More. You get crude getting hammered over 1 percent. Bac back toess get be fourth of july recess. Senate republicans promise to get their bill out before the recess. But they only have three weeks done. That European Central bank gets together with officials with the of European Finance greece. S with well getting new York Fed Survey on u. S. Expectations. Healthcare fight will greet lawmakers again as they trickle this week. Capitol Senate Majority leader mitch to find enoughg votes to miser the measure. Trumporning president tweeted, i can be the imagine that congress would leave a beautifulithout new healthcare bill for me to approve and ready to go. Met last year met with a russian woman to provide informationdamaging on hillary clinton. The meeting took place in june 2016 after his father had secured the republican president ial nomination. The fbi and congressional investigating russian interference in the election and whether theres an members of theen Trump Campaign and moscow. Moving across the pond, u. K. Prime Minster Theresa may will on opposition lawmakers to out the eu. Ritain andwill tackle injustice vested interest. She said social and economic reform is needed. Weakness,ign of her shell call for Cross Party Cooperation to deliver it. For commuters who take to train to and from New York Penn station today twins what has called the summer of hell. Signalck will start repairs. They have told riders to expect hour. Trains during rush this 650,000 people who use penn use an every weekday will patch work system, bus and subways. This is bloomberg. David thank you so much. Theirleaders wrapped up two day summit in hamburg and differencesper over on trade not so much on Climate Change. Joined now from london by colleague caroline hyde. Tony lets start with you. Score card here. Who came out of this being able to clear themselves having gained something . Of summer is everybody gets something. You had 20 nations here which quite a challenge for any german chancellor merkel. Her main goal was to avoid avoid major proportions. Trump got along on trade and trade and steel. Exportsand on steel which has been a sore point. He got something. President putin of russia got a meeting with donald trump. Electiony talked about to sayg and trump seem that this issue was being put to for now. David what about theresa may . Come back glowing. A stride forward trade made. She came back saying, she was the strongrised by desire of many countries she noted china, india and the states. Of wanting strong bilateral trade agreement. Wasarticular, donald trump out there really blazing for the theial relationship between u. S. And u. K. He said no country could the u. S. Be closer than and the u. K. At the moment. He said in particular, that any trade deal will be done very quickly. I might add, this is down to the eu. You cant have Bilateral Agreement between the u. K. And countries outside the eu in brexit is completed. March. In 2019. This was vote of confidence it seems. For theresa may works has a difficult week. Shes got a big speech tomorrow on help having to call from the other parties to try and set the agenda straight u. K. Leaves the. Uropean union david you referred to the. Long on trade markets open. Trade and investment frame works of the principle nondiscrimination and continue to fight protectionism including all unfair trade practices. That latter part is you were about. It says, were for free trade. But we recognize sometimes you have to have sanctions . Part was a win or it is a win for trump. Wasll accounts, this something that was done in the the behindeen the scene officials working on summit. But also it bears stamp of macron and merkel who are europes new power couple. We were told by french, for macron was active in this. It goes along with this notion free tradeere for in principle which was important others and then for the trumpith administrations America First approach. To get this notion that we can retaliate when its appropriate tradeen we feel the fair violated. David thank you so much. Us now is Peter Schaffrik and aaron kohli here in new york. Withis your base case now any potential trade war with the u. S. And any other country at the g20 . Good morning. What i would say, looking at forets, weve been waiting this entire theme to unfold for quite a while. So far it hasnt. The major of challenges particular in fixed income market. Any disruptions to say what does that do to domestic inflation and the assumption there it could shoot higher. So far the markets is pricing that in. We saw the opposite last couple of months. Time being, the markets just sitting there and taking this all in. It when itl take comes and see it when its black white. Alix should the market be pricing in . I dont think so. We havent seen sign of real inflation. Especially to the trade point, of a risk scenario. That might create more ripples along the way in terms of growth. We have not dark clouds on the economic horizon in any case. Havent seen employment strength turn into inflation strength. Feds something that the seem to be having a love hope on. We know england is so dependent on trade and free trade. Amount about possibly u. S. Or u. K. Trade. How is it perceived in london, of trade . This is the key concern thats among the British Chamber of commerce. Many of the businesses based in the u. K. Are particularly worried about any hard brexit happening in the United Kingdom. Spell for the ability to access the eu when it march 2019. I do think theres some signs of the eu. Ce outside some of the big players. Leader theresahe may from the g20 saying that china looks up for it, so does the United States. Trade is the number one hierarchy. The United Kingdom depend on inward investment. Highly ofpeaking their commitment to continue to kingdom. The united trade, potentially not a good but services, are key importance british economy and largely they want to see people forinue to come in investment. David take us through what could happen. Not the question of the side of the trade flow. There are real questions about the structure with wto. If the u. S. Goes through with steel, europe said they will retaliate right away. It can bring w. T. O. Into play. Certainly. When you look very carefully at case. Rules, its really a by case basis what industries were talking about what can and done. Be therefore it becomes quite complicated very quickly. Add, going back to the comment we heard about brexit, here. In play one of the assumptions if nothing can be agreed by the been concluded in 2019, you fall back on the w. T. O. Rule. You have to look very carefully into what kind of things that u. K. Is importing and exporting. What regimes will be applying at w. T. O. Rules. Youre right, w. T. O. Would come in. Disruptingy sort of impact on the global scheme but industry by on industry basis. Have 56 billion of. Rade this week i think one of the things you like to start seeing in some of supply that we have so to investors to pick up. Thats been something weve seen at these kinds of uncertain times. Dollar has that safe haven. Liquidityries have advantage over most other types of investments. Lot of the very long and buying that weve seen coming from foreign buyers would likely accelerate. Alix that really hurt after they bought a lot in may. Aaron kohli and Peter Schaffrik of rbc. Caroline hyde will be with us. Coming up, well continue to wrap up the g20 headlines, marcus nolan, this is bloomberg. Alix pragmatism that was the message this weekend. Peter pratt seeing we will need period of policy and then of france governor talking about the importance of stimulus. Saying fall will be the next announced. Changes just mentioned, we had negative inflation bit more than one year ago. In 2016, 0. 2 . Year, average inflation 1. 5 . Prices. Tly due to but also the progress of implementation of our community of Monetary Policy gives results. But we are not yet there. Alix still with us is peter rbc capitalom markets and aaron kohli doctor b bmo. That mean . I think what the acb absolutely clear about, policies is working as we heard. Nearhe economy is nowhere producing inflation in the near term. Or the medium term. Acb is absolutely convinced they have to stay accommodated. They are constrain much more constrained bank of england and fed. Some adjustments would have to come there. The design of the program. Other than that, they want to stay absolutely super cookedded accommodated for years to come. Alix we have aaron kohli. Pricing. 2 bases ecb. S by 2018 by the in mid june we were well below that. Seen. T the rerating weve those yellow bars. Large extent. A speaks how effective the change the ecb and the fed. Despite any real ability for to shown to show up robustness of the kind weve seen. Theyve been very much in concert. The reason whys they forced the mark to pricing. Dox aaron what would you then . Do you want to be short here. Buy the dip . O it speaks to more about horizon. Areink short term investors likely to continue selling. Weve seen momentum in positioning. Its still very bad. Year horizon or six month horizon, these are great levels to be buying. Lot of it was that talking of market will lead to kind of growth in the long run thats going offer inflation needs. B or fed alix how much juice is there over inyields in europe. Especially you see u. S. Premium to bond in europe, really coming down . I would make slightly different distinction. Make it to the instrument what youre talking about. Since theeen in u. S. Fed become more aggressive, short term Interest Rates have up. Going the markets more or less the fed canther deliver what they set out to do. In europe, its going to be opposite. I think the short term of the curve will be anchored. Ecb is trying very hard to put it back in the box. Curve, aaron the is right, its particularly over the short term it will be driven by other things positioning momentum in these forces. The curve inhink europe will be steeper. Curve herehappens to kum in the u. S. . You will have janet yellen testimony in the puss. You will be looking for inflation and yellens testimony. On friday. T number we have cpi coming out. Problem is the details has been weak. One orat you only seen two areas of strength. Disconcertingre for the feds. Theyre betting a lot of all this unemployment that theyve about is going to translate into inflation before they seen it. Theyre getting the markets ready for a hike. We dont have evidence of that. Alix temporary. Times are we going to hear that . Exactly. David peter, look at the fundamentals. It really is inflation. What are the fundamentals that will drive inflation. Its been getting softer here a little bit. At the same time, were employing more people and we more dollars to spend. Youre right. Outink theres other voices there that should have waited until you see the inflation indeed. If you look carefully with the market is pricing, the markets clearly, thery medium term inflation picture is bleak. Point, we need to see vast changes. Changing, bond yields are going up,ing on thing thats moving is real Interest Rates. Which is last thing the economy need to see rising wages, rising inflation and were talking. Elusive. Hats david Peter Schaffrik rbc will be staying with us. Aaron kohli, thank you for being with us. Hear from live from new york as you reported earlier, theresa may will call opposition makers help steer britain the eu. Rbc is stillik with us from the city of london. In may theas back disaster election happened. How much is that feeding into daytoday thing. Theyre looking at consumer spending. Good unemployment data. Is it feeding into the consumer there . I think its feeding into the consumer. Pattern here which is very clear. Going up. Flation particularly because the pound has been going down. Wages are stagnant. Are rising. Particularly for the essentials, food, shelter and these type of things. What you have, consumption is power and the rest is going down. So far, consumption has been up. Ped as falling saving rate is territory, it is questionable how much that can go on in the future. We are not optimistic when it u. K. To consumption in the whats interesting, its the pound and certainly the markets more rattled about to say. Land continues political posturing is a big theme tomorrow. We have theresa may making all important speech trying to get her opposition party. Something that sways the market . Youre asking about asset classes. Have to be careful what classes were looking at. So far what have not happened, all the political uncertainty, u. K. T uncertainty for the yields have been doing quite well. We had bank of england that they want might to raise rates. So far guild market has been holding up. Good part of the equity market been performing strongly. That has helped. Might continues. What we might be careful this Smaller Companies that are particularly within the u. K. Peter schaffrik of rbc. Wonderful to have you with us. Wednesday, fed chair yellen kicks off day one of her Monetary Policy report to congress. It happens 10 00 a. M. Eastern. 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. Alix this is bloomberg day break. Heres with where we stack up. Before the open here in the u. S. Higher. Res are slightly euro stock still hanging on gains. Business confidence killed it in germany. The bond market got hit so hard last week, now you got the bond bull. Were seeing relief rally here. Yields move lower. Germany here and in the u. S. Across the board, it is a weaker dollar story. Reversing that downside we saw on friday. You had dollar yen at the two months high. Percent. By one now update on what to making outside the business world. Taylor next few weeks maybe crucial. Whether President Donald Trump on historic tax cuts. Several obstacles awaiting lawmakers. Division among republicans on the parameters of tax bill and deadlines to keep the government running in a on u. S. Debt. U. S. Secretary of state rex will go to kuwait, qatar and saudi arabia this week u. S. Et with leaders as the seeks help and standoff that u. S. Allies against one another. It accused qatar of destabilizing the region. Court will assess new evidence in the case of 11monthold charlie gard. New evidence relating to professional treatment for his condition. The application came after both pope francis and President Donald Trump brought to thetional attention case. Support for japanese prime abe shrinked. News 24 hours a day powered by more than 2700 journalist and analyst and more than 120 country. This is bloomberg. David thanks so much. Returning from its recess with a lot of on its platter. Thatuestion is how much of they can get to. To give us anens, were joined an answer were joined by kevin cirilli. Theres a lot congress to get to. Russia keeps coming back. Get back to the g20, the that het tweeted out thought it was a good ideas to russian onhe cybersecurity. Senator Lindsey Graham had opposition to that. It was pretty close. Gave a really good speech in poland. Ahead disaster meeting with president putin. Two hour and 15 minutes of meetings, tillerson and trump are ready to forgive and forget comes to cyberattack on 2016. An election of david with all Congress Nobody on russia. E up is this going to get in the things like healthcare . You had a good weekend. There is some precedence for working with top global power such as china and ofering into some type accord agreement of a truce so cyber technology. Weve seen this in the past with the United States relationship china. The president in his tweets suggesting a similar path forward. Of course, over the weekend, new report from the New York Times suggesting that donald trump jr. Had a previously undisclosed with a Kremlin Associated lawyer back on paul manafort. Th then the Campaign Manager as kushner. Ared this comes two days before chris reyes set to testify before the Senate Judiciary committee. Hell face questions on that as well as how he will continue the ongoing investigations into russias election. Nto the 2016 it is worth noting that Jared Kushner did note this specific meeting in question in his own disclosures. Once again, the president returning home from an International Trip and facing a about questions back here russia. David president putin hoping he loosened the sanctions against russia. But at the same time, theres a bill pending now in the senate that would take the sanctions farther than theyve been. What are the prospects of that . Bill passed nearly unanimously out the senate. In the houselimbo of representative. It has not had a date set yet for their to be a vote. Theres intense pressure from folks like senator lindsey democratswell as increase sanctions against russia as a result of this. This is where it gets interesting. TheEnergy Sector here in United States as well as some Technology Companies are actually taking a look at this bill andnctions scratching their heads. They are in agreement that there has to be something done against russia and a response to what election. N 2016 but they feel that this was actually end up hurting u. S. Companies. And u. S. The political framing here in washington, suggest that its a simpler case and that republicans are trying to go easy on russia along with the white house. The policy of this is where really is going to get interesting. Major oil and Energy Sector companies are a bit concerned that this will hurt u. S. Companies. David that was perfect. With President Trump and putin made for good theater. It has ramifications for russia as a market trying to attract foreign investment. Is chris weafer. He has spent more than 15 years in russia. Recognized as one of the top russian investment strategist. To today from london. Good to have you here. Good morning. Endeavou david you heard the discussions about the pending sanctions. Importantsense how and is to Vladimir Putin russian economy. This sanctions is seen as russia. Ious in it is something thats causing concern. As you have seen, the russian just pulled back two caused by thesion 2014 sanctions. Lot of people talk about the adapted to theg sanctions. In order for the economy to push more robustd to growth, it is a need to attract investment. That will be tough enough already with existing sanctions. Extended asions are its proposed by congress and especially if they are codified, would make that position much more difficult. A base of a were hearing in moscow now. David how is this playing out in the real world. We have various people think russia might be good place to look for investment. Is this keeping a lot of money on the sidelines . Affecting flows . We have seen flows pick up. Not enough. The economy has pulled back into modest growth after two years of recession. Forecast to 1. 4 growth. Limited with bigger volume investment. We have seen investments picking from germanrly companies and Chinese Companies visible. I think the reality is, if russia is going to achieve what fournts, which is three to percent growth over longer term, it will need a much broader and what wevestment hear consistently is that a lot of Companies Russia like to attract, are still being put off by sanctions. They are still waiting to see happens next. They do not want to be caught the wrong side of sanctions or risk their own reputation if sanctions were to toughen. Investments. Back alix you take a look at glencore. That was a few months ago. Idea is maybe companies are taking a sanctions less seriously. Here at glencore and if big major Commodity Company in russia, what do you do . Separatek, you have to if youre in the Energy Sector, russia is the worlds biggest exporter. Business will accept higher level of risk. Weve seen that through the ages. Russia really wants to broaden investment. It wants investment into manufacturing and agriculture into sectorsticals that will move it farther away from the energy dependency. Companies that are more afraid or most afraid of sanctions and frankly have been reluctant to raise their investments in russia over the last couple of years because of sanctions. Are the people that will be even more particularly incerned about proposals washington. We look to see what happens next with this senate proposal. Thethese are exactly companies that russia needs to attract. It already has sufficient volume into the Energy Sector and attract industries. Is the other sectors that it really wants. This is where sanctions really matter. David give us perspective of investors. Investmentary to get you need to reduce the risk of sanctions. Questionthe critical there. Is it really up to Rex Tillerson deal with ukraine . Is there hope for that . Think nobody is under any rapidation of change or significant change in the situation with ukraine for years. Realistically, most investors much williew nothing happen with regard to ukraine. Until backend of next week. We have elections in germany next year. Looking at at least a year before anybody expects serious discussions. Said, the russian economy has some extent adapted to and even toctions existing oil price. Thats not enough to push the further ahead to achieve the growth that the government target. Happen, there would have to be progress on sanctions. But there willns be existing sanctions probably early areas or latest 2019. That is the realistic position. Of macroris weafer advisory. Alix thanks. Coming up new yorkers gearing up for that summer of hell. Got penn station in new york busiest terminal. Upheaval. Well head live to 34th street. Well debate President Trump spending plan for infrastructure. Ahead of infrastructure. Taylor Hewlett Packard hp coming up. Alix now time for your Bloomberg Business watch. Federal reserve chair janet Monetary Policy report to congress and answers questions on the state of the economy. Yellen will appear before the house on wednesday and. Buyout firms take over offer for foran drug maker 6. 2 billion after an earlier acquisition attempt failed last month. Are seeking approval from german financial regulators from the one year exclusion period to submit a renewed bid. Nigeria both boosted Oil Production since they were exempt. To cap their crude out put. Thats according to the oil at an energy conference. Two producers invited the african nations to meeting in russia if two weeks to discuss their production. Your Bloomberg Business watch. Im taylor rigs. Of new yorkovernor has dubbed in the summer of hell. Him now. Ng at least for hundreds of thousands of people trying to into manhattan and central station. The Transit Authority taking long overdue maintenance. That means fewer trains running often. Khand is there. Reporter things arent here at pennad station. We spoken to a number of people who have come commuted into the station. Said theyve taken earlier trains. But those trains are still overcrowded. Managed to get here on time. They are confident getting to work. Theyare more concerned how get home when rush hour begins. Need to dodo they this . What weve seen is a number train derailment. One of them happened only last week at penn station. Thats prompted amtrak who owns to start a much needed upgraded work. Improving tracks, improving signals this is going weeks. Eight it will run through september 1st. Its been dubbed the summer of hell. Its the experience can extend september. In theres a lot of people who say it needs a complete overhaul. Projectsome really big that need a loot of investments. David that was my question. Is this going to fix thing or is this a patch . Would that take . Theyre saying these eight weeks will have the most immediate things that need to be done. Theres a rail bridge that need ed that will cost a dollars. But federal funding isnt there yet. President trump said he wants to spend a trillion dollars on infrastructure improvements. Not just in new york but across the u. S. Have no plan from congress achieving that. David great reporting there. Alix you got private equity, big institutional player. Asset managers. Theres that growing amount of money thats waiting to be infrastructure. Kkr, multibillionaire fund. Targetinge 100 billion in investment. Saudi arabia committing 20 billion. Opportunity . Se were joined by jim barry, of blackrock real estate. Helping penn station will be something you guys are interested in . All investors are interested projects like that. Penn station is fascinating. Its a poster child of americas infrastructure. It is a patch Work Activity this summer to keep it safe. Reality is, theres been now. Investors for decades deal with it is to requires tough political decisions. It allows the decisions. You get safety extreme consumer commuter event. Do you get political action. But its tough. The challenge for President Trump and the administration is coming forward will get them that capital to move. Alix when i talked to guys like say, if, they tend to like energy infrastructure. I like a. Energy. Want tot tell me they help rebuild the track. They do. Its got to be offered to the the way thatr in makes sense. Just saying come and put money wont work in. But the government and thing as ise amtrak need to do develop a project that makes a clear project boundaries that contractors and Equipment Suppliers to bear with forcapital to deliver some of structure. Thats tough. If you look at International Three toe, it takes five years to mobilize any program. Ve the quickest way is to give existing agencies like amtrak cash. That will allow the private sector to bond but not people ourselves. But reality is, everybody in the Global Infrastructure investment looking at the United States and looking at the administration. Is a energy in power market over 80 . Is open and ready if there is an investment opportunity. That really the essential difference in the energy area, there are companies with cash ready to go. Its really commerce right immediately. Its not the cash. Is there but its the project. You deregulate the markets. Sector, theate utilities, etcetera, the big oil. Up fornse, its geared the private sector capital. The capital come to work. This is not about capital. The projects. David my question is, theres a perception here at least that different in europe or asia. They do invest in infrastructure. Infrastructure is much better our. Is that correct . What are we lacking that they have . As a generaly, statement, its fair to say there is more investment in in europe and asia. Its invested in many different ways. Lot of it its direct government expenditure. You go to europe, this has been going on since the mid1990s at the ulevel, substantial Public PrivatePartnership Program that bring projects forward. Takes time. Its a very mature and efficient market. The procurement options that is available. Alix whats your favorite place to put money to work now . I can make a good risk adjustments of returns. Institutional investors like i represent, tend to not want risk. Theyre looking for very stable regulatory policy and environment. That means the Higher Quality is where most of the capital going. Its not more risk gets added up, cost of capital goes its the quantity of capital. Emerging markets is not where capital going. Theres less confidence about your ability to make return over 10, 20 or 30 years. Our capital is beginning to torgy and power is going general infrastructure. We take it country by country. Rather than general way and lower risk environment. Andd you say energy, oil gas. What about renewables . Is that stable enough to make investment . Absolutely. Last year over 60 of new spend in generation in the United States was renewables. Renewables are almost like a bond. Years andmics over 30 about 70 to 80 is in the capital part. You build it or buy it, the operating cost is the driver. Revenue. About the you forecast wind and solar. About contract and utility for 10 or 25 years. Have over 4 billion in renewable power. Over the next five years, iea said, 60 of new spending generation. Is not about climate. This is now about economics. Fromcale renewables 20 billion year, 12 or then have brought cost down. Left how much do you have to be invested . Up to 17 billion, you left. Ly got 6 billion which you can deploy over 18 months. To catch up with you. If you have a bloomberg terminal, check out tv go. Can watch us online. Interact with us directly. You missed anything with jim barry, feel free to click on it and watch. Futures here inties the u. S. Pointing to a slightly higher open if youre the s p. Flipping in the negative. Erritory Business Confidence hit a 30 year high. Currency markets, dollar high. Ound the two month you youre seeing a bit of rally over with. Reasuries but the big sell off that we saw tot week and Oil Continues get hammered. David coming up next, were davidrom j. P. Morgan lebovitz. This is bloomberg a plus20 turns into g19 one entree. On trade. Central bankers talk. Fed chair janet yellen prepares for semiannual testimony to congress. Congress gets back to work. Donald trump tweets up a storm. Washington, d. C. , distracted by russia drama. David im david westin alongside alix steel. Jonathan ferro is off today. Off of p futures hanging the league. The currency markets are off of the two month high. Governor kuroda says they will continue to stay in the market. Bond bears have to go on vacation today because bulls are in charge. Crude continues to roll over after bnp their forecast for wti this year and next. David congress is returning this week. They will have to focus on health care and tax reform again. Senate republicans have promised to get their Health Care Bill out before the august recess, but theyll have three weeks. Mario draghi is together with other ecb officials. Greece will be on the agenda. Not talk morning, we get the new York Fed Survey of consumer expectations. Lets get headlines outside the business world. Taylor riggs is here with first word news. Taylor for computers taking the train to and from has station in new york city, today is the start of what is being called the summer of hell. The busiest terminal tells writers to expect fewer trains during rush hour. The 650,000 people who use penn station every workday will use a patchwork system of buses and ferries. Several obstacles away lawmakers for historic tax cut, including Ongoing Health care fights, and basic divisions among republicans on tax reform and avoiding default on u. S. Debt. Tomakers are opposed britains leading the eu without a deal. More than one third of businesses want the country to stay in the Single Market after brexit. A British Court will assess new evidence in the case. New evidence relating to potential treatment for his condition. The application can after pope francis and donald trump Brought International attention to the case. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. David thanks so much. World leaders wrapped up their twoday summit over the weekend in hamburg. They managed to paper over the differences entree, vanessa much on on trade, but not so much on Climate Change. Joining us is germanys government reporter for lets focus specifically reporter. Lets focus specifically on trade. Was this a win for merkel . Yes. It is also a win for donald trump because he got language that seems to open the way to punitive tariffs under very general conditions. You could say it was the usual summit artistry of finding a final communique that avoids a blowup. With this u. S. Resident arrayed against the world on Climate Change for example and given the history of the g7 and nato summits not long ago, there was apprehension. The europeans seemed to have molded this into a compromise that gave wins to both sides. The europeans got this commitment, and the rest of the world, china was in on this, that this commitment on open markets in principle and for the u. S. To take on this morning, which is what this this morning, which is what this warning, which is what this amounts to. Chancellor merkel was asked what about this threat or implicit threat . Her answer was almost literally, we will have to see. David thank you so much. We appreciate you joining us from berlin. Coverage in the u. S. Was all about donald trump, president merkel, and a lot of putin. All eyes on how theresa may. The key takeaway was not only donald trump but also present xi jinping of china. Theresa may is walking away with what she says a strong vote of confidence. As you say, she has been wanting ambitious bilateral trade to be agreed to. Trump said a new trade deal between the u. S. And the u. K. Would be agreed very quickly. This cannot actually happen quickly until after the eu and u. K. Have agreed on their own brexit terms in march 2019. Only then can we have formal discussions between london and washington, london and beijing. At the moment it looks as though she has come back finally with some sort of vote of confidence, and she does need it. Alix for like 24 hours maybe. You are staying with us. Katzive. S is daniel david, my big question was, as an investor, the unique to rerate your expectations of a trade war . We need to be conscious of the political environment. There continues to be risk. There are other things investors may be better off watching, in terms of Monetary Policy, communications on Interest Rates, and the fact that the Global Economy looks Pretty Healthy generally. It is easy to be wrapped up in politics and forget the Economic Risks look fairly content. That is a great backdrop. David we usually look to sensitive readings on geopolitics, yet have the markets reacted at all . Do they not care what happened . Not much. Alix you are really helping our show. We dont care. Low expectations. We know it is a big group at the table. It is hard to get a meaningful consensus at the g20 unless you are really in a crisis, 2008 or 2009. Is a lowest common denominator sort of message. You have to watch a lot of noise from the u. S. Administration on trade, but you have to watch what is actually happening in trade. Nafta is resting in a fairly normal way. Progressing in a fairly normal way. The markets are taking the view that the u. S. Trade policy is not so radically different from the past. They can shrug off the g20, but can they shrug off the data in the pipeline . Data outking at poor of the u. K. And later jobs numbers. Growth pathetic wage when you factor in inflation, negative wage growth. How much will that factor in . That is very important, especially in places like the u. K. Where the Central Bank Says they have become data dependent and they may take back some of the stimulus. Data matters a lot. We think that will steer us away from rate hike expectations. Sterling will be considerably lower in the midterm versus the dollar, which we think 1. 25 is more reasonable. Caroline do you agree there is going to be more pain for the british pound . I think the british pound is not out of the woods. We are at the beginning of these brexit negotiations. Nobody really knows what is going to happen. Currencies are the mechanisms that allow the Global Economy to adjust. As we get more information on brexit and what the situation for the u. K. Is actually going to be, i would not be surprised to see some downside for the pound. There is a lot of uncertainty and a lot we need to figure out. David maybe we have a sense of where pound sterling is going. What about the u. S. Dollar . It has come down a fair amount after the election. I think the market got a little too pessimistic. We have had a terrible percent for the dollar. Terrible for staff last year. First half of 2015 was soso. Second half was better. We think that will be the case this year. We are close to the end of the dollar cycle. The dollar has a good six or seven year run. Other central bankers are getting a bit more hawkish. As we get into 2018, the dollar retreats more meaningfully. For now nearterm risks for dollar upside. David you will both be staying with us. Caroline hyde will stick with us throughout the program today. Coming up, marcus noland, Peterson Institute expert on north korea will be here. Later we are talking markets and merger monday. Live from new york and london, this is bloomberg. David this is bloomberg. Congress comes back to town today with the same long list of items on its agenda that it had when it left. What they can accomplish before their next recess three weeks from now, what can they actually get done . They are back. A lot this week is what they have to do. Senate Majority Leader Mitch Mcconnell trying to muster enough votes for some health care reform. Proposalis saying the put forward by the majority leader is not conservative enough. Mitch mcconnell says if they dont want to get in line, maybe they will have more luck with democrats, centrist democrats. The majority leader is signaling to people like senator rob portman who are pushing for an increase in spending for opioid addiction programs from the 2 billion originally included in the first round proposal to around as much as 45 billion, trying to get people like senator rob portman on board. The Majority Leaders Office working all angles of his, including pressing the white house to back off some of the pressure they have put on some people like senator dean heller who is up for reelection in 2018. Fed chair janet yellen is set to testify in the senate and house later this week, wednesday and thursday. The present fbi director nominee is testifying before the Senate Judiciary committee. There is another hearing on thursday from representative and wagner on the House Financial Services committee about fiduciary regulations. David that is a long list. Exactly what we expected. If you just watched the sunday programs yesterday, you might come away with the idea that Senate Republicans are getting farther away from each other. Is that what is going on . That is a fair assessment. I spoke with the Communications Strategist that worked with the trump administration, and what they told me is republicans are in a tough spot because they had campaigned for seven years on repealing parts of the Affordable Care act. If you look at the breakdown of the states, ohio is a very different place than texas in terms of the political makeup. That is why you have people like senator portman and senator cruz worlds away on policy issues. David great report. Very helpful. Still with us is daniel level david katkatzive. Felt the election it like everyone was so hopeful for markets and businesses. That seems to have gone away. What happens if nothing happens . That is the biggest risk in our view. Nothing happens. Ofhave been big proponents separating signal from n oise, what they are actually going to do versus what they are saying they will do. What we are beginning to see it with health care and tax reform is the clock is ticking. The market is only going to remain patient so much longer. We have healthy economic news. Tax reform is less essential. In the health care industry, big insurance providers are pulling out of these exchanges because it is too expensive to operate. If we dont see any progress, we will see continued deterioration in the current system. The dollar is about a lot of things, Monetary Policy mainly moving in the dollars favor. There is some central bank drag from other central banks. What we care about mainly is whether there will be any net stimulus next year, if the government spends more money than it takes in. The market we expect is underpricing risk from that. From much has gone too optimistic to basically pricing in nothing from the fiscal market. It does not take that much, even a little more optimism on tax reform or health care one way or the other, no shutdown in september, rhetoric sounds more optimistic. Alix when we talk to ceos on this program we asked them what tax rate they need, and they will say anything. They will even take 28 . That is what the ceo of Johnson Johnson said. How do you structure and outlook with the value versus growth trade . If the Market Expectations are so low, and if anything getting done is a positive, how do you structure a portfolio . If we see positive development, that means higher Interest Rates which should be good value for growth stocks. Growth stocks have taken on a weird character where they are almost a defensive asset. If you look at the behavior of technology in 2015 in the First Quarter of the 17, you saw people going into technology because they wanted growth in an environment where that growth was not there. You probably want to tilt a little towards growth. Technology has gotten really beat up, but we like the fundamentals as a medium to longterm investment. Growth versus value is what the style box told us. We prefer to think of it as cyclical versus the sense of. Which sectors are more leveraged to the Economic Cycle versus those that are more defensive. You can belong both technology and financials. We dont want to strain ourselves. Alix much more coming up. Its and a eve are sticking with us. Abercrombie fitch are terminating tops regarding talks regarding a potential deal. A few months ago the idea was that they would be some kind of takeover target, american eagles and outfitters express had expressed interest. Now abercrombie says any potential talks have shut down. They had taken a 15 hit. This store in particular is closing 60 stores in the u. S. So far this year. How do you grow revenue if you keep Closing Stores . Coming up in the next hour, is it the calm before the storm as we enter earnings season. We had into the numbers. This is bloomberg. Alix this is bloomberg daybreak. Im taylor riggs with your bloomberg is the splash. Cincinnati bell has acquired Hawaiian Telecom and enterprise solutions. The price tag is 850 million. U. S. Landline companies have been losing customers to wireless and cable companies. For has treated a Rush Companies to consolidate. Saudi aramcos outlook for oil becomes has increasingly worried. The company will invest over 300 billion in the next decade to maintain its Oil Production capacity and explore for more. Alix thank you so much. Secondquarter earnings season is here. Jpmorgan reporting on friday. Here is where the banks are stacked up. You are looking at earnings expectations, which have been cut at big Banks Like Bank of america, morgan stanley, and goldman sachs. Goldman sachs seeing the worst estimate slash. Those expectations at the end of may really coming down. Part of it was the banks doing it themselves. Beat going to be enough for the stoxx to continue their rally . I think analysts may be getting a little too pessimistic. And i think yes, that will be enough. We were doing work on this last week. A couple things i think the street is missing, Interest Rates are still higher than they were a year ago. We may see slowing on quarter to quarter basis, but the year over earnings should remain solid. Be positivee will Earnings Growth. People talk about very low levels of volatility. We know trading revenues likely took a hit. If you proxy volatility with the vix, the average level in the Second Quarter was not that different from the average level in the First Quarter. Volatility hit low levels, but not as bad as what some analysts are making it. Vstoxx can continue to outperform these stocks can continue to outperform did you in improving economic backdrop. Financials stand and have a decent 2017 as a whole. David we will see how much the consumer is coming back later this week. Are the borrowers coming back . Even if you can charge more for the loan, if they dont want it, you cannot make money. That was the problem throughout this recovery. Quantitative easing loaded up the banks with all this cash, but there was not enough borrowers out there. We never saw the loan growth people expected. Were contrasting this against loanwhere we see robust growth. Alix much more coming up. Breaking down earnings. This is bloomberg. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. This is bloomberg daybreak. I am alix steel. Dow jones features still in negative territory. Business confidence in germany a 30 year high. Dollar yen stood out, now at a twomonth high. The bond bulls, you see a rally across the board as yields move lower. Current still off by more than 1 . David lets get an update on what is making headlines. The health care fight will greet lawmakers this week. Mitch mcconnell is still trying to find enough votes in his caucus to muscle the measure. Several republicans have indicated they oppose the bill. This morning, President Trump tweeted. Mnuchin secretary steve says the white house is committed to getting the tax overhaul proposal through congress by the end of the year. He said the plan will not include a 40 tax rate for the richest americans. Prime minister theresa may will call on opposition lawmakers to help steer britain out of the e. U. Economicsocial and reform is needed to make a success of brexit. Two will call for Cross Party Cooperation to deliver it. The most senior vatican cleric to be charged for sexual abuse has returned to australia to stand trial on charges he sexually assaulted multiple people years ago. He is pope francis top Financial Advisor and due to a in court july 26. Global news 24 hours a day powered by more than 2700 journalists and analysts. This is bloomberg. It is central bank week. Marketma in the bond last week, look at the terminal. This is the spread. As have seen it compressed the premium has come in. You said you see more upside for the dollar. What do we need to seek for the longterm spread to reflect that . I think yields are going up in both locations. I still think theres a lot more up. For u. S. Yields to back next year, that spread starts to more meaningfully top out in the dollar has problems. There are still spreads moving in the dollars favor in the next six months. We think there will be the beginning of an unwind of the Balance Sheets as soon as the july meeting. Alix you are the second person who say july for Balance Sheet unwind. Think the minutes last week were consistent with july. If not july, september. There are still rate hikes not fully priced in. David you said there is room for the treasury yields to go up. What is required . Does that mean the market believing what the fed has been saying all along . The fed begins to allow more of the portfolio to rolloff, that will put pressure on the market. It implies more supply but could pressure the market. The fed fund rate keeps going up. That could have an impact as well. All of that is probably underpricing the dollar. A lot of these will become old themes and the dollar may have more serious problems. We think the second half is still the right time for the dollar to do well. Alix david . It is becoming more difficult given Development Across rates. They are rising intend to mail. I think they are rising in tandem now. I think there are still opportunities right now. Opportunitiesare in fixed income despite the fact that rates are heading higher. Local currency and emergingmarket debt, going into a lot ofs investors can still make money in this environment. It is more challenging. T. Rowe price said they are selling junk bonds because they worried about unpredictable policies. Is there a level where you say i have to rethink my entire strategy . The work we have done suggests it is more about the fed funds rate. In our new guide, we have a chart that looks at highyield defaults relative to the fed funds rate. Over the last couple of cycles coming of seed the over the last couple of cycles, you have seen the fund rate peak. Because highheeled that tends to be shorter maturity, it is attention to the shortterm rates. David are you talking about corporate debt, private debt or public debt . We are talking about sovereigns. Followed belowve their longterm averages. Some of the sovereign paper does look interesting and in a low rate environment. X risk has been tilted in the u. S. Investors favor. We expect they will continue to rally against the dollar as Economic Activity in the rest of the world looks healthier than it does in the United States. Highyield will outperform. There will be adjustment in rates. Are going up. We are worried about that market tactically. Strategically, we have a similar view. Alix when you have higher yields in europe, you will see money coming out of the u. S. Or stop going into the u. S. Do you agree . Where we are with the e. C. B. Is where we were with the fed in 2015. 2015arket overreacted in to ben bernanke. It took time. It took another six months after that for the e. C. B. To have a change in message. Bond buying will continue for the rest of the year. We are talking about tapering kicking in next year. The market reacts to rhetoric. Then reality kicks in. I think that will happen in europe the next six months. Alix if you see upside for the dollar, what do you see for the credit market . Us, it was clear the dollar moved too far, too fast in 2015 and broke other things. The Energy Market had problems. We had a very overvalued dollar. What we are looking for now is a small recovery. It will not look that crazy. The levels of the dollar are well off the more stretch levels at the end of last year. We think there is room to run before we get into problems for other markets being driven by fx. David they will both staying with us. Later this week, we will bring you live coverage of fed chair janet yellen wednesday at 10 00 a. M. Eastern. Next, we will take you to london where u. K. Prime minister theresa may gears up for an important speech tomorrow. Live from new york and london, this is bloomberg. Bloombergs is daybreak. This is bloomberg. Oil prices are heading lower. Forecastcut its 2017 and lowered its 2018 target. Bnp paribas head of market objectiveaid opecs is elusive in the shortterm. The group has signaled a turnaround that began earlier this year is continuing. Bloomberg tells summer bookings are rising after staying awake in 2016. This summerngs for are also quite positive. Taylor that was the c. E. O. Speaking to work in france over the weekend. Shares are soaring. The owner and operator has agreed to be acquired for about 1 billion in cash by apollo. Premium over a 31 the Closing Stock price on july 7. Caroline, over to you in london. Theresa may is calling on opposition lawmakers to help steer britain out of the e. U. The implications for europes economy and trade relationships. She is holding a meeting with the Prime Minister of australia visiting the u. K. At the moment. They have been talking about tariffs and trade. Theyve been to the scene of a terror attack in london together. Politicalng infighting and losing some of their political strength. Theresa may lost the majority in may. Lets bring in daniel and david. Daniel, i want to start with you. You mentioned the differences between the market reacting on rhetoric or reality. Din reality do you have a baked in . Does theresa may stay . Sterling is neutral for the rest of the year. It will be a long process. Life goes on in the economy. On whatet has to focus the data means for the bank of england because it has signaled it will not be perpetually on hold through the Brexit Process if the data improves. There will be a lot of sensitivity to the data over the next few months and much less sensitivity to political ne ws, i think. Caroline im looking at a great piece on the bloomberg that shows if we do not get a deal from the United Kingdom, the Great British brexit could cost you 13 more. Are you ingrained in the politics of what this means or are you more focused on the data . We are more focused on the Economic Data as well. While it is important to look at the impact of exit on inflation, that ties closely to the bank of englands future policy choices. I would say politics are still generating a little bit of noise. In general, we think there are still opportunities in the u. K. , particularly with a local currency bias and hedge some risk. It will be a choppy road ahead. The thing that makes us most concerned is the trade issue. Tariff for a tariff makes the whole world poor. If prices rise, you could see an economy driven by the consumer like the u. K. Fall under pressure and put the bank of england in a difficult spot when it comes to policy Going Forward. Caroline that affects imports and exporters. Where are the opportunities . Tore would you be looking talk to your clients about investing . We would be focusing on the bigger exporters. Those goods become cheaper for the rest of the world. We think that could lead to a rise in volumes and offsetting revenue gain despite weakness in the currency. The bigger, multinational players. The things we were shying away from in the u. S. A couple of years ago when the dollar was up. Given the weakness in sterling, we are more constructive on the names in the United Kingdom. Caroline talking of sterling, lets get the fx viewpoint from daniel. Where do you see the british pound under the most stress Going Forward . The dollar is on the rise today, but will that continue . Where do you see trades getting more enticing . I think there is a window of sterling weakness ahead of us, particularly versus the dollar. We think the dollar has better times ahead in the near term. Sterling is honorable. The market is overpricing bank of england. Push theweakness could bank of england toward tightening. Sterling versus the euro is a much more important exchange rate. There is room to fall without triggering a rate hike. Sterling has room for stability versus the euro. Tore is more room for that hold run current levels. Caroline all eyes are on the trade relationship with the European Union. David and daniel, great to have both of your opinions. If you have a bloomberg terminal, i want to bring you to check out the tv function. Interact with us directly. Bloomberg. David this is bloomberg. I am david westin. The chinese president and japanese Prime Minister met on saturday in germany seeking to overcome years of rocky ties as they figure out how to deal with the threat of a nuclear north korea. Joining us to take us through authorions is a prolific having written to the books on north korea. Welcome back to the program. Give us some insight into north korea and what might move them when it comes to this quest for Nuclear Weapons and the ability to deliver them on an icbm. RegardNorth KoreansNuclear Weapons and the Delivery Systems as a guarantee for their political survival. It is highly unlikely there will ever give these up. I think the best we can hope for is some kind of freeze where they do not develop any more proliferatedo not beyond the peninsula. David there has been a lot of talk and or have been a lot of sanctions on north korea. It is not apparent it has dissuaded them at all. Since north korea was founded after world war ii been able to influence north korea . Because north korea is its own internal political economy is remarkably insensitive to sanctions or inducements. It marches to its own drummer. The regime has a narrow constituency base. It does not take a lot of any to keep the elites and military happy. The government has little accountability to the general population so they are able to endure sanctions. When you try to provide inducements, they do not make a lot of difference either if they require fundamental changes in policy. There is not a lot the outside world can do to change the path they are on. David after the maralago discussions, President Trump came away apparently believing china could help with this. It does not seem to have played out. Now he is tweeting they tried and it did not work. Can china affect north korea or is that a myth . If china were willing to except an unstable north korea, china could affect things. China accounts for more than 90 of north koreas trade. It is north koreas primary supplier of oil and green. China were to have an embargo of north korea, that would get their attention quickly. But the chinese are not willing to risk the instability that might bring. They would rather have a Nuclear Armed north korea than unstable north korea. They have the leverage. They choose not to use it. Wrote president putin last week he had a plan that would involve north korea putting aside for the developments further developments in exchange for the u. S. Not having more military exercises. That is unrealistic in terms of dissuading the North Koreans and completely unacceptable to the United States and south korea. The United States and south korea have a mutual defense treaty and engage in annual exercises. This is well known. The difference is the north korean activity is illegal. It has been condemned by the united nations, including china and russia, on multiple occasions. They are subject to multiple u. N. Resolutions. That is something the United States and south korea are not willing to do. For years, the thought was the sixparty talks were the path forward. Had they made any progress . Should we try to get back to the sixparty talks . In the end, we will need a combination of economic pressure and military threats. We will need information campaigns. We will have to make the environment uncomfortable for the North Koreans. Ive the end of the day, it is going to be some kind of negotiated settlement. Whether it takes the form of sixparty talks or a small group of countries, that is basically a matter of tactics. We have to make the environment uncomfortable for the North Koreans to bring them to the table and increase their willingness to except some sort of deal. David does the United States have to lead this charge . Is there any chance someone else could step forward and take responsibility . Are there other countries that could lead . The United States is central to all of this. The North Koreans regard the United States as the primary threat. They basically refuse to deal with the south koreans. The japanese do not have the should teach it have to strategic heft. The chinese and russians do not seem interested to put pressure on north korea. We will have to pressure china and russia. David thank you. Hour, thehe next Principal Global Investors president and c. E. O. Tomorrow, the strategic chief investment strategist. He always has opinions on everything. About half an hour to the cash open. The dow jones ticking up steam to the downside. S p unchanged on the day. This is bloomberg. Alix janet yellen prepares for semiannual testimony later this week. Congress gets back to work. President trump tweets up a storm. Turbulence has been affecting everything from stocks to treasuries. We debate whether earnings can provide a reliable anecdote. David welcome to bloomberg daybreak on this monday. Jonathan ferro is off today. 30 minutes until the opening bell in new york. Alix has a look at markets. Alix a little bit of softness in equity futures. S p futures just turning negative on the day. It is a stronger dollar store. The bond bulls taking a sigh of relief after the terrible week last week. Yields down by about one basis point. Crude continues to get hit with bp slashing its forecast. Now we go to Abigail Doolittle for a look at what is moving ahead of the open. Abercrombie fitch shares are plunging in the premarket down more than 10 . If these losses hold on the day, it will be the worst day since august last year. The company said it terminated. Otential buyout talks shares are down more than 85 from 2008 and 90 of analysts have hold or sell ratings. It seems the company has its work cut out. Companygher after the did roll out the first model 3 selling at 35,000. That car will be elon musks. It seems demand is high. They have taken in half 1 billion in 1000 deposit. It seems to be a popular car. Intel down 1. 7 on a downgrade to underperform at jefferies. They say they will be a huge shift in computing. The analyst thanks the shift will help nvidia. We have bullish comments helping nvidia with the analyst saying the deal with toyota is likely to help revenue for the next year or longer. Theyve raised the price target to a street high suggesting the stock could soar more than 30 from current levels. Alix thank you. Yesterday, there was a herd of people at tesla. David it was not the new one. I think there is only one and elon musk owns it. Alix like back to the future. David cool cars. Alix stocks and bonds had a rough week last week. They moved in tandem. The trade has investors asking what are the market safe havens. Bloomberg on the etf for the treasury. They have a big decline last week, the most brutal since 2013. Is the principal investors c. E. O. And oliver renick. Great to see you. Lets recap what happened last week. A brutal selloff in the bond market. What do you do as an investor heading into this week . On the bond markets, i dont see why you get a sustained selloff. I could kind of understand what was going on last week which was to do with a little uncertainty around washington around u. S. Policy. A little uncertainty around g20. I dont think it was worse than that. I think it will be interesting to see whether janet yellen says anything different from Market Expectations. Increase thisore year and maybe two next year, i think the bond market will settle down again because that could be go with by yield curve flattening. I dont see a real bear market in bonds getting hold. As a result, i think equities remain ok as well. Alix questions over the weekend were starting to be what is next after the search for yields. Interesting question. In stocksa drawdown and bonds over the short term. Yieldsled by a pop and across the water. I think the question now is whether that trickles into forced selling by funds that balance between the asset classes. It is hard to assess because these strategies expect a certain degree of volatility. Whether what we have seen has been enough, the s p is not far off from the high. What is interesting is if we do see flattening of the curve, that begins to post interesting questions about financials. A lot of people are talking about ranks banks and industrials as well. The trump trade looks like it is returning a little bit. I think it is for Different Reasons from november. David why is it returning now . I think part of it is from earnings expectations. Technology is where a lot of people are focused. Alix optimism. One of the big topics of conversation with the g20 this weekend, everyone says it does not matter. Larry summers wrote over the weekend what he thinks it matters. Look at this. Rethink the need to Multinational Companies at all . Not really. Summers analysis is an interesting political analysis. A move toward America First rather than multinational institutions, i think what that does is introduce more tail risk and expand doubt in the economy. It makes problems in korea more likely. It may be makes issues with europe more likely. There are some banks in europe that do not look good. It clearly makes the stability of the persian gulf less assured. The fact that President Trump was there and a couple of weeks later, they all turn on qatar, i think that is interesting and shows the impact of going for bilateral rather than multilateral. I think that expands the doubt. It does not change my course. I dont think the reason for Earnings Growth is particularly driven by washington. I think the Earnings Growth is coming because the u. S. Private sector is very strong. I think the runup in the markets so far in 2017 is justified by the strong earnings performance u. S. Business has shown since the middle of last year. I remain a buy on u. S. Equities. I am watching warily some of the negative tail risks but not letting them take away my basic off from his basic optimism. David mediumterm, how much of the earnings are dependent on a framework that includes multilateral agreements on trade . Ii, we have had a multilateral regime largely led by the United States. What donald trump clearly did in hamburgs say we will not take as much responsibility for leading this international regime. How much risk is there for Global Growth and earnings . That certainly is all true, david. I would say my conclusion would be expanded down. Doubt. Nded dont forget the European Union announced its trade deal with japan, very positive and in the multilateral framework. Because of the u. S. Moving to a bilateral approach and more of , thatrica first approach does not change the fact the rest of the world is still honoring those postworld war ii multilateral arrangements. I think the outlook for Multinational Companies in aggregate has not moved down dramatically, although it has become more risky. Alix interesting point. We are continuing to get upgrades for the s p. Forecastking up his into earnings season. What is the risk for this outlook as we see continued revisions upward . There are revisions on what strategists are looking at for the overall benchmark. This is standard. Right now the mean for the end of the year among strategists is 2423 or 2439. We are right there. There is a lot of weight and seem right now for what happens with the analyst revisions on the companies. That will be in the spot line throughout spotlight throughout this quarter. We want to get clarity from and whether the capex we heard about in the First Quarter is coming to fruition, whether companies are confident enough to give guidance. It was hard to get guidance in the First Quarter. I think that will be a big part of it. David thanks to oliver renick. Jim will be staying with us. Davidow on tuesday, dr. Shulkin on the trump administration. We will talk Global Equities and bank divergence. Much more daybreak still ahead. Live from new york, this is bloomberg. David this is bloomberg. I am david westin. Wednesday, we will have fed chair janet yellen. She will be beginning her twoday testimony in front of congress as she delivers the monetary report. Joining us is mike mckee. Jiml with us, jim mcca mccaughan. This is a bit of a Job Interview for janet yellen. The president may be watching. Her term is up in january of next year. We will see what he thinks of her performance. There is really nothing new in this partly because the fed talks so much and put out the Monetary Policy report on friday which lays out with a of told us already about the economy, motoring along, unemployment going down. They laid out the plan for starting to taper the Balance Sheet. The longterm questions would be about regulation and what they might do in 2018, which she will not know the answer to because she will not know if she will be there. David pick up on something of a Job Interview. What does she know about what President Trump wants in an applicant . He wants less regulation, that we know. What about where we are with Monetary Policy . Will he be looking to see whether she is more rules inclined rather than data inclined . There are two different things. The president , as far as we can tell, lakes will Interest Rates likes low Interest Rates. Every Real Estate Developer and politician likes low Interest Rates as long as they are not to let. Yellen hasnt, janet kept Interest Rates low longer. Suggestion there is slack in the economy. In terms of the longerterm and rules, there is a section of this on the Monetary Policy report. Different rules tell you different Interest Rates, so we cannot do that because we do not have a good rule that fits all the circumstances. Alix that brings up a good point. Are you going to be listening more about what she says about inflation and rules or asset prices and financial conditions . I think both are important. I think the fundamental difference between chair yellen and President Trump is around whether the economy is close to critical capacity or not. As mike said, the latest payroll data shows some people being drawn into the workforce. But the statements from janet yellen and other fed speakers have been along the lines of, with unemployment below 4. 5 we are getting close to full capacity so Monetary Policy should begin to tighten. The Administration View is more along the lines of there are lots of people discouraged from being in the workforce, stimulus from infrastructure and deregulation will bring them into the workforce, there is still time to stimulate. I think that difference and how it is resolved will probably determine whether janet yellen gets the job or not from President Trump. Alix do you care more about what janet yellen says or more about what mario draghi says when you have 1 3 of u. S. Credit held by foreigners, it seems that is the game. That is true. I do think janet yellen is in a much firmer position than mr. Draghi. I think the problem in europe is i dont believe the recovery in europe is really as sustainable as what we have got going on in the u. S. Economy hasthe u. S. Reached exit velocity. It has been growing steadily. I think the European Growth in 2017 has been more to do with the weaker euro and may prove to be less sustainable. If that is true, mr. Draghi has to get some tapering in while he can still do so, facesaving. I think he is more and a box then chair yellen, so i am listening to her much more. Yielder, the u. S. 10year is the world cost of capital. The fed can influence it. David are they going to ask chair yellen whether she is changing her mind on the basic model . We must have been surprised dont have more wage pressure given the adding of jobs. I think somebody will ask her about it. It is a question. They have been trying to fit the data to the model. Their belief is supply and demand eventually have to come into balance. If supply gets very tight, we have to see rising wages to meet demand. There is no disagreement that will eventually happen. It is more a question of when. That is kind of the real issue. Mckeegood stuff, michael and jim khan Jim Mccaughan. Fitch sharesnd feeling the pain. We will discuss the outlook for m a. Live from new york, this is bloomberg. Alix abercrombie and fitch shares plunged in early trading. It reaffirmed commitment to the brand while the chairman vowed aggressive action to turn around the struggling retailer. We want to get some insight with Jim Mccaughan who is still with us. How is it going to play out for the Retail Sector . We have seen yield, volumes, premium down. This is going to be the start of more m a . I think there will be more m a. I think what is going on in the Retail Sector is who can survive and prosper when physical retail , it will not go away, but stores and malls will be losing share to online. That is the process only starting. We are even seeing the beginnings of it with the amazon whole food steel and the move whole foods deal and moved to getting groceries online. Consumers can get stuff cheaper more conveniently. I think for a retailer like Abercrombie Fitch, the key for their longterm successful the weather they use the brand online and sell to the webbased customers. It to are they losing online or amazon . Who do you want to get bought by . That is an interesting point. I think it is online rather than just amazon but amazon are the dominant player and role model. Internationally, you see Companies LikeNeiman Marcus or saks fifth avenue also being in places like to buy dubai. They are doing that to get their online sales up. They get noticed by the International Customer and are hoping to turn that into online. I think it is broader than amazon. Amazon are so successful. The bold move with whole foods could be a game changer. Ny other supermarket group, you have to be thinking hard about what electronic distribution looks like. It is dominated by amazon, but it may not be dominated by them forever and there will be competition. David are you waiting they are fun hoping jack ma gives you a call . I think you should be working with your strategy people to get the best Online Presence you can. It depends on the size of your brand. Something like Abercrombie Fitch is not that big of a store group but has enough of an image among the target customers. Surely they can do something online that might even pique jack mas interest at some point. Alix in what sector will m a be most prevalent in the next 12 months . I think there will be a fair amount of looking for scale. Obviously, retail will be part of that. I think you are going to see him in a m a over a broad range of industries. It has happened now with the concentration of in airlines. You will still see International Activity in that area. You might see it in other transportation sectors. You might see the seeking of deals in the changing motor industry. Announcement volt last week was interesting. I think you are going to see technology and access to it working along with scale to drive m a. Alix great stuff. Jim mccaughan will be sticking with us. Futures weaker on the day. This is bloomberg. This is bloomberg daybreak and where moments away from the opening bell. Here is where we stack up the dow jones and s p futures are softer on the day. They were stronger but they rolled over throughout the session. Of a stronger dollar remains particularly when you take a look at dollaryen. The dollar fund index is up by 1 10 of 1 . The drama in the bond market from last week is abated. There is buying all across the curve. The 10 year yield is down by about one basis point. In the commodity market, crude oil is getting hit by 6 10 of 1 . Lets look at where stocks open for trading. Abigail not a lot of conviction for investors this monday morning. Very small declines for the dow and the s p and small fractional gains for the nasdaq. Perhaps investors are on hold. We had the bonds selloff last week and earnings season starts this week so we will get to a few companies and a moment. Lets look at the big movers in retail, Abercrombie Fitch. The company said it terminated potential buyout talks but some investors are probably pleased. Best buy is down about 4 . It was reported that amazon is developing something similar to the geek squad. Some Companies Reporting earnings this week, pepsi trading higher, they report tomorrow, Delta Airlines reporting on thursday and the big banks. Jpmorgan and wells fargo are trading lower this morning. Theill be watching Companies Cut their fixed income trading revenue outlook. We will know what that looks like on friday. These bars represent the amount of growth in a given earnings season. Last quarter, we saw a tremendous growth. Growth is expected to be less than 10 . For the s p 500 is rising. We will see whether it is the earnings or the price. Alix good point, watching the expectation. Joining us now is jill cary hall. What do you make of the fact that we have not seen the downward residuum revisions much . One of the key things we have noticed about earnings this quarters that analysts have not been taking the estimates they usually have. Estimates of only really come down have as much as they usually do. Its a higher bar this quarter but we expect we will see a beat. No question that earnings will be slower this quarter. Surprises were off the charts but i think we are passing the yearoveryear comparisons we had from the big drop in oil prices and the big runup in the dollar. We are getting past the yearoveryear comes but we are calling for about 8 yearoveryear this quarter. An and evenng at better earnings forecast. And iould agree with that think 8 will be enough to keep 20. P e comfortably under that means and earnings yield of a bit over 5 . Likely move in the 10 year yield, around 230, it looks attractive. This is the foundation in terms of mediumterm. I would suggest that u. S. Equities are still a buy. Geopolitics could affect this but dont lose track of the fundamental strength of the u. S. Corporate center. Cant theyre just be a squeeze . How long can you increase earnings by 8 when the overall economy is going south of 2 . Where does the money come from . Really looking for much more expansion at this point. You have gotten a lot of cost cutting and buybacks. Forink we are looking margins to be flat but Global Growth has still been helping. Of s p 500 sales comes from overseas and thats where growth is picking up. That has been a benefit to earnings. Far, we have seen a record soportion of reits beats it looks to be a good sign for earnings season and the bar was set pretty high, Companies Reporting early on our beating expectations. Orx will the actual report the positioning into the report be more important . I think guidance is one thing. A quarterer and before after the election, we saw a record optimism from corporates. There were more companies talking about things Getting Better and Company Started raising their numbers last quarter which we had not seen. We could see some weakness of of the highs we saw. Companies could start blaming weaker growth or lack of clarity around policy so that could be something that could move the market. Positioning is the other important factor because a lot , the tech stocks have gotten super crowded. We found that crowded stocks tend to sell off harder on misses then stocks that dont have as much touting by active funds. Misses and they are crowded, that could be a big issue. What about dividing up by sector . See relative higher earnings and where is softness . I think the softness comes in areas that have specific problems. I would suggest clearly oil. By the way, i would remain negative on the outlook for oil. Its likely to be closer to 40 per barrel that anything higher because of the cost of production coming down. Thats an area were both the results from the outlook are likely to be soft. Something we talked about earlier in the hour was the flattening yield curve which i think will happen. That will make rank shares less relatively attractive than they were. The other sector i would point to his health care. If congress and the Administration Leave the Health Care Regulatory outlook uncertain, that could start to undermine later in the year. My hope is that they managed to whether itsever repeal or not repeal of the Affordable Care act. Move onto they can the agenda the market wants to see which is tax reform and regulatory. There are factors that have issues but by and large, the overall equity market will increase in value. David where are you on health care . Health care is a sector we like a lot now. Its also attractive going into earnings with positive momentum. Positioning has come down substantially. This is a sector that still looks cheap and fundamentals are still there and it could surprise to the upside. In in somes crowded cases expensive. Alix where you come down on energy . I feel like everyone is underweight energy. We are overweight in the Energy Sector, positioning the valuations. It looks like a sector where things are at rockbottom. Season, itngs trends weaker. Oil prices have been weaker before they pick up again. This is a sector were analysts did not cut estimates enough going into earnings. I think this earnings season could be a bit weaker. David what about retail . This is a really beat up sector. Has it been beaten up enough . We are equal weight in the consumer i discretionary sector. You have seen struggles with retailers and disruptors. Many areas with margins where you have seen the most costcutting and margins of gotten stressed. This is an area where you have the most margin risk. Scenario where it has struggled but we have not seen a lot of catalysts rate a cup and is the one sector that as the fed tightens, Consumer Discretionary underperforms. Thank you guys so much. We are just a few minutes into the open here in the u. S. We are not looking at anything. A little bit of rally in europe. Nothing here in the u. S. Its flat for the dow and the ecig the and the snp. In the s p 500. You are seeing the money flow in as you see yields heading down. Germany and outperform her versus the u. S. Flat, summer day, this is bloomberg. Daily s is bloomberg daybreak. Up, the chief strategist at 4 00 p. M. Eastern. David this is bloomberg. Its time for the focus on tech week. Its our week long focus on technology. It brings to bear the full breadth and depth of our global reach on all the important tech sector. Today, elon musk is showing off his very own tesla model 3, the first massmarket electric car. We have more from london. Tell us about this model3. How excited are you . I am pretty excited but i want more devil in the details. There is not much out there. We got a glimpse on twitter. You londonures from mosque showing off his new black model. Other than that, it goes 060 seconds. Hour in 5. 6 its a slightly smaller than previous models. The hard work now really starts because its 35,000, more people can afford this, theyve got Something Like half a billion dollars worth of deposits already so thats 500,000 people queuing up to buy it. 30 cars have to be produced in july. Onlynd august which is three per day. By december, they will get to 20,000 20,000 cars per month. David they have had difficulties in the past meeting their targets. Precisely, he sometimes likes to be more exuberant. Many are questioning whether they can fulfill these lofty targets. The amount of electric vehicles with the model three that they will produce will surpass how many the globe made. In all of 2016. Tesla wants to lead the front of the pack in terms of production and want to outsell the highest selling luxury smaller vehicles in the u. S. I want to outsell bm w and mercedes as well. This chart has been on everyones mind. Market capitalization of has learn how it has fallen off. Their share price tumbled off of its high. Now it is back below the yellow line which is the market capitalization of general motors. We clearly want to keep a close eye whether they can break these targets and get these into consumers hands. David even with the market cap and the way its declined, it still has captured the imagination of investors. They really got access to an awful lot of capital compared to gm or ford or toyota. Will they own the electric vehicle space . Caroline i think thats what they want to do. Ton we see the others trying copy what they do, we had volvo in europe owned by a chinese giant and they said they are going 100 electric vehicles. Tesla has been at the front of the pack in elon musk is the most creative. We will see a phenomenal amount of electric vehicles out there. Tesla is the one to win if they can get this massmarket product right. David its just that one little if. Thank you so much. Check out tv go you can check us out online. Its on your terminal. You can also text me. This is bloomberg. Alix this is bloomberg daybreak. We are 20 minutes into the trading session and the u. S. , nothing is happening. There is a little rally in europe that did not spread to the u. S. We are flat on the day. And energyterials art eking out a tiny gain as telecom and health care and as yields get hit grind a little lower. Not a lot of movement here, its a sleepy monday despite the fact that there is a lot of news out there. As you say its a sleepy day in the news business, things get lively. Thisess is back in session week and fed chair Janet Yellens testimony wednesday will be the main focus of market participants. We will also get the fed days book on wednesday. On friday, another read of the economy with june cpi. Cerilli. Now is kevin also michael mckee. How excited are we for janet yellen . You are right about the beige book, nobody cares. Could be important. Not much else going on. The cpi report comes in friday and everyone is watching inflation that there is a political overlay to Janet Yellens appearance. The president has to nominate a fed chair sometime in the fall and get them confirmed in time for the expiration of her term at the end of january. This could be something of a Job Interview for her. She is still on the list is for is we know but many republicans on capitol hill would like to get rid of her and have somebody republican put into the job. So its high drama in fed land that there are a couple of other dramas and one has to do with russia. The other has to do with health care. Which one will be more dramatic . Kevin i think health care will be more dramatic because we are three weeks away from the august recess. Lawmakers only have to work three weeks and i get another they k shouldnt and a Senate Majority leader would like to see something before the beginning of that august recess even if it means he has to work with democrats. This is a Job Interview of sorts for janet yellen. There is low inflation. You have people like senator bezabeth warren who will ready to press janet yellen on the notion with regard to wells a particular about regulatory structure along that front. We should note that fiduciary regulations for investment, a scheduled hearing will be thursday. Alix i will work for six days and then take three weeks off. We are not only looking at janet yellen but there is significant ecodata coming out. What will be the theme for the week . Do we see disinflation continue in more than just Something Like oil prices . Contacthe cell phone issue but it should not keep going down. If we can see inflation beyond that, the markets will be reassured with what the feds plan will be. Otherwise, there will be a focus on why janet yellen is telling us they will continue to raise rates when inflation is going down. Alix with stabilization be enough . It will be enough for right now. Its a question of the longerterm. Ore westimony comes bef get the inflation data but we get a fed meeting at the end of the month. They will react to the inflation data we have. Even by then, we dont have the growth numbers. David President Trump came to office in the back of a promise of growth. That was physical stimulus and he featured tax reform. The secretary of treasury over the weekend said he still has the intent to get it done this year. We are absolutely committed to getting tax reform done. Its critical for Economic Growth and adds to have heard us say, we need to get back to three percent were better gdp. Our plan is to have a fullblown release of the plan in the beginning of september with being able to vote and get it passed before the end of the year. David do you see evidence this is likely to happen . They say they have been negotiating behind the scenes. They say they will have a specific plan by early september. Will this have congress by the end of the year . Pass a piecemeal taxcut for businesses or maybe go through Corporate Tax reform but in terms of comprehensive, i dont see that. The house caucus is not release their plan as well as the conservative wing of the conservative republicans, the white house has not release their planning quite frankly, people on capitol hill are more focused on Getting Health Care done so they are not even thinking that far ahead in terms of the background meetings going on right now. We saw this play out with health care in the sense that you can have these private discussions but once you bring it out publicly, thats when things get difficult bit. Alix thank you both. The dow is up by about 18 points but it has stopped and the stronger dollar has stopped. That does it for bloomberg daybreak. Vonnie its 10 a. M. In new york , 3 p. M. In london and 10 p. M. In hong kong. Mark welcome to bloomberg markets. Vonnie here are the top stories were covering gets back to work with just three weeks to try to ram through a Health Care Bill and get the ball rolling on tax reform. Will the latest distractions out of the white house blunt any progress question mark as investors largely to note the washington drama, can corporate earnings be enough to sustain gains . Jpmorgan and inquire which sectors will have big reports. And company news, amazon is flying its prime day deals for the first time in its own cargo plane. Should fedex and ups be concerned . We are just about 30 minutes