Transcripts For BLOOMBERG Bloomberg Surveillance 20170607

We have a lot of news to get to. We will be speaking to ana botin in a couple minutes. Then, we talk about trump, animal spirits, the ecb. A lot is going on, if i am honest, tomorrow is thursday with the ecb, the u. K. Election, and james comeys testimony. Investors are taking a breath ahead of the barage of key events i was talking about. Treasuries are flat. They did climb yesterday on news china was prepared to purchase more of the notes. Stocks are a little bit mixed. Santander was down earlier and now is gaining 0. 6 . Lets get now straight to the bloomberg first word news. Twoa in iran at least attacks have reportedly taken place in tehran as gunmen targeted the parliament. At least one guard was wounded during the attack inside the national legislature. In a separate incident, a lone gunman entered a shrine of the Islamic Republic founder and opened fire. Theresa may has said she would be willing to tear up human rights legislation in the battle against terrorists. Jeremy corbyn said the correct response was to invest in the police and security services, while protecting democratic values, including the human rights act. The comments come as a security continues to dominate the general election. Just a day before polling day. Popolare has been taken over by santander after european lenders determined the bank was determined to fail. Popular will continue to operate under normal Business Decisions after the shares were transferred to santander. We speak to ana botin at 9 00 a. M. U. K. Time. In the middle east, the biggest oil and container ports have st opped all vessel sailing to and from qatar. Saudi arabia and the bahrain areas have closed off the persian gulf state. Containers and ca terminals in the uae also bomb ships coming to and from qatar. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im nejra cehic. This is bloomberg. This is what we are looking at. We have breaking news out of china. We have this very nice bloomberg scoop saying that because the yuan was stabilizing, china was possibly ready to purchase more treasuries. We have the total end of may foreignexchange reserves and they are coming in line w ith what analysts expected. And they have risen some 24 billion from the end of may. But nothing huge there. The bigger story when it comes to china was that bloomberg scoop saying that because we understand the chinese of 30s think the yuan is stabilizing, they might be ready to purchase more treasuries. Thisd trump is in talks morning and we await the highly anticipated testimony from james comey tomorrow. Comey will stop short of saying if he thinks the president sought to instruct a federal probe. Meanwhile, Jeff Sessions is said to have suggested in the last several weeks that he might resign amid risks with donald trump. The white house would not say whether donald trump retained confidence in sessions. For more on this, lets bring in stephanie baker, one of our main correspondence covering the trump conversation in the Trump Administration. Also with us, Richard Jeffrey. He is our guest host for the hou r. And we have also with us, Ralf Preusser. Thank you for joining us. It is a very big news day. Give me a sense of what we can expect from the James Comey Testimony tomorrow. I think the main thing that will probably come out of this is ocmey receiving is comey assumptionrumps that he was not under investigation. In the letter, he said, thank you for telling me under three separate occasions that i was not under investigation. He is expected to refute that. The question is, did donald trump misinterpret the language that james comey might have used . As you know, there are different terms, person of interest, under investigation. Perhaps language got misconstrued. His testimony is meant to be a factbased testimony and he will let others draw conclusions from it. Like, was there obstruction of justice . He will not make any kind of legal determination, or political determination. He will try to remain quite neutral and quite factbased. When donald trump had his first foreign trip, you could argue it was a success. He has come under fire for tweeting, even against some of his own things he has signed. And now we have this new saga with sessions. L it has nota beeny a great week for him and once againor, his tweets are undermining him. The big question on third a is will he be live tweeting during james comeys testimony. He has been told not to do that. Will they be able to restrain him . That could add further drama to tomorrows testimony. Francine richard, how do you look at all of this . Does it change how your portfolio is positioned . Is he losing Political Capital tweeting about the investigation with russia . Does this mean he will not focus much on tax reform . If the church bell rings every quarter of an hour, initially when you go to bed, you fear it every quarter of an hour and it is a pain and it attracts your attention and you think about it. After a while, you begin to ignore it because your brain cuts it out and i think this is a little bit like that with mr. Trump and what is going on in the United States. Initially everything he did attracted our attention and he is tweeting all the time, doing unpredictable things. And now i think the markets are beginning to ignore it. They are beginning to see this as the generalized coming out of the United States. Francine richard, at some point, does it become a risk for the market . I think it becomes a risk for markets if it appears to be changing the direction, or the course, that the president has been taking. If he starts to zigzag and that has a real impact on policy, the markets are going to pay attention. I think what the markets are looking at at the moment, though, they are looking at, if President Trump said a lot of big things when he was fighting for the presidency, now it is delivery time and he is finding it much harder to deliver and people are looking through these political machinations and looking at delivery. That is where the markets are smiling more concerned because it is more difficult to deliver on his promises than he thought it was going to be. Francine ralf, do you agree with that . Will the markets continue to ignore it . There is a little bit of a haven bid ahead of that James Comey Testimony . I would not say the market is ignoring it. I think the market is already reacting. If you look at what the rates market has been through, if you look at what the dollar has been through, a lot of the initial trump trades have been priced out. To Richards Point out, this is relevant how it affects policy, i absolutely agree with that. This point,is, at there is not really any policy outstanding that we are pricing in. So, the church bell analogy is the right one. Francine how difficult is it . This is a question to all of you. How do these memos, these leaks, this investigation impact his fervor to reform america . Does this make him more or less protectionist . The proof will be in the putting. In the pudding. The way i would look at it is to say for now, the hard work needs to be done by congress and by the people around trump, as opposed to trump himself. I think the big picture is that this investigation is going to make his legislative agenda that much harder. It is a massive distraction. It is undermining, you know, it is causing distractions and divisions within the white house. There is an incredible amount of arguments internally about what to prioritize next and i think its making some members of congress and in the Republican Party think twice about backing him. It puts a huge question mark over his legislative agenda, tax reform, etc. To continue the analogy, this is like the bells striking seven minutes past 11 00, and we think, that is not right . And then that attracts your attention and then you think, what implications does this have . The markets are really seeing t hese things as political machinations. They are trying to look through at delivery and that is proving tough. Francine the infrastructure plan was quite good, right, on message . Yes, but the question is, can he get it through, given the divisions he has its own in congress . Will the republicans back him . Francine thank you, stephanie. Ichards and Ralf Preusser our top corporate story this morning. Spains santander is to race 7 billion euros is said to ra ise 7 billion euros in capital as it prepares to acquire popular, which was likely to fail. Joining us now on the phone for an exclusive interview is the tander chair ana botin. How much political pressure did you feel you had to do this deal . Good morning, francine. We had absolutely no pressure at all. Is a transaction which is very good for our franchise, for both spain and portugal. It creates the best bank in both markets. We have acquired this from the resolution board after an intervention due to liquidity, as you mentioned. Francine if me a sense of why exactly it makes sense strategically. Give me a sense of whether this will hurt your earnings and how much by in the shorter term and what the longerterm strategy for it is. Makes transaction strategic sense. They complements our franchise well in spain and portugal. In spain we will be the leading market share. 4 in portugal, this makes us also the leading private bank. In a financial sense, we made a careful devaluation of this bank. We decided not to present an offer 10 weeks ago. As the opportunity rose basically yesterday to put an offer to the resolution board, we are going to raise 7 billion euros of capital. The goal is to make one billion net profit by 2020. This is a return of investment of 13 to 14 for investors. We expect to make our financial targets. And very importantly, as of 2019 this faction will allow us to improve on our target. Francine so, theres no huge example,lications for for your targets, or your capital Going Forward . The transaction will be capital mutual for santander. The 7 billion euros would allow us to, as i said, keep it close to 11 , which is a comfortable level for us and the group, so it is capital neutral for santander. Francine do you feel santander has have the proper time and access to figure out what sort larssks remain from popu exposure to bad real estate. Yes, we know the market really well. Our teams know the market very well. To look at thee numbers and do some Due Diligence during the private process. The combined real estate is a small number for santander. Specifically, on the nonperforming real estate portfolio, popular is bringing to 70 erage from 45 coverage. The next number is a 6 billion euros, less than 1 of the total Balance Sheet of santander. It is well provisioned and very importantly, it to 70 coverage. Has the level of partitions and the criteria of provisioning that we apply across the santander group. Francine how do you plan to sell some of these real estates that were owned by popular do you have plans to lay off staff or close branches . I would like to also say that this opportunity comes at a very good time in the cycle. Spain is doing very well and has an growing close to 3 for years, and will be growing close to 3 again this year. It is a bright time in the economic cycle. We are not in a rush to sell the real estate. Least do aim to sell at half in the next 18 months. This is important and will allow us to deliver on our financial commitments as we have expressed to the market. Francine it is interesting that you talk about the cycle in spain. What do you think this means for spain as a country . They were concerns about popular, and the fact the ecb might not have found it viable. Does this mean spain has less of a hurdle . Well, i think a big transaction makes the spanish Financial System even more solid. We do have a Strong Financial sector and big transactions basically, makes it even more so. Santander has big experience in integrating banks. We have confidence. We have the knowledge of the markets to have made the assessment in terms of the value. We have confidence we have the teams to execute. The goal is not to lose a single customer in this integration. A fter after today, we have teams in place at popular to take over and to make sure the teams are confident that they customers. Rving i want to say, we are fully committed to supporting both the teams and the customers from today. Francine i know you are short on time and you need to go back and big to investors, so one must question. Who spoke to who first . I want to say, we are fully committed to supporting both the teams and the customers from today. When did this start . When did you first think this could be a great asset, as you explained it to us . Ago there was a process where we were contacted about a possible market transaction. We declined at the time to make an offer. The solution authorities, both european and a spanish, came to the conclusion that there was no viable private solution and they decided on intervention. Yesterday we were invited to participate in an auction, and we were notified at 6 00 a. M. This morning that we were acquiring popular. Francine and this was was this a surprise . Or did you think you would get it from a couple weeks ago when negotiations started . Its there difficult from the outside to evaluate. I think the supervisors have access to the facts. I want to stress, this is the first situation where the single resolution board has active. I think this is great news for europe, the Financial Sector, and spain, the fact that they were able to do this and the way it has been done. It has been done with great discipline and in a professional way. It is very good news for europe, for the Financial Sector, for spain, and for santander shareholders and customers and employees. We are happy and are committed to making this an excellent integration for all. Francine ana botin, thank you for joining us today on bloomberg, the santander chair with an important interview, telling her she is reiterating the financial targets after the popular deal. She also explained that they believe this opportunity came at a good time because it is a cycle when spanish retail is going up. They are giving themselves a little bit of time to sell off some of these popular real estates, possibly in 18 months. I think the share price at the moment is going up. It was earlier losing, but up 0. 5 . Lets get straight to the Bloomberg Business flash with nejra cehic. Reporter you were just talking about this, but spains banco p opular has been taken over by santander after european regulators determine the bank was likely to fail. Santander plans to raise about 7 billion euros of capital. Popular will continue to operate under normal Business Conditions after the bank shares and capital estimates were transferred to santander. Uber has fired more than 20 people after a companywide investigation into harassment claims. The company has also hired at least two high profile Senior Executives whose job it is to rethink branding. Investigated 215 Human Resources claims. American has appointed a new chairman as the executive director in september and become chairman in november. John parker, who announced in february his intention to step down. China has told the u. S. To mind its own business over the detention of three labor activists who were investigating a factory that made shoes for the ivanka trump band. The three were working undercover to investigate a plant operated. The state department called for their release, but beijing said no country has the right to interfere. That is the Bloomberg Business flash. It is thein the u. K. Final day of campaigning. Latest polls are showing the gap between Theresa Mays Conservative Party and Jeremy Corbyns labour party narrowing. The pound could plunge to as low as 1. 2 on friday should the u. K. Election lead to a hung parliament. Such an outcome is the scene is marginally more negative than a labor win. Ack with us, Ralf Preusser ralf, what is the worst possible outcome for tomorrow . It depends francine for the markets, of course. Not talking politics. It depends on which market you are talking about. I think where the rate market is concerned, the scenario where mostilt Market Reaction is obvious to read is the scenario where we end up with a labour led government is than we are looking at potentially more gilt supply, as well as a bunch that would be cyclicly very similar and would raise the risk nd rateven montbank of engladn hikes. Francine what about you, richard . I think that is right for the gilt market. Independent analysis of labor Spending Plans suggest there will be much heavier borrowing over a course of time. That is down to impact gilt yields. The impact on currencies, i harder to is much interpret and i have seen a lot of good economists writing many Different Things and people trying to look forward and interpret the results in the context of the impact harder to interpret and i have it might have on the brexit negotiations. And that is hard. I think probably the worst of all possibilities is a hung parliament. That would just create uncertainty and people would find it very difficult to determine the way forward. Not just in terms of domestic policy, but in terms of how we would negotiate our way through the brexit process. Francine that is what i was going to ask you. How much does it impact brexit . And how much does it impact parts of the economy, because we have heard from the labor thefesto, for example, companies that are likely to suffer the most. In terms of market sentiment, lets say labour got in. Is it more the stop in the economy, or would you be focusing on their ability to negotiate brexit . There is one interpretation that says if labour gets win, brexit negotiations could be slightly easier or less contentious. Im not sure if that is necessarily true, but that is one interpretation. There is another that in terms of domestic policy, if they are spending significantly more, that would actually stimulate Economic Activity in the shortterm. We dont know the longerterm costs of that, but it will be stimulative in the shortterm and that could be good for some companies. It is very difficult to see a clear route through. And we see that in proceeding elections, the election of donald trump, we saw this in the reaction of the markets to the referendum in the u. K. Last ye ar. Theyre actually trying to double guess the Market Reaction. That is frought with danger. Loserse some of the could be utilities and Global Exports and corporation, depending on how the brexit negotiations work. Ralf, how much volatility are you expecting overall in gitls . This government does not want to negotiate openly, but they may not have a choice. Um, we are all hoping for volatility in markets. It has been an incredibly frustrating period of time, whichever way you look at it, volatility and every asset class has come crashing. That makes it difficult for anyone to extract value from markets. The fx market has priced volatility in ahead of tomorrows election. The rate market has not really. Andtheres a clear divergence of opinion as to how much the markets will react tomorrow and that comes back to Richards Point, these things are very tricky to forecast. From my perspective, the perspective of the brexit negotiations, we are looking for more volatility. I think i find it very difficult to believe that we wcan stay in this low volatility environment for the next two years, especially when the negotiating style of the two sides will be so different. I think there will be more volatility, particularly when we get into the period in which negotiations are taking place. But you have to be careful about reading too much into the public statements and the tone of public statements, reading too much into that because the nato negotiations will be very different. What happens within the rooms themselves can be very different at times. Francine Richard Jeffrey and Ralf Preusser stay with us. This is the picture from santander. We were just speaking to ana botin. In a couple minutes, we have oecds new economic outlook. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to first word news. Nejra in iran two attacks have reportedly taken place in tre ehran as gun men targeted the parliament. One man was said to have been wounded. In a separate incident, a lone gunman entered the shrine of the ayatollah homing and opened fire. Theresa may said the best response was to invest in police and security services. Banco popular has been taken over by santander after european regulators determined the bank was likely to fail. Santander plans to race 7 billion euros capital as part of this transaction. Popular will continue to operate under normal Business Conditions. In the middle east, the biggest oil and container ports have ships coming from qatar. Saudi arabia and bahrain have closed off their ports. Container and Oil Terminals in the uae also barred traffic. Global news 24 hours a day powered by 2700 journalists and analysts in 120 countries. This is bloomberg. Francine we are just getting some breaking news out of the oaedecd. They are saying the fed is appropriately moving towards a neutral stance. When they break it down country by country, you see the head of the oecd speaking of paris but significant japan, that gdp expected to grow 1. 4 in 2017. They are also talking about the Global Economy. They see it gaining 3. 5 in 2018, which means they lifted their Global Growth forecast and they talked about u. S. Stock values may exaggerate effects. This seems to be a word of caution for some investors. Later today, we will speak to the chief economist catherine mann. Still with us, Richard Jeffrey, the chief economist at cassno markets and ralph preusser. Growths getting better. The trend is on the upside. When you look at rates, so, japan seems to be doing a little bit better. The opposite of value. Ly isates market general he is rich. Growth is improving. That is not what you find value in an asset class, enforcement. T unfortunately. It is very difficult to find diversification a justification for why the bond market is where this. Where it is. Francine why is that . That is the one thing people are confounded about. Right or thee rate o rest of the Asset Classes are right. Lets hope that the rates market is wrong because of it is right, the world is not in the status we would like to be. The reason i think we are we are is because the rates market is discounting a probability of the cycle in the u. S. Rolling over next year. Francine do you worry that we are too optimistic when there is a chunk of the market that is actually worried, very worried . Divergents an obvious between the valuation equities and evaluation of bonds around the world. The question is, which one is right . I think that bond markets are overstating the risks to the Global Economy, and really what they are flexing is that there is in a normas amount of liquidity and the Global Economy. What they are reflecting is that there is an enormous amount of liquidity in the Global Economy. Because they are giving slightly more than cash. Its that q. E. Money which is holding bond yields down. It is not going to go into equities. I think equities are looking safer. In two orwhat if three years ago, we say that is the first sign of something u gly . Then i would have got it wrong for you of said this one in two years ago. On yields around the world and continue to come down to levels which looked on bond yields continue to come down. That is the problem. When you look at these oecd forecast. On, i think its picking up trends we know about, and that is that the european economy is picking up momentum. I find to hard to say that japan is picking up momentum. I think it is showing slightly better growth. Rarely tells you anything that is not already embedded in your expectations. I would take a slightly different tack in the sense that, and yes based on a lot of liquidity. The other thing the market is missing is the fact that peak q. E. Is well behind us. Last year, we had the ecb running at 80 billion amount. A month. Significant q. E. From the bank of japan. All of those are no runni now running significantly slower. There is significant net supply a fixed income coming into the market as a result of the scaling back of q. E. That is what really makes the current valuations and fixed income so challenging. Francine we get a Rate Decision from the ecb tomorrow. The central bank is unlikely to announce any changes at the meeting. Nly step towards normalization may, and acknowledgment of the euro areas brightening prospects. Inflation shows little sign of accelerated. How does the ecb navigate this . They need to say, there are no downward risks, but at the same time, be a little bit cautious because of elections in italy, for example. Thats right. The ecb is a much more political body in the way that it operates than say the Federal Reserve or the bank of england, the bank of japan. I i think there will be a slight change i think there will be a slight change in tone. Maybe suggesting that in the mediumterm, stronger growth will be associated with hiher inflations higher inflation. If the ecb is looking for justification to change policy, it is probably not going to get that for at least another 612 months. All central bankers still see the greater risk in premature citing or tightening too significantly. So, theres stil theyre still very risk aware. None of them are saying, we have left policy easin g for too long which is what i believe. There is no justification for the ecb to change policy at all. If you look at the inflation outlook. That is something we felt strongly about since the ecb embarked on this adventure in december with what i think in hindsight or turn out to be a mistake. Now the problem is because of the decisions taken in december, well know that q. E. Has an expiration date. At some point next year, q. E. Will come to a conclusion. And, therefore, i think the strugglell continue to with this dichotomy between what growth and inflation are telling us. Francine struggle with is it a measuring or is it in inflation problem . Theres no, this is, what, because of technology . Given what Central Banks have done, is it not possible we are measuring things wrong or that our economies have shifted so much . Our economies have shifted but i would not blame technology for this. It is accommodation of having experienced many years of below target inflation, in particular countries, the poor that you would hope would be able to generate some inflation. Germany first and foremost antonyms and changes in the labor market. The ecb has made this point, if you adjust countries, that you would hope would be able to generate the employment figures for the types of jobs you have created since the crisis, it is nowhere near the quality of the jobs you have lost. As a result, you have significant higher than we have had in the past. That is true. But it is also true that labor markets are very tight and getting tighter. The risk is saying this is not caused wage inflation. Therefore, it is not going to cause wage inflation. The problem is picking up that threshold were tightening does come through significantly to wages. If you take wage indicators and the United States, it is evident what wage and earning is picking up there. It is not so obvious in europe but i think we are going to get to that position and the u. K. And possibly also germany within the foreseeable future. As i say, the risk is just saying it is not going to happen because it hasnt happened. We did that before the credit crisis actually immersed with rising debt levels. The have not come crashing down so, they are not going to. Yes, they did. Francine thank you. Now, stay with surveillance. Plenty coming up including the u. K. Decides. Britain has to the polls tomorrow. We discuss what is at stake with liberal democratic partys. Thats next. And this is bloomberg. This opportunity comes at a very good time in the cycle. Spain has been growing close to 3 for two years, and will be closeg quote growing to 3 again this year. It is a great time and that economic cycle. We are not in a rush to sell the real estate but we do aim to sell half in the next 18 months. Francine that was ana botin,he chair of Banco Santander speaking to us early. The stock price was down and that it was up. Now its down. A lot of investors trying to figure out what it means on a longerterm, but ana botin very clearly in that interview saying it will not affect their financial targets. Where thehis comes cycle is put he positive first for spain. Mark lets where look at the f0 over the last six Prime Ministers. Wonderful chart. But tells a great story. Under thatcher, the ftse 1984 through the end of her period rose 115 . Blair brown lower. Cameron and may 30 . May has a long way to go if she is to catch margaret thatcher. Verye chart but very, effective. Sterling could plunge as low as 1. 20. Should the election lead to a hung parliament, according to a bloomberg poll. The view is it throws not only the future of the government into question, it could complicate or delay the start of brexit negotiations. This is another great chart highlighting the difficult economic environment. The victor of the election will inherit. Thed wage currency productivity problem. The white line lowest level since 1960. There is not much savings and the blue line is real wages. Its negative right now. This is one of the key charts going into tomorrows election. And everything you need to know about the election is on this wonderful flexion. Look at the top right on this derful you need 3. 26 for a majority. It says the tories will have a majority of 28. So much. Thank you if you want to hear more from this, go to eu go. The e. U. Has to the polls to about the u. K. Heads to its polls tomorrow. For more, lets go to anna edwards at westminster with a special guest. Anna thanks very much, francine. Domestically, the talk is about security. The leaders trying to talk about brexit, the economy. By joined great to have you here with us. Lets talk first about how the lib dems expect to fare in this election. We just got the result of the brexit referendum. 43 voted to remain. You are the closest thing to a remain vote. Why are you not polling better than 8 . Was wasats where remain strong, in southwest london, glasgow and where we are strong, we are doing really well. But this election is not just about brexit. Its become not mainly about brexit in most peoples minds, in my view going and talking to people. Quite a lot of people are worried about security. The one issue that has cut through, the new issue has been on the tax where a lot of people who were going to vote conservative are now thinking about it. Weve seen a shift in the polls away from them. Anna do think that was a reason we saw a narrowing and the polls and the terror conversation has not moved the polling. The terror conversation cuts both ways. A lot of people question whether Jeremy Corbyn is the man to stand up to terrorists. But equally the cuts of the Police Numbers have occurred un der theresa mays watch very directly as both home secretary and permits are. And Prime Minister. Anna what does success look like for the liberal democrats . Because 2016 was not great. 2016 was a disaster. What we are looking to do is to increase our parliamentary representation anna at all . By three, four, five seats. Seatly idiots make projections. What we are definitely looking to do is to get our heavy hitters back. So that our representation in the comments punches above its weight. I think it already does. But if we can increase the numbers to bring back a slew of people who are been in the cabinet and in the government, that strengthens anna security is high on the agenda at the moment. Do liberal democrats have regrets about some of the watering down that you may be responsible for in terms of Security Policy . For example, turning control orders into terrorism not to get into too much detail, was that moving in the right direction . No, it wasnt. It apply to virtually nobody. If you look at the cases we have seen, these are young men who be radical. Own to for one reason or other, the system did not monitor them. Even though they left quite a lot of clues in some cases that they were potentially dangerous. Dems supporte lib for legislation to tighten security and limit freedoms . It depends what it is, but i will not support, my colleagues will not support measures that limit freedoms as a major response. Some of the things that theresa may is proposing like increasing prison sentence are kneejerk populist responses. We need to look very carefully. Anna thank hyou so much thank you so much for your time. Lord Richard Newby at westminster. Francine great work from westminster. Up next, the qatar crisis. Saudi arabia and bahrain close off their ports. We go live to delhomme for the latest. Doha for the latest. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london. Saudi arabia and bahrain authorities have closed of all shipsir ports to qatari coming from the persian gulf state as the middle east is in crisis bed President Trump is throwing its weight behind just described it as punishment for support a supreme groups. Stocks are down. There have been reports of shoppers hoarding food. Now President Trump has weighed in. What is the mood like . Good morning. A bit of anxiety and some fear, some trepidation of what is to come via tweets from President Trump have really altered the view of what would actually happen. Most people kind of expected that there would be a resolution quite quickly, but lumping in qatar to extremists. There is this global war on terrorism. It is going to be difficult to walk things back. So, people have been hoarding food for a couple of days and getting to the supermarkets but there is enough food to go around. That has subsided a bit. Now what will be the result of the talks happening between the kuwaitis and saudi arabia. Francine kuwaits ruler is trying to meet with the saudis. Many analysts see that the main demand from the Saudiled Coalition or antiq atar group is drastic. Either regime change or a complete set back or at straws from its foreignpolicy. So, a lot of people at this point see this as a prolonged standoff and perhaps hunkering down for the longterm. Maybe even shifting the way this region fortunes. Functions. Francine are you concerned it will escalate . Thats an interesting thing. We saw in the uae that the government will now fine individuals 135,000 and 35 years in prison if they tweet in support of qatar. Its escalating in that sense. Will it go to a more violent confrontation . It is really not clear. This region has seen many wars that have happened over smaller disputes. Its really unknown at this point. Francine thank you so much. In doahha for us from bloomberg. Plenty more through the day. Here are some of the highlights from your day ahead. At 10 a. M. , we get a Rate Decision. In washington, the acting head of the fbi and other officials appear at a foreign intelligence hearing at 3 p. M. U. K. Time. Three hours later, donald trump an address one infrastructure. Lets check on a corporate story of the day. This is what santander is doing. We did speak exquisitely to the chair earlier on. Down some 2 . Weve seen a little bit of volatility. Its now back down after Banco Santander agreed to buy banco afterder Banco Popular regulators said the troubled bank was like me to fail. Ana botin telling us thais is not politically motivated. Bloomberg surveillance continues. Tom keene jointly in new york. This is bloomberg. Francine by popular demand, santander buys Banco Popular after eu regulators said it would collapse. Ana botin says it is a good deal for europe. Theresa may said she would be willing to tear up human rights legislation in the battle against terrorists. In washington under fire. The day before james comey sessions hasff suggested resigning. Good morning. This is bloomberg surveillance. Im Francine Lacqua in london with tom keene in new york. It is a busy newsday, not as busy as tomorrow because we have james comey testifying, the ecb, and the u. K. Election. What are you looking at . Tom last evening was one of the most extraordinary evenings in american politics that i have seen since watergate. The news flow around 7 00 p. M. Was surreal. There will be a lot of focus on that, to catch people up on that news flow. Francine we are getting a little bit of news as we talk about inflation. Indias central bank was expected to keep policy Interest Rates unchanged, but they cut the repo rate to 6 from 6. 25 . In fact, we have corrected it and that rate is unchanged. Forget that. Tom that happens. Francine a momentary lapse. Later today on bloomberg, we will be speaking with the new finance minister and we will be asking him about inflation and the reforms they are trying to push through. That is at 9 15 new york time. Lets get straight to the bloomberg first word news. Reporter in tehran, attackers have launched assaults against two landmarks. Several gunmen stormed into the parliament and a lone gunman killed a Security Guard and wounded 12 other people. Tv reports that one of the attackers there has blown himself up. In the u. K. , security dominance campaign with one day to go before the election. Prime minister theresa may says she would rip of human rights legislature allstar she wants to make it easier to deport foreign terror suspects. Jeremy corbyn wants to invest more in police and security forces. He has criticized may for proposed cuts in the Police Budget and being a proposed ally of President Trump. And those conversations about the country you want to be, about the kind of government you want. Trump nothing when donald threatened to tear up the paris climate agreement. I would be happy to join with any other leader. Because i want to save the planet for the longterm. Reporter labor has cut into the conservatives lead. Still, the party is prepared to lose seats in parliament. James comey will stop short from saying the president meddled in the election. Comey will testify before the Senate Intelligence committee tomorrow and will discuss conversations with the president. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Is taylor riggs and this bloomberg. Tom lets get right to it. You can see equities, flattening flatter, but turning again. The vix, 10. 45. The euroswiss, stronger over the last 24 hours. I put inyearold sterling to impress i put in eurosterling to impress francine. Francine i am so impressed. The pound is definitely one to watch because a lot of people are saying if we get a hung parliament, the pound could fall to 1. 20. Im looking at the 10 year yield, and santander because we spoke exclusively to the chair after they purchased popular. There are questions about the longer implications of this, tom. Tom looking forward to that conversation. We will have that across both hours of surveillance this morning. I did this chart by chance yesterday and this is way cool. This is the two year real yield, adjusted for inflation. Heres the beginning of the financial crisis 10 years ago. Heres the longterm disinflation, the red line. This is where the yield has been since the beginning of august 2007. This is a negative real yield, and we just stay there. We are right there right now, francine. It is amazing how much distance Central Banks, and particularly chair yellen, have. Francine i will dazzle you with two bloomberg terminals, tom. Tomorrow, the u. K. Votes and we cannot talk about it. I thought i would take advantage of this and dazzle tom keene. Never too many lines, tom. It is domestic companies. These could be the losers if Jeremy Corbyn wins. And then this one, these are the losers of theresa may wins. And a lot of them are Global Companies because of brexit, and then utilities. Do you like that . Getting cap from the stock market point of view what the election it encapsulates from the stock market point of view what the election could mean. Tom those are shy charts. Francine the haven trade ahas eased a little bit this morning with the goal tries softening slightly. With the gold price softening slightly. U. K. Row we have the general election, the testimony of james comey, and the ecb. Joining us now is Rupert Harrison. He is also a little bit of a political expert because he was a former political advisor. We need to take a bet. You either say treasuries are right and there is something ugly happening, for we are in an upward trend. Where do you stand . Idle dont think there is such a big divergence between the two. The big bnenews has been on inflation. He headline effects of high Commodity Prices have come out and we have had genuine news in the u. S. For a couple months now. And so, we have a goldilocks world continuing, where no one sees any dramatic threats to growth on the horizon. Yet, Central Banks are under enormous pressure. You know, this is a very unloved rally in terms of equity markets. I think yields probably move upwards from here. Francine so, there is no catalyst . There does not seem to be at the moment. The most interesting thing happening at the moment is u. S. Inflation. We have been in a world where there was not domestic inflation in europe or japan, but the u. S. Is ahead of the pack. That keeps disappointing. And then we have these oddities in the data where we have changes to adjustments. We have the impact of this wireless telephone quality changes and price changes. If we are in a world where inflation disappoints, that will make it harder for Central Banks to adjust. That is something to watch. Tom wheres nominal gdp in the United Kingdom . Is it 4 . Where is that animal spirit . Yeah, so, we have had this change in the u. K. Where we have had this shortterm inflation surge. The real numbers have been disappointing, particularly on the consumption side. I would look through that. As u. K. Economy is not in bad a shape as the market is pricing in, particularly equity markets would suggest. The weakness is likely to be prolonged. We have a strong labor market. Confidence is relatively robust. On the corporate side, we see the big hit after the referendum, the investment intentions, and that has been coming back. Where is the catalyst for significant weakening in the u. K. . We are watching the Housing Market in the u. K. It is a strong indicator for the consumer. If you see that rolling over further, that would start to be concerning. Tom this morning, we are looking at the tories, going back to 1992. And these are unfindable conservatives. Are they out there . I think the evidence on the shy tories is diminishing. That tends to be in effect when the conservatives are behind in the polls. 40s, it isally shy lazy young people. We have this unusual spread in the pollsters between very narrow leads from yougov too much higher leads from pollsters. The big differences how many young people will turn out to vote. The pollsters with a narrow leads are basically pulling a selfreported turnout from younger people, which is higher than the referendum, which was itself higher than a general election. I would put myself in the latter camp. I dont see some kind of big surprise in the turnout. Therefore, i think we are heading for a conservative majority. Francine Rupert Harrison there from black rock. Coming up later today on bloomberg tv and radio, a conversation with the oecd chief economist. In newgins at 8 30 a. M. York and 1 30 in london. This is bloomberg. Reporter this is bloomberg surveillance. Lets get the Bloomberg Business flash. Uber is cracking down on harassment in the workplace, firing 20 employees after investigations into harassment claims. Three dozen other workers had been warned or are in counseling or training. Meanwhile, a separate investigation led by former u. S. Attorney general has given its recommendation to ubers board. And private equity firm kkr has offered to purchase vocus for 1. 6 billion. Vocus stock price collapsed. Shares of vocus soared today and kkr is trained on underperforming assets on the cheap. That is your Bloomberg Business flash. Francine thank you, taylor. U. K. Political leaders are readying their final election pitches ahead of the vote tomorrow. Theresa may focused on securities, saying she would tear up even writes legislation. He would tear up human rights legislation. Doing more to restrict the freedom and movement of terror suspects. When we have enough evidence to know they are a threat, but not enough to prosecute them in full in court. Laws stop usrights from doing it, we will change the laws so we can do it. U. K. Ine that was the Prime Minister. Lets go straight to anna edwards. Anna, it seems a lot of investors are putting out research in the event of a hung parliament. Tell us about the latest polls. Anna yes, indeed. The latest polling we got overnight. What is interesting is the legwork and field work for this poll was conducted after the terror attacks from saturday night and it gives you a glimpse of whether that has boosted the results for the conservative party. It remains the same and 43 in this opinion poll, putting them seven percentage of points ahead of the labour party. We still see that overall trend from the recent polling for a tightening of the conservative party late, although various of my colleagues at bloomberg are talking increasingly about how the fact she is campaigning in those strong brexit areas suggest they are hearing they can win some of those areas, and maybe the polling is not so tight. Tom that is right where i wanted to go, anna, on leave ver sus remain. How are the candidates approaching those two large groups anna the conservative party certainly feels they have a lot of ground to make on that particular front. They are actively campaigning in those areas that are labour held, but voted for brexit. That is why they sent or is johnson to the northeast of england yesterday. They sent Boris Johnson to the northeast of england yesterday. Theresa may is trying to get back to talking about brexit, extra investment in using the po und saved, putting that into housing and other areas. But brexit is part of the conversation. Theresa may wants to talk about it. Our last guest said it is not the topic on the doorstep, but you thought six weeks ago it would have been. Social care is what people want to talk about, the nhs, and not necessarily brexit, and now increasingly, security, of course. Francine anna, thank you so much. Rupert harrison from black rock is with us. Rupert, do you miss being part of an election cycle . I am happy not to be part of this one. Francine why . From a conservative point of view, this must have been a painful one. Anna is right. They wanted to be talking about brexit 24 7. It was effective in bringing home those u. K. Voters. Was bigger. Vote than the tory margin, but they have been knocked off course by their own manifesto, which was unintended. And these terror attacks, which he would expect to strengthen the incumbent government because they can look strong, actually, theresa may has ended up having to defend her record of police cuts. So, im happy to be out of this. It must have been a nervous ride. Francine this is tactical. We have not really heard from anyone but theresa may over the last couple of weeks. And then she dispatches Boris Johnson to the labour heartland to bring it back to brexit. Tactically, it makes sense. Tune witheir best the electorate is definitely brexit. They have not had enough other positive things to say. A lot of the other stuff has been difficult medicine. The best thing may have got is brexit. The interesting thing is that liberal democrats, the only party exclusively campaigning on a remain ticket. There is no evidence of any kind of remain surge. Costless to use that to increase the majority. Tom i cannot tell you from a distance how fascinating this conversation is. I am taken by the difference. This is alberto follogallo, often a guest. This is a smart essay by mr. Gal lo. Newsmane as a chineses said, a door to europe. Without europe, it is just a door. The English Patient was sick long before the brexit referendum. The tory manifesto says it will make up the budget shortfall with revenue from fracking and private Investment Funds like ruperts blackrock , with her may has uturns, shown she does not have a plan. That is pretty harsh. Does she have a plan . The truth is, apart from brexit, the domestic agenda from theresa may is very much continuity. There has been a big change of tone for her. She is trying to use brexit to reach out to New Territories for the conservatives, but on the domestic agenda, she has not really made a big change. Obviously, the big controversial is brexit. I think it represents the majority Market Opinion most see it as a negative for the u. K. Economy. Most people are worried about the prospects of talks collapsing. That is still the big economic swing factor. You have got the labour parties wanting to put up the corporation tax. No one seriously thinks there is going to be a labour government. Francine we will get back to brexit. Rupert stays with us. Coming up later today on daybreak the former u. K. Invested her to the u. S. This is bloomberg. Francine this is bloomberg surveillance. Tom, when he to go back to the middle east, where we are hearing more and more of people. Qatars government is seeking to dispel concerns about possible food shortages. This is the day after its biggest suppliers and the United Arab Emirates cut diplomatic and trade links with the import dependent country. So, we really want to try to figure out what the situation on the ground look like. Lets get straight to doha. I want to get to the diplomatic ties. But first of all, what is it like being on the ground . Do you have enough food, our trucks coming in . Trucks have been stopped at the border since monday. Theres food coming in through sea routes and air trade. The markets supermarkets have branded some of the staples that used to come from saudi arabia. But they are starting to resell from other countries and they are looking for imports forrom iran and other places. Atre was some panic buying the beginning, but it seems to have subsided. Francine mohammed, talking about this political spat, which seems to be quite grave, and then we have President Trump almost taking the credit or blame for it, because of the links qatar has with extreme terrorism, he says. How long will this spatter diplomatic incident last . It is interesting. Earlier you are talking about the brexit. When may triggered article 50, the day before she was with the Prime Minister of qatar and they were discussing investments into the u. K. A couple months later, qatar is linked to terrorism. How do they get back from this . How do they get out of this hole they are in . I think it will be a long, hard battle. They have to drastically change their approach in Foreign Policy for them to come back into the fold. Tom mohammed sergie, thank you, joining us from qatar. We will continue with Rupert Harrison of black rock. In our next hour, with terrific new set of washington, Kevin Cirilli will brief us on wednesday and thursday in washington, but we need a briefing on these extraordinary equity markets. He has been wrong and right. Brian belski will join us. Stay with us. This is bloomberg. Tom good morning. Francine lacqua in london. We will talk about european banks. What a newsnight. Here is taylor riggs. Tehran, an attack against two of the best landmarks. Meanwhile, a suicide bomber set off an explosion at the shrine of ayatollah ruhollah khomeini. Reports say Security Guard was killed. One of the attackers there blew himself up. A day before the british election, Prime Minister theresa may is practicing is promising a brexit cash giveaway to support business and housing. She say all of that depends on getting the best deal in negotiations. Labour leader Jeremy Corbyn rejected the deal to fight terrorism. President trump will outline his vision for infrastructure and calls for spending 200 billion to spur 800 billion in spending. Much more direct federal spending is needed to repair roads, bridges and other assets. A report President Trump asks the top intelligence official to get thefbi to back off to get the fbi to back off. Asked him to interfere with then director james comey. The president wanted comey to focus on michael flynn. Coates will testify today. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Tom . Francine . Francine thank you. Our tabcorp her story, shares in totander have fallen 2 raise 7 billion a euro. 7 billion in euros. It was likely to fail due to deterioration of liquidity situation. Earlier, i spoke to the santander chair, ana botin, and she was talking to us on the phone. Listen to what she had to say. Intander i ana botin think that is great news they were able to do it in the way it was done. With great discipline and a professional way. For europe,ood news Financial Sector and spain and santander shareholders and customers and employees. Francine there were three main things, she refuted the idea and questioning this was politically motivated or she felt pressure from the government. She said they had enough time to and she asco popular not in a rush to sell mistake because this acquisition, she argued, came at a time when the cycle is so much better. To talk about banks is head of , isty and Rupert Harrison still with us. Thank you stephen, for joining us. What did you make of banks in general and this acquisition . I dont know if you can talk about this acquisition, but people are concerned healthy banks take on weaker banks and get to drag down. The framework is we are near the end of the eurozone banking crisis in 2011, 2012. We have saying the Banking Union and that is helped to shine a light on some of the nonperforming loan problems in some countries and theres been a huge effort to recapitalize i think it was the year before. It is under pressure. It looks wellcapitalized. I think it has been the Spanish Banks assets and they have grown it for being a Regional Bank to an international giant. It is no surprise they would take an optimistic view. You have to trust and believe they did a proper Due Diligence. Francine does it make sense longerterm, longerterm, this is a great way because they will be able to lend to small and Medium Enterprises . That that kind of lending will be more in demand. It is in dramatic recovery over the last two or three years and has exceeded expectations and continue to do so. The momentum continuing very strongly if we believe the pmis, which we do. The eurozone recovery looks well entrenched. You are not seeing had my growth, the imf upgraded their forecast to 1. 1 . Nevertheless, we are in the early stages. We should now start to head change. Corporate confidence rises and maybe a pickup. Pickup. Tom great to talk about a classic National Take out like santander. Bring of the chart. Another classic chart. Different, itly neil andpopular as for and the red curve is in the last three years where it collapses on a percentage change basis. We talked about this in davos werewolf see National Roll ups. This is 5 of santander revenue where we see National Roll ups. Thinkrn macklowsmith i they recognize it is an opportunity and they can afford it. At a time when the spanish economy is growing very, very healthily. Tom francine mentioned, i remember bear stearns was taken out for more than one year by jamie dimon and jpmorgan and it was a lot about real estate. The bear Stearns Building by the times square building, what is the real estate structure of spain, are there hidden jewels . Stephern macklowsmith i think the Real Estate Market was overleveraged. One of the things that that thesh markets was bank came under pressure not because they were involved in subprime but they were overleveraged within their own economy, italian to Medium Enterprises for the past decade. Spanish banks got sucked into the boom. I remember coming on here and said spain was building more houses in a two thousand sevenday france, germany and the u. K. Combined. , it has beenhat purged and the setup of the bank enables Spanish Banks to recognize whether they have issues. I says spain was building more houses in 2007 zen france, germany and the u. K. Combined. We are nearing the end of domestic problems in spain and we should look at what is happening in italy. It has expanded very dramatically, the number that came out that said they expect 80 billion euros in the next 12 months and that is against 330 billion euro total. Francine if there was a ,olution, we have the 2 banks if their solution with a healthier bank came and brought them in, it would save a lot of hassle with ecb, brussels about bailouts or the like . Rupert harrison we have had good and bad examples since the crisis. Sometimes, they make the calculation. I would share the optimism about the european economy and it is spreading toward domestic strength and initially started with more explosion to global trade and emerging markets. It is what the politics wont spoil the show before economics can lift and that is something we are concerned about. Francine what comes first . If you dont fix the banks, it is clear it will fuel a way for populism and the other is the populist possible elections of how you deal with the banks . Italy is carrying this fragile a bar and does not and any type of volatility will throw things off track. What they need is a period of calm to mend some of the holes. Me from davidhelp rubenstein and doll votes last year davos laster and nationalism. With a germany, it seems that they have to do a domestic role up of their banking system, do you agree . theyrn macklowsmith easiest acquisitions are within border and it was clear over the last 10 years that the consolidation within the country needed to happen. If we take spain, the spanish and advantage of the crisis the number has fallen for more than 50 two around 10 or 13. To around 10 or 13. That is why we can be confident we are nearing the end of the problem. In germany, a completely different structure. Most retail banks are not publicly quoted. But nevertheless, the ecb has said further toleration within the land of Banking Sector and we should not be surprised. Tom this is been very informative this has been very informative. E will continue later on today is a bloomberg conference, david gura and i will be part of a party one part ofgross will be it. One boy engrossed in new york, in the house, this is bloomberg one William Gross in new york, in the house, this is bloomberg. I bloomberg surveillance have no guess i am empty. An empty desk loaded with brain power. We have Rupert Harrison of blackrock and mr. Stephern macklowsmith. Audienceve our global a briefing on what the attorney general means to the president of the United States . Uproar, the of the resignation offered by the attorney general. What is that unique american relationship of the lead of the Justice Department with the president . James the unique relationship is that even though the attorney general as part of the president s cabinet, there has always been an element of independence cents the attorney General Office presides over the National Law Enforcement agencies and that apparently is what has upset President Trump, the kind of loyalty he demands from his subordinates is not necessarily given or proffered by the attorney general. In this case, the attorney daysal felt in his early or weeks of the administration felt he had to recuse himself from the Russian Investigation because he is reported to have misled congress about his meeting with the russians. That apparently has led andident trump to question resist it, if you will, his attorney general. Tell a bank of the news flow was extraordinary last night. Tom the news flow was extraordinary last night. What happens if the attorney general resigns . How does it play out . James the interesting thing would be if anybody is willing to take the job. Tom i agree. James you can see what is happening with the fbi and a situation where the president odds withbe ats at his own administration. Tom i agree. About who would take the job is right now, it is believed the firmdent cannot get a law to represent him on all of these different matters. It is extraordinary. Nobody wants to do the doing at 1600 pennsylvania. Francine and the market seems to ignore it. Overall, a very simplistic question, is the president having a good or bad week . He has laid claim on twitter about executive order and sessions and tomorrow is comey testimony. How about, he is having a week. A week. The prospect of him live tweeting during the comey testimony tomorrow to the senate , it is going to be like super bowl type numbers. Francine do you move portfolios on the back of it . He probably feels like it is a good week because it is all about him. The markets take the reverse view, not focusing on the white house because the white house is so bogged down that it is about congress and expectations are very low for the delivery of health care, tax reform. Can congress put aside all of these distractions and making progress on these things . I think there is a little upside on the side of expectations. Francine without distraction, a focus white house, so that they get the job they promised for the infrastructure, was that a positive . He stayed on message with that. It would be nice level focused white house. If you dont, the markets can still live with it. We ran the middle to late stages of recovery, a modest tightening from the fed is economy seems to withstanding. A lot of the numbers look respectable. I think the markets were hoping once trump was elected, there will be a they have given up hope. The hope goes to normal growth, pick up in growth around the world and possibly a weaker dollar. Hopefully, they can extend the data selling. The debt ceiling. Crooks this dysfunctionality does not give you a lot of hope. Dysfunctionality does not give you a lot of hope. Tom we will continue. Rupert harrison and stephern macklowsmith and james hertling. , hes hertling on a tv watches it at home on his bloomberg. It is that good. You watch tv and look at jim hertling and you can scroll back and find a chart that gets you going to bring up a spanish chart of a failed bank as you can steal that chart for your chartsrtling only steals on tv. Taylor this is bloomberg surveillance. To Bloomberg Business flash. Tesla plans to build another factory the cuts of the seems, according to the sea because the other is bursting at the seams, according to the ceo. Jobspore Airlines Warned are likely to be cut as part of a business reveal. It is trying to revive earnings after surprise quarterly loss. Singapore air is under pressure to reduce costs because competition and longhaul rivals from the middle east. It is a sign that wrote the internet startup pinterest is not keeping up with rivals. It raised 150 million in it had theding but same share price two years ago. People use it to collect images. That is your Bloomberg Business flash. Tell him bank much. Lets bring up a chart and get to Rupert Harrison and stephern macklowsmith. Sterling of 30 years. Tom thank you so much. This is what happened, it is way off the trend right now. Bounce inere is a sterling. Lets begin with a look back. Why did we see a bounce in sterling . In 2010,rrison sterling had a little bit of bounce. On that kindrading of brexit deal or no deal margin at the moment. The range is too now wrote to matter and therefore now to mattertoo narrow and therefore it would depend on wins. Resa may the macro is basically neutral at the moment and the bank of england will move the market may be gloomy. Tom you would make this a conversation at a london desk. If you about the world comic to win and for england and the United Kingdom everybody talks about the world coming to an end for england and the United Kingdom. Talk about the resiliency . Thert harrison put that in context i think there will be a Brexit Effect but it will be difficult to spot. Maybe 10 years from now, we can find sluggish growth. It will be very gradual. In that contest, a flexible labor market, Financial Services will be a hub in london. And lots of Hightech Software universities. Rong the u. K. Will critique to be relatively strong economy. It will lose activity at the margin but slow and gradual. For ore i am neither against brexit. I look at this chart and inflation versus wages and if you close off the economy, inflation will go way up and you have to sure wages follow, will it . It is not clear. Do not knowmuch we about the deal we will shape. Yes, we willhat, get a traded in the book of partly we have a large trade deficit with the rest of the world. Francine how do you look at the inflation chart . It is a shortterm impact. You are seeing in the row numbers taking a hit. This is still in labor market that is basically full employment. I think the brexit uncertainty will be a drag on wage growth, but we are not looking into the abyss and not like suddenly it is going to roll over and jobs are still being created and people will continue spending. , it iscurrency wears off no reason they cannot continue growing. Tom thank you. Vote early, vote often. Rupert harrison, greatly appreciated that. Mr. Stephern macklowsmith will continue with us, from jp, into the next hour. On the 8 00 hour, one of the giants of National Economics is the trade deficit sustainable is , this is bloomberg. Tom doesnt the attorney general continue to does the attorney general continue to have the confidence of its president . President trump criticizes the defense and a sessions resignation is offered. Will the president offered tweet testimony during the hearing . In the United Kingdom, we continue shy tories as they leave a voters. Just shy of dow 22,000, consider that erosion, it does not happened. Brian belski joins us. This is bloomberg surveillance live from headquarters in new york. With me is Francine Lacqua. Tomorrow, we cannot talk about the election, can we . Francine we cannot even whisper about it, but we can today. We look at the analysis by the big banks and it looks like the markets are encumbered. Tom what do the candidates do today . Do they go out for one final thing . Francine i think they have five or six. They are zigzagging. Yesterday, we saw theresa may charging somebody from her cabinet. First, she said johnson, go to the heartland of labour. We will try to take stock is working. Tom they woo voters. Here is taylor riggs. Taylor starting antiron, and assault against some best starting in tight run them, 2 ofhran, assaults against the best landmarks. A Security Officer was killed and 12 others injured. Government beatty reports an explosion was heard. In the u. K. , security dominates with one day to go before the election. Prime minister theresa may said she ripped up the human rights law was to make it easier to the poor foreign terror suspects. Wants moreyn once money in policing. The top electoral report is wrapped up proceedings that the lead to and being stripped of the presidency. They said he probably benefited from donations while working for running for Vice President. The court could call the election void. Short ofey will stop saying the president try to obstruct justice, according to a person familiar with his thinking. Tomorrow andstify is expected to describe conversations with the president. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. This is bloomberg. Tom acorn data check as francine mentioned, pretty quiet. Data check as francine mentioned, pretty quiet. Crude, a lift up to 48. The vix, a 10. 46, looking to down a euro, 1. 008. Francine . Francine investors are reassessing the key events this week. We are looking at the Trump Administration with actions. Tomorrow, james comey and his testimony. Ecb and u. K. Elections. The potential classic haven assets, i want to show you santander because we had exclusive interview with the ceo because they bought banco regular. She said it makes sense because we know what we are buying and banco is not too risky. Tom cole we have to dive into washington. The news flow last night was extraordinary. You can go back 40 years for the speed of the news flow. Let us digress rather and look at dana milbank in go Washington Post and tries to get ahead of the story. Andn the Washington Post tries to get ahead of the story. Under the president , we dont have a prayer. It was quite an op ed. Joining us is Kevin Cirilli. What will the Vice President be doing tomorrow during the testimony . Thats a question i put to several of his top aides and i while and i will have to get back to you. Some schedules are being worked out. The president will be in cincinnati later today and during the hearings tomorrow, he dana be live tweeting, milbank reported will be at the Prayer Breakfast and a meeting later in the day to meet with several top republicans. I will keep this short. I can tell you the rnc is preparing a Campaign Like strategy, talking points from the white house being drafted up late last night and will be sent over later this morning. Tom you need lawyers to run a war room. Where are the lawyers for the president . Kevin they are in the white house but it is unclear if he is taking advice for i spoke to several prominent devices to the advises tond that the president and they are courage of him to putting on with the aggressive trend with tweeting and getting his message out. The president s political apparatus and the super pac world, they are going to be looking to enroll time provide a in real time provide a response. The republicans view this as an opportunity as one strategist put it to flip the script. They fill director comey only has trump for four months and they had in the Obama Administration for eight years in anything against the president they will try to press against the previous in point,tion, case the memos. They will ask him if he had memos against Hillary Clinton and why was that not investigated . They will try to even the score aggressively and portray him as a showboat. francine what are people talking about in the washington corridors. And we hear about Jeff Sessions, the president now fully behind him and the tweets about executive orders and the situation with qatar. It is hard to keep up. A busy, busy relentless pace. In terms of the saudis and qatar, that, the president tweeting was seen as a signal to one lobbyist i spoke with who works with the saudis and has the endorsement of the saudis decision to cup cut diplomatic ties with qatar and the president suggesting that his International Visit was the reason. A report that a the washington russians metal in the hacking meddled in the hacking other qatar news to undermine interests. This hacking situation, very much ongoing. The former head of the fbi that had to send over investigators to does that alleged hacking could be asked about that tomorrow. Tom is it possible we will see a sessions resignation today . Kevin anything is possible. I think there is due speculation that the offer for him to resign was only just that, an offer because of his decision to recuse himself am a which the president did not like. WillKevin Cirilli and we have full coverage tomorrow, hoping to give you a good conversation on the events in washington. We try to do economics within the political mouse strong. Trying to maintain. And stephern macklowsmith. Good morning. You are listening to your clients. What are they saying about the linkage of dow, 21,000, with the madness of washington . Havingelski people are a hard time to digest how much work they will be doing with respect to politics. A few weeks ago, we had in the headlines of impeachment and now we have been up. What are we doing here . What we are doing is focusing more on stocks versus focusing on all of the headlines. It is fire aim ready with what is happening. Lets get through the summer. Get some things done in washington. The top line of the good companies, diminished Revenue Growth because of lack of fiscal stimulus because of a less nominal gdp . A greatlski it is point. We have been stuck and the low gdp realm and a less will get a kick start, we will be war war at and that is why wants have been where they at. Some things have to change to kickstart growth. That ishave then why we have seen were bonds have been at. Francine are they after the margin looking at politics . We gorn macklowsmith if back to the second half of last year, reflation trade, i think that was incorrectly labeled as the trump trade because the steepening yield cuts was long before President Trump was elected. What has happened in the first six months, the trade is more nuanced. It has been trading in this range and look at the u. S. 10 year, it is at the bottom of 3 . It has not broken down. If people were hoping for stimulus package in the u. S. That would boost nominal gdp, it looks unlikely at the moment. This lower growth environment, but elsewhere in the world, you are getting a much more synchronized global picture. Emerging markets, which have been under pressure, growth is recovering there. Tom we will, back with stephern macklowsmith and brian belski try to do economics. Tomorrow, we will throw in the towel at 10 00 a. M. , all politics with the testimony of the former director of the bureau of investigation. Our team will be there in washington. This is bloomberg. Francine we are getting breaking news from bloomberg news, our agency that they have seen in ecb draft as those forecasts, they are meeting tomorrow, the forecast are said to cut inflation outlook through 2019. We are back with brian belski and here in london, stephern macklowsmith, jpmorgan. Stephen, i am going by the latest headline and i do not know if the euro is moving but if they are to cut the forecasts which the ecb draft suggests, what will actually take for inflation to start picking up . Stephen macklowsmith we were talking about what happened with inflation in the eurozone, deflation and Commodity Prices. Last year andthe a since then, it is practically doubled. Throughout that period, it has not really changed that much it would what people were worried about deflation, it was trading around 1. 9 and now point to 9 . The cap in the eurozone is quite a bit too close. The Unemployment Rate is at a record highs. Unemployment is around 9 . There is more scope for tying this to slack in the labor market to disappear. A sense is the ecb will keep watch because it will not want to change policy until it ashore core inflation is recovering. Francine let me bring up my chart. Until it is sure core inflation is recovering. This apparently, according to the draft, according to euro sources close to the matter, that ecb would cut inflation outlook across the forecast horizon to 1. 5 annually. They mentioned Energy Prices. I was told that Energy Prices would not feed into it. Are we measuring inflation differently to what we should given the nature of our economy . Stephen macklowsmith if you look at the blue line, what you can see, it fed through incredibly quick. And it is very clear if you look at the difference, the major recovery had a line has been all about Commodity Prices in the last 12 months. If the ecb is looking forward and this is just speculation, and today i think is the Oil Prices Flat over the next two years, it is not fair. And altogether logical to expect inflation might moderate. The ecb wasike channeling the you about nominal gdp. Let me bring up the chart. Real twoyear yield. Heres where we used of be and the glory time when the Minnesota Vikings won every game. We have a negative u. S. Twoyear yield which is a construct which is completely artificial set up by Central Banks. How do you invest given the low inflation from the ecb draft and also, artificial bond market that we have . Soan belski we have seen much a disruption in the chart, you go back to the 90s him a lotwho were 1990s, a who were around and it was a great time. Now, so much disruption with a Global Economy and capacity leaving the u. S. And were trying to get capacity to calm back. , back. We have been stuck, stuck in the mud and we cannot get out of it. Tom i hate to play the parlor waste your time, when does the parlor game of janet yellen change . Andest reaffirming june december. Do you care what chair yellen does . Brian belski of course, we care. We have reared an entire generation of investors that all they care about and think about is the fed. We have to take the cards away from the fed and grow like we should. Companies need to spend money and start to see sales all up. We think some sort of fiscal response, take the cards away from the fed and start growing again like we did in the 1980s and 1990s. We needed to see something revolutionary, strong and leadership for that to occur. Francine do you agree and what does the revolution look like . From where . Stephen macklowsmith what has characterized in the last six years around the world is a goal of capex. It will be nice to see that growth being reinstated. In the eurozone, a lot of it was done down to credit contraction because and made liquidity more scarce for small and Mediumsized Companies and even large sized. My sense is if creditors are recovering, which is seems to be, should pick up. Is copy out is the caveat the outlook has not closed. Were in the middle ground both real and nominal gdp are slightly disappointing. As long as it is positive, companies can eke out small leverage and we believe in the earnings story. Tom thank you. Stephen macklowsmith. We will continue with brian belski. Later today, bloomberg in new york and we are thrilled to bring you William Gross. We will look at various themes and i want to talk to him about bond bear markets. We will do that. This is bloomberg. Francine bloomberg surveillance with francine and tom. Straight to westminster. Tomorrow, the u. K. Heads to the polls. Street to an edwards with paul johnson straight to an edwards with paul johnson. Anna thank you. Studies, it keeps an eye on tax and spending in the u. K. Lets talk to paul. Good morning to you. I am captivated by theresa may today, the election is tomorrow. Sendsa may say we will not to the eu and with expanded on housing. I thought the Brexit Campaign told me they would spend on the nhs. Is this spent many times over . They are not going to spend it on nhs given the way we do the accounting, it is money to spend elsewhere. Year agowere a comments out of the European Union will make us worse off and so less money to spend a giving forecasts, there is money there to spend. At the different manifestoes which you spend many hours doing, isnt there enough detail in the conservative party to make judgments . Some area, immigration, no dates. Paul johnson very little detail in the conservative manifesto. On taxes, they said almost nothing. They are not going to tell you very much, just trust us. There certainly flexibility. Their plan to continue with current policy with further spending cuts on a lot of Public Services including education and the real question, can they deliver the cuts . Payyou reduce publicsector relative to pay in the private sector and attract nurses and teachers and so on on the quality you need . Anna when we look at the u. K. Economy and my colleagues have been writing about momentum. Which of the parties has much in the tank in terms of spending to stimulate the economy if they need to do it . Partly,nson conservatives are trying to leave space if they needed to. Not much in the way of pledges so space in their fiscal rolls to spend more and they kind of said it. , a very different approach which is to say we will deal more,y great to very quickly balls on infrastructure and a daytoday spending. Spending increase of 75 billion euros a year which is extraordinarily a large number. Spend more very quickly on infrastructure and daytoday spending. Anna taxation and tax increases ,o paraphrase Benjamin Franklin nothing like death and taxes. Where will they be . Paul johnson i think we would see some tax increases under conservatives to keep things going. Labor party has sent a manifesto that they want to raise taxes to peacetime levels the highest peacetime levels ever. It is fine in a sense because it would take us to average european levels but the big but is in they will do all of this by imposing very big increases in taxes on companies is some very rich people. They would not get the money they would to the extent that they try to do it, it will be damaging. Ina levels to what it was 2010. Quite a lot of aspects of taxes on company. 26 is the main inquiries, is which is where it was in 2010 at quite a lot of other increases and unspecified. While that would not take the rate so horrified national standard, the base is pretty broad. The amount of tax rate is not unusually low. Anna one person concerned about it being sluggish as brexit talks continue over. What policy should anybody in asked . Enact . Need,ohnson you do labour party has bit infrastructure Spending Plans which would increase demand in that part of the economy and increases are in spending, for example, another thing that what happened. Ed thank you. Anna thank you. Paul just a joining us. Francine anna edwards camped out on to westminster until at least friday morning. A great look and a snapshot of inflation and tax and taxation can take place. Let me bring you over to the bloomberg terminal. Are maybe more in the mood to take bets on what the election will bring or not. Charting simple chart, pound short. You can see the increase in pound shorts and leveling off a little bit. The most Interesting Research i have read has said the pound but plunge as low as 1. 20 on friday. We have not seen that since january. An interesting thing to keep in the back of your mind. Tom we will see that tomorrow with our coverage and on friday morning. Tom keene in new york. Francine lacqua in london. Lets get our first word news breathing. Iranlamic status and claiming responsibility for attacks on two highprofile targets. More than 30 wounded. Two people killed. Gunmen stormed the iranian element. One of the attackers blew himself up. It is the day before the british election, and Party Leaders are getting in their final shots. Here is theresa may talking about security. Doing more to restrict the freedoms and movements of terrorists when we have enough evidence to know they are a threat but not enough evidence to prosecute them in court. Rights laws suffer from doing it, we will change the laws so we can do it. Corbynwhile, jeremy criticized may for proposing cuts to Police Budgets. Conversations about the kind of country we want to be, the kind of society we want to be, the kind of government we want. Will we do not think when donald trump threatens to tear up the paris climate agreement . I would join with any other leader in criticizing him and telling him to do something different. Labor has cut into the conservatively in the polls. Spain, Banko Santander has taken over banko popular. They plan to raise almost 1 billion in capital. I think this is really great news for the Financial Sector and spain that we were able to do this and that it has been done with great discipline and in a professional way. This is good news for banko popular has been hit by that real estate loans. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Francine thank you so much. Santander shares have slumped on the back of this announcement. Great to have you on set as always. The shares were down on this announcement. There are a lot of things in popular that are not great. This is a calculated bet that they will grow. The share prices are back down. If you look at the share price, the reaction has been modest. Almost 10 increase on the current shareholder base. That would expect have some sort of repercussion. The markets are telling us that at one euro with that cleanup that will come, they do see value in the combined businesses. Francine what is the next question after this . Sitting on sottin much real estate that they can sell. The spanish cycle has changed. She has committed to selling those real estate assets. Once she has written us down, it will be easier to do that. The real estate cycle is turning. Reason thather getting more exposure to the small and Mediumsized Companies has is goodr bank for santander. Bankruptcy, one 1926, but is this the beginning of where the dam breaks and we see tens if not hundreds of these deals . It leads to the question of whether this model and the replicated. Pointed out, it was clean and professional. You have a certain number of things in italy that definitely need more capital and need to be bringing in some kind of solution. Italy billy has had a different trajectory over the last few months. It has been very much focused on getting taxpayer funds involved, which was not the case in spain today. Tom thank you so much. The italian and spanish banking stories here. She is with bloomberg news. Brian belski looks at the financials of the u. S. What is the appetite for the regionals . Great question. I think tepid. Tom flattening to start with. The curve is flat. People are becoming less and less excited about Interest Rates going up. There is still this hatred with respect to financials. The Regional Banks, we really want to focus on the commercial banking side of things. Maybe some real estate coming back in the southeast and west coast. Thebigbox retailers from big financials, too big to fail, they have a complete menu of offerings, those are the ones you want to be in. Capital markets is kind of the crown jewel of these bigbox retailers. We think over the next 10 years it will be wealth management. Tom in the middle of this book is this photograph of Andrew Mellon with president hoover, are we going back to that where there are these combinations to avoid one euro sales like in spain . Good question. We have talked about banks doing what banks do well. Buy other banks. Tom they dont do that. We have been so encompassed with tarp, now that that is over, we think Smaller Banks will be brought up because of the scale of the business. Tom scale, do you want to go largecap down to midcap and down to small cap . I dont think so. When you look at just the assets , just Asset Classes, smallcap stocks should be doing better. Make cap by far the most expensive. Mallcap growth is the most r freezing. Companies are freezing. We are talking about large caps for years and years. We want to buy small caps. Growth is still anemic. We have not seen projection come back. On we dont have the bundle january 1. We will continue. A real treat. Coming up later today, oecd chief economist that barely describes the abilities of professor man joining us in the 8 00 hour on finance. This is bloomberg. This is bloomberg surveillance. Lets get to the business flash. The European Central bank is preparing to cut its inflation rate forecast. According to officials familiar with the matter, they are concerned with weaker Energy Prices. 1. 5 mer prices rising at each year now through 2019, slightly less than previously forecast. Tesla plans to build a new factory. That is according to elon musk. Issays the electric carmaker deciding on the location for the next model car, which could debut in late 2018. Southeast asias Largest Airline is trying to revive earnings after quarterly loss. They are under pressure to reduce costs after competition from regional carriers and longhaul rivals from the medieval east middle east. Yesterday,n a tweet donald trump threw his weight behind the saudi led diplomatic isolation of qatar. Foralled it just punishment the countrys support of islamic extremists. White house spokesperson sean spicer later said the u. S. Wants to see the issue deescalate. Bloombergsre from middle east and africa executive. Great to have you on the program. At . Is the u. S. Playing we have a slightly contradictory statements. Slightlyad contradictory statements. Tweetsissue is the trump came in between the u. S. Saying they want to the escalate, calling on everyone to stay calm and work this out among friends. If youre sitting in qatar, the trump tweet is exactly what you did not want to hear from the u. S. , coming out in support of the saudi actions. Even taking some responsibility for it. Francine the question is, does this escalate, or does this state what . Stay put . That is what everybody is asking. How long will this last . Will this finish sooner, which is what a lot of people are hoping. We just talked to a minister is inhat says qatar denial if they dont understand they have to give in to the groupingjoin the gcc and their policies as regards iran and the muslim brotherhood. Some additional measures are being clarified right now. Will not be qatar able to travel to the eu and get a visa on arrival. Francine you have shopping malls full of empty shelves because qatar isnt importing country. They dont make much. How long can this last . Momentaryy have been snaps yesterday. Already today you are seeing these shelves full of. Fill up. Qatar has a plan in place for this because they have always been heavily reliant on imports for their needs. It will take time for shipping and supplies to be rerouted by air and sea. Tom let me ask you a dumb question, can i fly from jfk to qatar today . You can fly from jfk, you cannot fly from dubai. You can fly from dubai indirectly. You have to go to kuwait or turkey. Tom amazing. Francine there you go. Thank you so much. Our executive editor for the region. I will be back with brian belski. If you have any questions for brian, give us a shout. The up tv , go through video screen. This usually takes a couple of seconds. You ask the guest of question. Below the screen, we have charts and analysis. This is bloomberg. Coming up shortly, bloomberg daybreak with alix steel. Good morning. What do you have today . Alix we are covering all the news, ridiculously breaking news that the ecb will be lowering its inflation target tomorrow. Atticularly bank of popular santander. Has made a lot of money by protecting against big black swan events. He loves gold. I love talking about goal. Tom it will be interesting to options in about syria and the foundational work of they will have that on daybreak. We will do that as well. Right now, brian belski with us. He is an equity got. Lets do a bond chart. This is the two cent spread. Time we have000th done this chart. The day after election, it is all great. This big collapse then. Why should a stock guy care about this . Lending rates, growth, a Historical Perspective from the way the rate moves, if we see an inverted yield curve, that is the best predictor of recession. Tom i will go with that. I will do this in real time. I am breaking every rule here. On bloomberg radio, what we are going to do is bring up the tows wos and tens here. That is impressive. This is real live tv. Tom there is the chart that the pros use a million years. We are nowhere near that recession level. We are not. Tom when do you start to sweat . That is the money question. Or dohere, here, here, you wait until zero . I think you wait until zero. People have been so reactive on this downward slope. I think with the market is not prepared for is a growth scare to the upside. We have defensively positioned our portfolios. Were still concentrating on a few stocks. We continue to talk about banks. I think the market is not prepared for things to get better. If that is the case, we will have an upward move people are not prepared for. We continue to talk i think the market is already prepared for this. Francine is it as simplistic as saying if you look at the treasury and that spread, they factor hardly any growth in, or is it more nuanced in the markets . I dont think it is more nuanced. I think people are prepared for no growth. We have become a binary investor, all or none. Most people are prepared for no growth. The fed is holding all the cards. We think they will raise rates a couple more times. If we have the negative growth scare in the third quarter, we will have that flattened more. Tom francine now that. Here is what she was talking about with the curve flattening and the linkage to know growth. Generally it is that idea. Francine you are saying investors are bracing for lower growth, but treasuries are doing the other thing. Why is it so different . It is ultimately Central Banks. Look at the performance of the market in central america. Utilities are up double digits. Stocks from technology doing very well. Everything else doing nothing. Tom we are all going to die. It is a single digit world. We are not going to make any money. Francine please. I am italian. Im super testis superstitious. Bet isink the biggest people are two negative on financials. You should be loading up on financials. People are way too negative. I am very clear that they dont own u. S. Financials. They own a couple of banks. That is going to hurt them in the fourth or. Tom we have to go back to this chart. I love this. We have done this three times. Beats. Are at 85 look at this support right here. If we get the two sent spread down to here, or here, you are not going to sweat . I am going to be buying financials handover fist. Look out reactive. The trend is already in place. That . An you fix bps. This is what happens when you take thecfa exam. You misspelled bps. A recession is not going to happen. It is not going to happen. How can it happen with the corporate strength we have . Balance sheets the way they are, it is not going to happen. Tom francine, i want to go to you on what were going to seek mark. We are on a quiet period. What happens . Francine we will not be able to talk. We cannot talk about the election. Very quickly. Treasuries. I am obsessed with them. China, will they buy more treasuries . I think they will. Startinese economy will to stabilize. I would not be surprised if they come back into the market. Tom i am not hearing any sweat from you. Is this a linear function . Why are we going to sweat . We dont recess from low levels of gpd. You recess from high levels of gdp. Tom thank you. Bill gross scheduled to be with us from janice henderson. Tomorrow is extraordinary. The election we just mentioned. Then we go to the comey hearings at 10 00 a. M. New york time. Have never seen an election quite like this in the u k the labor leader replaced one of his shadow cabinet leaders. May promising a cash giveaway in the brexit. This is real. They have one day left. Tom thanks to all of our team for a great show today. We will drive forward on bloomberg surveillance. Haveny thansafe yesterday. You have to notice dollaryen. Strong yen over the last week. 1. 0944. Look at euro yen. That is your surveillance. Special Coverage Today and tomorrow. This is bloomberg. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. 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. Jonathan santander agrees to step in and take over bank of popular. Does president draghi have a dovish surprise in store . Cutting inflation expectations. From london, good afternoon. New york, good morning. Im jonathan ferro. Lets get you up to speed on the Market Action this wednesday. Remarkably muted. Treasuries go up a single basis point. It is a softer euro story. It is down 0. 6 . If youre expecting a hawkish draghi, that is not what you are getting. Alix the vix goes nowhere