Transcripts For BLOOMBERG Bloomberg Surveillance 20170608

Im Francine Lacqua in london. A lot of news to get through. It is ecb. U. K. Election. We cannot talk about polling, anything to do with the various issues at play, but what we can tell you is polls open at 7 00 a. M. In the u. K. And will close at 10 00 p. M. You will have the first indication of who will be the Prime Minister of the u. K. Meantime, lets get on to data. Investors seem to be a little more at ease with some of the key events. We are not seeing huge moves. Financial markets mostly steady, investors avoiding big positions ahead of key events in europe. The u. S. And the testifying of edgingomey appeared oil higher. A nice snapshot of what we are looking at. 46. 04. Il in the u. S. At workerst to the first first word news with nejra cehic. In the u. K. , polling stations are now open for the countrys second general election in two years. 650 westminster mps will be elect did with 46. 9 Million People registered to vote. On the for our special u. K. Election 10 00 p. M. London time you get an analysis of the markets as exit polls are published. In the u. S. , james comey will today public plea publicly say donald trump him for loyalty. Also that he saw a forbearance for Michael Flynn and asked him to lift the cloud of an investigation hanging over the administration. We will bring you special coverage about that hearing on tv, radio and twitter. Luber customers can follow that on tliv go. Have put itatings on negative watch. The sun concerns this on concerns finances will be weakened. The saudi led group of nations could put pressure on Economic Growth and fiscal metrics. Chinas overseas shipment accelerated from a year earlier as Global Demand showed signs of picking up. In may and imports increased 14. 8 . That left a trade surplus at 14. 81 billion. The bank of japan is recalibrating communications to a knowledge it is thinking about how to handle a future exit from monetary stimulus without giving the impression it is on the agenda anytime soon. Officials realize it is unrealistic and unconstructive to remain silent on issues and the boj now wants to make it known it is conducting simulations internally on how an exit can play out. North korea has launched a series of short range missiles that appear to be designed to attack ships. South koreas joint chiefs of staff said the rockets were fired from the eastern port and flew about 200 kilometers. Japans defense minister said they dont appear to be a type that could reach japan. Your 46 arading barrel after the biggest drop since march and american stockpiles rose for the first time in nine weeks. An increase by three point 3 Million Barrels by march. Hewlettpackard enterprises ceo has said she is giving Donald Trumps administration the benefit of the doubt. Bloomberg, she had publicly backed Hillary Clinton last year, said she supports some but not all of trumps policies. Are in favor of tax reform. We think the ability to repatriate cash at a lower tax rate is important. A lower Corporate Tax rate would spur growth in the United States. On the other hand, we are not for the border adjustment tax. That is difficult for companies and work on lot o low margins. A lot of technology companies, that is not in our best interest and by extension, investitures of the United States. Nejra global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Im nejra cehic, this is bloomberg. Francine . Francine thank you. Decision day for the ecb and Central Banks are expect to keep Interest Rates unchanged. Offaces the challenge expanding growth and weakening inflation. Investors will be listening to mario draghi in estonia later. Matt miller is joining us from the capital. Great to have you on the program. This has to be a finely tuned messaging. Inflation will be lower, but growth is taking on the upside. What will the market interpret . Yesterday, we did see the euro react quite abruptly when bloomberg came out with a story that the ecb was planning to lower its inflation target to 1. 5 not its target, its forecast to 1. 5 this year, next from 1. 7 n 2019 across that spectrum. The target remains 2 and the problem is they cant get their, especially on a sustainable level and that is one they want to take a more dovish tact with their outlook. As far as the language in the statement, we do expect them to is noe risk to growth longer to the downside but balance. The first time they have used that phrase since august 2011. Ever since, the risk of growth has been to the downside and now they will push up their forecast for growth. Growth looks better, inflation not so great and that is the conundrum of all the Central Banks around the world. The fed is dealing with that problem and the bank of japan. Francine is it fair to say the markets will start unwinding their unconventional stimulus by the end of the year . The markets still expect draghi to talk about unwinding stimulus by the end of the year, to talk about the taper by the end of the year. But where it economists we talked to thought september was going to be the month he would start that discussion, they are saying maybe october or as late as december before he starts that discussion. The problem is in this sustainable inflation. The ecb is saying the energy cost is the problem with their inflation outlook. We all know wage growth has been an issue, as well. They had no effect on jumpstarting that wage growth, even though unemployment has come down. They want to reserve the possibility or continue reserving the possibility to move hold that stimulus alive into 2018. A question is how quickly they will be able to taper after that . , ourine matt Miller Bloomberg news anchor in estonia for the ecb. We have the investment portfolio manager, head of emerging markets across as a. Thank you both for joining us. How difficult will it be for mario draghi to have this communication where you move markets without saying that much . They are trying to square the circle. Theyre trying to be optimistic on growth, but without tapering to early. Still has why europe a lot of bumps on the road, including elections in italy and some other banks to fix. They are wary of spreads. Now, the ecb board is split into two. The macro data is improving and says you should taper early, but there is Political Uncertainty in italy and macron in france and merkel in germany, they havent delivered anything yet, even though their fiscal plans are strong. Wait untilng to there is a fiscal decision and potentially an electoral result in italy, which means q4. Francine q4 and what does that mean . When you look at the fed we thought the timelines would be different, but the fed is also struggling with low wage growth and inflation. How does that impact the market . Core inflation in the u. S. Has shown some signs of life and in europe, very little signs of life. The levels are different. The good news is if there is anyone who can communicate in these times it is draghi. I think they move in september in terms of communicating. They will probably tighten communication in terms of dropping the easing by some Interest Rates but that tapering announcement is likely to come by september. I concede there has been no inflation on the headline side. In the u. S. , if you look at the toutes the fed is keener move on and by the end of the year, we will get two hikes and also the Balance Sheet unwind. Francine the markets dont really believe them. This is something mario draghi would be thinking of. How does he get the message that the markets believe . Expectation is half the job done. Alberto and you going to the euro which has been strong, moving from 105, the favorite short of everyone to 112. The euro appreciates more and the ecb cannot be as hawkish as they need to be. Hishe end, trump and policies, if there is a delivery on Corporate Tax cuts, you have two fed hikes and a hawkish path , more than the market expect and the ecb can taper more easily in september. Today, we dont expect a big announcement, but these are other unknowns. Problem ofhere is a inflation in that there is missing inflation. I was always told that the Lower Energy Prices shouldnt inflect inflation so quickly and they have. Theis what we are expect in ecb to do, lower their forecast. I we measuring inflation differently than we should or is there a deflationary russia problem . We have demographics that have changed. There is less demographic growth, technology is noninflationary. We share the same car. Jobsobs, you have substituted by machines. Amazon factory warehouse, you are going to have drones moving packages, not people. This is a structural phenomenon. It doesnt mean banks should stay with negative Interest Rates for too long. The normalization you can have it is still good it wont be as strong as a normal cycle because there are structural drivers. Also, people who are out of a job and have gone into the wrong industries for 40 years, into financer real estate, are now not adapting to the new economy. There is a miscommunication of resources. Francine you both stay with us. Thank you both with us for the hour. We will bring you the ecbs policy decision at 12 40 5 p. M. U. K. Time, followed by draghi News Conference 45 minutes later. Users can follow that using tliv. Stay with surveillance. Plenty coming up including investors beware. Ond investor will gross warns qatar in isolation. What the snp cut qatars rating . We are live. This is bloomberg. This is bloomberg surveillance. Lets get to the business flash with nejra cehic. Nejra alibaba has predicted 49 Revenue Growth this year compared to an analyst projection of 35 . Investorhinas largest invest in online media. Air may aribas may be thrown a lifeline. Talkses is said to be in to buy more planes as airbus cuts production. 8. 7rder could be worth billion before discounts, although people familiar say the carrier hasnt decided how many planes it wants. Wes investors will buy more than 99 of the rights offer raising the turnaround plan. This is the second issue since the ceo took over two years ago. Funds raised will complete his business overhaul and expand in wealth management. Partedl, Credit Suisse with its lucrative swiss operation. That is the business flash. Francine you are looking at pictures of theresa may, who is about to go and vote. Her constituents constituency. Polls are closed and these are the rules by electoral law in the u. K. Atcan say the polls opened 10 00 this morning london time and will close at 10 00 p. M. 10 00 p. M. Is when we have our special show, any Market Reaction and you can follow us on the bloomberg terminal and live on television. Jonathan ferro and guy johnson will be doing that throughout the day. Theresa may the current Prime Minister voting. Onto another big event of the day, there are three. The u. K. Elections, the ecb and the testimony later today. Trumpfbi chief will say asked him to end the program into Michael Flynn and requested a public announcement that trump wasnt underestimate investigation. Comey will also say the president repeatedly called for loyalty and asked what could be done to lift the cloud over his administration. For more on what to expect, lets bring in jackie simmons, still with us alberto and bhanu. Jackie, we have the transcript of this testimony. Thatere anything illegal President Trump asked him to do . Jackie that is the concern, there seems to be consensus that on a strictly legal basis, perhaps not. But the bigger issue is how appropriate was a for the president to be asking the fbi director do not come to go away. Put this in the box. It is more a question of appropriateness, rather than legal, but that is part of the debate right now. Francine we are talking about obstruction, all of that, but it moves the markets . What are you looking after . Is it the tone, the allegations . This is bakedof in. We have a sense of what comey is going to say in his testimony. Unless there is a huge divergence from that, people will be looking for body language, looking for extra clues if there was obstruction per se, if that crossed the line, but we have to see what comes out today in his testimony. Francine we also heard from just Jeff Sessions might resign because of disagreements. President trump is apparently frustrated according to sources, will he fire him . Jackie officials have said he is not there yet. The question is, do you want this extra disruption in a chaotic four months that he has been president. You want sessions out now . It looks bad, it is a further distraction and an impediment to getting through a lot of other plans and reforms. I would be surprised he would want him to leave now but time will tell. Francine quickly on theastructure, we heard president was on script, on message. Does this get factored into Economic Growth . No enough,dont therefore we cant factor this into projections because there are so many other distractions, nothing has moved the needle on tax reform and in the structure. Big question mark. Jackie on top of this story and the Trump Administration. . Will he tweet over it . And is that with the market is looking for . I think the issue here is, does this make the trump reforms less deliverable . Does it put more pressure on them to deliver something. The easiest thing they can do is a tax cut, easier than tax reform and that is what we expect. When it comes to tax reform, much harder to do and requires more consensus and infrastructure. There is a longer process. It reduces the impact. Francine i know we want to get on, but if this goes badly for the president , does he become more protectionist or do we isolate the two cases . Bhanu i dont think the risk of that is high in the near term. Mexican negotiations take years. The trump trade in terms of reflation and small caps, breakevens and in terms of the dollar, has already been given back. The part of the market that may suffer if this begins to go further is sectors like financials and i. T. Because the surface the sectors that have recently benefited from the trumpflation. Most markets have given back to the gains. Small caps are where they were. Broaderthink this has a read through into emerging markets and even within the u. S. , a lot of this is in the price. Francine yesterday we spoke to bill gross and he warned the u. S. Market risks are at the highest since the Global Financial crisis. Bess told investors to cautious about the high cost of treasuries. Bill treasuries are the most attractive of the developed market, in comparison to the tenure bund, 25 basis points. 190 basis points and relative to year, 205 basis points. More attractive on a yield basis, but still, i would suggest they are overvalued pricewise and under yielding and investors should be cautious of how much they want to own relative to cash. Francine alberto, this is how you measure things right . Marketed about what the expects and the fed is telling us. The concern is that treasuries are telling you one thing, which is growth is not going to be that great equities are telling you Something Else. Who is right . Alberto i think it is treasuries this time. The equity market is in a separate world. The only reflation trade that has an corrected. We have been fading the u. S. Reflation trend. There are a lot of risks to the Trump Administration reforms. Reflation is more live in europe where boones are at 25 basis points and direct low and growth is accelerating. In the u. S. , we see growth hitting bumps. We could see treasuries going back to 2 or even lower. You shouldeans is still be fading the reflation in the u. S. , looking for higher bund yields and a higher eurodollar exchange rate. Bhanu i cant disagree with any of that really. I think the fed is in a different place today. China allows Global Financial conditions allow the fed to be in a different place. You dont see the wage growth, 4. 3 ,employment rate at you could argue the employment population ratio is providing the wage growth and the ratio is still recovering modestly. The fed wants to normalize and given where margins are in the u. S. , there are one sector doing well, the i. T. Sector has driven 50 of the gains in the s p. It is more likely japan closing the equity market. Francine if you look at the markets, a little more stressfree and you can see this is the measure, markets are the calmest since 2014. Treasuriesby more because yuan is stabilizing . Has reserved pickup, china has indicated they will buy more treasuries. In either direction, i dont think china is the swing factor for treasuries. Treasuries of these levels are getting expensive. The in has come in a lot. The twoyear is quite expensive. There flattens more than bowl flattens. Francine that is bhanu baweja and Alberto Gallo. Both stay with us. , decision day at the ecb. For look at what we can expect, we will speak to the former ecb board member. E will ask her about inflation in the meantime, these are your markets. Investors avoiding big moves ahead of the ecb and james comey testifying and u. K. Election day here in the u k. Oil edging higher and this is bloomberg. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Tthats why at comcast,t to be connected 24 7. Were always working to make our services more reliable. With technology that can update itself. And advanced Fiber Network infrastructure. New, more Reliable Equipment for your home. And a new culture built around customer service. It all adds up to our most Reliable Network ever. One that keeps you connected to what matters most. This is surveillance and we have breaking news out of south africa. The appointed director of National Treasury and that appointment is effective immediately. He has acted in that position since may 15 of this year, but this has been a prove. Approved. 1285. 40 nine. At a little volatility with political comings and goings over the past months. Is this significant . When you look at stabilization of south africa, what do you need . He got one, but he didnt get two. This news is neutral but there are big concerns in south africa. Within the domestic economy, there are issues of fiscal sustainability and in terms of the savings rate and competitiveness. Dollarrand and what has been priced in bond markets is a benign picture of the world. If Commodity Prices turned on aom here, they dont have competitive leg to stand on and that is why the risks are higher than what the market is accounting for. A lot of their fiscal in this case comes from they believe growth will be better. Were going into a recession. Francine we will get back to bhanu and alberto. Here is a rich age. Nejra polling stations are open for the countrys second election in two years. 250 westminster mps will be elected with 46. 9 Million People registered to vote. In for our special on the u. K. Election at 10 a clock p. M. London time or you will get instant analysis on the market. In the u. S. , fired fbi director James Comey Comey will publicly say that donald trump pressured him for loyalty. He will testify that the president salt forbearance for tohael flynn and asked comey lift the cloud of a russia investigation hanging over the administration. We will bring you coverage of 2 40 p. M. U. K. Om time on tv, radio and twitter. Kluber customers can follow that on tliv. In the middle east, snp ratings have lowered qatars longterm rating and put it on negative the row witherns other states will weaken finances. Global news, 24 hours a day powered time global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am nejra cehic. This is bloomberg. Francine time now for your Market Update mark barton. Mark geoPolitical Risk is front and center today with the trifecta of events taking place. The bank of America Merrill lynch market in this index. Risk index. Equities, rates, currencies and commodities. Any figure below zero indicates less stress than normal. Anything above zero is more stress. Right now, we are at the lowest level since 2014. S choosing to focus on a Global Economy then low in freshman. Says markets are at the highest risk level since before the 2008 financial crisis. Because he says investors are paying a high price for the chances they are taking. One of the big events is the ecb today. Continuation of the dovish thing from president mario draghi . Headline inflation versus core inflation, clearly slowing. We had that story yesterday according to officials familiar, the ecb said it was preparing to cut its inflation forecast across that forecast horizon ahead of todays meeting. Core inflation will stay the same. Gdp growth will be pushed up. That back the narrative draghi has told us in recent weeks . Giving it is a big day and week. The boj was in the news. It is recalibrating communications to a knowledge thinking about how to handle a future exit from monastery stimulus monetary stimulus without giving a clue it is on the discussion. That is what is happening on china. China exports and imports rising. Francine thank you, mark barton there with your asset check. The European Central bank will cut its inflation outbreak outlook because of weaker energy costs. That is according to officials. Frome joined on the phone vienna, austrian economist and former ecb board member, gertrude tumpelgugerell. Winky for joining us. Thank you for joining us. What do you worried about the most . Are we discounting Political Risk in europe . How the ecb deals with lower Inflation Higher growth . Or is it italian banks . Gertrude first of all, it is a pleasure. Recognize the outlook in the euro area has improved. We have the best sentiment indicators of the next three years now. There is no reason for euphoria. The growth is only a little momentum and inflation remains lower. Francine is there a point when unconventional stimulus becomes harmful . I am trying to understand if the ecb continues by the end of the year, could it cause consequences . Rude wencine i dont know if have lost the line. If you can hear me, when i was trying to understand i think we lost mad and gertrude, so we will get back to her in a couple of minutes. Alberto, when you look at the italian banks i know you follow it closely. We touched on ecb, but how would you deal with elliptical risk in italian banks . We saw Banco Popular being bought. Does there need to be more pressure for more resolution integrally . Alberto spain and italy started doing recession with similar issues, italy was hit harder by a crisis, but they reacted differently. Spain did reforms to banks, italy was slower and spain was quicker in restructuring banks. Popular in italy, the process is dragging slower. Only country the only large country that has not done reforms. Macron in france, you have spain, this is the achilles heel of the recovery. A strong faith francogerman alliance but unsolved issues in italy. Banks and many aggregate them into more efficient banks with less branches, technology is stronger. Francine it depends on if the regulator wants bigger banks we have reestablished connection with Alberto Gallo,. Ertrude tumpelgugerell at what point does this unconventional stimulus hurt the economy more than it helps . Gertrude what we have seen is that the stimulus has worked and down the ecb will look for the right time to get out of it. This has to be dan carefully. Corporation and signals have come from the ecb they have moderated their Purchase Program and are ainking of exit, but in careful and smooth way. Therefore, we have to be patient. Francine you believe mario draghi today will use the words has risks being balanced . A word we havent heard since 2011 at at the time, it was john patrice day saying them. Gertrude can you repeat . Francine we are trying to figure out, when you look at communication and how Central Banks need to communicate with markets, we think in his communique, mario draghi will no tiltedtalk about risks to the downside, but risks are balanced. You think that would be a good way of characterizing what we are seeing in europe . Gertrude it is one possibility, but i dont guess is communication. Will also signal the growth has developed [no audio] lostine i think we have madame gertrude. Communicating,o it is obvious that it is the phone lines that dont work. We saw a little bit with the boj, there seems to be a race for most of the Central Banks in the world to communicate the markets instead of doing anything are looking at data. Have things changed or are we over analyzing . Bhanu they might be a little bit because they are telling us that policy has been unorthodox to an extreme. Growth has improved, inflation has surprised everyone on the downside that does that that that does not mean we dont begin normalizing. Tapering is beginning to normalize. You are not talking about raising rates and that speaks to in thet that inflation wages is low and interestrate normalization will be more protracted than what markets are pricing in, even for the u. S. Nonetheless, if you think about normalization a policy today, a will take confidence in that growth is at 1. 6 in early numbers were strong. It does make sense to start the downside and normalizing and talking about tapering in the next six months. Rancine thank you so much,. Hanu baweja and Alberto Gallo stay with surveillance. Were live with the latest on qatar and later, we talk with the blackstone ceo and talk about President Trumps relationship with president she. This is bloomberg. Bloomberg surveillance. I am Francine Lacqua in london. Qatars longterm rating has been cut one notch by snp s p. , yousef gamalis eldin joins us. It was quite an adventure to get there at this point but if you look at saudi arabia, it may be piling on pressure. Ofre is a growing list nations to isolate qatar, including turkey. Jackie yousef in terms of political efforts, hes meeting with the qatari and he has been trying to patch things up. Not clear if they have made progress. We do know there is a list going around in reports that there are demands, including stopping the funding for global terrorism. That is happening regionally and here on the ground. You mentioned turkey, this is fascinating. You have turkey fast tracking a bill, making some amendments to be bit able to capitalize and provide troop support to qatar. They are taking the opportunists oppositionists crying foul on that. They are trying to mediate and to have russia trying balance between interesting qatar and the fresh opec agreement they have hammered out with saudi arabia. And you have the wildcard of china. Plenty to keep us on the edge. Uncertainty remains on the ground. Progress has much he made in his attempts to patch things up . No tangible process. A lot of smiling and hugs on this trip. Here, there is no clear announcement as to whether they have been able to come up with a list or an agreement. The turks have said they have been trying to freshen up their diplomatic contacts, but we have nothing to go with here. All just visuals but no cleared deals. Francine yousef, thank you so much and we have great charts that we will get you in a couple of hours. The people that have the most exposure to these qatari bonds. Lets bring back Alberto Gallo and bhanu baweja. This has a huge impact on stocks, but this has more of an impact on oil globally and emerging markets rather than the or geopolitical middle east story. Bhanu geopolitics is important, but qatar is a bigger natural gas producer than an oil producer. It produces less than 1 10 of the oil the u. S. Produces. The oilf, it wont tip market into a major deficit. You are not going to see oil suffer. The biggest implication is local inflation. I dont think that means the peg is likely to go. I can neither the saudi or qatari pegged are likely to go. For the region, it takes place when you ran gets involved. Involved. Saudi and iran, that is the axis we need to pay attention. Francine so far, markets have ignored this. Bhanu they have, and we have the biggest divergence between indexes and market volatility in recent history. To me, this is a symptom that the middle east is a situation the market is ignoring and many countries saudi in the first place need a bigger adjustment. Debt and aith low lot of assets with very low risk premium. But the Business Growth model is changing. They cant rely on oil. They have a workforce that is not used to a new economy and they are going to become high debt countries and riskier. GeoPolitical Risk goes together with financial risk. It will change. Implicationso has in on terms for the euro. Dollars,t lower petrol the implication is lower eurodollar. Rancine thank you so much we are talking with Steve Schwarzman about donald trump and markets. As is bloomberg. Bloomberg is is surveillance. Line the bloomberg invest some in new york. Spoke aboutzman china and its current relationship with the u. S. It is hard to measure different periods it is easier to talk about now. The maralago meetings were very important because the chinese like order. Things were pretty disorderly before those meetings and they have four different work streams, teams from china and the u. S. Working on both of them. The relationship between President Trump and president xi is actually really good. Forget what is reported. In china one of the nice things is they are so well courtney did as opposed to our government, coordinated that when one person tells you something, it is the view of the group. In three or four tell you, you are sure. They keep minutes and everything is circulated to read circulated. The relationship between the two leaders was a really good one. Are you surprised by that . Sort of interesting. That the president likes meeting people. That is the way he relates to people, and he invited president xi to come, which is a real high risk invitation. Leaders of Chinese Companies dont just show up to somebodys house as a houseguest or something. Was well choreographed behind the scenes by some of the members of the u. S. Administration and the chinese side. With the process. This was a process meeting and i was there for a little bit. And you had your four different trains in different rooms and it left the two leaders sitting there or standing there, or walking around. So in a way, circumstances of aerything created a bit of must be with each other type of thing. We have all been in situations like that but dont all work out well. This is one where it did. The blackstoneis to Steve Schwarzman speaking at bloomberg invest in new york. Here is nejra cehic. Nejra alibaba has predict did 49 Revenue Growth this fiscal year. The forecast compares with an analyst projection of 35 as alibaba invests in other areas including Cloud Computing and online media. Airbus may be thrown a lifeline for its a380 superjumbo. Emirates to buy more. Emirates is the biggest operator in the world. The order could be worth 8. 7 billion before discounts although people familiar say the carrier hasnt decided how many planes it wants. Credit suisse investors will buy 4 billion9 raising for the banks turnaround plan as the second share issue since the ceo took over. In april, Credit Suisse ditched plans to list part of its swiss operation. That is the Bloomberg Business flash. Francine tune for our onehour special on the election at 10 00 p. M. U. K. Time. Exit polls are published and number customers can follow that on tliv. Guy johnson and jon ferro will be headlining at. Bloomberg surveillance continues in the next hour. Tom keene joints me out of new york. We will be talking to Alex Friedman. This is bloomberg. No convincing Inflationary Pressure. Mario draghi weighing an inflationary outlook. Former fbi director james comey is ready to be cross examined in washington. Fluctuating crude oil gains. We are live in doha. Good morning, everyone. Im Francine Lacqua. , it is finally thursday. The ecb, we have the comey testimony. Tom i think weve really been remiss in not focusing on the ecb. It is a mystery of inflation, francine. It will be fascinating to see what president draghi says about inflation. It will be fascinating how he targets the markets without saying too much. Lets get straight to the bloomberg first word news. Taylor President Trumps attempts to pressure james comey are being called wrong end zone, but probably not illegal. Dontay his interactions constitute obstruction of justice. His Opening Statement was released yesterday. You can watch his testimony on bloomberg tv, that begins at 9 40 a. M. Eastern. U. K. sis underway in the general election in two years. Tune in for bloomberg tvs onehour special today. We will have instant analysis of the market as exit polls are published. It is another provocation by north korea and kim jong un. According to south koreas military, the short range missiles were probably cruise missiles designed to attack ships. s finances could currentby its relationship with the saudis, the uae, bahrain, and egypt. Global news 24 hours per day powered by more than 2700 journalists. Im taylor riggs. Tom thanks so much. Those cruisend willles, james street us join us later. Quiet markets into the ecb meeting. , iittle bit of a rebound will point out oil, oil, oil. 45 handle yesterday. 46 point 06 on west texas intermediate. Francine im looking off yen strength. I think this probably talks to the wider concern about Central Banks in general. Steadyal markets mostly head of the big events. Investors are trying to avoid adding big positions ahead of the ecb, the testimony, and the u. K. Elections. Tom very good. It is an extraordinary newsday. Francine has organized the dash. Part of it centers on james comey this morning. He will testify in washington. Last night, his written testimony was released. Surprised that the written testimony was released early . Quite typical for someone to post their Opening Statements today before. I have spoken with several top sources within President Trumps political circle who said they feel this is proof that there is not an obstruction of justice. The democrats clearly found criticism in it, as well. Tom i want to give you a 60,000 foot question with all of the macro analysis done of his testimony, even the president s harshest critics question whether anything illegal was done here. Parse that for us. What is the new wants of legal and illegal as we go to the 10 00 a. M. Testimony . Kevin you are going to be hearing obstruction of justice a lot today and that is a very high legal bar for anyone to clear, particularly if you are trying to accuse the president of the United States. If you look at this seven page testimony in particular, mr. Comey says that he was never to not have an investigation into general Michael Flynn. He did say that the president asked him, it would be great if you could let it go, but that is very different than the president getting involved directly and that is why you are hearing people like new Jersey Governor Chris Christie publicly saying that that was just new york talk. They are going to aggressively refute any allegation, but also the flare, the style of the directors testimony, it is like reading a john grisham novel. Tom yes. Very interesting. Francine i love that. Surveillance is like new york talk a lot of the time. [laughter] francine anytime toms says something. Tom shade. The shade francine our guest host for the next hour, he is Alex Friedman. Great to have you here on set with us for the hour. Lets look at the markets and how you see this comey testimony and the ecb playing into it. This is the fear factor. Are the markets not seeing the risks or are they right to ignore them . Alex that is a good fundamental question. Dynamicsm political tend to not have much affect on the markets against fundamentals. You go back to say clintons impeachment and the equity markets at the time. The fundamentals in europe are pretty good. The fundamentals in the europe ok. He u. K. Are most of the rest of the data around the world is decent. The sport for the rick at risk assets looks pretty good. I dont think james comeys testimony is going to move the markets all that much. Is it and that on whether growth is sustainable . Or is Something Else playing into it . Alex which region of the world we want to start with . The valuation on the equity markets are pretty full. Equityumption is that markets in the u. S. Can continue to rise largely on the fundamentals of Growth Companies , as opposed to a rising tide environment. The big uncertainty is whether there will be a Corporate Tax cut. In europe, it is really accelerating fundamentals on the equity side. Tom within this is the great divergence. Bring the chart of. The u. S. Line is 10year note excuse me, the twoyear note. The yellow is the german twoyear note. What is the source of tension between germany and the United States . Alex i guess the ecb is the big buyer right now of everything in europe and i dont think the tapering, to the extent there will be tapering, it is going to be very gradual. We will see if there is any language change coming out of mario draghi. That is the main driver to me. Tom very good. Alex friedman with us. Let me tell you about our special coverage. The testimony of the former fbi director, look for that across all of our bloomberg platforms. In washington, it is david gura and david westin. , as always, helping out. Stay with us. This is bloomberg. Taylor this is bloomberg surveillance. Credit suisse has raised 4. 3 billion in share sales. The rest will be sold in the market. Credit suisse leaves the money for the ceos turnaround plan, which requires less volatile capital operation. Level demand is picking up. Chinese exports rose better than expected. Imports were up almost 15 . A brighter International Outlook is supporting chinese manufacturing sector. Alibabas investments are paying off. That is well above analyst estimates. Alibaba has been expanding into new areas from Cloud Computing to streaming media. That is your Bloomberg Business flash. Tom thank you. Ecb decisionis day. The challenge for president mario draghi to way improvement against the lack of convincing Inflationary Pressure. Forstors will be watching clues. Matt miller joins us from the estonian capital. It is going to be quite difficult. He needs to say inflation is coming down, we dont have Inflationary Pressures, growth is better, so less risk, but im not ready to taper, is that right . Matt thats right. Economists that we spoke to a Bloomberg News said, maybe we are going to start hearing the ecb talk about the taper in october or december even, rather than september because they will be reducing their inflation forecast. We are expecting them to cut Inflation Forecasts down. Very far away from that on a sustainable basis. We understand that they may remove from the communique the fact that there are no Downside Risks. If they use that word, we would not heard that phrase since august of 2011. Yes, the last time we heard that, mario draghi was not even sitting in the seat. He has been saying there a Downside Risks since he took the job almost three years ago. Economists are expecting we could see other possible changes. They reserve the right to hold extraordinary levels of monetary lower until the end of quantitative easing our past. They could change the language, as well. Tom because we are in estonia, is the press conference going to be any different or is it just business as usual . Matt the press conference will be held in a school. Street,r side of the they do this once a year in a different location. Other than the excitement of being in a different country, there will not be much of a difference, except for the fact that they will change the language. That is what everyone is looking forward to. Francine thank you very much. Were back with Alex Friedman. We are talking a little about inflation. Why is there an Inflationary Pressure in europe . Is it structural or a shifting economy . Alex that is a big question and it is unclear for much of the world. I suppose there are probably three or four reasons. Cyclical changes to employment tend not to drive Wage Inflation changes. People Running Companies think they are temporary and they are market looksat the like. There is a lot of job insecurity. Theres less unionization. At the same time, Technology Efficiencies have probably made it harder for companies to pass on increases in prices that drive inflation. Francine is it a similar problem that we have had with the fed . Is it a different dynamic than when we say, there is not enough wage growth than where we wanted to be . Alex i think that is true globally. Francine doesnt mean we are measuring things wrong . Because of technology and things like that, maybe inflation should not be at the forefront of our mind, but we look at it differently . Alex it is possible. The last time the central bankers said technology was changing the paradigm was right before the dot com bust. I think they are probably hesitant to do that. Tom i want to congratulate you. On have had a balanced view the market, participating in the market and measuring the risks. What is the number one risk that your Strategy Team sees right now for people that want to be in the market, but theyve got to get their radar up . What is the number one risk right now . Alex Larry Hathaway is phenomenal on that point. The number one risk i believe has to be geopolitical. If you look at the amount of danger points around the world right now, whether it is what you see in the middle east with essentially the proxy war between iran and saudi arabia playing out in qatar, whether it is north korea, whether it is chinas upcoming election and further tailwinds for aggressive action on chinas part, and then nato and perhaps a weakening of to u. S. , i think theres got be almost a super saturation dynamic around an avalanche were one more snowflake can set off the slide. Geopolitics has to be the biggest threat. Tom take the snowflake avalanche model further. What do you see in the liquidity model . Im going to show a chart later which shows a remarkable quiet since in the shortterm paper market. Alex we have not seen a lot of liquidity threats right now. I suppose high yield is an area where there is a lot of potential concern around. Investorsany retail who have more than their average highyield exposure. There is kind of instability in the energy market. You could see them heading for the exit. Francine alex, thank you so much. Stay with us for the hour, stay with bloomberg for the latest. We will bring you live coverage of the ecb rate decision. Then, we are followed by the ecb president Mario Draghis News Conference. That is 45 minutes later. This is bloomberg. Needs to start with a clear restructure the Foreign Policy to stop supporting extremism, stop supporting terrorism, and, again , enough is enough. The link, enough is enough. The terrorism that is undermining society. Financial and logistical backer of it. Uaesne that was the foreign minister. s longterms qatar rating has been cut. To thee, lets get Bloomberg Markets middle east anchor. First of all, well done for just getting into qatar. I know that was quite something. Talk to us about the spat. Does kuwait make any difference in bringing the two sides together . They are making slow and steady progress . If you see the hugs and handshakes. Arabia around saudi arabia and everything. Is also a list of demands flooding run. A quick fix is not around the. Orner francine i guess it will test other countries neutrality . We are seeing obviously the out inoodys has come the last hour, they are commenting as well. We see an interesting rebound when it comes to stocks. They have an agreement with inar, who is a big investor the sovereign wealth fund. Tom get out of that 106 degrees heat. Coming up later on bloomberg television, on bloomberg surveillance, this is wonderful and always welltimed. , my book of the summer, his book on leadership. A new book, as well. A fabulous book on strategy. James stavridis. Joining us in the next hour. This is bloomberg. Francine this is bloomberg surveillance with francine and tom keene. Taylor in the u. K. , voting is underway in the countrys second general election in two years. A total of 650 members of parliament will be elected. Almost 47 Million People are registered to vote. Tune in for the bloomberg onehour special at 5 00 p. M. Eastern. We will have instant analysis of the markets as exit polls are published. The u. S. Is considering whether to add strengthened sanctions against russia. The iran penalties are aimed at the countrys Ballistic Missile program. There is a new director general of african security. Foras the chief of staff the finance minister. President jacob zuma fired him the old one earlier this year. Im taylor riggs, this is bloomberg. Tom, francine . Francine thank you so much. The fired fbi chief james comey the president repeatedly called for loyalty and asked what could be done to lift the cloud over his administration. Is our principal russia analyst. Still with us is Alex Friedman. Let me come to you first. We are trying to figure out whether anything that President Trump is actually illegal. You were telling me that it takes time to go through the documents and understand what happened. Alex obstruction of justice is quite difficult to prove. All we have seen so far is the prepared remarks from the fired fbi director. We would not expect there to be legal conclusions and he cannot release any classified information. An investigation is going to take a while to go through and will be much more relevant in getting at whether there are patterns of obstruction of justice. Francine alex, you said geopolitics are one of the biggest concerns on the market. Are you expecting markets to move in any way on the back of the comey testimony . Alex no, im not. The geopolitical threat is much more around military conflict or some kind of fundamental change around commodities, something you might see in the middle east around oil. What do we know about the relationship between the Trump Administration and russia . There are a couple of people under investigation. When can we have a clearer picture . That is really the thousand ruble question or however you want to put it. Frankly, we dont know. There are a lot of unknown unknowns about what role russia played in the u. S. Election and how it played it. We have seen evidence of some links between figures and President Trumps organization and entourage, but we really dont have any smoking gun yet. There is some smoke, there is not a lot of fire. At this point. What this has done is it has put the Trump Administration in something of a bind with regard to russia, in that President Trump has expressed consistently a desire to improve relations with moscow. The testimony of james comey and others has kind of close to the political space for doing that. We have had reports that there were policy queries early on in the administration about how they would go about lifting sanctions, how they would go about repairing the relationship with russia. The politics and the optics are such that they cannot afford to be seen doing that. Tom i want to go to the optics. Here is Jonathan Bernstein in Bloomberg View with the priorities. Obstruction of justice is the big one. Abuse of power, harder to define, but nevertheless important. Then he gets to your world. The russia scandal, trump behind closed doors. What does mr. Putin want to get out of this testimony this morning . Beagh i think it would difficult to categorize as him wanting anything specific. More that russia would like what has been going on to continue going on. The very process of the investigation itself, the testimony, the political scandal or however you want to label it, has reduce the bandwidth that the u. S. Administration and washington as a whole has for engaging in other political issues, and that includes geopolitical issues. How they are going to engage with russia, how they arent going to they are going to engage with syria. This has left the field clear for russia to operate at will. It has also raised questions about how is russia going to interact how is the u. S. Going to interact with traditional allies in europe . How is that going to affect russian strategy in europe . We really dont have very clear answers to any of that because it is difficult for washington to define its policies and define what it is going to do given the other pressures. Tom given clear or transparency, do we have any indication of the linkage of the russian government to the various financial entities that Anyone Around the Trump Administration would speak to . Do we really know who owns what . Daragh well, that is a very big and difficult question to answer , given the financial structure of the Trump Organization itself. It is a privately held company, so a lot of this information is not public, if im saying that right. Effectively, we have not had a smoking gun yet. We have had allegations and evidence of some links, betweenl and otherwise, certain people within the Trump Campaign and later within the Trump Administration. But there is no clear evidence of collusion or real russian influence over any decisions that were made by the campaign or the administration. Again, there is quite a lot of smoke, but there is no fire. There is no real chain of events or agreedupon narrative of what actually happened. Francine is this a distraction for the Trump Administration and doesnt distract them from getting the job done when it comes to building enough infrastructure for it to matter on gdp or on tax reform . Alex undoubtedly. It is easy to say that the legislative agenda is completely stalled at this point. The senate is stalled on health care. A major tax revision is one page of bullet points. It is hard to see any fiscal stimulus coming from the United States under trumps leadership. This creates a big headwind. Tom very good. We will continue with mr. Friedman this morning. We are asking you to stay with us this morning with incredible news flow. Our u. K. Coverage at 5 00 p. M. New york time tonight. Atore that, our coverage 9 40 of the testimony of the former fbi director. This is bloomberg. Thisexceptional news flow thursday. Francine lacqua and tom keene. A lot bloomberg special coverage through the day. This is a joy, whether cubs or white sox, Carl Tannenbaum is from chicago. Chief economist with a wonder global wonderful global perspective. Wonderful to have you here. You just got back from china. I showed a chart of the real u. S. Twoyear, which has been negative since time began. China is a different view. Lets bring this up to read this is the china fiveyear. There is no other chart like this out there. They actually have real Interest Rates over on the right side. What do the higher rates of china signal . I think you have to realize that the chinese rates are carefully managed. They are managing them to do two things. They have leverage problems. I think they are being honest in addressing them. Short and longterm rates have been raised to take the edge off that. In addition to that, because domestic investors are confined to investing in china, that has left a lot of capital to go into markets that are overheated. They are giving investors a little more incentive to stick to something safer. Tom but the government will still by the u. S. Paper, right . Carl absolutely. The maintenance of their Foreign Exchange reserves is critical for them to maintain control over their currency. In addition, for years, china has exercised mercantilist financing. They have got to provide us the credit to buy their goods and services. Francine alex, what do you make of this . How much do we know that their , it isy is stabilizing just not stabilizing because they are intervening in it . Alex very hard to know. I really have no idea. It is so opec. Francine is there a particular region where markets look buoyant at the moment or where you can actually make money . Alex globally . Europe looks the best right now. You have accelerating economic fundamentals. Emerging markets, depending on the market, on the debt side, local debt looks kind of attractive. Francine carl, what is your take . Carl i think it has been pretty persistent. I dont think in the realm of worries that the treasury secretary has chinese participation is not the highest worry. He is more worried about hitting the debt ceiling and it does not seem like they have a plan to avert a nasty situation this fall. Tom i want to go to a holistic view. Normal . Nywhere near if you were to have the march , can you tell our audience that we have a normal u. S. Economy . Or is it as out of whack as our politics . Carl i think we need to adjust our sites. The demographics of this country are far different than they were 10, 20, 30 years ago. The labor force is limiting our potential growth. There are changes in the mix of goods and services that we buy. Credit is very different, it is still in repair in some sectors. I dont think we should be altogether disappointed. It is almost as if the president wants to create a miracle like the chicago cubs. Do we need to get used to a euro rate of 2. 2 . Carl im not sure i would make that comparison historically. I think we will be quite a bit more dynamic. Needheless, i do think we to make investments in improving productivity so that we can compensate for the slowing of population growth and keep us on a very strong growth trajectory. Francine when you look at productivity, it is one of the problems that we have in europe, it is productivity, but it is also a competition. How can you be so sure that france will pick up competitiveness . Alex yes, it is very hard. It is like changing social behavior and trying to get the average french working week up to 5060 hours. Getting about 3035 hours would be something. It is like japan, i think a change immigration policy, you would be about to stimulate the economy quite a bit, but it is hard to do that. Francine carl, what is your take . Alex mentioned japan. When you speak to ceos, they are telling you the world is getting a little bit better because inflation is not at 2 in japan, but we are seeing signs that things are getting a little easier in japan . Carl japan has the worlds worst demographic problem at the moment and i think they are doing an admirable job to try to overcome that natural limitation. It is very hard for them to reach their 2 target consistently. I think globally that we do need to make the key investments that will enable populations to be more productive. That is for infrastructure and Human Capital investments are going to be essential. Tom on this thursday, we forget about comey, we forget about the u. K. , we forget about this, that, and mario draghi, we got to Carl Tannenbaum on the land of the geek and that is the counting of the beans in washington. You are the expert with the nabe, there are these words on how we measure inflation, do you trust the inflation data . Carl i do and thank you for calling me a geek, by the way. Ideafrancine, no, but the is do we trust inflation is a theme that francine and i are talking about constantly. Carl inflation is hard to measure, especially as we transition from industries that are hard to count. What we have not done is invest in the techniques that will enable us to get at what inflation and productivity are emerging industries. One of the tragedies of the budget cuts that have been proposed is that funding is already at a paltry level and it will be cut even further, threatening the potential for the census coming up in 2020. Weve got to make those investments so we understand the economy better. Enables us to manage Economic Growth better, they will pay for themselves many times over. Tom i got an idea francine, we are all moving to the United Kingdom. Francine great idea. More, but we cant talk about the United Kingdom. We have rules about that because we are voting. Answernot allowed to questions about the u. K. You can still ask of them. Load the video up and ask us a question. You can directly ask questions to Alex Friedman. Stuffs some of the geeky we all like. We are back with Carl Tannenbaum and Alex Friedman. Also coming up, we will be talking about some of the things we are looking out for in the ecb and that is currency. Surveillance, good morning, everyone. Tom keene in new york. Francine lacqua in london. Alex friedman with us. On investment right now. Larry hathaway in august wrote a spectacular short, cogent essay on active and passive and he made very clear that his theory and your theory is a complementary investment field of passive and active together, rather than competing. How does active management and passive management complementary . Main point isthe that what active is really good at his hunting price deficiencies. If you only have passive investment, then you have largescale movements that leave pricing inefficiencies. Bothuestion is can they coexist . The rise of passive investing creates more opportunities for pricing inefficiencies and that is where active inefficiencies efficiencies. As we have moved away from that, it is a better time to be an active investor. Tom within this is a disease. For those of you who did not take the cfa exam last week, Alex Friedman brushed up on it last week. Use toive managers manage very tight to the benchmark. Are we going to see active managers with a different portfolio than their benchmark . Case, we have never been benchmark huggers. We deviate quite a bit from benchmarks. Allocators have become much more sophisticated, they have started to take their money back from active managers that are benchmark huggers because they are not adding any value compared to passive offerings. I think you are 100 right that the space for active managers really requires that investors who are active managers earn their money. Francine how profoundly will these change and will we see consolidation because of it . Alex i think it is already changing quite a bit. Passive investing probably accounts for 35 of the industry and that will shortly go up to somewhere around half. That will continue to eat away at active managers who have a majority of assets in retail exposure. Moving pretty are much across the board to passive offerings. Where active management seems to have the most promising future is in differentiated, specialized strategies very hard to replicate with passive strategies. Francine on an monday, are you , are you buying europe, the u. S. . Alex i think you will see more a to take out costs. The thing is is that it is quite hard to do m a in Asset Management because it is driven by people, which is driven by cultures. Yesterday atpimco the bloomberg invest conference, they talked about the sub 2 10 year yield. Is that a melt up prescription . That get yields, if we get , does that guaranty and equity buildup . Melt up . Alex that is an interesting question. I could see him melt up for another year or two. If you go back to the predot period w have a risk on period, you have a riskon. I think the change has been from the idea that value will outperform again to maybe growthspecific stocks. Francine we have a question from a viewer. This feels a little bit like the battle of europe versus the u. S. , there you go. That working 50 hours a week can produce more than working a 30 hour week . Alex welcome approved. I can mow more lawns and 50 hours, so i can make more money, there is more productivity that comes from working more hours. Francine that seems pretty basic. I guess it is one of the arguments that the u. S. May compared to europe, tom. Tom very good. Im going to stay away from this one. Francine really . Tom im clocking in a work week this week. Let me remind you of our coverage. 10 00 a. M. This morning wall street time, the comey testimony. Time, thewall street polls. That is much later in the United Kingdom. Our coverage, the United Kingdom decides. Innerl James Stavridis her next hour. Stay with us. Tom is it wrong, dumb, legal or illegal . Establishment of america stops for the comey testimony. What is the price of loyalty . There is a quiet in the markets. Mario draghi will hold a press conference. There is an election in the United Kingdom. At 5 00 p. M. New york time. This is bloomberg surveillance. I am tom keene. All of us have strict rules on the United Kingdom when the polls are open. Booths openeding about four hours ago. Tom i wish we did that in the United States of america. What a newsday. s attempts to pressure james comey on the russia investigation are being called wrong and the dumb, but probably not illegal. His interactions with the former fbi director do not constitute of structure of justice. Call means Opening Statement was released yesterday. At can watch his testimony 9 40 a. M. Eastern time. Way in thender countrys second general election. Almost 47 Million People are registered to vote. In to our onehour special at 5 00 p. M. Eastern time. Another provocation by north kimnd kim jong and jong un. North korea has conducted 10 missile tests this year. Hurt. S finances could be that is according to s p global ratings. Saudis, uae, bahrain, and egypt have cut diplomatic accusing qatar of backing islamic extremist. I am taylor riggs. This is bloomberg. Equities, bonds, commodities, quiet. Oil cratering yesterday off belowory data, brent way 50. 46. 14. A tepid bounce on oil. No big market moves. A Little Current siemens. Investors will try to avoid big moves as we have big events. I want to talk on what we are seeing on yen. After we heard from the boj that they want to communicate differently as they redress the Balance Sheet down. Tom what will the character of the questions be with the testimony of comey . I have spoken with Top Republicans who have been working on the strategy and they are going to flip the script. They are going to go after james points. R a couple of why was he keeping private written memos . With trump but not obama. Pressure him on the notion for why some of the actions he took with the meddling in the 2016 election. They are ready to go. They are working with the rnc. Have a high bar in order to press the president has an instruction of justice. There is no evidence, at least testimony. T tom this stuff comes out. To theirilli goes brookings institution. Lets go to what he wrote last night. Directors sevenpage direction makes no allegations and expresses no opinions. Question is do we care. Who does not care about this testimony. He was critical of the testimony. He was critical of the former fbi director. I want point, he left trump tower and huddled in the van, proposedor graham has legislation with senator cardin to put sanctions on russia. Where policy is important. The Senate Banking committee is in charge of moving that type of legislation. The house is voting on doddfrank. Unless there is a nuclear option, they will have to address russian sanctions first. This would indicate Lindsey Graham is with the president , that he is pressing me president to put sanctions on russia. Francine is obstruction of justice the same thing as being illegal . Obstruct justice would be illegal. Bar is so high and the white house feels the biggest potential of political threat and legal threat is that , the accusation of obstruction of justice. They are confident there is no evidence of obstruction of justice. E is no doubt francine what will you be looking at in the testimony . Any bombshells. President is not under investigation, but whether he says point blank the president did not obstruct justice. To difference of his ability questions he is going to have to answer. Clock, is the bombshell here that call me will defend the attorney general, mr. Sessions . The stories on the terminal now about how this relationship is involved. They never thought there was that much strain between them. , heas the attorney general told the president if you are unhappy that i recused myself from russia, i will do whatever you want. They have said there relationship is back on. Tom thank you. Great questions from london, as well. Here is our coverage. All will be watching. We want to give you a smart briefing in conversation. ,avid westin, Kevin Cirilli they do that at 9 30 this morning. Francine it is ecb decision day. The challenge for mario draghi growth in the face of increasing pressure. Miller. T to matt is challenging because inflation, coming below expectations, growth accelerating. How do you communicate that to markets without sounding hawkish . We just got the final readings of euro zone gdp. Better than what we thought previously. 0. 6 in the first quarter. Strong news for growth. The market expects of the ecb to normalize. At the same time, they cannot get sustainable inflation that they want. The way they deal with this is by reducing their inflation targets. If inflation is that far below target, that far out, the market knows they have to cool their heels a little. Francine how many questions do you think president draghi will get on said . Matt he usually gets one our two on the said. He seems to be able to avoid them. He does not want to answer any said policy questions. The ecb is in the same boat as the fed and the boj. ,hey are getting the growth they are not able to get the Wage Inflation they need to underpin that sustainable core number. Tom we dive deeper into the liquidity markets. Libor and the oddities in the market. When you come in in the morning, what do you look for to see Financial Stability within Mario Draghis europe . There is not a concern about stability. Tom the economy is better . Exactly. Growth numbers are the only concern, it is about inflation. They will acknowledge that, revise the inflation forecast lower and make some tweaks to the language. There has been some discussion about this. They may take the Downside Risk out of their statement and they may rethink and they may tweak some of their guidance blinds. How do you respond to the turmoil of a bank being taken out for one euro . We know there are some problem banks. Markets have confidence it is contained. Mentioned,as you there has been a one euro takeover. Francine the biggest headaches it the italianis banks . That is right. It is a headache, but it is manageable. 2011, 2012, 2013. Markets are confident, the ecbs ability to manage what is going on. It is a headache, but it is a manageable one. Santanderyesterday, bought a spanish bank. Talk to me about currencies. Are expecting strengthening, but not as much as you might expect based on growth numbers. Is potentially going to main changes we discussed and that will provide some lift. That is where we are right now. Francine thank you. Stay with bloomberg for the latest from the ecb. We will bring you live coverage of the ecb rate decision. By Mario Draghis conference. This is bloomberg. Tom we welcome you. N extraordinary news day i cannot think of a busy year day than what we have now. 10 00 a. M. , our coverage of the comey testimony. We know harvard and m. I. T. Bill came out of a different cambridge, out of austin college, did tours of duty for miami, the new, york bombings of 1992. The fbi assistant director joins us. I want to know what mr. Mueller is going to be looking at in this testimony. This relationship between two know. Ou bet jim comey will not stray beyond the papers released yesterday. I am not sure bob mueller has reviewed that statement and is in agreement with it. They will continue to do the job they have done for years and years. Does it create turmoil . Sure. With the naming of a nominee for the new director, that is of concern. Please. Were key distinction. The main thing, the primary thing you have to look out for is somebody of great character and ethical performance who can be independent from any other outside causes that may try to influence his decisions. Is it forhow unusual someone such as comey to be taking detailed notes of conversations . It is not unusual. It depends on the situation. Happens, he never did that when he dealt with president obama, but he did not deal with him on a regular basis. In this case, if your antenna has up, where someone something to say, but they did not cross the border, but i am going to make a note of this. We work on the adage that the person with the paper usually wins. Francine how to qualify the working relationship between the Trump Administration, or the theident, and the rest of fbi . The staff of the fbi remove themselves from political theater. The reach is a little more than the bureau used to do. Tom the terror today is different. Why do we have less terror involving the character, the religion we have seen within europe. What are we doing correctly in the United States . Upthe high gain antenna is 24 7. They have been extremely fortunate in having great relationships with police departments, the joint terrorism abilityces, to put the of everybody together, the Street Police officer, the street agent, everybody working together in harmony. Things some of these from occurring and to prevent them from occurring. Francine how important is intelligence sharing between a u. K. And u. S. . It is extremely important. We will look at all of our records. Tom thank you. We are going to continue with many themes this morning. We are going to look at the systems of the financial. The testimony of james comey with our team in washington, look for that later this morning. System tom we welcome you on a busy day with a number of special broadcast. We will tell you about those through the next half hour. To bring you uptodate with the news, here is taylor riggs. In the u. K. , voting is underway. Theresa may and Jeremy Corbyn are among those who will elect hundred 50 members of parliament. We will have instant announcements of the markets. It is the hearing washington has been waiting for. , he says the president asked you loyalty and to can watch comeys testimony. That begins at 9 40 eastern. The new sanctions would punish russia for meddling in the u. S. Election and its actions in ukraine. Sanctions are aimed that their Ballistic Missiles program. Global news, 24 hours a day, powered by more than 2700 , i amlists and analysts taylor riggs. This is bloomberg. Francine qatari stocks have bounced back. Wants the government to show commitment to stop terrorism. Lets get to our markets. To qatar. On getting it was difficult because the ties have been severed. Are we expecting this isolation to continue . Is there willtion not be any wick any quick fixes. Is speaking this is part of his tour to patch things up. Nothing clear or can creep. The other part is global power starting to align themselves with different sides of this dispute. On one hand, you have turkey backing qatar with the latest bill to add troops. The United States, we saw last week. Is whattion remains will happen with russia and china. Bencine china seems to forced at some point to be tested. They will have to weigh in on the saudiiran feud. Eventually, or maybe not. They will wait and see how this is all this. Of key members are not part this broader reference. It is in their interest if they have relations with both qatar and saudi arabia to develop a way to. Is 106 degrees in delhomme in doha. Ran think about this and how does it respond . Attack came in Downtown Toronto and the comments escalated things further. This is a big political puzzle, still coming together. Iran says this does not benefit anybody. This being drawn closer to is in its interest. Might enlighten a new wave of uncertainties. This is a joy. My book of the summer, this previous book, leadership. James is out with a new book sea power. Book, ie get to the want to talk about what i went to, the american fear. Islands. N every american has a fear of that missile that is out there. Are those missiles out there as we approach north korea . We still have missiles all over the world, but we have to worry about the next generation, hypersonic. Past fourtimes times faster. They present a challenge to our aircraft carriers. Pasttom i was flabbergasted at the size of the fleet. Are our sailors defended . They are. Put a ring of steel around those carriers. They are well protected. And is becoming a more even match between the chinese fleet in the u. S. Fleet. Francine tom amazes me. The exocet missiles are french built missiles. They are made in that style, the cruise missile. They can be fast and low over the water. Exocet was the first generation of that. Francine lets go back to the news. Without a doubt, qatar and what is happening in the middle east. Impact does this have on the stability of geopolitics . It is a small hands, but big doors swing on small hinges. When we see the great powers lining up on each side, my mind goes to world war i. Second point is this is a maritime theater. Al of this is happening in body of water, the arabianpersian gulf. We cannot even decide what to call it. Tom your book is gorgeous. It you divide it into the know. E no the seas we all of the oceans are a big crime scene. Dumping, illegal fishing, pirate eight, terrorism. Also, in western africa, piracy a 40 billion discontinuity in the international transportation. Tom are we back to the barbary pirates . If terrorists go there and a serious way, if they put a in an of mass distraction container, we are going to operate like we did against the pirates. He holds court and there is all the stereotypes and nostalgia, world war two, everyone Smoking Cigars in the atlantic. It is the most romantic of the seas. It is where exploration began. Today, the primary conflict would be between the United States and russia in what is called the greenlandiceland u. K. Gap. Tom we have to come back and talk about that. Francine we will be back with james. We will be back with our other rates the global interest strategy head there. We will have instant analysis as soon as those polls are published. Tom good morning. Lots going on. We are going to continue with james. At tuftsher school university. We have to get back to the bloomberg. How about a look back to 10 years ago. Libor or as, a measure of confidence in the short term market. The financial crisis, lehman brothers, the world is coming to an end, only credits tweeze survives. Se only credit sius survives. Before we talk about why we are rolling or why we went up more recently, the rise we saw last year was completely related to regulation. October, that was the peak. Then, the fears people had about how much of a shortage there would be have been allayed somewhat. You have seen borrowers shift their strategies. A bobble now adopted strategy. Tom here is a pro question. The chart again. Back here, the world would stop onbloomberg surveillance radio. I would quote this like it was religion. The Banking System is safer. What you had been was reflecting credit risk. That is not what is happening now. The movement you are seeing now is related to regulatory changes. , it is notrategies freely an indicator of credit stress. Went back to 2011 and 2012, you did see a spike. A move we have seen last year and this year is not related to credit stress. France is what is the indicator of credit stress . You look at credit spreads. You see credit spreads which are fairly tight. Libor, the reason it is moving is regulatory. Francine where do you see the biggest risks . China, something ugly and credits in europe, how do you measure it . We are trying to find this canary in the coal mine. Factors, those risk factors would not be and the. Problem of course is when you have Central Banks that are you canccommodative, argue it is tightening at a pace. Fromt really being the funding side. ,e have had talks this morning japan talking about upgrading. There be stresses . Yes. A long period of stability breeds instability of eventually. For this year . T maybe not. Do you seehere credit going in the u. S. . Is there underlying strength or concern you are seeing in the u. S. . Some talk youeen have seen some of the said governors of focus on commercial real estate. See stress dont building up to the levels that you would have a crash. In the past, when you have seen it has notmoves, been because the fed was hiking. By definition, those are hard to predict, but you could see one of those shocks. It could be china, it could be Something Else. You could see one of those cause the market to move. Tom thank you. We are going to continue with seas, out with his book power. Ofyou are in the library test university, tv. There it is in real time. You can pick up a previous section. Tv , check it out. Coming up shortly, daybreak america. Coming up at 10 00, we have a big line of guests, led by joe, the democratic senator from west virginia. We will talk to him before he goes into the senate hearing. We are also going to talk to a former fbi director and gene sperling. Ask what it is like when you are being capitol hill. P on tom thank you. Joining us now, our senior white house responded. Will the president tweet this morning . You never know. It is largely hoped he will not, but they have left the possibility that trump has to be trump. The Witching Hour seems to have passed. There is another time to watch, that is immediately after this hearing begins. Trump has been telling us he was of ahe subject counterintelligence investigation. The gossip between the attorney general and the president. It is a clear and present danger. The white house is circling the idea trump made a decision to stand by his attorney general. Sessionsppy about recusal. Impossible to imagine if trump had gone through with setting mr. Sessions aside, the scenario we would be looking at this morning. Francine ing i encourage everyone to tune in for the testimony. What happens after . Things can we expect after the testimony is over . It depends on what happens in the hearing. Senate panels are going forward. Importantly, there is an fbi investigation into the russian matter. Then, there is the special , there are at least four other investigations that will go forward beyond jim comeys testimony today. Tom thank you. It is a wonderful new book, loaded with history, smut history, smoke and scale. Part about it, i thought sam the ellwood is great in the movie. Out like a baldwin, 30 years ago, the hunt for red october. You make clear that is east of greenland. Submarines can operate in those shallow waters undetected. They can do surveillance in the baltic sea. That is where the hunt for red october unfolded. Total u. S. Navy ships, 275. Total nato ships, 800. This is a big fleet that can be part of u. S. Navy our effort tor russia. Tom we were wrong on our on russia. E in 1989 everybody got it wrong. Know what the russians have now . Are we any smarter . We are smarter. We thought there were wmd in iraq, too. Are built inhips shipyards, you can observe them well. We know russia will add 100 ship to its fleet over the next several years. That is a clear and present danger. Ofncine we are a couple weeks away from trumps first foreign trip, what was most significant . Was in brussels, a lot of people said you could see it was trump against the nato leaders, but you also saw divisions in the Trump Administration, for example, his language on using article five. Ofthe lack of endorsement article five, the part of the treaty that says an attack on one is an attack on all was noticed and notable. 90 of life isd showing up. At least he did show up. Eight months ago, he said nato elite was obsolete and we are going to walk away from it. Tom check out the book. It is a wonderful read. Learned a lot from it. We have a Foreign Exchange report into mario draghi in estonia. Matt miller is there. The report the Foreign Exchange report is pretty stable. Jonathan mario draghi will deliver his assessment of the euro zone economy. The central bank is said to be ready to cut Inflation Forecasts. Not stop lawmakers asking and it is election day in the u. K. The country heads to the polls for the second time in two years. Is gooddon, it afternoon and in new york, it is good morning. A huge thursday coming up. I am Jonathan Ferro alongside david westin and alix steel. Alix super thursday. The u. K. Voting underway, and then at 7 45, we get the ecb rate decision. A cold and 30, the draghi News Conference. 10 00 a. M. Tech 00 a. M. , the d. C. Soap opera starts. Former fbi director james coming will give his testimony in front of a congressional committee. David live coverage starting at 9 40, includoa