Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170627

2016. Gold still getting a bid despite the fact that Central Banks might pull back over in europe by 5 10 of 1 . David time after the morning brief. We get the case schiller home price index for april. At 10 00 a. M. , Consumer Confidence for the month of june. At 1 00, Federal Reserve chairman janet yellen in a yell and is slated to speak on electronic issues. Also, the u. S. Treasury will auction 34 billion in fiveyear notes. We will hear from the eu regulator who just imposed that record 2. 7 billion fine on google for favoring its shopping Comparison Service over rivals. The European Competition commissioner will join us at 9 30 a. M. Eastern time. Jonathan the news in the central banking world in the past hour, bank of england planned mark carney as with his Financial Stability team to increase Capital Requirements are u. K. Lenders by 11. 4 billion pounds to tackle risk posed by Consumer Credit growth and prepare for the uncertainty of brexit talks. That News Conference after the Financial Stability report still ongoing. I want to bring in guy johnson from london. We have to talk about the countercyclical counter buffer. You through the policy and what the Financial Stability team over the bank of england has been up to . Guy Monetary Policy, which is another core competency of the bank, is a blunt instrument. What we are talking about is a much finer tool. What they are trying to do in some ways this slowdown a key area rather than trying to slowdown everything. Credit card lending is going up at a significantly faster rate than mortgage lending is at the moment, almost twice the rate. That is causing some concern. Is way of dealing with that effectively to tighten the rules up when it comes to credit availability. As a result, you may slow part of that down. That is a key concern for the banks. What they are doing here is the wayust raising things are attached to these loans. As a result, you may slow down that portion of the economy. Monetary policy is kind of a last resort in this area. This is a much more precise targeted use of what we are seeing here. They are also aware of the fact that brexit is coming and we want the banks as well to kind of have a little bit and reserve to make sure that can be couple of. Coped with. Jonathan the last time they did this, some people called it a stealth rate hike. How countercyclical is this particular move given that a lot of people think the economy is expected to go through a bit of a choppy patch . Guy in some ways, this is an easier way of dealing with it. It is a neater way of dealing with the problem of raising Interest Rates. The problem the u. K. Has at the moment is that Consumer Lending is running fairly high. The saving grace is being run down. Rather than raising Interest Rates, which would hit a whole bunch of things and will hit housing for instance, which has a much stronger trickledown effect, you will be targeting that particular area. The consumer is stretched. This is maybe one way of kind of squaring the circle and dealing with that. The reflationary issue slowing the consumer down but not shutting everything down at the same time. The bank maybe this is of englands way to tell consumers that tough times are coming and you need to stop borrowing. Wages are not going up anytime soon. I do wonder on the other side of the bank of england come on the mpc, whether this will be enough in any way shape or form to stop those talks for rate hikes because inflation is increasing well above their mandate. Guy you wonder whether or not this will be enough just to keep that story on hold for the time being. I suspect that it probably will be. There is a balancing act going on in the bank of england. Some of those that may have voted for a rate hike may believe that their core concerns surround the issue of credit and how that is pumping up and inflationary story. That is clearly being driven by the currency. To may end up being able take that off the table by doing what we were talking about here, but we dont know yet. We will have to see what effect that ultimately has. Jonathan guy johnson, great to catch up with you as always. Present mario draghi spoke earlier in portugal and said the threat of inflation is gone and reflationary forces are at play, opening the way for the start of tapering potential. It is headed for the biggest quarterly gains in the past six years. Joining us now to Stephen Gallo. Stephen, for some people it is news that you put a bid on the euro road. For other people, we have heard hiis from president drag before, havent we . Stephen i dont think much as changed as a result of what mario draghi said today. The important thing for the ecb is very much a key variable in this situation is the currency. If the ecb is very actively hawkish, they risk creating a buying frenzy of euros. I think they are very mindful of this risk. If you look at fiveyear forward inflation swaps, theres a pretty neat tie up between eurodollar and inflation expectations, meaning that a stronger euro fuels Market Expectations of disinflation. They do not want to be in a situation where they are making a difficult situation worse. They should be looking through elements of inflation that are temporary in nature. There some types of disinflation of the central bank cannot control through demand push inflation or creating stronger domestic demand. They do not want to make a difficult situation worse. I do not think that has changed as a result of what draghi has said today. Alix we are seeing Market Expectations of a rate hike move up in terms of their timetable. Two weeks ago we were in a world where it was centralbank divergence. Now feels like maybe centralbank convergence story. Do you agree with that . Stephen yes, broadly. Im not saying this by virtue of the fact that i am an fx strategist and therefore think everything related to fx is the most important, but fx is important and currencies are important. When you have convergence of central bank policies, we are seeing that now with the boe and a talking this, the ecb. The fed has been in a ho hiking cycle for two years. Convergences done to limit Exchange Rate fluctuations. I think that is a better situation to be in them one of extreme volatility in the Foreign Exchange markets. David no question fx is important. Oil is important. Mario draghi talked about a lot of the forces of inflation. To what extent is the ecb looking for what happens with oil and deciding whether it can raise or not . Stephen i think it is somewhat important to them, but more important to them for example would be the structural impact on nominal wages and prices in countries that have pushed through some Structural Reforms and some reforms of the labor market. That is probably a more important factor than oil. As i said before, there are things that are temporary in nature as it regards to press of moment and there types inflation and disinflation that the tank cannot do anything about. As far as the inflation outlook is concerned, its an excuse for them to the accommodative are a bit longer and to take their time with withdrawing stimulus. Its also inability for them to make a difficult situation worse with the inflation outlook. Jonathan if they removed all stimulus tomorrow, is there any evidence of the economy right now that inflation is durable and selfsustaining from what you see . Stephen no, probably not. Not when i look at the annual rates of core inflation in most countries. In most countries it is below 2 in the eurozone. In some countries, it is particularly low. You also have to consider the fact that the eurozone is an economy that is recovering from liquidity trap conditions. Saving rates are higher in the eurozone coul. Demographic factors are weaker in the eurozone then in the u. K. Or the u. S. They are not in situation where they want to tighten aggressively. The impacts that tightening can have on credit spreads right now we are in the environment given the decline in Political Risk and given some of the recent news on banking in italy. We are in a very Good Environment for credit spreads. They are certainly not going to want to upset that in the near term. David Stephen Gallo will be staying with us. We will bring you Federal Reserve chair Janet Yellens remarks from london at 1 00 p. M. Eastern time today. Live from new york and london, this is bloomberg. David this is bloomberg. Im david westin. Let yesterday we got that allimportant scoring from the Congressional Budget Office and it found that the legislation would likely save over 20 years, but it would result in 22 Million People having fewer health care. The chief washington correspondent kevi kevin cirilli. For the disappointed or happy with what they got from the cbo . Kevin disappointed. Senator susan collins, perhaps one of the most prominent moderate senators, already saying that she is not going to even vote to have Senate Majority leader Mitch Mcconnells bill brought to the floor. Meanwhile, centered rand paul saying he is going to do the same thing. Because he thinks the bill is to moderate, but he does not think it is conservative enough. The score from the cbo really putting a nail in the coffin so to speak for this bills chances unless it is significantly changed over the next few days. David do they have time to do that . They are talking about a vote as early as thursday. Can they come up with yet another version of the bill . Kevin i would not put pass anything anything past the Senate Majority leader, but its looking like its not going to happen because this version of the bill is so unworkable for the different competing factions in congress. I can count off the top of my head for republican senators who are against this thing. Ron johnson, rand paul, susan murkowski, dean heller. Shockingd, it would be if there was a breakthrough by the end of the week. David anything is possible, but lets assume they dont make the deadline. Then what happens . We going to august . Why giving more time is it more likely to get the senators on board . Kevin aides are capitol hill were saying that this could potentially be the majority leaders effort to move beyond health care to work on other policy issues and then to have some type of breakthrough by the end of the year. You will remember that several folks, including the Vice President himself come have try to push back the timeline for reforms. F health care perhaps this could be the first step in trying to punt the issue a little bit longer. Reforms. Theres no question that this will be a devastating blow from a policy standpoint and take the wind out of the sails. President bypassed the from securing a major legislative victory in his first year in office. David we will check back with you later on. As Washington Trust us sort out where its headed on health care, the business and financial world is trying to sort out what it means for them. Joining us now is the Morgan Stanley chief u. S. Policy strategist and still with us is Stephen Gallo. Give us your take on where things stand in the senate and congress on health care. Michael kevin nailed it. Republicans can only lose three votes. Right now there are too many unaccounted for. It is unclear what really changes can be made to buy those back into the process. For us, the real question is whether or not Mitch Mcconnell will be able to put this on the floor and either let it live or die and move on. David early on there was some suggestion that they one of down and they can move on to other things. Is that part of the strategy to get to tax reform . Michael is hard for me to get into mcconnells head exactly, but as far as markets are concerned, that is what you need to focus on. Areher or not we effectively removing a roadblock to tax reform because we will move on this issue pass or fail. The next phase of the reconciliation process, which clears the path is starting to work on tax reform. Im not going to say that that makes tax reform happen a lot faster. We are still very skeptical about that happening in a quick manner. Is important in a market where we think low expectations have really been built in march since anything getting done in terms of fiscal stimulus. Alix that we market looking at tax reform and potential Health Care Reform in the process, but for the fx market, is the dollar looking at d. C. Or does the dollar need a more hawkish janet yellen . Stephen not really. The impact on the dollar from fed policy is really starting to wane. It started to wane a while ago. In terms of leverage money positioning, we are within striking distance of going to a net short and futures aggregate on the dollar. I would say its less to do with the fed and more to do with the Corporate Tax reform debate, which is possible could get delayed further. Our view on the dollar is that when the Corporate Tax reform starts to be debated in congress, it will provide a little bit of upward impetus on the dollar on the risk that something to get done. 40 ow we think that there is a chance altogether the absolutely nothing gets done. The remaining 60 , the highest odds are on something akin to a cut in the Corporate Tax rate in the top rate of individual tax. May be a form of the house plan, but without border adjustability is possible. More likely the higher odds go to just a simple cut in the Corporate Tax rate and a cup in the top rate of individual income tax. As you can probably tell from those factors, theres not going to be a big impact on the currency market from those development anyway. For the most part, we think the dollar bull run is finished. It has been finished. Unless we see big steps on Corporate Tax reform, things like porter adjustability, its not going to rally much. Alix big steps are not what we will expect out of d. C. We were talking to the ceo Johnson Johnson and the cfo of starbucks. Wassked both of them if it the absolute rate that you need or the certainty of getting something done . They also the latter. Is at the same thing with Health Care Reform . Get something. We just dont care what it is. Michael its not even about getting something. Its about moving on. Theres really no credible path to bipartisanship, which means you need to use the somewhat arcane budget rules to work with than republicans only. Practically speaking, you cannot move on to tax reform until you disposed of health care one way or another. Its about the uncertainty of moving on as to the uncertainty of getting something with health care. On tax reform, theres a question of whether getting a simple lowering of the tax rates or something truly fiscal stimulus that will add to the deficit matters a lot. The former is something that you can expect. You will see a rate cut that probably matters to corporate, but its probably not going to meaningfully increase the deficit. The idea that theres going to be an exhaustion is positive shock to the economy is something that we are really leaning against. Any positive sentiment that might we created this week because we are moving on to tax reform, i think thats valid , but we would lean against the. Toathan is that still true the negative side of the Health Care Story is what . As well . Michael its hard to determine. I think the republicans made up local mistake by going Health Care First and tax reform second. I dont know if its question of whether or not the Republican Base sort of ones health care more than tax reform. , tax reformspeaking tends to be the ideological norstar of the republican party. It is probably easier to agree on the principles together. Is fair possible that Mitch Mcconnell civil wants to it is very possible that Mitch Mcconnell once to navigate the republicans out of what has been a massive Health Care Reform than what they expected. Alix thank you so much. Good to see you. Stephen gallo, youre sticking with us. More than 1 trillion in deal so far this year. Deal stafford joins us with why he says m a activity is actually slowing down. This is bloomberg. Emma im emma chandra with the Bloomberg Business flash. Bmw chording President Trump showing its rebound made in america suv. Bmw also said it will increase spending their and hire another thousand workers. Jpmorgan Ceo Jamie Dimon protects that the banks headcount will keep rising despite automation. Jamie dimon says that jpmorgan is using bots, but that will not stop the banks from opening retail branches or hiring private bankers or expanding in africa. The European Union has slaps google with a record fine. They said it abused its market dominance in the shopping Search Service. The company has been given 90 days to change its behavior. Google is reviewing the eu decision in considering whether to appeal. Coming up at 9 00 a. M. Eastern time, the interview with the European Union, edition commissioner. Alix lets take a look at what google stock is doing. The number looks big. 2. 4 billion euros, the biggest fun yet. For google, it is just eight days of revenue. If it does not comply with the rules and come up with a plan that they will tell the eu and 60 days, they could risk a fine of up to 5 of its daily revenue. That issue is not just necessarily this particular fine , but it has to do with building on this case to make more cases against google. The eu is currently examining googles Android Software for mobile phones and adsense Online Advertising services. Thats where a lot of the uncertainty and that coming from for google. Going more to deals come and take a look at what is happening with sprint and comcast. Sprint cup over 5 and comcast down by over 1 . Heres why. Sprint is said to be in talks with charter and comcast, the two big u. S. Cable companies. They really do want to secure wireless resale agreement with sprint. And want to be able Wireless Service in with their total cable bundle and sell more to customers. They could do an outright sale, but that looks less likely. The downside has to do with tmobile. 5 . Nt is up for over there were talks of a sprint and tmobile tie up. Sprint would end up in a twomonth Exclusivity Agreement with chartering comcast. That put this tmobile and sprint deal on hold. Lots happening in table on the telecom industry, and interesting sector to watch. How else do you want up making revenue . Jonathan coming up, the harris associate cio of International Equity joins us to discuss europe and the state of italian lenders. Getting you set up on today and the here and now, futures are up. And the fxhe board market, its a weaker dollar story. The euro as much longer. The cable rate on the march for the fifth straight day, the longest winning streak so far in 2017. From new york, youre watching bloomberg tv. From new york city to our viewers worldwide, youre watching bloomberg daybreak. About two hours away and 21 seconds from the cash open in new york, futures are softer. After a couple days of marginal down 0. 1the s p 500,. 5 0. 15 . Back to 0. 2 on the 10 year. A somewhat hawkish mario draghi for must. For many people it is a repeat of the same old. Atby three quarters of 1 11266, but more broadly in the g10 space, it is a weaker dollar story. The cable rate stronger by about a quarter of 1 at 1. 2756. As your cross asset story this morning. Now ae a look look at what is happening outside the business world. Emma President Trump saying that he will pay a heavy price for watching another heavy forces. N rebel President Trump ordered a missile strike on syria and will aer a camel chemical attack. President says india must reduce obstacles to exports. He met with Prime Minister narendra modi. He said the countries should have a relationship that is fair and cyclical. Modi came to the u. S. With a Shopping List for u. S. Military equipment. The European Union has built a blow to premise for theresa mays hope first with exit. They guaranteed a right to millions of its citizens after brexit after may offer to protect work in residency rights for you citizens living nikkei living in the case global u. K. Global this point for hours a day powered by 2700 and was some analysts in more than 120 countries around the world, i am emma chandra. This is bloomberg. Alix jeff and nursing jeopardizing what americas largest economy and putting the present on trial. We are joined by the sao paulo chief in the studio. This is not necessarily unexpected, but my question is how long can the coalition the government is holding by actually sustained . A great question and this is a long, lengthy process. To have to go through a committee in the lower house. It takes 1020 sessions and everything takes time. Youre member the impeachment of dilma rousseff. It took months and months. What the coalition has been saying and some are presented is that they are timid for now, but if new facts emerge, that might change. Alix is a new facts or somebody who can actually replace them . You can make the argument there is no one else. Julia that is what some analysts say is keeping him in power. We dont know how the proceedings will work to replace them and who would be able to president and how does it work. Who votes . The couple occasions to help hold him in power. David president and how does it since he has put his team in place, the has been a lot of enthusiasm among investors in new york who say they are turning the corner and there are things coming down the pipe to make it sensible to invest in brazil. What happens to all those reforms at this point . Julia what investors are saying even after the scandal broke is reforms. We dont care who the president is, we just want reforms. If congress will vote on the reforms while they have to do with the chargers, and there might be more charges coming from the signals of the prosecutor has sent, we dont know what happens to reforms. The government had a minor setback with the labor reform and a timetable we had for the pension reform, which is the most important one. David to assess whether those reforms can go forward, what Political Capital do you have within the legislature . Has it been eroded by this investigation . Dalejulia the whole Political Capital has been eroded. And remains to be seen whether he will use his political capita to survivel or focus on reforms. Alix julia, thanks for joining us. Stephen gala still with us. The market is not open yet, but what is your prediction for when the reality starts trade real starts to trade . Stephen in terms of where we go from here and the currency come i think very much that youre going to see the Political Risk premium that has been embedded in the real all year remain there. Brazil has been one of the worst performing currencies yeartodate. You rightly brought this up in your last segment. For Global Investors over the last six months to a year, it has been all about the forwardlooking reform path. Distraction thats going to take place now with this new piece of news is the distraction thats going to take place. It will push those reforms back. You will see Global Capital flows looking at this forward path across the em space. India is another example. What i would say to you is that in terms of the trade data that coming outn seeing of brazil, we would say the , butr real is below three the Political Risk premium is going to remain embedded. Other than a weak dollar, the main thing you are going to need to drive dollar drl below three is a broadbased sustained upward move in commodity prices. At the moment, it does not look very likely. Effectively that is the issue with brazil. When they are sluggish on reforms, really the only cuts to have to lean on his commodity prices. Until we see that, i think dollarreal is going to be stuck about three. Jonathan you mentioned the underperformance of the real relative to other currencies here in the space. When you look at the bigger picture, it has been a big blanket bid with some very supportive conditions outside of the em space. Treasuries in that weaker dollar story, etc. You see those conditions remaining . Stephen i think we will get a heck up later in the second half. China at the moment is not an issue because, in the runup to the leadership election, they are keeping the currency exceptionally stable. If you look at the forwardlooking indicators, some of the lagged impact of the tightening we saw a earlier this year, that will feed through in the second half. Also, the broad trade of r b is above now. The will feed through in second half. I think we can get a heck up in global risk assets, but dont think the selloff will be extreme. You will have underperformers that selloff more, but broadly speaking, i dont think that em is going to weaken severely later this year. The only thing that i think would changes if the fed drastically increases the pace of rate hikes or something along that line and was joined by very hawkish ecb. Are in those things come think the selloff will be pretty mild. I can perceive some type of pickup. Jonathan when you look of the big out performers, you have the proxies for the eurozone story. Then you have the Big International stories like the rand and the peso. Can you distinguish between the three things . Stephen for example, the situation in south africa is not getting any better in my opinion. Theecifically think that central bank in south africa is in a really significant bind because if a strike too much of a progrowth policy bias, given the lack of reform progress in south africa, the political headwinds, political torn while you might want to call it, you might risk feeling too much inflation. The problem for south africa is increasingly becoming one of low productive potential, low productivity growth, and so on and so forth. The central bank cannot strike too much of a progrowth friendly environment without more reforms coming through. Equally of the same time, if they turn their attention to being too restrictive on policy, they risk fueling too much brands strength and that would be a competitiveness issue for the country. South africa is one that could potentially do pretty badly if we get a broadbased em wobble later this year. ThanksStephen Gallo, her joining us. The presbyterian ceo for what the proposed Health Care Bill could mean for his hospital and hospitals around the country. New york and across the country, this is bloomberg. Emma business bloomberg daybreak. Imm emma chandra and this is the hewlettpackard enterprise greener. Room. Bob casey of pennsylvania joins us on the health care battle. Emma out to your Bloomberg Business flash. A federal judge says qualcomm must faced regulator claims that it does not monopolize market for semiconductors for smartphones. They forced apple and to deals to exclusively use its chips. Because ofying qualcomm policies. Last yearks hit according to reports from industry consultant deloitte. Hacking efforts against the Energy Industry have become more frequent and sophisticated. Meanwhile, all the equipment must be retrofitted for cybersecurity makes it tougher to defend against attacks. Sprint has been in talks with comcast and charter to medications in the past month. According to people familiar with the matter, the most likely scenario is that the Cable Companies strike a deal that lets them resell services on Sprint Wireless network. Comcast and chartered jointly discussed buying sprint, but that is seen as less likely. That is your Bloomberg Business flash. David whether its talking indications or grocery or health care, business consolidation continues. Joining us now for a merger update is dale stafford. Welcome back to the program. We will start with emma left off with telecommunications. We have this possible deal involving sprint. More broadly, we are seeing consolidation in this area. We have the pending at t time warner deal. Do these things come in clusters . Dale the telecom deals can create a lot of value. You think about where the sources of value come from and those Large Telecom deals, think of these Overlapping Networks where there is a massive amount of infrastructure that individual companies have to invest in maintain that network. When you have a fair amount of overlap in those networks, theres a massive amount of value you can extract out of a deal. Theres a massive i. T. Investment required to maintain going systems, provisioning systems. Is also a great bundling opportunities across because my bases as well. David this is an industry going through he transformations because of digital. How much of this is the opportunities across because my bases ascrossselling, sharing t with the pipe . Dale and hotel come particular, we are at the tail end of a triple play or quadruple play strategy where companies have been crossselling products and services. We are at a point now where most consumers have a triple play or quadruple play. If you are leader in the telecom companies, it is hard to imagine how to create more value you can get from a deal where you can extract much of synergies right away. Alix the other part of the m a world interesting right now is health care. Leveraged loans and health care are interesting and super risky. If you take a look at the action we have seen, it has only been the services area. The white line is a pharmaceutical deals. The l line is biotech. M a is your expectation for in the individual areas based on on whether or not we get Health Care Reform . Dale i use sort of a mnemonic device lizard. Stability, regulatory, and tax. Superabundance and borrowing rates are wrote. Low. That creates a real great environment for m a. Regulatory and tax are uncertain. We continue to have a lot of uncertainty as a relates to what will happen with health reform. We also have uncertainty as it relates to the future text amendment. Environment. En david people will have to be scurrying around to reduce costs. Dale and accelerate the trend that has been happening for the last for years. There has been constant pressure on all the major constituents in the provider space or rather in the health care space. Reimbursement has been taking down year after year or at least has not been growing at the rate that the cost is been. There has been a lot of pressure on all the constituents to become more efficient. One of the ways that they can do that is through m a. As ald see this not much new trend but an acceleration of a trend we have seen for a number of years. Alix can you dive into the sub categories . Find at bain that theres a story to be told that if you focus on a few categories in the med tech in the form a space that instead of having positions across 10 therapeutic areas, you have a leadership positions in three or four. Theres a massive amount of growth and efficiency to be gained. If you look at the med tech and pharma spaces, they are still massively fragmented. If you think about your business 101 rule of three, we are years away from the rule three in pharmacy and attack. There is value to be gained from leadership. David we are about to have dr. Steven on. How much pressure is on hospitals as being proposed by congress . Insurance markets are potentially under pressure from Health Care Reform as well. I will be honest. The fact that equities have gone up in the provider last couple of months has been a bit of a head scratcher for me. I cannot really understand why that would be in a world where there are likely to be fewer people who will have insurance. Alix and a broader 4000 foot wide perspective, we wind up the story is that ceos have tons of cash. They are not spending because of uncertainty in d. C. Is that aired a true for m a . Narrative true for m a . Dale its a bad year for m a is the narrative and thats not so. We are on par with 2016, 1 of the top years for m a. We are down from play 16, 1 of the biggest years in history. We are a little down from 2016, but we are study. This is a slower market than 2015 or 2016, but by no means debt. Dead. David you have said that hurdle rates have really not gone up. As a cfo taking look, doesnt make sense. It to find by cost of capital. Cost of capital mustve gone down. How can it be that the hurdle rates have not gone up . Dale it is useful to do a thought experiment and imagine yourself as the head of m a for fortune 500 company. Youre thinking about doing a big deal, but because of tax uncertainty, you dont really know how to measure cash flows exactly. The implication for her law rates hurdle rates is that as the cost of capital has gone cfos have not adjusted hurdle rates. ,magine you are valuing deal equity values are high, but you do not adjust your hurdle rate and deals will be harder to pencil out. Alix great to get your perspective, dale stafford. If you have the bloomberg terminal, check out tv. You can watch online interactive with us directly. Ask us a question and we will try to do so in a segment. This is bloomberg. Jonathan from new york city to our bureaus worldwide, this is bloomberg daybreak. This is how we are set up this tuesday. Up by attempt on the dow after a couple of data gains. Switch up the board and the story in the core Government Bond markets is that treasuries and buns have a little bit of a selloff. Six basis points on bones throughout the session following comments from mario draghi, suggesting that reflationary courses are taking hold. The eurodollar up to one point 267. To 67 1. 1 t that is your story across assets. Your story in europe is that google has lost its biggest regulatory battle yet with a for the2. 7 million fine eu following a sevenyear investigation. It is the biggest ever competition fine from the European Union commission, doubling the previous record handed to intel back in 2000 and. 2009. Commissionerion dismissing allegations that its unfairly targeting google, finding no facts to support any kind of bias. During us now is tony aarons. Lets begin with this particular case and what delivers a 2. 7 billion fine. What is behind it . Tony the way they calculated it is that they said that google was breaking antitrust rules and 13 different countries. They are calculating it all the way back to 2008. They set a percentage of googles revenue during that time. It is math that i cannot pretend on the back of an emblem. To do on the back of an envelope, but the money a secondary here. What the eu is doing to Google Business practices is a much bigger thing in the long term. Jonathan wheres the evidence that this practice has actually hurt competition given the rise of shopping Companies Like amazon, like ebay . Where is the evidence that the eu has found . Tony that was a question that was asked the commissioner. Our consumers being harmed at all or is it an antitrust issue . She answered she kind of dance around it i would say. She said consumers are missing out on innovation, which is a big concept in the eu right now. She also said that consumers were missing out on choices. They didnt know what those choices war. And that alone was harm to the consumer. Alphabet how will th respond to this given that intel is still fighting that one from 2009 for quite a while . Tony 10 years from now we could still see this being fought in the eu courts. Dont forget that there are two more google cases. Thenvolves the adsense and more important one is the android operating system on mobile phones. None of this is over soon. David theres an ongoing potential fine in 90 days if they dont comply. What can google due to avoid that incremental fine . This can be a lot more money. Tony they will have to change her algorithms very quickly. Someone asked the commission if there might be an extension on that. She did not give a firm answer on that. I think they are going to give google as much leeway as they can to reach a conclusion that everyone is happy with on the product. Jonathan a lot of people wondering whether u. S. Tech firms should just give up on europe. Given how brought this market is for companies . Tony there are a lot of companies that have come under eu scrutiny. Apple resultedt in a tax bill that was certainly an eyepopping number. You talk to Eu Commission officials and they say we are not going after americans. We are going after the Big Companies that create problems. The Big Companies right now are apple. They are google. They are not the European Companies on the same level as american companies. Jonathan tony aarons from bloomberg news. The european cup titian commissioner will be joining us at 9 30 a. M. Eastern time. You are watching bloomberg tv. Jonathan tax reform remains on the back burner as the Republican Health reform runs difficulty. Draghi of theo ecb provides fuel for the eurobonds. Forces have apparently been reflationary ones. Good morning. I am Jonathan Ferro alongside david westin and alix steel. To get you set up this tuesday, this is what you are living through in europe. Futures are softer by about 1 10 of 1 on the s p 500. Almost. 1. 8 . You see the selloff in the bond market over in europe. A big move up why about seven basis points. Worst performer in terms of the market. Was testifying earlier today, those yields are up five basis points. Want to sell bonds and by the euro and that is really playing out in the euro. Highest level since april 2016. Potentially, centralbank converts. At 9 00 a. M. Eastern time, we will get the s p home price index for april. At 10 00, Consumer Confidence for the month of june. 1 00, Federal Reserve chair is to speak in london. Also at 1 00, the u. S. Treasury auction 30s billion. A quick programming note we will hear from the eu regulator who opposed the record 2. 7 billion fine on google for favoring its shopping comparison over rivals. European competition commissioner margaret will join 9 30. Why is it the euro went up given what mario draghi said . I listened to it and i did not jonathan signal weighing in on the value of the ecb, in its current climate. Take a listen. Confident it is working and the effects on inflation will gradually materialized. Be that, our voices need to persistent and we need to be prudent in how we adjust parameters for economic conditions. Jonathan joining us now, paul, always that catch up with you. For some of you it is kind of from president draghi. But where you sit on that debate . Some people this morning have said ive heard this before. To be frank, not everything mario draghi said has been heard before. Where the bond bears were counting from. He stressed persistence in Monetary Policy and prudent in removing the stimulus, he also said as the economy recovered, there is room to tweak the economy. You go ahead and do it. Jonathan it is a removal of the accommodation the economy continues to improve here lets talk about that. Where do they go first in what is the sequencing . The sequencing starts with communication and we saw that vigorously with the ecb saying the risk of the economic recovery are now broadly balanced your dropping the expectation of Interest Rates could yet fall further. The tapering upon purchases will start at some point in the future. The initial flag from the fed akin 2013 was not to give a day. They may or may not do so. Again, the point is removing the pace of on purchases, the slowdown does not necessarily mean removing even accommodation. It could mean keeping the right amount of stimulus and price to ensure the reflationary trend becomes entrenched and is not derailed. Trying to rear castrate a slow removal. There is a story that due to constraints about the bond buying program, they will have to faster than the market expects to does that still hold a lot of fruit . Are. Depends on who you plenty of analysis showing you cannot just live bonds forever. Ecb argument as it can keep going for quite some time. It does retain the option to change the parameters of qe and that could include buying stuff that is not bonds. Out by has been spelled the ecb to the simple message is we need to buy and we will. Jonathan the euro now heading for its biggest quarterly gain in six years. Joining us from london is a chief global strategist. What matters more. The central bank saying they will remove or the Central Bank Buying fewer bonds . Think it is all in the turning point in the message around that. They reached the point where they have to make a choice. The ecb has managed to take the and setn and rates down the foundations of the economy normalizing with massive on purchases and negative rates. Roada small turn in the means they have to start signaling that they are making a choice here it in the currency market, if you have got negative they areon buying, saying we will have to choose normalization and the currency will have to be allowed to move. Jonathan if the currency is allowed to move, lets take removehis, if they accommodation, if you just look at where inflation is now, where is the evidence that is nation will be durable and self sustained, given that the labor market is not delivering the goods in the way it should be . I do not think there is much evidence at all that inflation is coming back in a sustainable way. But i think the pressure on the ecb is to start normalizing policies. The extraordinary amount of bond will meety have got with more and more opposition around europe as something that is destabilizing and dangerous, and to we want an economy looking this healthy, doing need to have that degree of accommodation . Which is still have accommodative Monetary Policy. Is the choice mario draghi is being faced with. He would love to have the currency that did not go up, certainly not before he accelerates the pace at which he slows down bond buying if that makes sense. Unfortunately, he will get a little bit stuck in a owner here a corner here. It is hard to see how you keep your currency this cheap. David you talk about dangerous, what about what is the danger they are trying to resist . Is it all the sudden inflation trying to jump up . Is it rather that there will be bubbles . You go back to the over the weekend, the message is consistently now that Central Banks need to not just look at unemployment and inflation of the economy in a narrow sense of the inflation target they have. They need to ensure Financial Stability and make the world a safe place Going Forward. A litanythere will be of examples of the danger of a world that is very sensitive to higher Interest Rates. Too much dollar debt. I think in that sense, even a central banker who says the number one job is inflation, he still pushed to normalize a bit to not have extraordinary policies. Debt, you corporate touched on it, the idea that the world has become more and debtrate sensitive to gdp ratios carried on climbing, low rates for a long time. Yet. We have yes. We have made the world a better place and the crisis comes from this Interest Rate sensitivity, probably not in the united states. Probably more likely in the emerging markets that are part of dollar funding available in the world. Even so, that is the challenge facing central bankers. More the fed than others in many ways. An inflation target and i would really like to hit my inflation target but they know a dangerous path we are on with these Monetary Policy settings. They equally know the world is addicted to bond bind because the net on issue, the private sector wants to take out was coming from Central Banks. It is negligible at this point in time. Spreads andnd yields are low and money is being pushed off into ever more exotic instruments. Coming up, dr. Stephen will take us through the healthcare bill and what it could mean for providers like him. This is bloomberg. David health care represents about 7 of u. S. Gdp. When Congress Wants fundamental changes in the system, it affects not just all americans but a wide range of major businesses. Dr. Stephen corwin is the president of new york someyterian hospital with 2600 2000 employees. I want to talk about the Health Care Bill. Put the chart at that illustrates the changes to existing lobbying proposed. Green, thisn the can be money saved by the u. S. Government over 10 years. Creditslion and tax that would not be given. Offsetting that are payments they would not be charging people. They basically say you have to have insurance or we will penalize you, and also tax cuts to upper income people but also institutions like new york is. Church. Netnet, what would it do to your hospital . 30 are medicaid patients. Medicaid is already this will just exacerbate that. We are a Strong Institution financially and safety net hospitals will have real trouble. Patients will see decline in coverage and decline in care to be honest. We have gotten into this conundrum of either you can have access or you can have affordability, but not both. If you are a deficit hawk, this is good here if you believe in cutting back entitlements, this is good. Cost is the cost in lives. It would be good in the sense youre taking a deficit. Otherwise you are on the federal the moneybudget and is still there. It is just a question of who is paying. What will happen in new york state for example is benefits will be cut and people will lewis lose insurance and that is why the cbo scored it that way. We have to make a decision as to whether we want that. I think it is really bad Public Policy to be honest. David doesnt really play out over the 10 years, in later years . There is an immediate effect but most of the cuts are back loading. The bargain if you will reached in the senate was lets fade out the Medicaid Expansion more slowly. We would start planning to get much more efficient than we are now, which would be difficult, but we have a 5 billion budget and we would love to take out an additional 100 million in savings next year if we can do that just to get the first bit of this out of the way. At the same time, the president said repeatedly obamacare was heading in a bad direction. Most every week we see an insurer pull out of the state or two. Things were not going swimmingly well over it with obamacare. What would make sense from your point of view . Clear. T, lets be creating a stability the Insurance Markets was something that happened soon as the president was elected. There were clearly issues in terms of competition before then that to make the insurance competitive, you needed an individual mandate and the fact that it was not particularly well enforced was a real problem. In terms of medicaid, remember this. One and three children in the country is insured by medicaid. Two thirds of the expenses of medicaid this people who were in nursing homes. You can work all your life, and then go through your assets and you have to be on medicaid. Sos will be devastating for many people. Terms of your business, do you have cash on the sidelines you would like to do in investments . Are investing now in a lot of virtual medicine. What you will see as you see in other industries is digital medicine and Artificial Intelligence will disrupt the industry as a whole and i think it is a payoff for us to get a path for us to get much more efficient. That is why i think you can have both accessibility and affordability. Orwhether it is the retail other industries disrupted, we are planning on digital to disrupt us tremendously. For you,s most helpful getting something concrete done in congress or just having it go away . What would be easier . I would like to see it go away and i would like to see the expansion go away remain and i would like to see the markets stabilize. It is clearly a debate we are berently having that will ongoing. Remember they are doing this readreconciliation to expand medicaid is a 60 vote threshold. I think we will live with this for a long time were this to pass. You mentioned affordability. There is an issue and we talked about a percentage of gdp which is a norm us. Far above that of any other developed country at this point. Is technology how much could it . I believe it is and i believe you can get a lot of cost out of the system. We are doing telepsychiatry now. Psychiatrists are difficult to have consult on patients in the hospital and the emergency room. Can now do telepsychiatry consult and reduce the length of time of a consult from 20 hours to about one hour. And you can scale it. By scaling these solutions and really leveraging talent, i think you could get a lot of cost out of the system. Ofid is it a matter stopping the growth as a percentage of gdp or cat turn it down again . 14 gdp, is that realistic . I think it can turn the other way and it will do that over the next three or five years. How many radiologists will a need in the country if we are these withd Artificial Intelligence . I think it will change the jobs picture but also the cost picture pretty substantially david . David does the federal government have a role to facilitate that . Absolutely. Issues. E reimbursement this is really important. David thank you so much dr. Stephen. Uestion interesting stuff coming up, we will hear from the ofregulator in favor shopping Comparison Services over rivals. We will speak to that commissioner joining us at 9 30 a. M. Eastern time. This is bloomberg. I have your Bloomberg Business flash. Andcord 2. 7 billion fine an antitrust case. Eu regulators say its shocking Search Service here the company has given 90 days to change its behavior. Google says it is reviewing the decision and is considering whether to appeal. Coming up at 9 30 a. M. Eastern, an interview with the European Commissioner for competition. An unprecedented involvement in brazil are the chief prosecutors has charged corruption. That can be resulting in two thirds of the members of Brazil Congress have to approve the trial. They replace the former president after she was impeached. Here is Market Reaction into news from brazil. We are off the highs of the session as the rails retrace losses. What do you make of the lack of reaction this morning . Reaction, you get a piece of news and the initial reaction but the things that dont happen, you do not necessarily fora big followthrough broad fear and panic and money flowing out of market that you mightve had in the past. To second is a can we lack other emerging markets. Perhaps just another step in an ongoing situation. Its is not a new fundamental underlying crisis. More particularly in a world of low rates and low yields with investors looking for returns, were just avoiding the contagion and the spread of returns that you might expect to see. Story spiritre two one is you want to buy it because the yields are low and the other story is there have been a lot of flows into it and it might be time to take a pause , a more prudent approach . Bei am not sure i would chasing brazil with a great deal of enthusiasm and im not sure i would chase money overenthusiastic lee back to russia after there was such a strong run in a small correction. But in general, emerging market investment is rebuilding. It is not excessive. It is nowhere near the levels that would really concern you. The background level of global Interest Rate, the fact that we are just sitting with the 10 year treasury yield at the bottom of a range, 2. 1 , i think that will continue to underpin this. Also to remove the fear of the my trayaggressive policy tightening that would really derail emerging markets, so if we had taper tantrum in 2013, we fear what could happen as we normalize rates. That is nothing to do with what has materialized in this policy cycle. Of that inith all mind in the big rally with the theilian currency and rally, what needs to happen with brazil over the next couple of months which will make you sit there and say actually this is time for that story to play out . It will make it difficult for someone like me to get excited about brazil except in the sense that you cannot go shorted very easily. It rallies, you get afraid of missing out because there is so much yield. Some kind ofhave hope of a sensible political future and stability that last several years to get reforms to her and get the central growth up. Jonathan great to see you. This is bloomberg. Jonathan youre watching bloomberg daybreak. Lets whip through the Market Action for you this morning. Futures coming off the lows, down by a single digit on the s p 500 up by 14 points, 0. 0, 7 . The price action might be new to inequities that not bond spirit yields up for basis points on the 10 year from five year coming into the market today and the real story is the global market. Comments from president mario accommodationl of as the story in europe rose rolls on. By 0. 80 eurodollar up percent or more broadly, a weaker dollar story planning out right away, 12763 is how we trade on sterling. Fifth straight session, potentially the longest winning streak so far of the year. Up to speed on what is making headlines outside the business world. Emma the Trump Administration a warning that they will pay heavy price for lunch and other chemical attack on forces. They have identified a potential preparations for the use of chemical weapons tiered President Trump ordered a missile strike on Syrian Forces back in april after a chemical attack. On capitol hill, three republican senators have come out against the the obamacare reflation bill which would be enough to block legislation. A bill would leave extra 22 million Americans Without Health Care over the next decade. Republican leaders are still hoping to hold a vote this week. In italy, confidence unexpectedly rose this month. Improvedons for orders with a lowered them for production. Said the economy grew more than initially reported in the First Quarter global news 24 hours a day powered by more the 2700 journalists and analysts in more than 120 countries. This is bloomberg. Jonathan thank you. We are joined now from london. And ieturn from vacation said something happened in italy yesterday with the italian banks, make sense of it in just a paragraph. Wasnt does exactly what they were not meant to do in terms of government involvement . A think government involvement, there is a problem in terms of the rulebook in europe, if you want the economy to grow, you need to get beyond the banking crisis as you start writing off some of the bad loans and having legacy loans floating around and not performing. It will leave a lot of people complaining about how does this happen but i think in the end, this is a good step to get the Banking Sector cleaner somehow to get the Italian Economy back. Confidence is getting better. If you could get the banks able to function properly again Going Forward from here, that would be another step toward a broader based economic recovery in europe. Away from how this done, it is a good thing. Jonathan the market fallout is isolated and you dont see ecb falling out of bed. Quite the opposite. For the european project, what are the chances of getting it Ranking Union in place when ultimately you know when it hits the fan, it is down to the individual Country Company to sort it out . We need a Banking Union and this set of rules that works. You have got to get to a place where you could start having a work Financial System across all of europe first. This is a necessarily where you would start but bearing in mind where we start from in the we need to get, the ship steady and then talk about a Banking Union less theoretically than we have now. Jonathan great to have you. I want to check into the market quickly. Continuing to push higher after the Company Announced the rescue. Joining me now, we can bring them into the conversation. Associate cio of International Act he. Last year, outperformed 98 of its peers in the top five holdings. Always great to catch up with you. Time begin with the the banking story. From your perspective, is this a good deal . Deal believe it is a good and it is also a good deal for Italian Economy. It provides stability to the italian Banking System. Stuff skimmedd off. We are able to get these two banks in a way which enables them to continue to run the is good. That what is good for the economy of italy is the banks are they have not gone under and lenders have not lost money. It seems to be a winwin for the Italian Economy. Jonathan they were trying to cut the link between banking woes and involvement in europe. What you make of the involvement of the state and the involvement of the Italian Government . Good news as an investor longerterm . Sometimes in the shortterm, government has to get involved and there is a lot of history of shoring up Banking Systems because of the importance of Banking Systems and the need to keep confidence in Banking Systems. The u. K. Government is involved the u. S. Government got , and the swiss government was involved with ubs. Governments get involved in banks. An Important Role that banks play in their local economies. What you do not want is a continual reliance on government. You want ranks to have sufficient Balance Sheets to be and thisbserve losses is a good change that has taken place since the banking crisis. The number of banks with a small amount and skimpy capital is a lot smaller. Banks generally have nearly the loss absorbing capital today than they had seven or eight yours ago. If we maintain this, banks wont need bailouts and government interference. Is in the lesson you that you want to buy the banks and shareholders dont really get hit as much when you take a look , they had to raise 7 billion euros in at any in order to buy the labor and spanish banks. As the lesson if you buy the worst bank, you get a better deal . Wait a minute, you would not have done well holding those bank shares over the last year. No not at all. I was talking about buying things that could be Balance Sheets. You wouldson is rather buy a Midsized Bank that is in trouble because it will bill you out. You would be better off for one of the two banks versus when they had to raise equity. There is a difference between share debtholders and shareholders. There is a chance the debtholders may be able to walk away as they did in italy. This is where National Differences exist and you have to be careful. Our review is to buy a healthy bank with a Good Management team that is able to drive shareholder Value Creation overtime and through the cycle, that is how you make money and be able to sleep that night. Things, itsting and is not a very good strategy. It might be for some but we prefer to buy the strong and the stable as opposed to those that need help. Jonathan lets talk about italy and why the eu did not respond yesterday. The second part of the question change is this a turn, a in the european attitude some ofe bailouts and those positions where in italy, we want to get close to the banking story. David you bring up a good question. It seems the European Union regulator has taken a different for financialaid institutions. Im not sure why they have done so. A low difference in the approach and the view a few years ago. In the past, these things have been allowed to boil over. Sure, but they does a pretty be a change in heart over the notion for the local Banking Sectors. Is this the start of the general consolidation of the Banking Sector . Abouthas been talk banking. Could that benefit you with the holdings there . Spain did it with coop banks. Italy has been promoting this. There has been consolidation. There needs to be more to even worse is the german situation. You have all of these banks making money. Be banks that are not making money either have the merge and either you merge come you raise capital, or youre going on is this. Out of a new business. His attitude needs to change. What has happened with the regional provisional banks is they have been allowed to exist forever. Is a very good thing. Jonathan it has become quite a consensus trade over the last couple of months whether people have put the money behind the call yet amazed to be seen. Are you looking to pair back as others get in . At this stage coming of all of this consensus. The still not have we still have not seen valuations. Still changing on a significant discount for the rest of the world. At this stage, i think european banks and industrials and Material Companies is really where the value is. To find it very business in japan, same with emerging markets even in north america, you have to be pretty picky. More than actual action. Like in other parts of the world. These financials, recall, they were clobbered here they never really recovered from the financial crisis. What followed was the greek crisis. , all of this belief that these countries, sovereign italy,portugal, spain, you add to that the low Interest Rates and the slow growth in the baking sector got clobbered. It is just now starting to recover it we are in the very early stages. Like the second or third out of nine innings. Alix this is a Sports Reference i understand. Thank you. Your top holdings obviously glencore. How do you view the Mining Sector . By athink it will be aided cyclical recovery in europe. The economy barely growing 1 year in and year out and now the growth rate is probably near double. See two or 3 to or three and a half considering the has been stagnation but this should help demand for resources. The reason, certain things like iron or to me, it is very difficult to get excited about an Investment Case given the flat cost curve. More they produce, they produce it at the same cost. If prices go up, you see a supply response. It is generally something we dont like. We would rather have Companies Mining Something Like copper that has a very steep cost curve that as prices go up, supply cannot come on the market rapidly to address those demands. It is the reason we like glencore so much because the biggest commodity they extract is copper. It seems like real will favor glencore instead. What do you want them to do . They wondered for a long time. Do you want them to counter bid . The acquisition on paper makes sense here you heard about the geography of the situation and how the Coal Properties are adjacent to their property so they can leverage shipping, etc. That, we dont want any company to overpay for any asset. If this patent makes sense at a price, and if the Management Team can drive economic how you at the right price, then and then by all means, do it. If the price gets so high that it ends up in, destroying shareholder value and economic value, then we do not want them to do it. The beauty of glencore is it is managed by a bunch of owners. The Management Team is owned by 20 of the company and they are of thent and where notion and the need to create shareholder value. Jonathan i would not usually ask this of many people but i know you have a lot of details to really work out what you think is worth 2. 68 billion in plus royalty, is that too much already . You worry they get involved with a call . I really would not want them to get in the hitting war. Like, just judging from yesterday, maybe it is over. Want them to get in a bidding war and im worried they will get into one. I think the Management Team is sophisticated and smart enough that beyond a certain price, it no longer creates value. Want them to succeed in that . On paper, the deal makes very good sense. You know glencore and its partners have a very huge agricultural trading business or this would make very good sense for all involved but the devil ends up being in the details. There are synergies that can be obtained that allow you to pay low higher price. But again, it boils down to trust. Five plus percent shareholder that glencore obviously trust the Management Team. I know glencore is your top holding the what stock are you adding to now . We do not talk a lot about Current Training trading. Glencore, some of the european banks, credit suisse, we have some is which have absolutely wobbered Companies Like tim and daimler, of course commercial vehicles as well. I think some of the other companies, these are all businesses in the top 10 and we are very committed and we believe they are still selling at significant discounts for intrinsic value. The automobile sector in particular is very much out of favor if youre not tesla. You sell atesla, 60 billion and you make no money. If you are bmw, you make a ton of money and sell a most half the enterprise value. There is an anomaly we think is not necessarily sustainable. Alix great stuff. Great to have you. Tesla, so confusing. A senior independent nonexecutive director glencore. Go to bloomberg tv go on your terminal. Click on charts and graphics and interact with us directly. Go back and watch a program if you missed it here and go to tv on your terminal. This is bloomberg. David a short time ago kumals spoke with the head of near aspartame in hospital and this was his take on the senate bill. I think it will be hurtful. I think we have gun in a conundrum of you can either have access or affordability, but you cannot have both. If you are a deficit hawk, this is good. If you are someone who believes in cutting back on entitlements, this is good. But the real cost is the cost in lives. David we have with us one of the people deciding legislation. Bob of pennsylvania joins us now. Welcome. Good to have you. You heard what he had to say. The real cost is cost in lives. Haveave come out and you been very adamant in your criticism of what the approach is. Explaining szekely what you find most objectionable in the bill. What you find most objectionable in the bill. 3060 page 110, it is all medicaid. That is what most of this is about. It is medicaid versus tax cuts bill and medicaid loses badly in tax cuts go way up especially for the superduper rich top 400 households getting millions of dollars each. The cuts to medicaid are actually worse under the senate bill by a big number. One million more people lose medicaid coverage. It is devastating not only to the family but it hurts all of us here in rural communities, rural hospitals would be undermined badly, which in some places are the biggest employer in the region or in the county. It pushes a fair amount of responsibility that the states. We have had governors say they have real problems because of the burden it puts on their budget. Will bessible there resistance enough from the state level to push back . There has been substantial resistance. Nevada makingn nevadans, i 200,000 think the same is true in pennsylvania. Hundreds of thousands of people would be impacted adversely. Human costs but there is an Economic Cost as well. A fair amount of concern about the cost of Health Care Overall and how to bend that cost curve. To the democrats have a plan that would take obamacare and transform it and make it a positive force in the economy . There is no question that it is a small number for some people. That small number could be 79 people whose costs are up. We should concentrate on them instead of spending all of these months debating repeal, lets focus on the individuals whose costs have gone up an interview introduce new mechanisms to lower the cost. If you are in a rural area with one insurer and we have a public option where we up the subsidies for the help someone gets with the premium, we can reduce the ordability challenged challenge substantially. That could be done bipartisan. Instead, were throwing 15 Million People off of medicaid and giving away the store to wealthy people who do not even want the tax cut. I was with folks this weekend and a doctor stood up and said i do not need a 20,000 tax cut here at i want to make sure people have the benefit of coverage for medicaid. David layout for us how and when week and get to the question of tax reform given where we are with health care. We can move on with health care and say lets set aside repealing work on affordability issues. If we do that, that would have the ancillary benefit of helping us get to bipartisan tax reform. There is a lot of consensus to debate tax reform and focus on simple find the code at reducing rates and making our businesses and economy more competitive. But the health care fight is an impediment to that. The fast we can get to bipartisan investment in infrastructure, the better. David thank you so much, senator bob casey of pennsylvania. Jonathan the European Commissioner for competition on , county downrd eu to the cache open about 45 minutes away. Here is a story for you. Marginally, up by not even 1 10 of 1 on the s p 500. 0. 07 . Action in bonds. Yields are higher in bonds and treasury. Up for basis points on the 10 year. To 18 on the treasury market and a weaker dollar story against pretty much everything. This is bloomberg. Jonathan president draghi provides some steel for the yield. Tax reform remains on the back burner as the republican Health Care Bill runs into resistance. Google with aps fine, accusing the company of skewing search results in its favor. Good morning, good morning. I am Jonathan Ferro, alongside david westin and alix steel. Do teachers go pretty much here, down by not even futures go nowhere. Down by not even. 1. A broader, weaker dollar story up. The euro a yields higher by four basis points at 2. 18. Economicowers the forecast for this year. I went to crossover for movers ahead of the open. Alix the imf lowered the Growth Outlook . I feel like that is what they do. We want to focus on western digital, here is the why, making a bid for Toshiba Memory chip business. Previously, toshiba said they preferred a deal with japanese investors. They said the bid was insufficient. Western digital says they will provide debt financing. Watch headlines from that. Here is a company you may not have heard of, a radio chip maker. There has been speculation that as amazon pushes into groceries, there would need to have a partnership with a radio identification if they want to roll out on scale, but they got hit with two downgrades. And off of it, a fascinating and alphabet the fascinating story. Only eight days of revenue for google. They will have 50 days to deliver a plan to the eu and if they do not, they will take a hit on 5 of revenue. What this deal was about for the eu was that the eu continue to tackle google and the antitrust world. That will be the next step for the competition between the antitrust commission and google. Laterl have more on that in this hour. We will be speaking with the competition commissioner at 9 30 eastern time. Jonathan thank you. Lets get back to the imf report. We joke about the lowering the forecast, but not in the last year. 2017 the growth forecast cut to 2. 1 . 2018 more aggressive to 2. 1 from 2. 5 previously. Some advice for the Federal Reserve, the fed cannot and should not gradually raise Interest Rates but must accept a temporary inflation overshoot. David and this is specific of Donald Trumps projection of 3. 0 growth. They are saying it is going to be 2. 1 both ears, so as far as both years. Jonathan lets bring in a guest. Lets get into it, we theyabout the imf, but have been more constructive about Global Growth in the past 12 months, raising forecasts and now cutting them. Is there a reason to cut your gdp forecast this year and next . The u. S. Has slowed a little bit. Clearly, they are not going to be willing to make any forecast about what is happening on the policy side in the u. S. , so they dont have that in their numbers. To numbers, which are closer 3, 2. 5 to three for next year, i would saynumbers, we think something is going to happen. Jonathan what needs to happen to get that three handle . You get a big tax cut, that economic improved activity. The early fed tax hikes off of zero are stimulative, not contractionary, so those three things together we think can and the overall confidence builds up that we have seen off of levels have been low for a long time. You get a big improvements, so we think there are a lot of drivers now for the economy into next year. Notd the confidence has been translated into hard numbers. They have been soft numbers. Given what you are seeing with health care, you are optimistic for a tax reform by when . It will definitely happen by the next year First Quarter. What i find exciting about what is going on now, i am not looking to hold a different policy detail. I am talking to the folks you are talking to, many of whom did not think trump would get would say iswhat i the republicans are looking at this now and they are either going to move into tax reform momentum or with their backs at a wall. Mcconnell is clearly moving forward. He is going to call for a vote and it is going to be we get it or we do not. I think the market is beginning to sniff that out. Jonathan even with progrowth policies, the dividend is yes is less to be predicted in the budget. This is not a forecast that slaps down, it is the whole statement that slaps down the president s administration. Where do you sit on that . Mathematically, to get the percent growth, you need to have Labor Participation pickup, stronger growth in the number of hours and productivity move up. Thus far, we have not seen improvement in either of those two variables. In the beginning of the year, there was a pickup in Small Business confidence. That is a huge positive. Now, with the increased in certainty as to timing of the fiscal stimulus, you are seeing corporations hold back on some of the Spending Plans they initiated and that is driving some of the shortterm weakness. What then you look at imf is saying in terms of slapping down Donald Trumps progrowth plan, this is a little different because they are targeting the policies. How do you express that in the market . We are around record highs. How do you back to that in . It is important to understand markets tend to be participatory. Even though the s and p is off some 9 , it has been led by the market. You have not had the investors embrace the recovery that many of the business claims is coming. What is interesting is many of andsecular Growth Stocks those not dependent led the market. I think what will happen between now and the year and is markets are flat but within that, some of the cyclical stocks recover. In that regard you are not paying for any policy improvement in washington in the market. Out someant to point news that crossed, pandora, that stock is halted. It ceo will be resigning, as well as the cmo departing the company. The ceo will also no longer be a member of the board. The cfo will be named the interim ceo. An interesting change in management when you look at the stocks. It has been pretty much flat, trading around eight dollars. David something to watch. I want to come back to the optimism you bring to this project. It is nice. What is it based on . We have not seen loan demand go up. The banks thought there would be a lot of demand for loans after trump was elected, right . It did not happen. We have seen Capital Investment and not seeing pickup much. It is getting to be a long time now. It is. The tax changes have not come through quickly. We may maybe they should have been first to that but they did not. David we have not even seen a plan. We have seen a onepage documents. Capex is waiting for that. I think the market came into the year i was thinking they would get tax reform done first but it did not happen. The trump stocks came back to where they started but now here we are and you have to take a gettinghink, you are paid to take it right now because the financials and cyclicals are back where we were in november almost. You have got a shot if they can push this forward, and all rationales suggest they cannot. I am saying they know that. I do not think i am smarter than they are. They are out. The republicans are out in 2018 if they do not get tax reform done, all the more they do not get the Health Care Bill done. I think they get that. Jonathan we came into november last year and you are looking for President Trump to win the election and he saw that as a positive catalyst for the market. As you come to june, july 2017, when have you changed in terms of thinking . Is it, ok, everyone has taken out the premium, but i am outside upside risk . Have almostke you nothing but upside risk. You have a pretty solid economy. We are debating two to three. No sign of recession insight. The market valuations are attractive. Markets trade about 18 times. Most of the big stocks i like thetrading low midteens, market isc not excessively valued. Sh on is a lot of ca the sideline. And the fed is in a dovish hiking mode. Jonathan the valuations are not overextended . To me that is not the main concern. There are two concerns, corporations are not spending because they dont have pricing power. They are incurred. At the same time, away to increase and theyre hesitant to spend without an obvious driver of growth, and that driver was supposed to be government spending. That is one. Two, i think we are forgetting we had the greatest increase in gdp at one time outside of those. It is being assumed that will not have an impact on the markets. Yet, we have seen the end of qe in the u. S. , we are seeing some drawled liquidities outside of the u. S. I think there are some potential into next year that the real rates could rise. Much. Thanks very both of you are sticking with us. Coming up later, we will bring you Janet Yellens remarks from london. You have draghi, carney and yellen. This is bloomberg. Big move in the market has been over in europe. You have seen a selloff in the bond market anywhere you look and the euro tick higher. Spoke earlier and waited on the reflation debate and weighed in on the reflation debate in europe. Reflationary forces are at play weighed in on the reflation debate in europe. Deflationary forces are at play. Conditions, we can be more assured about the returning inflation to our objective then we were a few years ago. Auth this is the spread between the 10 year treasury, that spread 186 basis points. What is your prediction for how this spread plays out as mario draghi talks about no more deflation . I think that spread is a beautiful thing. That is what the lesson has been, that we are going to get said hikes but where global rates are are so wide. The 10 year cannot move up that quickly to take this rally. It is going to go tragically higher. That is equity bullish. I think that is a big umbrella for us. I expect the european rates to gradually go higher, but he is extremely dovish, publicly more so than yellen. I also think that would a lot of analysts miss is typically generally, great tykes are negative, but we have never had a situation where we are at zero. The initial hikes up to 150, which is where i think she is heading in september, that hike is stimulated. The fed is pouring gasoline and not water on this buyer. The retirees are starting to make money. The are going out to dinner. The banks are starting to make money on their loans. You were asking about lending activity. Well, if i can make money on lending, i might make some more. Alix that really hurt investors. If you take that and put it in europe, does that trade play out in europe . I think it is starting to. Back to the point about valuations. The reason we like europe is europe was discounting a far worse scenario than u. S. It was discounting a far lower level of growth and opportunity for reversion investments was much more tractor. That has happened starting in march of this year. You have seen outperformance by europe on that basis. Jonathan but we have spreads incredibly tight, then injected interestrate sensitivity from the bond buying program. Can you still below on risk if you have an ecb president that way settle way subtle telegraphed the removal of accommodation later this year . The one thing that worries me is less about ecb withdrawing liquidity because i think they will be cautious in signaling and doing it. The thing that makes me nervous is consensus expectations for earnings in europe are 17 for this year, so you do not have as much of her positive surprises relative to before, but i think you have probably six months to nine months of relative growth than outperformance in europe on the basis of companies being able to deliver on growth. I think focusing on domestically Oriented Companies makes more sense today. Things iu said two have not heard together, it is a beautiful thing and gasoline on a fire. What about valuations across all Asset Classes be enough because there is so much liquidity in the market . You like the fact there is pressure to keep the 10 year yield down, but is there a danger that globally we are building so much valuations into assets because banks are dumping so much money into the system . I think so. That will be the blowoff on the s p to whatever. We are not at that point, though. You look at all the stocks in the s p and we are at average trading at 18 times. Jpmorgan is at 13. Google is trading at 21. Halliburton is at 41. 14. There are a lot of stocks reasonably inexpensive. Clients i talked to a lot of them have too much cash on their hands. David who would have thought . I have to be right eventually. You will both be staying with us. Coming up, an interview with the European Commissioner for competition about googles record eu fine. Live from new york, this is bloomberg. Emma i am emma chandra. More than 80 companies around the world have been hit by cyberattacks in the ukraine and russia. The Danish Shipping Company said if i. T. Systems theyll to hackers, as well. As we said, a russian Cyber Security Firm Confirms attacks on russian and ukrainian companies. No word yet on it attacks are related. David thanks. Shares are searching after soomberg reported the carbon the car until Company Bloomberg reported apple is leasing a small fleet of cars self driving test technology. For more on that deal, we are joined by an analyst with a buy rating on alphabet with the price target of 1050. Lets talk about google and then i went to get to that eu fine. Waymog a move is this for and off of it . For waymo, limited. For avis, more meaningful. If you think of autonomous vehicles, there are four parts of the chain, you have the guy that develops the technology, build the car, and runs the network and now the Fleet Management component. You are seeing the evolution of what the ecosystem could look like. I think Fleet Management has been something that has not been topoftheline and all. It is a bigger deal for avis. David in order to be concerned about Fleet Management, you have to have a fleet, so how was waymo going to come up with a fleet . Good question. What we saw before is that they did that potential deal with them because of Capital Investments and they took a much more scaledback approach, so that is a question google cfo has to look in the mirror and answer. David she is also going to have to answer how she will pay that eu fine. Record by a, longshot when it comes to competition. You are positive on google and alphabet. Is your mind in a different this morning after that fine . This acute you any possible that the difficulties google bases in europe . No. You are asking about the potentials for off of it and the waymo deal and avis, the only reason i checked my model this money was to check the google balance sheet. It is generating over 20 billion in free cash per year. The bigger takeaway is i think this is eu testing the waters. They are not going over the android bundling issue there were trying to go after. You will be sticking with us. We will show you Market Action and get you set up for tuesday. Futures are softer. Down around about. 1. We are near session lows after a couple of days of gains on a benchmark in the united states. The main story for Global Markets today is a selloff in core Government Bonds. Yields higher on the 10 year. 2. 18 in the united states. That is your yields on a u. S. 10 year benchmark. Weakerfx market, a dollar. 9. Ssion high in europe, up this is bloomberg. Whoooo. Youre searching for something. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if there was a single site where you could find the right hotel for you at the best price . There is. Because tripadvisor now compares prices from over 200 booking sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. Jonathan from new york city, this is bloomberg daybreak. Moments away from the opening bell. Future is a little bit softer, down i about. 1 on dow, similar on the s p. Negative on the nasdaq. I encourage you to read president draghi speechs on the removal of accommodation. It is the market moves on, yields up for basis points. Four basis points. A big bid under the euro, and that means it weaker dollar story. We are down. 7 on the dollar index. That weaker dollar story, crude higher. As you hear the opening bell, lets get to alix steel for the cash open. Unchanged, the nasdaq up. 3. That story in europe of the potential reflation, so a little softness in equities. Keep your eye out for pandora, the stock has popped in premarket and gave some of those gains, trading unchanged on the day. The ceo will be stepping down. He will not be a member of the newd very they will begin a search immediately. As of now, the interim ceo will be current cfo. To put into perspective the losses for this company, last year, losses down 102 year on year. That was then that profit loss to the company. A lot of pressure on this company. Getting a boost earlier and now flat on the day. A fascinating story unfolding throughout the morning. It has an impact on the nasdaq read those shares down 1 . It has that two. 1 billion euro fine. Not a big number for google billion euro fine. Google might appeal but it is going to be about Android System and if there is anything else the European Commission will come to google with an challenge. T in terms of an antitrust law it was an interesting conversation and will be looking to broader tech aspects, when we have apple, google and amazon leading the way, what happens if one takes a hit . Jonathan i am looking forward to hearing from the european leader on competition. Is going to be a twopart interview in a moment. I want to get back to that quote from president draghi. Adjustdiness to parameters of policy instruments as recovery continues, not just from a policy stands but to keep unchanged, we said, will this move the euro or not . It sounds credible but means nothing. Stillint is there is wrestling with the framework. You have skepticism about the phillips curve and whether lower unemployment will engender higher wages and that will transmit to lower profits. The only thing clear so far is liquidity translated into higher asset crisis and there is an underlying fear of how far you are willing that to run. That is why the language seems convoluted and that is why there is no clarity as to the framework that these Central Banks will abuse to start withdrawing will use to start withdrawing liquidities. Jonathan is that to the detriment of your buy u. S. . No, we are not as bullish on europe as everyone else. We like it, we like u. S. At least as much or a little overweight there. Europe is a collection of stocks. It has a lot more stocks in the cheaper evaluation financials, banks, diversified materials companies. When you look at it stock by stock, europe is not all that much cheaper than the u. S. Basis,ock buy stock which is how we put portfolios together, there are many in europe we like. As a host cell caught as a wholesale call, it is not one i would rush into, especially with everyone there right now. Jonathan about an hour ago, a guest talked about the proxy for the european recovery in financials. You talk about shifting away from what you would get from a european stock and focus on domestic, is that right . That is right. The only way you continue to sustain his you see a pickup and banks because you need to seek a pickup and lending. That is critical. I think that is likely. We like european banks. Jonathan this that insulate you from the fx story . Right, given the euro has strengthened, that would insulate you from that problem. Jonathan we are going to have a conversation about competition in europe and talk about financials. You want to look at the european financials, is it because they can solve a problem about being a market disruption or because we still have a deal with family banks in europe . Halffull glass is by definition halfempty. It is your attitude. The direction is will it get glass halffull or less halfempty . I say let halffull. We are starting to get economic pickup. Rates upying to lift from zero. The banks are suffering now. On the short end of the, we have to pay the banks to keep cash with them. It is crazy. The early hikes that little help the Banking System significantly , so i am not saying the glass will be full and 24 months, but it will be less, maybe two thirds full. Alix there is a story if they run out of bonds to buy, the ecb will undergo a faster tightening story and that in turn would wind up helping banks. Do you see that being a case for you . Can stillhink they brought it about the nature of bonds they are still Interest Rates bonds they are willing to buy. Is ait is an issue but it tactical issue and not structural problem that would prevent them from continuing the relatively, native policy. Alix usually, it is buy europe all day. Now we have two people saying it is overcrowded. What do you see that others do not . The improvement in europe as started in june of last year and that will start to reflate. We have seen a clause in the beginning of the are associated with the French Election and that is when you have not seen as much money moving to europe because there was positive sentiment but no real money flows. Went to have the first round of the French Elections, if you look at money flows, you start to see investors diploiy cash in europe. It isnt over but you saw the initial move hind it, but now you need positive surprises to sustain the move with significant expectations for 17 growth. Those will be harder to come by. Jonathan your view that maybe things have got crowded, with one exception. The calls of buy europe, has the money funneled in . You have seen good ships and a little shifts. Am not bearish on europe i think it is a little crowded. It had a good run. Expectations are higher now. I like to find things were expectations are relatively low and im not having to pay to take the risk. Us,us, you are not for you are not really getting paid to take that risk. Jonathan thank you. In the markets, eight minutes into the session, futures are going nowhere. 1, up by. 2bout on the s p 500. The price action in the bond markets. Yields higher by about four basis points. 2. 18 is your yield on the 10 year, and they weaker dollar story and the weaker dollar story. A one percentage point to move on eurodollar. From new york, you are watching bloomberg tv. Emma this is bloomberg daybreak. Coming up later, we will bring you Janet Yellens remarks from london at 1 00 p. M. Eastern. Jonathan from new york city, lets get you up to speed. In the equity market, down about. 1 on the dow. More significant move to the downside, up by. 8 on the dax. If you switch up the board, the euro story gaining strength. Up by almost one full percentage point. Heres the quote if the economy continues to recover, a positive stance will become more accommodative. Ecb may berom the removal of accommodation later this year. Euro. Nger story for the with a focus on europe, google has lost its weakest regulatory battle. The price tag, 2. 7 billion. It double the previous record handed to intel in 2009. Conversation is the European Commissioner for competition, margrethe vestager. Lets talk about the thought process, the framework for this fine. Evidence that competition did suffer or have you found a situation where it may suffer . Margrethe yes, we have found that competition has suffered. Between what we have seen and now proven is that by 2008, google changed its strategy to significantly give it better treatments to its own shopping comparison and to demote its rivals. On average, you only find them on page four when you do a search. Jonathan wheres the evidence the competition suffered . If you are i look, the competition seems to be doing pretty well. You look at amazon, they are doing well, ebay likewise, wheres the evidence . Actually, the comparison between google shopping and amazon and ebay, that comparison is wrong because we have found that amazon and are merchant these platforms, and that is Something Different from the google that ismparison one. Second, what we have found and started intensively with 5. 12 terabytes of data is that there is a close relationship between , so what youevenue see is that google has taken that advantage for its own shopping comparison on the cost of its rivals. And being able to do so i misusing the dominant position in general search and that is the key of the case. We have found google to be dominant and with dominance comes a responsibility to compete. David you imposed the 2. 7 billion fine but you said if they do not comply within the next 90 days, it will have a daily fine. But does google need to do to avoid that incremental find what does google need to do to avoid incremental fine and why did you not specified order how it needed to comply with the law you need it to be . Margrethe there is this principle that google has to adhere to being a dominant company, and that is equal treatment in the neighboring markets of shopping Comparison Services to treat the other companies how they treat themselves. You think is i do not think it n ther us to desig google page. It is not for us to save these are the specificities the test this is Google Business and they should do what they find to be the best way to make this principle come true. I am confident that they can do that. David doesnt it put them in a risky position . If they guess wrong or misinterpret, they could not in gnome is, or are you willing to work with them to prove what they do in the next 90 days to say, if you do that, you will not get a fine . Is for google to do the confines. They have the responsibility. We will monitor if it happens. It is not a fine that you have to pay as that. If we find noncompliance, we will have to prove it, even though you will have to pay the penalty from day one of noncompliance. Lets see if we get there because i see no reason why google should not comply. We have you have strong incentives, a stock company, and we need the competition shopping comparisons. Jonathan how can you check the changes have worked . What is the metric to do that . Margrethe first of all, we expect google to show us that it is working, that their changes and the way they it will work. That, of course, we will monitor. I am sure we will be able to see it in the marketplace, that we see a different pattern from what we see now, where you find fours on average on page and you see the google shopping box, if google chooses to show it, prominently placed in the place where most clicks happen. Jonathan is there a possibility in terms of competition there isnt any and maybe this is the best product for the consumer . Lets say it ends up on page one and no one goes there were you anticipate, is the dominant position of google the problem, regardless of the quality of the competition . Margrethe establishing the fact that google is dominant is a points. If you are dominant because consumers like you, they like the quality and products, that is a good thing. But competition is weekend and google holds 90 of the market of general search. If you have these powers, you have a sponsor ability not to misuse them in your own market you have a responsibility not to misuse them. For some, the google shopping box will be the most relevant answer. But not for each and every query, no matter the query. It is implausible that every rival it is not possible that every rival shows on page four on a desktop, so competition is sometimes you get the google shopping box, sometimes something else. Alix are you planning fines for android . Market isin the this is a stepping stone. Margrethe these are different cases, and we treat them independently because the android case is a case about the operating system, which is a it hasstem, but the way been used, as we see it, by google to promote themselves when it comes to mobile search to make sure we see a google sweep of products if you buy the accurate phone, and the question on the other case is different as well. These are independent cases and it would be premature to have any guessing on how they will end. Jonathan i want to turn to the situation with the italian banks this week. The twoon to allow failing italian banks, it was said that the commissioner is responsible to prevent a de facto circulation of banking laws, how do you respond to the criticism that you may have allowed it to bypass the rules . Margrethe first of all, and this is important, this is not that would be a different set of waters. In anms of the two banks open and transparent process, otherwise, there was a risk of going in directly, so that isnt the question. In order to make sure in that region of italy can control consequences of the two banks disappearing from the marketplace and being completely. Ntegrated in the intesa family we do not circumvent rules. This is a question about how the rules work with the flexibility put in there by the legislator. Jonathan the two family time banks were allowed by the European Commission to borrow 10 billion euros in january, guaranteed by the italian taxpayer. Do think the Interest Rates of the italian taxpayer or protected in that case . Were protected in that case . Wegrethe it is common that do liquidity schemes, and they are different any kind of capital reinforcement. It is for the italian authorities to figure out how to manage the situation where banks are in trouble. For a long time, thanks did not seem to be likely to fail when the civil lasers sought when they saw they were likely to fail then it was for single resolution board to look into it and they do not find it was a stability concern resolution board to look into and they did not find it was a stability concern. Obviously discuss the rules, but we work within the rules. This is our obligation. Question,as a final are you afraid the credibility of the european credibility framework has been damaged in some for the leniency on part of the commission . No. Rethe what is happening right now is that people are getting a deeper understanding of the new once it is because over the last six months, we have dealt with a number of different banks in different situations. What you see is the different asset quality. The asset quality is then andected in what it needs in what is needed to be done by the question. I think we need these nuances into the debate before any adjustment is made on the rules, and also because this is an important matter to make the Financial System truly serve the rest of the economy. Jonathan commissioner, we appreciate your time on the way the commission is thinking of these issues. Margrethe vestager, david . David now we will turn to another top story. The Congressional Budget Office rendered its critique on the bill in the senate. According to the money saved would come from reductions in medicaid. Earlier, we spoke to Stephen Corrine about what this would mean in the real world. One in three children in this country is insured by medicaid. Two thirds of the expense and medicaid are from people in nursing homes, so you can work all your life and then go through your assets and you have to go on medicaid to go to a nursing home. This is going to be devastating for summoning people. David joining us is the executive director of the National Governors association. Thank you for joining us. First, you did this sort of scoring, so you know it firsthand. Take us into this scoring because we have the white house already questioning how reliable it is. Is this an indecisive scoring at the cbo . It is in some sense. First, this is hard work for the Congressional Budget Office. You have to make assumptions. Assumptions here involve a big piece of the economy. The ripple effects will be on the insurance market, the beneficiaries, the hospitals but most important in this estimate, the gases on what the states will do in the future over the next years, and after next years elections, we will have 29 new governors in the country. It is a difficult estimate to make and there are uncertainties. Cbo says that in the estimates and outlines them if you get far enough in the report. David in the cbo report, there was a bar chart showing where the money came from and where it went to. Top, it shows the big savings. Cuts to medicaid went through, what would that do to governors . Estimate is athis reduction in what the occurrence or what the future growth rates the future in what growth rates are going to be. It will mean something important to governors because of will have less federal funding for thecaid and it increases flexibility governors will have to structure the program, so hopefully, they will be able to reduce expenditures without damaging the beneficiaries. It is in the future growth rate. These expenditures were expected to grow quickly and in the bills, they will not be held roughly to the cpi for health toe, so they will be limited grow no faster than Health Care Costs for the rest of us. David how does that read against demographic changes as we have an aging appellation who needs more health care . Both bills have per capita caps, which means for every beneficiary, there is a fixed amount of money every year, which grows. If you get more retirees, you will have more money to spend and the bills are structured so there are different per capita caps for different populations, so the other, we have a higher per capita each year, so on the medicaid side, the elderly are treated well and the capsule grow over time. David what does this and the caps will grow. David what does this mean for the Insurance Companies . How does this affect Insurance Companies . It should be favorable in a primary sense, which is the issue you raised. There will be more stability in the market. Cbo assumes there will be stability with the passage of this bill, so insurers will have a better idea of what theyre in for in the near future. They are not much difference, so the Insurance Business i think will have more stability than it does under current law. David it must be the case that cbo in the past has been in the crosshairs politically as it is now, how did you handle that over there . It is always the case. One of the primary sponsor abilities of the director responsibilities of the director is to deal with that pressure. It is a Nonpartisan Organization and does not react to political pressure, so you have to deflected, and others are helping to defend institution. These are huge assumptions that have to be made and cbo admits the uncertainty. We should not be debating a single number, about 22 million or 24 million uninsured. We ought to be debating the policies underneath, and that is the important part, how we get Health Care Spending under control in this country. David fair to say we will have that debate. Former Congressional Budget Office director, thank you so much. Jonathan 29 minutes until the session. Here is your price action, down about a 10th on the dow. That wraps things up for bloomberg daybreak. Bloomberg markets is up next with vonnie quinn and mark barton. You are watching bloomberg tv. Vonnie from new york, im vonnie quinn. Mark welcome to bloomberg markets. Vonnie we are covering health care, Central Banks and more over the course of the next two hours. Lets get to some breaking Economic Data in the united states, Consumer Confidence. Julie it is coming in better than estimated. This is the Consumer Confidence rating from the con rinse board. From the conference board. A little bit stronger than estimated. The is in line with some of numbers we have gotten recently that have been relatively strong. 118. 9 is the reading on Consumer Confidence. It has not been rosy on the economic front. The International Monetary front cutting its forecast for the american economy