Transcripts For BLOOMBERG Bloomberg Surveillance 20170615

Good morning, everyone. This is bloomberg surveillance. Im Francine Lacqua in london. E have great guests coming your way. First thing a check on your markets. This is what we have seen overnight. The dollar gained on the back of what we heard from janet yellen. Probably one of the most significant things that were watching. Were watching dollar and the bloomberg u. S. Dollar index and also im interested in crude oil. We had the i. A. Report yesterday. It traded at 45 a barrel. A couple of big investors said it means it is probably going to change the trade wagon and what we also need to look at is some of the australian bonds after we saw the rally yesterday in treasuries and were looking at swiss u. Now lets get straight to the first word news. In the u. S. , the special council investigating russias interference in the 2016 election will examine whether trump tried to slow the probe into michael flynn. The move expand scope of the investigation. Meanwhile trump and his wife melania visited House Majority whip Steve Scalise in the hospital after he was shot yesterday. He suffered fractured bones, internal organ injuries and severe bleeding after being shot in the hip after a congressional baseball practice in virginia. Crews worked through the night to dampen the deadly blaze at a london tower that killed at least 12 people. Officials warn the number of fatalities will rise. It also injured 74 and left an unknown number missing. The cause of the blaze is unknown. There had been a risk of fire at the building since 2013. Furbished in 2016. Deutsche bank has outlined the new structure for its corporate and Investment Banking division. According the people particular with the matter, it will create a separate business. They unveiled details of responsibility between the coheads of its newly combined banking and trading unit. And the exchancellor, the u. K. Chancellor will make the case for a new cause for brexit later. They will push for a socalled pragmatic brexit. Is move reflects theresa mays move to make immigration control. Francine thank you so much. Janet yell season pressing ahead to normalize Monetary Policy of the fed but that the ongoing strength of labor markets will ultimatery prevail. After raising Interest Rates for the second time this year, she played down a recent softening of price pressures that the fed is to hit its 2 inflation goal. With employment near its maximum level and the labor market continuing to strengthen, the Committee Still expects inflation to move up and stabilize around 2 over the next couple of years in line with our longer run objective. Nonetheless, in light of this softer recent ip nation readings, the committee is monitoring inflation developments closely provided that the economy evolves broadly as the committee anticipates. We currently expect to begin implementing a Balance Sheet normalizeation program this year. The plan is one that is consciously intended to avoid creating market screens and to allow the market to adjust to a very gradual and protectable plan. I fully intend to serve out my term as chair, which ends in early february. I did not have conversations ith the president about future plans. Francine that was of course janet yellen. The day after the fed spoke, let me start off with you. Let me bring you up to my terminal chart. This is inflation. We look at the 10year of three fed governors. The first one under a alan greenspan. In the middle you have ben bernanke. And then janet yellen. She said inflation can be noisy. She said g. D. P. Can be noisy. What is not noisy . The fed are being noisy at the moment. Why they are being noisy, they are not targeting inflation 2017. They are targeting their own credibility. Even though there has been a spriking downgrade in the Inflation Expectations from 1. 9 to 1. 6 for the year, they are keeping that policy path unchanged. Therefore i think in 2017 it is the case of out with dependency and in with restoring credibility. Francine if they are wrong, it will really hurt their credibility. They dont want to shake the boat or change the course very abruptly coming from the message they gave at the end of the year. I think the fed is trying basically to keep things standardy. I think the result of the it is not necessarily shocking. The tweak in the Balance Sheet, it is very important. Kind of the unknown factor we have now. It is going to be extremely smooth. Thats pretty much the big message we got from yesterdays conference. She is talking about the first level of reinvestment cap. 6 billion in the treasury side which is smaller than our forecast which was already a very tiny forecast. We are talking about a fed that is not willing to shake the boat now but there is a law, i do believe one of the important statements from yell season i think the reason the inflation were one ups. We are looking at our our board will be looking more, we have a little bit more to the next upping. Francine the problem, inflation, especially when it comes to wage growth. There is no wage growth in the u. S. Economy. It is not just the u. S. Economy. It is across a lot of market s that areor indeed in the case of the u. S. , the u. K. , japan, below their natural rate. There is no inflation. While that remains a mystery. Lets be honest, it is a mystery. You have not seen any fed members come out and providing a compelling narrative as to why that is. I must conclude it is only based credibility or they are worried about a broader basket of broader Financial Sector risks. They are not talking about this but that has to be playing with their minds why they are moving toward inflation so stag and in, below 2 . Francine this is the most significant chart. Financial conditions following the rate hike. It is the three previous ones. This is something that the fed needs to be watching very, very closely. Absolutely. I think the monetary conditions which has to be with the dollar on an Effective Exchange rate, they have been loose. So effectively it is not like we are tightening. Very different from what we saw in 2014 when yellen and fisher had to say dollar appreciation is going too much. We need to step back. We are not getting that. This is actually positive. One of the capitalists behind this very buoyant stock market. Francine this goes back to their credibility. They said well, we have to do something. It has to be honestly about whether it has generated not because generated inflation but because they are worried about overly lacks financial conditions lax financial conditions. Also if youre looking forward in interprets of what the prognosis is for 20182019, you just brought this up on the screen. It e still looking at going up by 3 at the end of the cycle. The position where the Unemployment Rate where the fed expects the natural rate to be. You wonder where that additional expansion that is going to drive that aggressive Monetary Policy in a world where no other Central Banks are tightening. How can it get there . I dont think it is an incredible longterm forecast. Francine stay with us. Stay with surveillance after a shocking election result, where does the bank of england go from here . We look ahead to todays Rate Decision and switching up the structure. Well also have the details on Deutsche Banks latest attempts to turn the business around. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash. Shares in british air ways are lower this morning after Heathrow Airport said it is experiencing an issue with its system. They said destruction is through terminal three inside. Chinese authorities have asked banks to suspend business dealings with insurance. They began a wide ranging probe into the company and its chairman. Representative failed to comment on the relationship with anbang. According to people with knowledge of the situation, a deal could give amazon a. Aluation of 9 billion thats Bloomberg Business flash. Francine . Francine thank you. Prime minister theresa smay seeking a deal to prop up her norlte government. Mark carneys prank of eng pressure nd hammond to philip deliver a softer brexit. That focuses on protecting jobs. Lets kick it off with you. We have a lot of politics to talk about. When you look at currency. How much does it whether we get a soft brexit, a hard brecksette, the reversal. The pound drops, inflation goes up. Wage doesnt go anywhere. That is what will determine how much of an appetite there is for a hard brecksette. The Current Situation which is a little bit of in limbo. The next quarters. I find it very difficult to believe that the sterling can stay at the current level. In my view, we are poised to see a little bit more deterioration of the sterling given all of this boom we have of optimism coming out of the announcement of fresh elections and now we have the outcome and know the situation is a lot worse than anybody expected. We have got later on were going to talk about politics but effectively this is all about politics now. Right . The british economy in the situation, we have seen some cracks in the wall in terms of retail sales. Were not seeing the same expansion in aggregate demand. The problem is the prospects. On a forward basis it is a economy. If you dont have the positive the reassurance in terms of what happens in 20182019 in terms of brexit negotiations i find it difficult to believe is capital account flow is sustainable. I still believe that. It is just crazy to see to be honest with you. Francine what i dont really quite understand is we dont know what kind of brexit this country wants. That would be my starting point. It is in turmoil. Hold up do they look at weakness in the how much do they look at weakness in the economy . In terms of the racket rat, not at all. F the elect ral rat, electoratenot at all. The chancellor, the head of the treasury here in the u. K. Who is going to push for some sort of customs arrangement going forward, an associate customs arrangement with the european union. If you compare where cable went o on 120 in october last year, you see some of the rally that we were talking about, the idea that a big u. K. Economy has outperformed. People want to see some of those synergies, those relationships maintains going forward. Francine a rate increase by the b. O. E. This is a chart looking at the probability of that rate increase by the end of 2018. Given the election so days ago, that probably has fallen further. Some sort of Monetary Policy action. I think that is francine on the up or on the down . On the up. Residual hawkish s there a lot of weight to watch and see and how the data unfolds. Like i said, it is the situation, the real estate arkets, in limbo. Trying to trend downwards. The situation in the job market is not as buoyant as it looked in q 1. We have plenty of uncertainty around here. I hate the hard brexit, soft brexit. We all try to put everything on a framework here. There is no framework here. We are still talking to the mirror here. I negotiate with myself. Thats the situation. Francine i understand. These are assumptions but if someone says were going to control these things, you could argue that the e. U. Has no choice but to do anything. Do you agree on b. O. E. . The hawkishness . No, i dont. I dont see it moving any during the next two years. If they were to raise Interest Rates, the mechanism would be to provide some support to sterling which actually is not what the u. K. Needs. It needs a weaker sterling through this environment. Probably a weaker one with respect to the trade balance. If they are going to sit on their hands for two years, there is no in there is no core inflation away from energy basefects from 12 months ago and the collapse in sterling. Youre looking at market based measures below 2 again. Francine thank you so much. Up next, we check in on the markets on a down day for trade here in europe. This is bloomberg. Francine were just getting breaking news on nufg. Mitsubishi chief financial group. We understand according to sources familiar with the matter they are considering that the group as a whole is considering shrinking its workforce by 10,000 positions over 10 years. This is because of low Interest Rates and intensifying competition squeezing profits. This would be a measure to counter some of the tough environment we see not only for them but the banks previously they seeked to eliminate some 3,500 full time roles. They seem to be deepening their reductions. Now a check on your markets with mark barton. Rk core p. C. , the preferred inflation gauge above 2 . That is combreenspan and bernanke and yellen. You can see with greenspan, yellen averaging 1. 53 plowing on with her rate hike hoping that the strength of the labor market will previll over the recent week. Inflation, 10year torre yield. Volatility in parts of the bond market is getting some investors taking it as a warning sign. Falling to the lowest level since november. Ahead of the b. O. E. , this is u. K. C. P. I. Inflation. Basic wage growth blue line. R. P. I. Yearonyear. The yellow line, wages, below inflation. That is the backdrop of todays b. O. E. You showed this chart a little earlier. No rate hike this decade. Thats how i take away it has a 35 probability of a rate hike by the end of next year but french says dont go there. End of the decade. Francine there you go. End of the decade. Well get back to you, french. Up next, the latest in the investigation by special Council Robert muller. Details next. This is bloomberg. Straight to the bloomberg first word news. Fed after raising Interest Rates for the second time this year, voice after he and for others were were were wounded in the shooting yesterday. He remains in a Critical Condition after the attack at a baseball practice in virginia. Five crews have worked through the night and killed at least all people. Officials have warned that the number of technologies will almost certainly rise. Georgia bank has outlined a new structure for its corporate and banking division. The german lender also revealed details of responsibilities between marcus shank and martin ritchie. Make thechancellor year. Or new branch later his move reflects Prime Minister teresas maze failure to win support for immigration. This is bloomberg. Thank you this is what we are seeing in terms of retail sales. This is the one you want to look at. Year overk at the year, it is far over estimates. This is significant because it comes almost 10 days after we had the treaty. Were waiting to try to see a fellow hammond has a blueprint for the economy. Now on to the u. S. Willpecial counsel investigate whether donald trump tried to slow the probe. What get more with kathleen in thestill with us studio. Great to speak to you again. Quite a week. How serious is this now . I think it takes this investigation to the next level. What we learn from james comey is that trump really wanted to know people he one of people to know he was not the focus of the investigation. Now is thatearning trump is a focus of the investigation. That his actions are being looked at by the special counsel and that could have dramatic repercussions for the future of his presidency. Doing no what point he became under investigation . Theres a lot more we need to know and find out, but i think from what we know so far is that it sounds like trump became part of the investigation after the firing of james comey. I would not be surprised that some of his Public Comments when he went on tv and said that he fired comey because of the russian thing, that might have been what spurred it, but we dont know yet. That is when i think the focus shifted to him. Papers on with these leaks. They are only allegations for the moment. Closedre still in the phase. There are different pieces. Inhave these probes going on capitol hill. This most recent relevance and has more to do with the special probes. Or than the it would be more likely to assume that congressional probes will be looking into trumps conduct. Does it translate into your world or is it just politics . Translates to the outlook of the u. S. Economy importantly fortunately the series of headlines diminishes the congress withake him. Specially when it comes to tax reform. He is having to fight political increasing the folks the debt ceiling. Tax reform may have to fall until 2018. Beckford months, we were talking 3 . T yields going up to treasury is saying the World Economy is not as rosy as we think it is committee at the stock market going higher. An investor has to change which one you believe. Just discussing that we have the wage growth back. I think that we are probably heading towards 2 treasury in an environment like this. Theres one thing weve been trying to get to the bottom of. Trumpse allegations hurt couldmp said himself he walk out on fifth avenue and shoot someone in nobody would care. I think there are some truth to that. The tax reform gets push forward, as long as there is nothing huge coming out, he should have the support to get stuff done . That would be the case for midterms. We have a reducing window to push the tax reform. The question is the degree to economy can absorb the Infrastructure Spending he is talking about. Thank you for all thank you all for doing this. Ons bring you uptodate that terrible block fire. Crews have worked overnight. A number of fatalities the block was recently updated at a cost of 10 million pounds. We understand there be an investigation and we will keep said whatairman is behind the move . We will discuss that next. This is bloomberg. This is bloomberg surveillance. The chinese authorities arrest banks to suspend viewings. It is another blow for the groups into the companys operations. More, first of all, why has this reached a dramatic point . Chinese authorities have been looking into Insurance Companies financial durance for quite a while. At 2 00 a. M. , the Company Issued a statement saying their chairman could no longer perform his duties for personal reasons. They do not go on any further than that. At the same time, we were hearing from local reports that the chairman had been attained. Now we are hearing that the chairman was being questioned for socalled Economic Crimes and still very few details. The latest now is chinese authorities are telling banks not to do business. What are they investigating and when will we find out more . It is not entirely clear. The term Economic Crimes is a very nebulous one. It can include offenses from bribery to moneylaundering. What we are hearing is authorities are focusing on the source of funds used to make a number of purchases. It is also part of a broader look into the insurance sectors there is an explosion of policies in the last two years. Last year, they sold 17 billion worth of Life Insurance policies and that was double the year before. The premiums account for over 90 of their total premium revenue stream so the governor government seems concerned about the risk of these short sale policies such as real estate. Whatr, there is no hint of suspected crimes might be, but we are going to be following that. Thank you for the update. We will be bringing you any breaking news. We had a little bit of breaking news over south africa, saying they must be 30 owned. Assetstime, all local must be 26 blackowned. This is something that has been talked about because one of the main people in government was proposing that the minimum level for shareholding should be raised to 30 . They are taking a hit on the back of it. You can see currently the level 12. 73. Im not sure theres much of an impact. Overall, what is your take on south africa . Animosity tomuch get rid of the president that you got rid of the finance manager. Is there anything that can put it back on track. I believe so. We are in a very important political transition. It is deftly higher than that. At the end of the year, we are going to have a very important combination over the next month or so. We know zuma is the front face and very strong section. It is not only about getting rid of the press. How long it will take for this wave to dominate and have the room. I think the same could be true for south africa. Muchid they appreciate so over the past two months. Weve seen a very nice run. It has to do with the inflation story. A bomb story. E of people decided to caps cabinet badshow their fading the news and they continue to buy the bonds. It is going to be very volatile. On this reading up a little bit for the last 10 minutes. Will refuted they lastminute meetings which we were talking about and it has been and limited by numerous resources. How difficult is it to understand who the Underlying Forces behind the economy are . It is difficult, particularly being one of the things i think the consistency is the leadership. It in terms look at of not a stable investment. Heres not a parallels here there is a regional challenge which seems to be a man from south africa. That appears to be shifting. Thank you so much for joining us. , the french press ahead with her plans for normalized policy. Where live from washington next. This is bloomberg. Youre watching bloomberg surveillance. Lets go straight to the risen . Said a disruption traveling through terminals three and five. Flights were forced to leave without checked baggage. Chinese authorities have asked banks to suspend business dealings. According to a person with business with knowledge, began a wideranging probe. He declined to comment on his relationships with the banks. Corporate technologies has received information about the takeover including from amazon. Them a valuation of at least 9 billion. They said an agreement discussions may go no further. Thank you. Janet yellen is betting that the labor market will prevail over the weakness of inflation. After raising Interest Rates, andbank chair played out voice confidence the fed is on course to hit its goal. Now. Ins us how much of this is structural . Janet yellen saying certain Inflation Numbers are she not talking a lot about it. The phillips curve is alive and well in washington. They believe the Unemployment Rate is so low that it has to trigger faster wage growth and faster inflation. At some point, if they dont get ahead of the game, they will be forced to raise more quickly into a higher level. They feel like what they do is prevent. Prudent. Let me bring you over to the bloomberg terminal. This is something you have been looking at with a lot of interest. Why is this chart very very odd. The blue line is going down continuously. We are at 4. 3 unemployment in the United States. Inwas starting to go higher the fed latched onto that, but now it is falling in the Federal Reserve says that is going to reserve reverse. Are we not creating quality jobs in the u. S. . We are creating two different kinds of jobs. A of jobs and we are create jobs and higher paying industries. According to survey evidence we are not being able to fill them. That is one of the key evidence here. That is something that cannot be addressed by Monetary Policy. What are we learn about the Balance Sheet . They came out with a plan yesterday for how they are going to shrink the Balance Sheet. Theyre going to start rolling off securities at a 10 billion per month rate and read that until they get to a 50 billion total after 12 months and then they will leave it on autopilot. They say that will provide a predictable rolloff for global wall street and traders seem to agree. It is not seem to be much price action based on that. What is interesting is they raise the issue yesterday and that suggest they might do it sooner rather than later. Wall street now betting on september. Thank you so much. Continues the next hour. We will bring you an interview with the National Banks president. This is bloomberg. Bets on janet yellen market strength to overcome inflation weakness. Are there risks in the push towards normalization . Philip hammond prepares to set out an alternative to theresa mays vision. Is said to be looking into whether donald trump tried to instruct justice. Is this the most Serious Development yet . Tom, we have a lot of news today. We had disappointing retail sales in the u. K. Tom terrific news as we went off of yesterday. I am fascinated by the low inflation and the United States. Governor karner governor high inflation in the United Kingdom. Francine it is him pointed it is imported. M ports are more expensive because of the weaker pound. Governor carney says he will look through it. It is difficult to find out what he will do in terms of Interest Rates. The special counsel investigating russia election hasin the expanded and probe. Ert mueller appears to be whether trump tried to instruct justice. The third ranking House Republican is in Critical Condition after the shooting at a congressional baseball practice. Scalise ined steve the hospital last night. He was shot in the hip. A 66yearoldas from illinois who posted antirepublican messages on social media. Grlondon, the fire at the enfell tower was finally extinguished. At least 12 people were killed. Authorities believe that number is certain to rise. A group said they complained for years about the risk of a fire. The u. K. Is looking further into political stalemate. Theresa may has been speaking to the dup about supporting the Minority Party in parliament. Senior conservative figures are calling on made to collaborate with rival parties on the brexit process. I am taylor riggs. Tom equities, bonds, currencies, commodities, we saw a Real Movement yesterday. S p futures 13. Dow futures 75. 78 is a huge deal on the 210 spread. Oil gets my attention, grinding lower. The dow, equities impervious to the fed. Bank of england, up we go. Peso, we will talk to jane foley about this. Remarkable mexican peso strength. Francine looking at pound, we are expecting to hear about a softer brexit. Im looking at dollar and crude oil. 44. 71. This is one of the indicators of inflation. Here is where we were precrisis. Here is the crisis, how we go. Down we go. Here is the hope and prayer of upward inflation. Fiveyear,. Fiveyear forward, down we go. This is what chair yellen spoke of yesterday. Governor carney is up here somewhere. I dont know where he is. I want to keep it simple. Francine it is a different kind of inflation. I am looking at inflation in the u. S. We will post this on social media. It seems to be quite structural. This is something we need to watch out for. It has loads of implication. Janet yellen is pressing ahead with plans to normalize Monetary Policy. She also provided details of the plan to shrink its Balance Sheet this year. The size maintaining of our Balance Sheet by reinvesting proceeds and principal payments from agency debt and Mortgage Backed securities. Evolves the economy to beginwe expect implementing a Balance Sheet Normalization Program this year. Francine joining us from washington is michael mckee. What did we learn from janet yellen . Y are hanging on for hanging on to their credibility or they believe inflation will creep up . The most interesting th ing she said about the Balance Sheet was this year. 2017, a lotetime in of people think because of the timing of their plan, this could start as early as september. Beliefey do this, their is they will not affect Interest Rates at all. Like watching paint dry, she says. It could substitute for raising Interest Rates in september. Goingre is Something Else on in washington like a debt ceiling crisis or government shutdown. Francine it is unusual to have falling and rate inflation also falling. Is the u. S. Creating good jobs . Michael we are creating a lot but we arege jobs, also creating high wage, high skill jobs. There are a lot of openings in those high skilled jobs. We are creating the jobs, but not finding the workers. Janet yellen talked about the need for additional trading additional training, problems Monetary Policy cannot solve. Tom i thought you were great in the press conference. Coming to june 30, this is the first conversation of the future of chair yellen and who is going to be the fed chairman in 2000 18. What did you learn yesterday about her future . Michael nothing. She was asked about it because there are stories starting to appear that the white house is beginning to think about who will be fed chair next year. They have not said what they are thinking. Touted as as been possible replacement. He said we are not thinking about that. Beginning toey are search. They have to have a new chair by the first of february next year. Janet yellen is a possibility, but during the campaign, donald trump said he would possibly pick someone else. Chair yellen is focused on the combined the cell phone bill when it comes to transitory inflation. What transitory inflation is to chair yellen. Michael to you and me and people on trading desks, it is inflation or disinflation that comes and goes. To the fed, it is the normal state of affairs. You look at a chart of inflation,t and unemployment continues to go lower. You are supposed to see inflation rise as that happens. This rolloverg and Consumer Price inflation that is not supposed to happen. The fed insists it will turn around and they have to get ahead of it. If it turns around, they think it might come to fast and that means they are behind the curve and have to raise more faster. Francis thank you. Oneare you paying more than phone bill . Tom i am too nice to my kids. I collect cell phone bills. Joining us now, reinhardt gruber. What does this mean compared to . Is janet yellen right that this will change, or is she relying on the chaired ability of the charity of the fed . Inflation is subdued. It is a global phenomenon. This is one thing mario draghi has stressed consistently over quarters. Ouple of he says underlying inflation requires the ecb to maintain an monetarynary degree of. We believe the ecb should move gradually towards normalization. Tom we had wonderful guests and froman Stanley Eaton vance sharply divided on whether we will see rising inflation. Global or is that the same debate in the United Kingdom . The same debate in germany and china . Reinhard has had more of a disinflationary momentum. The next question is whether output gaps matter as much as we thought. The third thing, and powerful, labor markets. Given the tightness of the labor market according to our traditional measures, we are surprised we dont he more wage growth. We have to ask whether the measures of labor market tightness that we look at are perhaps not comprehensive enough. This is one conclusion we see, that perhaps labor markets are not quite as tight as we thought because there are more people ,hat are parttime employees selfemployed, who would like to number of hours they work, but there are other reasons as well. Labor market flag is not as narrow as we expect. Francis thank you. Reinhard cluse stays with us. We will interview robert jordan. We will ask him about the swiss franc. This is bloomberg. Taylor lets get the Bloomberg Business flash. Is overhauling its investment and banking division. Deutsche bank will create a separate business for its debt and capital leverage. The banks unveiled how the coheads will split up their responsibilities. There are more problems for chinas insurance group. Authorities have asked banks to suspend business dealings with the company. They sold 80 of their premiums through banks last year. That is your Bloomberg Business flash. Francine with just four days until the start of the brexit, theresa may is seeking a deal to prop up her minority government. Slowinghave to balance u. K. Growth with inflation. May is coming under pressure from Philip Hammond and others to deliver and others to deliver a softer brexit. Lets bring back reinhard cluse. This country has to decide what kind of brexit at wants. They look at political pressures , or they simply look at the inflation forecast economics . Reinhard the idea of the but bringing this together is difficult in the current circumstances politically, both in the u. K. And with europe. The twoyear negotiation period for the brexit is short. This is a complicated divorce. , sinceck is ticking march. We only have 18 months for the negotiation to conclude. This into this short period, with the renewed uncertainty, it is very difficult. Francine what does it mean for mark carney and the boe . Starts they may do something. Let me show you this bloomberg chart that shows the probability of the boe rate increase falling dramatically. Quarterlyin may, Inflation Report was issued. We saw a confident bank of england regarding growth and inflation outlook. Christine forbes voted for a rate hike. May, we havend seen gdp numbers disappointing. Business confidence and confidence indicators have declined. There has been a loss of house of purchase power. We see a sharp rise in inflation. That makes the situation for mark carney difficult. The uncertainty in the current environment is too high to draw strong conclusion, particularly against the background of the political environment. Why the next time the bank meets, the third of august, when they have to issue a quarterly Inflation Report, i can imagine the bank of england will have turned more cautious. Ubs,would be in line with we expect the u. K. Economy to slow down and that will have an impact on Monetary Policy. Optimal levelhe for Governor Carney of pound sterling . Does he need a weaker or stable pound . Reinhard we need less uncertainty. That a weaker currency might be good for , good for creating exports, but in the carney environment, where inflation shows up a lot and investors are uncertain and perhaps the households and corporations are uncertain, if we see further declines in sterling, that might not be good for confidence. Tom thank you. We will continue. In our next hour, this will be fantastic. Inflation, what we have seen in the last way for hours at the fed. Looking forward to speaking to James Sweeney. He says do not worry about deflation. This is bloomberg. Francine this is bloomberg surveillance. The counsel investigating russians interference in the 2016 election will investigate whether donald trump tried to slow the probe into michael flynn. Lets get more with kathleen hunter. Still with us, reinhard cluse. How serious is this . This takes the investigation to the next level. We knew there was an investigation into trumps associates and their ties to russia. It seems be president as a focus of the investigation. That is precisely the thing he fbi director comey to make sure was not the case. Francine what happens next. The investigation of the pro goes behind closed doors. Goesat the of the probe behind closed doors. Is that still the case. We have a special prosecutor leaving the Justice Department investigation and both are happening in secret. We are only getting the information we are getting through leaks from various officials who are willing to talk about it. It is a criminal investigation where the president is treated differently, how is the president treated differently . The sitting president cannot be indicted on an obstruction charge. Would be potentially, depending on what the investigation found, there could be a role for congress. Is the chargesen would not be filed until after they left office. It would be a role for congress to perhaps look at impeachment, but we are a long way from there. Francis thank you so much. Coming up we are talking to james foley. I will have a couple of questions on euro swissie. We will talk to the governor of the Swiss National bank. 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. The president of russia answering questions. He does this annually. To fourally last three hours. It started about 24 minutes ago. These are some of the questions he answered so far. Crimea andd about possible u. S. Sanctions against russia. He says he does not see a reason for the u. S. To tighten sanctions. On the russian economy, he says it is growing. I wonder if he will talk about women. Hesaid to oliver stone that does not have bad days because he is not a woman. Tom it was hilarious how she just told that guide to sit down. I think this is stagemanaged. Francine it is. We have reports that the participants are called ahead of time and they are asked not to drink the night before they are due to ask questions. You can follow the actions on the bloomberg using live go. Lets get to taylor riggs. Taylor Robert Muellers investigation into meddling in the election has taken a turn. Mueller appears to be looking into whether trump tried to obstruct justice. The issue, whether the president people to back off the investigation into michael flynn. Philip hammond will push for a pragmatic brexit. That would be a deal that focuses on Economic Growth and protection jobs. That reflects theresa mays ure to it gives them the power to monitor and arrest people in the planning stages of crime. The measure is needed to increase counterterror protection before the 2020 tokyo olympics. Expensive and most Aircraft Carrier in the u. S. Navy fleet has problems. The u. S. Gerald ford the uss gerald ford has problems launching jets from its deck and catching them. Has been fixed, but the launch of system cannot handle jets with extra fuel tanks. I am taylor riggs. This is bloomberg. To get up a good time to speed on a set of currency pairs. And is a good time to speak to jane foley. She joins us. There has been an grind to the mexican peso. The trump election, up we go. Eaker peso. Hat a reversal three standard deviation move on stronger peso. That is huge. Is it just about the president . Is a spectacular move over the last few months. Niceweek there has been points for mexico, specifically. This is partly political. Ofhad a governor represent the governor earned the governing party, that was seen as a positive. The fact there was a deal between mexico and the u. S. Ahead ofe a precursor the renegotiation and that is a risk for the mexican peso. That negotiation is due to start august or september. Tom lets go to the swiss franc. Thomas speak with jordan. The swiss franc has been stronger. Jane it has. Japanese yen. The on paper, the swiss franc has the best fundamentals, but the japanese yen is used as a safe haven because they swiss bank is that theyy threats will use intervention if necessary and because some of the threats regarding north korea, etc. , but perhaps, the yen is a better medium. Franc needs if it is to weaken as a stronger euro zone economy. We have been seeing those signs this year. Ultimately, that should lead to a weaker swiss franc. Mummy me ask you about british pounds. Let me ask you about british pounds. Are more bearish on the pound than any other currency. What are they worried about . There is a horrible dynamic here. There is political uncertainty, but you look at the economy, it is looking as if it could weaken noticeably. Look at the data this week. There are really high inflations, much weaker than expected earnings. We have very weak retail sales. People do not have the ability to increase their consumption with savings because they dont have very many and they cannot borrow because they are borrowed up to the hilt. For now, the idea is sterling is getting a bit of support. We dont know which direction that is going to go. Sterling is looking vulnerable. What about euro, euro dollar or euroyen. It is going to get more quiet. Is that it for volatility . Jane perhaps we will see jittery, but narrow ranges. If you look at the euro, that has been supported. Consistent with the u. K. , or the u. S. , australia, Wage Inflation is still low. Strongbably wont get a level of demand, or demand inside inflation. That is likely to keep the ecb on the dovish side. You have had a big run in recent months, but it might be difficult in the next few months to get more momentum. Maybe we have to wait until the end of the year to get more momentum on the eurodollar. Francis thank you, jane foley. ,e are back with reinhard cluse of ubs. Does the moving currencies reflect the strength of an economy, or are they more traded . Reinhard for the euro and the appreciation we have seen, that reflects strength of the underlying economy. Businessreater confidence and household confidence is also driven by Political Risk, the perception of Political Risk and this has declined as a result of the outcome of the elections in france and the netherlands. The momentum in the euro zone economy is encouraging and it justifies a stronger euro. Likely to continue over the next couple of quarters. Tom june 20 fifth, june 26, weo early july last year, have flows of money into the United Kingdom. Looking at the financial flows as well, give us an update. 97 by the end of next year. It will be depreciation of sterling. We think it is driven by the brexit process. We think it is driven by the multiyear processes and the adjustment in the british account will have to undergo. Francine thank you. Reinhard cluse stays with us. Coming up, we will have a little of thee detail on some inflation forecast mark carney needs to get used to. This is bloomberg. A we had a bit of breaking news out of south africa. It is having an impact on a lot minersminors present present in south africa. 30 shareholding must be topped off within 12 months. They have a new role that the 30 s month mines must be owned. Understand is it requires the annual turnover to go to local communities. Will keep an eye on mining globally. New details on of Deutsche Bank this morning. Announcing theer creation of a separate business for its equity debt and market operations. For more, lets bring in Michael Moore. Great to have you on the program. What did we learn . A little about how Garth Ritchie and Marcus Schenck are going to structure the Investment Bank at Deutsche Bank and how they will split up the roles. Unusual in that they are coheads, but marcus cohead of also the the firm. They will stick to the areas of expertise. You have that kind of cohead structure and they are setting up this team to merge the underwriting groups as part of this push to have more of a corporate focus as opposed to the financial institutions. Francine does this make sense to investors or are they taking it as a sign of trouble ahead . It is relatively minor. It is seen as in line with a strategy that they laid out to focus on the german corporate and tried to scale back the trading business. Is fascinating, buried in the article is the reality you have to retain the rainmakers. John cryan wants simplicity. He wants longterm compensation. Never worked. How will they keep and retain the rainmakers at Deutsche Bank . That has been their challenge of the last couple of years. Little by thed a overall market for talent has been subdued, some of the firms struggling, as well. People on board with the strategy and show there is a path to growth here. That is what employers are looking for, and what the investors are looking for. They want to see some signs. Tom here is the failed model of Deutsche Bank. Know is the to upper left to the upper right. They have to take out 700 million in cost us. Bank of america was out with enother amount of costs tak out. It is about costcutting. Costcutting is going to continue. Bank gave it Retention Bonuses to top performers, but that was only 15 to 20 of the people. They need the stock to rebound to make those awards worth sticking around for. Tom what is the bank comparison that john cryan wants to get to . Michaels on the show, moore, john cryan was on. Which bank does he want to be like . Dont tell me it is barclays. That is a tough one. It is in a unique position as this National Champion of germany and says it wants to reinvest in its german ties. It is a unique spot. Tom is doing his best to get michael fired live on set. Talk to me about the linkage between the economy and the bank. Have we severed the link . If you asked me to or three years ago why is there a not credit growth, i would say it is enough for the supply and demand. That was the key issue a couple of years ago. We have seen too many setbacks and that makes corporate hesitant to invest and borrow. Many corporations are actually casts cashrich. The deleveraging has run its course. Is recovery in europe if it continues, we have a good chance at the lending picking up. Francine you can listen to all of our analysis. There is Michael Moore answering questions on whether deutsche barclays. You can grab a lot of the charts tom does. You can also ask our guests a direct question. Taylor lets get the Bloomberg Business flash. Steve mnuchin wants scrutiny of Chinese Investments in the u. S. According to Administration Officials. Russia, north korea, and iran would be on the list. Amazon is one of the Tech Companies that has inquired about a corporate takeover of. It would give a valuation of at least 9 billion. Amazon and slack are not commenting. Consumers held on to their wallets in may. Sales cells retail fell for a second time. Rising inflation in the u. K. Has hurt purchasing power. Francine eurozone finance ministers will meet to reach a deal on ways to ease greeces debt loads. This would close a key chapter in their bailout drama. A resolution would unlock the aid theg for financial country needs to repay bonds. I am partly board by greece because it seems like we have been talking about nothing else. Is it important to get a resolution . It is important. This has wait on business confidence. Between sixo pay and seven billion. The incentives are aligned on both sides. At the moment, what needs to happen is to find a facesaving deal for all involved. Over the late summer and fall, there will be no new discussions about debt sustainability, which might allow the ecb to start buying greek. Frans question there. s this is greece this is greeces real gdp. It has flatlined back to where was in 2000. Is there a media see to get this fixed . I do not see it. It is a question of two parts. The shortterm debt reductions are coming up. They will have to be fixed and dealt with. The medium and longerterm recovery is different. Good decisions have been taken over the last couple of years. The longterm structural will be a longs process. This will require time. The important once the important decisions have been dealt with, we will move forward. A cramdown,see where people who hold the debt will finally mark a loss on their Balance Sheets . There would be no reduction. Wheres why we are working Interest Rates would be cut and the maturities of the loans will be further increased. That is the kind of adjustment are lucky to get. You should remind yourself most of the debt is held by creditors, the ecb, imf, and the losses on private creditors is not the key issue. Tom thank you. Jamesr wonderful hour of sweeney and david wu. Tom this morning, President Trump is being investigated for obstruction of justice. President s Attorney Says the leak is outrageous, inexcusable, illegal. Ther yellen speaks, is dearth of inflation transitory or more permanent. The second baseman from louisiana lies in Critical Condition in a washington hospital. This is bloomberg surveillance from our worldwide headquarters in new york. Francine, the news flow has been extraordinary. You have a new date on your calendar and london. Francine this is the queens speech moved to the 21st of june. The speeches written by the government and presents an outline of its planned legislation for the next parliamentary session. Delayedstand it was because the postelection talks between the conservatives and the dup will take longer than expected. Does the king or queen treat all Prime Ministers the same . Francine of course. They should. I have been told by insiders that the queen looks after the with words of advice, but the king or queen or neutral. Tom we have a great hour for you, the boe meeting today. News,now with first word taylor riggs. The special counsel investigating has now expanded the scope of its probe. Robert mueller appears to be examining whether President Trump tried to obstruct justice. Two topinterviewed intelligence officials whether the fbi asked them to back off the investigation. Steve scalise is in Critical Condition. This is him in the hospital last night. The attacker was a 66yearold from illinois who had posted antirepublican messages on social media. At the 27th story london tower was extinguished a fire broke out. 12 people were killed, and authorities dont expect to find any more survivors. Group said it complained for years about the risk of fire. The u. K. s flipping into political stalemate. Theresa may has been speaking dup about supporting the conservative party. Senior conservative figures are calling on may to collaborate with rival parties on the brexit process. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Datalets get through the right away. Futures 15 dow futures 70, curve flattening, and huge number for 210 spread showing how different dynamics are from the u. K. , oil cant find the bid. Next screen, mexican peso. Francine . Francine im going to skim through my data check. We had something quite costs ofnt, the human the qatari crisis after they were isolated by saudi and their alliance. The crisis mediators say they expect a proposal soon. Standoff thehe escalating at touch and may have an impact on european stocks worldwide. On the backat pound of these negotiations with the dup. Tom yesterday was an extraordinary day with the horrific fire and london and the shootings in virginia. Led much of our coverage there. He joins us again. With the news flow in washington, we move right on. How will the white house respond to the mueller of structure and of justice search, if you will . They cant do it with just one personal attorney, can they . No. Swinging,house pushing back against this report that said the investigation and the probe into the white house is now including whether or not the president did obstructed justice. A lot of folks who assume as much. In terms of new details, there isnt anything new there. The white house says already been organizing a response to this from when mr. Comey testified last week, and they on that testimony and there is not enough evidence to say this is obstruction of justice. Tom how would you painted the molar process . Is this a wide floor in some obscure in washington with 400 lawyers grinding away and Robert Redford and Dustin Hoffman come in to save the day . What is the actual reality of mr. Muellers daytoday existence . Are continuing to pick away. They have begun to assemble their team, but there is increasing pressure from the white house and Senate Republicans and democrats as asl to move this along, not quickly as possible, but as efficient as possible. Tom we still have the congressman from louisiana and Critical Condition. Stephen carter, one of our great legal and professorial mines at harvard, both sides might usefully learn a lesson of Justice Marshall who was able to fight unceasingly for what he believed to be right while remaining civil towards the other side. Today, never a hand of compromise, never a whisper of sympathy for those it is easier to call names. What will be the reality for the senate in the coming days . Kevin i have covered congress for fivesix years and have not seen anything like yesterday. Feltone we spoke with, you why they call capitol hill a campus. There is a lot of support for the majority whip sky lease, and later tonight at the baseball game, i think they will feel that way. Scalise, andp sk later tonight at the baseball game, i think they will feel that way. Tom ever core isi, senior , livingl strategist near the baseball diamonds of the shootings and gave us an important perspective on alexandria. Wonderful to join us again today. Will you walk your kids to school today . It is kind of you to have me again, and thank you. No, they are out of school, but torove my daughter yesterday a summer camp at the school of little after the shooting happened. She will be driven again this morning. That is usual. Somethingsual is different in terms of the political process in washington centered on the senate and the health care. How urgent is it that mr. Mcconnell be more transparent with the health care process . Is as a former senior congressional staffer inside the process and outside, i think this is much more a political kerfuffle than anything substantive. It is not unusual at all. It is quite usual for people to make additional drafts of a bill. Those informally scored so you have some idea of which are Economic Impact might be, but the republicans promise not only a public unveiling, but a public process on the senate floor in which democrats can offer and men mens as they choose. Bottom line is both republicans and democrats will have every opportunity to evaluate this legislation and propose changes to it, so this is not some sort of secret process at all. Therene we understand are allegations that donald trump is under investigation for potential obstruction of justice. Hes that change the way that approaches health care at all . No, i dont think so. Good morning, francine. It does not change health care because that is pretty far down the track. What they are trying to figure out is exactly what kind of changes they want to make and where the votes are and that sort of thing. That does not change at all. Any backandforth with the Trump White House is being done with secretary price and other officials who have nothing to do with that investigation at all. As far as the obstruction anyone iss, i doubt surprised by this. Anyone who saw the lester holt interview would understand the president s motivations would be scrutinized because there is inconsistent information about what they are. Have a better day than yesterday. Evercore isi in washington. James sweeney from Credit Suisse , and columbia university, right now in the green room banking for tenure. David wu on inflation, next. Lane taylor riggs. Over bowling corporate and Investment Banking division. Will create a separate business for equities and leverage Capital Markets operations. How coheadsveiled was split up responsibilities. More problems for chinas anbang insurance group. Chairman has been detained in the midst of a police investigation. That is your Bloomberg Business flash. Todays word is transitory, at least it was in the press conference yesterday with chair yellen. Years, the view out five one of approximation of where inflation will be, and the is here is normal, the advent of the crisis, down we go, and joy to the world for chair yellen and vice chairman fisher, rising Inflation Expectations. Is it permanent or transitory . All you need to know is getting to really a cute mines to topic, is important talk kic James Sweeney and david woo. Thrilled to have both of you here. Let me start with the. Of transitory versus permanent. What is the difference, James Sweeney, between transitory and embedded inflation . There is an underlying not necessarily observable transient inflation thoughts of the a little below 2 in the United States. When ever you have any relative price come any part of the price index move significantly, you are likely to leave that 2 and return to it slowly over time. Old hands, stoics, when they look at inflations look at the numbers see a move away from 2 and say it will get back to 2 , to that underlying level, and that is how janet yellen and the fomc seem to be looking at the current draw. I thought of you yesterday when this came up. Are we talking about a regime change to lower inflation where everything will be set lower, including potential gdp, or du have an optimism that within a global stance the chair yellen can get inflation be permanently higher . I was taken aback by the statement yesterday. Honestly, i think they were much too blase in the face of weak u. S. Data. They say the labor market is yet 120,000 is the lowest since those pace of growth since 2012. They said investment is expanding, but core durable goods is down every single month in the last three months. Are they paying that much attention to inflation or two asset Price Inflation . A focus onres s the nasdaq. Tom the chief economist at Credit Suisse were to stand up and say there is no deflation could you say to chair yellen forget about this inflation and inflation will get to a good level or do agree with dr. Woo that there is no issue here . We have a think significant issue of declining inflation. I think yellen is right. Basically the economy is fine. Yesterday, we have two guess who were polar apart on this debate. There was a heated difference. Chiefne i had a economist on saint Janet Yellens case is wrong, but the credibility of the fed that relies on sticking to what they said in the past, do you refute that completely . So what iss noisy, the underlying strength of the u. S. Economy at this point . The labor market continues to grow, labor income continues to rise. Labor income has been slower than it has been in the last tailwinds from Falling Energy prices is less than a couple of years ago, and it is true we have had a rise in car sales and a slowdown recently, but basically the broad stretch of labor data, job openings going up, labor rate trending down, people have more money in their Bank Accounts and are spending it. , but it is not bad. I think its reasonable not to overreact to every wobble in inflation. It is puzzling that it is not just the hard data inflation, we have had a number of surveys come off recently that i cant quite explain come as so i think it is worth continuing to track that. My bet is that these things will bounce back in the fed is doing the right thing. Francine can you explain it . The concern amongst a certain , cannot explain why unemployment is going down but inflation is going down with it . Personally, i think in the u. S. The labor market has been. Riven by aging as americans get older, they are spending money differently. More anders are eating restaurants, going on vacation, require health care, so create more jobs for laborintensive sectors like waiters, hotel bell boys, nurses. These are lowpaying jobs. With the market what doesnt understand is the fiscal policy outlook rather than the Monetary Policy outlook. Every client is telling me the same thing, without tax reform, everybody is sitting on their hands. This is why companies are withholding major decisions and investment until there is more clarity on tax reform. The uncertainty around tax reform is acting as a dampener on gdp growth. Much. Ne thank you so david woo of bank of america and James Sweeney of Credit Suisse. Coming up, we talk about negative rates, pensioners. This is bloomberg. Tom good morning everyone. Frommberg surveillance new york and london. I know that journalism is changing each and every day. Are that iconic issues like business week will change. Change, aannounce a new beast for a modern journalistic age. In fights with John Mickelthwait over the restructure of this magazine. Magazinee taken the and want to move it to the times we live in. A more serious time, and we want the quality of the journalism to shine through. Addedmade it cleaner, digital products, apps, websites, new journalism. Me a sense of what we can look for two in the first issue of the relaunch. With time an interview cook. He talks about his relationship with donald trump, how he is dealing with the administration, the things they agree on and dont agree on. We have an investigation into the use of toxic chemicals in the chip industry. It is full of unbelievable journalism. Tom you sell the magazine doortodoor here. Dont do that. You have tim cook on the cover. One thing with tim cook is comparing his legacy to steve jobs. He is most interesting when he is talking candidly about himself. Jobs vision and dream was apple. Appleher thing he says, has never been about being first, but about being passed come as they try to break into the home speaker market. You should put mr. Mueller on the cover. We have a great graphic in the new issue. Tom thank you so much with the reintroduction in the modern day of journalism, Bloomberg Businessweek. Look for that out today. We continue with James Sweeney and david woo. This is bloomberg. Vladimir putin is going through a live questionandanswer session with an audience meant to last for hours or five hours and talking about sanctions, saying that, if sanctions against russia are lifted, they must follow or we must follow, they should give Something Back is what he means to say. They talk about inflation and crimea. He says they are not trying to interfere in ukraine. I do not know how many people will believe him but he says we have many friends in ukraine. Bloomberg users can follow the action on the bloomberg using live go and we will bring you breaking news from the president of russia. Lets get to the first word news with taylor riggs. Special counsel robert s investigation has taken a turn according to people familiar with the matter, he appears to be looking at whether President Trump try to obstruct justice and he will interview top u. S. Of a 2 intelligence officials about whether the president trying to get the fbi to back off an investigation into an michael flynn. Treasury officials, Philip Hammond will push for a pragmatic brexit which would be a deal that focuses on Economic Growth and protecting jobs and reflects theresa mays failures to win votes by making immigration control a priority. The japanese Prime Minister at boost prosecutor surveillance power and they have power to monitor and arrest people in the planning stages of crimes. The japanese government say it is needed to increase counterterror protection before the 2020 tokyo olympics. The newest and most expensive Aircraft Carrier in the u. S. Navy has problems. Hasuss gerald ford difficulty launching jets and catching them when they return. The system used to help airplanes land has tripled in cost, almost 1 billion in the navy says it has been fixed but the large system cannot handle jets with extra fuel sex. Fuel tanks. Global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. This is bloomberg. Francine time for the morning must listen and the Swiss National bank has kept Interest Rates on hold with record lows, citing strong currency and an absence of price pressure. Matt miller has more. The economy is only growing at 1. 1 , below expectations and weaker than many other countries. ,f you look at all indicators models that evaluate, we see that the swiss franc is significantly overvalued, the base for our judgment. Matt what can you do to curb that overvaluation . Our further rate cuts on the table that are further rate cuts on the table . We drop exclude them, we look at the Economic Situation and we evaluate everything to see what. Nstruments we should take for the time being, we stick to our Monetary Policy with negative Interest Rates of minus zero point and our willingness to intervene. More can youh intervene in Foreign Exchange markets, already the Third Largest of Foreign Exchange reserves in the world with a Balance Sheet 120 gdp. How much further can you go in that direction . Always costbenefit analysis and as long as we are convinced we have to influence monetary conditions through intervention or a combination of negative Interest Rates and intervention, we are willing to do that. Francine back with James Sweeney and david woo. Talk to me about what the Swiss National bank is facing. Interest rates unchanged but they are saying they have to trim inflation forecasts. The same time of inflation a problem in europe and in the u. S. . Different in switzerland because they have always had trouble getting inflation up. They currency acts as a safe haven around the world, so there are special forces, a small economy. This 75 basis points for shortterm rates is strange but you are in the middle of the euro area, which itself has these negative rates. One of the big events coming up later this year is possible guidance by the ecb about how change their Quantitative Easing Program and perhaps move towards zero rates. As the fed and limits tighter Monetary Policy and European Growth continues to look pretty good. Maybe tighter policy in the ecb will come and help alleviate some stress is in the s p and changed policy. Right now, switzerland is stuck with the old issue of inflation being too low and they are trying to ride a notion of waves ocean of waves abroad. Francine the fed moved and the ecb almost ready to move, when does smb do something . We are in an era of currency war. Look at the swiss governor, centralbankers talking about effects. Without the ecb hiking rates, difficult to see the swiss or swedes normalizing Interest Rates. They are held hostage and for the ecb, difficult for them to tighten without the fed going to the next step. They are unlikely to go to the next step without more progress on tax reform. I find it difficult to believe the fed will hike in september or december without major breakthroughs on this tax reform battle in washington. Tom bring up the chart. This is euro swissie and shows morning, the january down it went, stronger swiss franc along a structural swiss franc trent and a flatness and a leveling out. The tencent point, James Sweeney , persistent and chronic negative rates. Can a society like switzerland or others do the chronic nature of negative rates . Switzerland is a special case because you have asset flows which are related. Tom do you agree . Month after month of negative rates, what does that mean for a society . I was recently in switzerland and everybody talked about the fact that there is a rebellion going on in the public because in switzerland you have the defined benefit. You have pinch runners earning 0 earning zero. Ners tom an actual assumption in switzerland and england, european countries, or japan with a negative rate change and that means you have to put more money into the plan mathematically which does not work if the negative rates are chronic, right . In the long run it does not work but where the fx market is, like the governor says, they can keep buying foreign assets. Tom he is the swiss franc, and trouble. Is this plan is basic idea we keep doing it and doing it and doing it . Explosive, becomes socially and we will get to that point because demographically speaking we see aging populations and zero Interest Rate not acceptable for the population. Tom i do not want to get you in trouble with your general counsel, good friends at jackson hole does not talk about the Financial System and the effect of these negative rates and what Thomas Jordan is dealing with but what does it mean for the big banks in europe . That is why it is interesting, look at Credit Conditions for european banks, tighter today than one year ago. That is why i think the ecb will normalize. Until they normalize, difficult for anybody else to normalize because they do not want to see their currency appreciating against europe. Tom we will talk about the bank of england with James Sweeney. We will come back with james and talknd david woo about the Important News from the bank of england at 7 00 a. M. Wall street time this morning. Im daybreak today, the former white house advisor Valerie Jarrett in the 7 00 hour. This is bloomberg surveillance. Treasury secretary Steven Mnuchin wants greater scrutiny and Chinese Investment in the u. S. According to an Administration Official he wants to include china and a group of nations whose companies would be looked at more carefully as they try to buy american corporations. Russia, north korea, and iran would be on the list. Amazon is one of the companies that has inquired about a takeover at a corporate chat room startup. A deal could give them a valuation of 9 billion. Amazon and the start are not commenting. The South African government imposing new regulations on the mining industry, they must be 30 black owned within 12 months and new prospecting rights must be 50 lactone and 1 of Mining Companies annual turnover must go to communities. That is your Bloomberg Business flash. Francine coming up, bloomberg daybreak americas with david westin and Jonathan Ferro. Great to see you, you have a great show for us. Counting down to the bank of england decision whether the economics of brexit collide with the Money Politics of westminster and the bank of england set to keep rates on hold but i am not just looking forward to the bank of england, but the house dinner later when we get that speech from Governor Carney and the chancellor Philip Hammond. That will be more significant than the decision. Say, i haves to been at that dinner a few times and it will be emotional this year after what the United Kingdom and london have put up with, terror and fire. That will be an emotional dinner tonight. Francine . Lets francine lets stick with the bank of england. Fromw york, david woo david bank of america and James Sweeney of Credit Suisse. When you look at the Mansion House speech, is this Philip Hammond trying to get people to focus on a softer brexit . , it think a little bit comes down to your definition of a softer brexit, a lot of people think it is remaining in the eaa. I think the look hammond will look at pragmatic brexit, that is mainly looking to secure a transitional deal for the u. K. In march of 2019, we do not want a cliff edge for business and he will push theresa may to give businesses more certainty. Let me bring you to my terminal chart. Goes throughrs, it the probability of a bank of england rate increase. A simple chart. In the last couple of months, that probability has decreased significantly. Is this because inflation is important, the bank of england can afford to live through it. That is right and the u. K. Is facing a cost push shock with inflation at 2. 9 , all accounted for by the fall in sterling. That is squeezing household real incomes and greeting a headwind for demand. That is what the bank of england will focus on. You throw in the fact that wage growth has been exceptionally weak. Ultimately, you need to wait growth to get inflation targets in the mediumterm. That is why the bank of england will remain on hold today and maybe for a long time. Tom thank you. With us in new york is david woo at david bank of america and James Sweeney of Credit Suisse. We make the charts as we go sometimes and i did not realize what this would be like. The fiveyear break even. Here is the United States with disinflation, the latest move up when chair yellen says this is transitory. This is Governor Carneys headache of higher inflation in the United Kingdom. What is the weapon he has that that becomes a move to the upside . He can raise rates but i do not think he will do that soon because the economic fundamentals are not there. As inflation has been rising. Transitory versus permanent inflation, this is an fx move trigger move higher in inflation. He definition of transitory you do not worry about disinflation. Tom do you agree, david . There has to be a structural moved to foreignexchange at some point. It represents brexit risk as people realize donald trump tom is that a portion of that, is a person permanent . He cannot do anything about brexit. Headline, i a major think they are agreeing with each other. Francine david, id mean they can do anything about brexit . And not start negotiating when the u. K. Makes up its mind about what kind of brexit they want, they can try to figure out how to get to that point. , withitically speaking revitalize the Franco German relationship, i think he will take a more tougher line with respect to the u. K. , the u. K. With theresa may being weekend and the election she will be taking a more extreme position and you are talking about a showdown that will not be pleasant for the market which is why i think sterling has more downside and the bond market is doing what it is doing right now. Francine look at a map of the u. K. , you can imagine it in your head, the problem is that, if the tory party are effectively doing a deal with the dup, the dup wants no border between Northern Ireland and the rest which has in fact he the rest of the eu on the other side. Yes, that will be difficult but the coalition you will have between the dup and the tory party will be difficult. Theresa may is weakend. The foreign of the vote was to strengthen her negotiating end and it is now weaker. You have a strength player influencing a gigantic debate with the entire ed. Ireland eu. Ireland does matter and the border has been a source of a lot of trouble throughout the years. There is chaos. Changes in expect leadership and both parties and some people think there will be another election before long in the u. K. If you are Governor Carney, a Market Participant in the u. K. , you do not know what to expect right now. Even before the election, you did not know what to expect because the europeans will have a negotiating position and you do not know what that is. How aggressive will they be on Financial Services . A lot of uncertainty, and uncertainty shock in the u. K. Focusing on just a little increase in inflation, that is not the big story, the big story is the uncertainty about what is coming up. Tom we will come back for the chart of the day with these good economists. How do you learn more about what we have done in the past . Do that off a trading desk at tv , hugely popular, sweeney and woo live and in realtime or come back to the right and look at a previous segment and steel that logarithmic fiveyear forward chart for your use in your morning meeting. This is bloomberg. Tom bloomberg surveillance from london and new york. A single best jerk, this is gorgeous chart, this is gorgeous, takeout food, take of energy, take out shelter, a massive plunge with disinflation that chair yellen talked about yesterday. David woo, you said it was a cacophony at the press coverage is today, did she get inflation right . Butot good inflation right i do think she was probably more focused on asset Price Inflation. What is happening with tech stocks over the past months can be continued and it does not when volatility collapses to a decade low and you have a bubblelike conditions in markets, you have to it gets out of and. Someone said there is a linkage in inflation and Interest Rate, is that broken . I do not think so, we have low real Interest Rates and what is happening with asset prices. Tom she wants real rates higher. He just said we have asset and lowooking bubbly real rates are the reason. All Monetary Policy cannot be responsive to asset prices day by day, calling highs and lows, you can observe the yields of everything in the world have been pushed down to nothing. You do not want that so get shortterm real rate up and i think that is what theyre doing and the economy is fine, we do not need sharply negative real rates anymore. Francine do you agree with that and what does it mean for distortion in the markets . Dollar andion the the rates have collapsed in the last three months because the markets there is no tax reform is dead, the stock market has been through the roof and a disconnect between the stock market and the fixed income market. Most interesting over the next three or four trading days, how does the stock market reacts to the fact that growth is slowing and the fed is hawkish . Wobbly after what happened last week, that would be a big driver of market. Yesterdayprices fell again and the risky assets will be the at the center of the Financial Market in the next several days. Will migratellen forward and we will get some form of new chairman, do we need a monetary phd as chairman of the fed . History says no. We have had some that were not academics. It has been the practice in recent years and i noticed in recent years, for all the angst about deflation and inflation, we have had safe inflation, pce inflation at 1. 65 percent on average since 1995 with little volatility, not so bad. The time of textbook driven Monetary Policy has not been the disaster it has been purported to be. Tom this has been wonderful, david woo and James Sweeney thank you, the bank of any that in with announcement in three minutes and we will give that to you here in a few moments. Foreignexchange, sterling weaker this morning, this is bloomberg. The bank of england decides Brexit Economics dominate the conversation in the city. Yellen janet expandmueller is said to the probe into whether the president obstructed justice. Good morning. We begin with a bank of england decision. I am Jonathan Ferro alongside david westin. Rates have changed at 0. 25 . Rate at 0. 25 ,t some dissent, though. The details now, it looks like there is a 53 vote, which was a surprise. Two things are happening. You have clear evidence coming through the data. Retail sales came through