey are and part of it is positioning because people who are not prepared for the rally in the beginning of the year, a lot of clients have said we are not hedging because we didnt make as much as we should have going in, but we are now starting to see very large flows rolling in. Alix from a broader perspective, if you come inside the bloomberg, you have the move index, treasury volatility, vix, fx volatility, still well subdued, but they have moved higher. How do you look at that . Think that is completely manipulated right now but the market believing the fed is going to support us and put a floor on the market. Maybes point, options or a little bit misused right now, but i think that is because people are using the fed is the option. The fed is the support system, said the volatility is going to stay anchored unless we get some kind of message that the fed isnt going to do what the market wants. They are expecting a cat in july over 75 . In september, i think we are still above 50 . The market is expecting two cuts this year, and the fed hasnt really even signaled they would be one for sure. Once we get to that point where people realize the rhetoric doesnt match, then volatility spikes. David whether it is a fed put or not, it is fed balance. That is fascinating. Silverman of Rbc Capital Markets and liz young of bny mellon will be staying with us. Now we turn to Viviana Hurtado with the first word news. Viviana last nights democratic president ial debate may have been the breakout moment for kamala harris. R thingifornia senato the california senator putting former Vice President joe biden on the defensive over race. At one point, she tried to step above the fray as candidates interrupted each other. We will let you all speak. Sen. Harris hey, guys. You know what . America does not want to witness a food fight. They want to know how we are going to put food on their table. Viviana harris has struggled to catch fire any campaign. She and biden are both courting African American voters. On anuse voted immigration measure that infuriated progressive democrats who wanted to vote on their own bill. The house passed legislation that donald trump is expected to sign. The white house is developing a Capital Gains tax break that would largely benefit the wealthy. It is a move that may be done in a way that bypasses congress. The Trump Administration plan would index Capital Gains to inflation, and would probably face legal challenges. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im Viviana Hurtado. This is bloomberg. David thank you so much. Coming up, the first half of 2019 comes to an end. We take a look at the winning and losing assets so far this year. Thats next. This is bloomberg. Alix the Second Quarter comes to an end today. Stocks hitting new record highs. That makes the first half rally for stocks and bonds the biggest since 2010. Silverman now, amy wu of Rbc Capital Markets and liz young of bny mellon. Can you still see stocks rally in the back half of the year . Liz i think theres a strong case to be made for global easing in other countries besides the u. S. , especially if this trade piece plays out for the rest of the year. We expect there to be some kind of deal with china by the end of the year, but it is going to be closer to the end of the year. We still have a good amount of uncertainty between now and then. You are going to see japan, europe, other parts of asia ease first, and there is no guarantee that the fed is going to do this. Global easing policy is going to continue to support stocks and even bonds. Alix paul singer we spoke to yesterday at a conference. Heres what he had to say about a potential market downturn. I think we are at the highend of the risk spectrum, or haveecting been expecting, not todays a epiphany, aodays significant market turndown. Alix somewhere from 30 to 40 . What kind of downside do you wind up hedging for . Bit we have been a little more pitching for Something Like a 5 to 15 downside. We look at s p put spreads, for example. Gets really attractive payouts. Obviously, if you are getting a 30 to 40 downturn, just outright owning a put option because things will become very correlated, is going to make you money. Volatility is just going to shoot up. Weve more been playing for the market of going to selloff, but it is not going to be the apocalypse. Alix how do you hedge treasuries . Amy in equity world, which i focus on, you can use tlt or any of the bond related etfs to give you the same exposure in a fairly liquid way. David we are optimistic because theres going to be all this accommodation around the world. Theres a competition because things arent going so well, as a practical matter. Two look at a different way, the citi index of people taking earnings expectations down is way up over increasing them. Why arent we taking into account that the reason is because we wont see happy days ahead . Liz i think its been an interesting experience for all of us that over the last 24 months, the market hasnt cared about earnings. We had Earnings Growth last year of 23 to 24 . The market was down. Earnings growth this year was flat or negative. The market rallied without stopping. It is completely disconnected from what is happening with earnings. Last year we had a big boost from tax reform, so it is a tough comp taylor i will give to him but it is a tough comp. I will give companies a free pass on that. If we are seeing 4 or less this year, that is about below average, and we should be concerned. Alix when you see a lot of rotation into defensive stocks, theyve gotten expensive. How do you get exposure without having to pay too much, and get cheap cyclicals if we end up seeing some kind of rebound . Amy one thing we like looking at his taking structures that you can put a dollar in and get x amount out in a limited way, so slp, for example. Selling call option, a call option. Think itt that, i would really surprise people. Those payoffs are really attractive compared to histories, five to one, six to one, verses in the past, 321. Those payouts are still pretty attractive. On the flipside, the auction prices of staples, utilities as you would somewhat expect are high on a percentile basis, whereas the cyclicals were the materials are actually fairly attractive. ,f you do see a rebound at that owning those options are pretty good bang for your buck right now. Of rbcamy wu silverman capital markets, thank you for being with us. Liz young of bny mellon Investment Management will be sticking with us. Coming up come of the latest on the boeing seven max problems boeing 737 max problems. This is bloomberg. David time now for the bottom line, where we look at three comedies worth watching. Nike came out three Companies Worth watching. Nike came out with earnings yesterday and missed on low overhead cost. They went down and came back up a bit. Investors seem to think they are in it for the long haul. An online luxury retailer has raised 300 million in its initial public offering, and pricing above the targeted range. They sold 50 million shares for 20 each. 19. Highend was they have physical sores, but it is mostly on nine mostly online. David the Third Company where watching is we are watching is boeing. We welcome on the phone ron epstein. He has a neutral rating on boeing. Give us your sense of this. We had news yesterday of yet another unrelated problem with the software that may cause the plane to nosedive unexpectedly, but you seem to be taking it in stride. Ron it isjust just part of the process. My understanding is they executed a fault in the Flight Control computer, and that caused a runaway issue and caused nosedown. Andfaa was flying simulating this, and the recovery took longer than they anticipated. A lot of jargon, a lot of talk. The reality is the faa is doing job to certify the airplane, and it is not surprising they are going to find some things. It is going to delay it some more for sure. It seems like now that best, boeing submit a fix in september or october. This pushes out late into the year. Ive had discussion with folks that maybe this could push to january, but this too shall pass. It is part of the process. Price . Ut at what if we get back into january, will there be compensation they have to pay for airlines . How do you quantify for that . Ron theres the aircrafts that were grounded from a boeing perspective. Those are the most expensive from a penalty perspective because they were inservice and taken out of service. The airlines had a whole cost structure to support those planes. Certainrcraft will have per month penalties. Then the aircraft that werent delivered, that right now are piling up, those will also have a fee, a penalty tied to them. That penalty is less because from an airline perspective, that is a bit more productive in what they can do in terms of adjusting the schedules. You see it now. They are pushing out the entrance. It is in the billions. We are estimating it is on the order of probably two to 3 billion for a fixed months tobably 2 billion 3 billion for a six month extension. Alix coming up, and exclusive interview with San Francisco fed president mary daly. This is bloomberg. Alix this is bloomberg daybreak. I am alix steel. Just moments away from the latest read on personal income and personal spending. To thee bit of upside equity market and not a lot of positions being taken into the g20. Other asset classes, a very similar story. You have eurodollar up. 1 . Core inflation at 1. 1 . Above estimates across the pond. Gold futures up 4 . A little safety being bought and crude up. 3 . The data for may. Personal income up. 5 pure personal spending just slightly weaker than estimated. April seeing a nice revision upwards, doubling the. 6 . In that pce deflator on the core level year on year, coming in higher than estimates at 1. 6 which seems to imply that consumer is holding up relatively well. Personal spending cannot cut it. That was just up. 2 . I agree that this is to me the consumer is alive and well. Alix the headlines as core inflation shows signs of life. Joining us is michael mckee. Liz young is still with us. Michael, what did we just learned . Michael inflation is hanging in there. Thank an is for the american consumer, which is the point fed officials have been making. The consumer has been a hanging in there because wages and salaries have been going up. A big drop off from what we had seen. We have seen months of gains of. 4 . ,his month only. 2 particularly in private industry. The big gain that kept personal income numbers higher is government payments to farmers of 6. 3 . This is the trump bailout for the damage he has sent to farm income. That is helping lift the overall personal income numbers but it is the story of government transfers rather than Companies Paying up, which is odd. The fed has to wonder why are we seeing higher salaries or wages with unemployment so low . David it is recycling the tariffs back to the farmers. Alix and more so, because the payouts are more to the farmers than you are getting from china. David they are all individual data points, but at one point is there a drumbeat about employment . We always say we are doing great because of employment but now we had a low employment number and we get these little indications, even in the jobless claims, just inching up. Liz i do not want to sound pollyannaish but it is important to remember we are starting from a good place. Even if we get negative data, it is not as if we are in a precarious position before. We are starting from a place where we have disappointments here and there. It is important to remember that a lot of the positivity and a lot of the economists and market strategists that have been positive throughout the year have been because of a strong labor market. If we start to see weakness, it is something to Pay Attention to. Underestimateto the effect sentiment has on Something Like Consumer Spending and Something Like companies raising wages. If there is a hit to sentiment or enough uncertainty in the market going through the end of the year, Companies Hit the pause button. It does not mean they pullback, but they hit the pause button and so do consumers. Consumers will not spend if they are not as confident their wages will stay the same or go up. Alix regardless of what happens at the g20, how is this not make at least one cut a done deal for the fed . Michael as our friends at Bloomberg News right, inflation shows signs of life. , socore rate goes up by. 1 it does give the fed some confidence that maybe it is a transitory situation and we will see inflation rise. However, we have a months worth of data. Mary daly telling me six weeks ahead of the fed weeding the fed meeting it is too early to know whether to cut rates. If we do start to see other sides of inflation, then they would have a reason to hold off. The markets will have to change their minds first. We do see signs of life. David you talked to mary daly yesterday. I want to get to that. Because apart from the g20, part of the question is what are the ,ffect trade is having particularly in her district. This is what she said. What is important to the economy as we get some resolution on trade. Uncertainty is blowing a strong headwind against the economy. A decision of some type would be great if it was something any decision at all would be better. Michael if they come out and say we have agreed to continue negotiating, does that have any affect . Mary it would be kicking the ultimate decision down the road and when i am talking to businesses, that level of uncertainty is a headwind. It would be something slowing the momentum of the u. S. Economy. Chinese have demanded the u. S. Allow much more access to electronic and technology, technology at the center of your economy. How important is opening up china to the economy in the 12th district . Mary the 12th district is very integrated with asia and people are waiting to see where they will have to do their business. It will not be with china, they will move to other countries. Part of the movement away would be knowing where they should invest in what they should do. Michael what will be a good signal . What would you like to see . Planssome formulation of so businesses can say they know the direction we are going so they continue making their investments and growing the economy and keeping the expansion sustained and healthy. David that was mary daly, San Francisco that president speaking with michael mckee. U. S. Asked her are ceos holding back in capital investment, and she said the core stuff not so much, but there are discretionary projects they are holding off on. Michael anything you would do to meet additional demand or increase productivity has been sidelined. Part of the problem is, as she set, it would be great if we had clarity on china. The question is, will business than react . They still have the threat of sanctions on the eu in japan. The president was saying bad things about india. There will be uncertainty as long as he is waving the tariff flag and that holds the economy back. Alix how you look at a market and relate in terms of your Asset Allocation for the fed to have to react or ceos that do not move . Liz the important part to remember is there is a speed differential. The market reacts immediately to any news we get, to any change in the comments. Companies cannot react that quickly. They cannot change their capex decisions or their spending decisions or something saying we are getting there. There will be a disconnect between what the market does and what ceos end up doing. We talk about this earlier in the program the suggestion of there being 30 of 40 downside. If you look at history, a correction without a recession tends to be 10 to 15 . A correction or bear market with a recession is where you get 30 to 40 . We do not fear a recession coming. It is hard for me to see 30 to 40 downside. Alix we were saying ceos will not react to a handshake or a tweet, but will they react to a cut from the fed . What is the reaction function there . Michael i asked her about that because nobody can show how the cost of capital is holding back the economy. She thinks businesses might react to lower costs. She agrees it is a difficult sell and not necessarily the kind of thing the fed can solve because it is a question of confidence rather than a question of demand. David this is something might asked her about and she said cost of capital does matter. Does it matter right now . The cost of capital has been close to zero. A cut do not know that would change the decisionmaking process of a lot of ceos. Like you point out, we are at a low base. What is affecting the decisionmaking process is the increasing costs coming from tariffs and the expectation there might be a global slowdown. Not only can they not raise the revenue number, but their cost is also going up. As we know, at the top line is not going up in the middle part is going up, the earnings space will drop. Alix it has to be the rollback of tariffs that would make an incremental difference from where you sit rather than we will keep talking. Liz the rollback, and if we expect we will go from 27 down to 10 and if we get more certainty we will not put tariffs on this other 300 billion worth of goods, that will be something that would change the decisionmaking process. David did you get a sense from mary daly that the market is overpricing cuts . Michael she gave me that impression, although she said she never wants to get involved in deciding whether the markets are right or wrong. She says the markets will not fully us into doing anything. We will do what we think is right for the economy. It all gets tied together because of the markets go down a lot because they do not like what happened, then that hurts the economy. She takes a different view of the powell pivot, she says that cannot happen. He did not pivot. We do not change our minds, we just reacted to new data. Ot think alix the market totally did that one. David with great conviction. Michael mckee, terrific interview. And liz young, thank you for being with us. Banks past the fed stress test. Nextll talk with raj cohen in todays follow the lead. Alix bloomberg users, check out gtv. Browse the features and save the charts. This is bloomberg. Viviana this is bloomberg daybreak. Coming up on Bloomberg Markets the close, julie wainwright, the real will founder and ceo. This is bloomberg daybreak. The leadership of retailer forever 21 fighting internally over how to turn around the struggling fashion chain. Bloomberg has learned a small faction of officials asked forever 21s landlord if they would consider a stake in the company. Arrival chain of managers aligned with the cofounder oppose. Bloomberg has learned going may take three months to fix the latest flaw in its 737 max 8. The latest glitch has nothing to do with the flawed related to the fatal crashes. Boeing has been telling customers the jet mayfly again in september. An overcharge for these to gap and oil closing to create a midstream sale company. The company will be dedicated to the countrys largest shale formation. It wants to drive the same dynamic seen in u. S. Shale field where third parties build pipeline networks. Im Viviana Hurtado. That is your Bloomberg Business flash. Alix thank you so much. I went to visit their assets in argentina. If you take a look at the situation, not a lot of pipelines or organization. That is me in a helicopter. You can see how it is in the middle of nowhere. You need the pipelines to export the oil. The first light oil out of argentina last week and the first natural it meant out. It is based on whether the refiners let them do it and having this asset is going to be huge, especially if other operators wind up using it. David is this like what is going on in the United States . We can get the oil out of the ground but now we have to get it someplace you can ship it. We need pipelines. Alix that is what this is trying to avoid, a place where you have oversupply and not enough takeaway capacity. Or to do it by the oil company in the state run oil companies. If you have your own entity, then you build the pipeline and you have other people going the pipeline and making it happen. David it is here to stay, it seems like. Alix you just want to say dead cow. David she said that. Of the lead,r all a deep dive into stories making headlines in moving market with insight from industry veterans and insiders. Today we are looking at the banks after the final results of this years stress test, where the Federal Reserve approved all the plans for the big banks to distribute capital. We asked sheila bair whether the banks increasing marks on the test was because the banks were so much stronger. the banks are stronger than they were prior to the crisis, but i do not think they are strong enough. David we welcome the dean of bank regulation, rodgin cohen. Always a delight to have you here. You heard what sheila bair has to say. They are stronger but not strong enough. I have Great Respect for sheila bair but i would say the Banking System today is very strong. If you look at the results of the stress test, both last week past,is week, every bank and passed with substantial margin. The stress was enormous. It assumed a rise in Unemployment Rate to 10 within a short time. Hat is a phenomenal increase it assumed a negative gdp. It assumed credit card losses of over 16 . Those assumptions put a lot of pressure on capital. David in fairness, one of the things she said to us is that is fine, but the stress tests should be getting tougher to take into account where we are in the cycle. Efault levels go down it gets easier and easier to pass. Issue right . Rodgin there is some merit to what sheila was saying. Stresses, the severely adverse scenario, became tougher. That Unemployment Rate puts pressure on loan losses. Alix do you feel there are banks that should not have asked and are setting you up for Deutsche Bank that was a win that they passed, but where are the weak spots . Rodgin i do not believe there are weak spots. Deutsche bank devoted enormous efforts to pass the qualitative side, the resources were astonishing. They made it. Deutsche bank, on the quantitative, is just fine. As are all of the banks. David there been some revisions made in the stress tests. What is yet to come . Rodgin we are probably at the level where the stress test will remain about where they are today and going back to what sheila bair said, there has to be a recognition that this is a benign credit environment. There is not going to be any loosening over the next several years. Alix i asked sheila this question yesterday. If you think the banks are well capitalized, what area does have the risk . Rodgin i always worry about risk in areas which are less regulated, whether we are talking about nonbank financials , whether we are talking about virtual currencies, those are the areas which bother me. Have one of the things we seen is an adjustment in the regional and Community Bank regulation versus the specifics. There were suggestions there would be consolidation in the area. We had one, bb t, we have not had others. Why is that . Rodgin it has been surprising because there are compelling factors which should produce more bank mergers. The bb t emphasized in , represents one of those factors competition. The real factor which is not which is not produced away, at most a ripple, which is the infatuation with tangible book value. It is a question of math and accounting and if you pay market premiums you will have tangible book Value Solution and in her back period of somewhere in the fiveyear area. David if you have that you will be punished in the marketplace . Your stock price will take a hit . Rodgin exactly. React almostems to automatically to a lengthy earn back period. David we heard the head of ubs say regulators in switzerland are going way too far in their too worried about too big to fail and they are holding back his back. Where is the situation with europe and switzerland . Begin the mistake here may to talk about europe as a whole and that is why your point is so right when you talk about switzerland in particular. I think the swiss capital ratios and requirements are very top. Very tough. , andare country by country some countries are quite rigorous and im not sure that is universal throughout europe. This point, a regulators holding the banks back from helping the economy . Rodgin in my view, no. We have reached an equilibrium and if we maintain that the banks will be capable of supporting the economy. Much more, and then you do have a problem. David thanks a much the rodgin cohen. Great to have you with us. Oil has the up, best month since january. More on what i am watching, next. If you are jumping in your car, tune in to Bloomberg Radio heard on sirius xm channel 119. This is bloomberg. That is tom keene. Alix here is what i am watching. That is the opec plus meeting the kicks off on monday. This is where we are. Iranian production is at the lowest level since the 1980s. You can understand why tensions are heating up. Iraq is still pumping 4. 5 Million Barrels of oil. You have the saudi output. There are still questions as to what men what will materially wind up making a difference. David do they have to cut more and how much more . Alix bloomberg caught up with the Iraqi Oil Minister who talked about just that. Our roll over the end of the year, im supportive of that. A cut of 1. 2 may not solve the issues. Alix and therein lies the problem. If you roll over the cut, it might not solve the issues and you have to go deeper. At some point you wind up losing too much market share and someone like russia says i am out. David did they get to decide when you have the u. S. Ready to put more online . Alix that is why russia can do 40 if they had to. David that does it for us. Open, more ofhe the g20 meeting with the u. S. Head of public policy. We have equities going nowhere, currencies holding, commodities stay flat. It is all about that meeting in osaka between President Trump and president xi. This is bloomberg. Taylor from new york city for our viewers worldwide, im taylor riggs. The countdown to the open starts right now. Taylor coming up, the worlds most powerful leaders gathering in japan ahead of the muchanticipated summit between President Trump and president xi. Globalrs on the edge as equities look poised to record their best for his half of gains since 1998. With billions riding on interest , some corners of wall street morning markets are nearing the danger zone. 30 minutes until the opening bell. S p and a stronger euro relative to a weaker dollar. Getting good core 1. 1 euro area inflation. It is all about the bond markets. You are seeing a lifting yields to a 2. 02 , weaker dollar mean stronger crude. 60 a barrel providing