Transcripts For BLOOMBERG Bloomberg Surveillance 20170623

European future. We will look back at that result and what has changed as the negotiations finally get underway. Well speak to a member of the house of lords who thinks that brexit want happen. Wont happen. We will also have the director of europol. This is what were getting. A little bit of news in the form of pmi. This is what theyre coming out with. Falling to 54. 7. Below forecast. We were expecting a figure of 56. 8. Its coming in at 57. 3. That is for manufacturing. If you look at the Services June pmi, falling by three percentage points. Seeon to the data to whether we are seeing any impact from that weaker than expected pmi. Overall, Global Equities mixed after we did have some fed speakers saying they will do little to alter projections for the path of Interest Rates. Oil fluctuating. Below 43 a barrel. Out for isould look pound as we try to assess what the brexit vote, the oneyear anniversary, means for the brexit vote and e. U. Nationals living in the u. K. Lets get to first word news. Sebastian the European Central bank has made a play for power. A key issue in brexit talks between the e. U. And the u. K. The central bank wants to change its legal statute to be given a clear legal competence 3 4 of trading in euro denominated interest swaps takes place in britain. In the u. S. , Center Republican leaders have issued a Health Care Proposal. The plan was immediately opposed by a group of four conservative senators, rand paul, ted cruz, ron johnson and mike lee. It could threaten a position passage of the bill. President Trump Obamacare is totally dead. Were putting in a plan today that is going to be negotiated. Some democratave support. But they are obstructionist. We wont get one matter how good it is. Sebastian President Trump has named rudy johnson as ambassador to the u. K. Firm. He ceo o centralrnor of mexicos bank says it is taken the right steps for inflation to reach its 3 target. Speaking as closely to bloomberg after raising borrowing costs for the seventh time in a row. The last months have been good months. We had a rocky year last year. I think that a lot of the correction that has taken place has been the result of policy actions we have taken in the monetary side, on the fiscal side. Throughy, were going dynamics that is consistent with a oneoff weak inflation shock. Global news 24 hours a day powered by 2700 journalists in 120 countries. This is bloomberg. Francine now, the Prime Minister theresa may told e. U. Leaders that almost all 3 million e. U. Citizens in the u. K. Will continue to live there after brexit. Theproposal was met with tepid reception from leaders who stressed that many issues remain unresolved. The state ofabout the negotiations on the u. K. s departure. The first talks have taken place and theresa may clearly said that e. U. Citizens to have been in the u. K. For five years will retain full rights. This is a good start, but there are still many questions. Francine bloombergs matt miller joins us from brussels. Covering this e. U. Summit. First of all, what do we know that is on offer and good morning . Matt good morning to you. We do know that any e. U. Citizens would have been living riti loo at the samea rights in regardsin to health care or in regards to pension. If you have lived there for less than five years and you are an e. U. 27 citizen, you will be able to stay and clock up that time until five years is over and then apply for those same settlement rights. Thereafter, a certain cutoff date, and that is not yet clear, sometime between march 2017 and march 2019, you will be given a twoyear grace period after brexit, and then you will be allowed to apply for some sort of legal resident status, but those are the Broad Strokes or the details we know so far. And the concerns revolve around which rights you will have. U. K. Citizen rights or e. U. Citizen rights because there are some stark differences there. Francine what remains unresolved . We dont know the start date, the cutoff date. When do we find out . Matt that is the key issue. Key sort of the logistical issue. What day is the cutoff day. On mondaynd that out when theresa may gives those details to u. K. Politicians. But, also, will be European Court of justice be able to rule over issues that e. U. 27 citizens have in the u. K. . That is going to be a problem because certainly theresa may does not want that to be the case or she wants them to fall under u. K. Courts jurisdiction. Citizenple, an e. U. Would be able to bring and a spouse or Family Member from outside of the e. U. With no problems. In the u. K. , there are tighter restrictions concern amendment minimum income requirements. So these are some of the discrepancies between the rights of the u. K. Citizen and an e. U. Citizen that need to be resolved. Francine matt miller will be live throughout the day. For joining me now is jeremy stretch. Brexit you have been coveringbrexit. You have been covering brexit. What do we know about how negotiations are going . And, still a year on, actually, we seem to be less clued up. I think there are certainly realization inof that context because, of course, here we are we have had a lot of politicals trees from the e. U. Political posturing. The primet stance by minister the back end of last year. Yet, of course, the election has thrown a lot of that into a great deal of doubt. There is a question as to what u. K. Is isof the this juncture. We have literally just started negotiations 12 months from the vote. That ticking timeclock under the article 50. The abilityess of to facilitate negotiations which will provide any opportunity for favorable trade relationships are being pushed into the middle distance. That causes a great deal of uncertainty in the market. Francine wanted to find out on cable or euro pound . Two obvious issues. In the sense of the go back to when the election was caused in april, sterling was rallying on the presumption that perhaps the harder line elements of the conservative party were expected to be put in a little bit of a degree of check. Now in view of the uncertainties on the political spectrum, that is not the case. We will have to see how the u. K. Stance is going to lay out and the trade relationships may be placed beyond 2019. We have seen the chancellor over the past two days about the need for a transition, avoiding the cliff edge. If there were to be a cliff edge, that would be detrimental for u. K. Expectations. Francine do you look at europound more than cable . That is probably the best way because the dollar leg of the equation has its own uncertainty in relation to the fed. Eurosterling is the way to look at the euro dynamics. We have seen that in the uptick on the righthand side of the chart. Are we done . No, i dont think we are. The 90 pence target is an obvious one from a Strategic Perspective in the near term. We could be there by the end of the summer. Francine is this boe driven more than negotiations with brussels . I do not think the bank of england should be integral to that unless you think that the bank of england is in play. Francine now on the u. S. Senate Republican Leaders have issued their Health Care Proposal aimed to win support from moderate and conservative wings of the party and was opposed by four gop senators that puts the bills passage in jeopardy. At the white house, President Trump says he does not have recordings of his conversation with jim comey. On may 9, President Trump suggested the existence of recordings. In other news, 34 of the largest banks operating in the u. S. Have cleared Federal Reserve stress tests of the ability withstand economic shocks. We heard from Jerome Powell saying that this years results show that even during a severe recession our large banks would remain wellcapitalized. Five ofook at four to these things, what will move the dollar more . Is it the fact that President Trump could be distracted by a lot of these investigations and not do text form or is it fed related . There has been a lot of disappointment thus far because of the lack of pushing forward in terms of the fiscal backdrop. That has been a cause of concern. The facts of the banks pass the stress tests, perhaps that adds to the momentum in terms of bank deregulation. Ultimately, of course, comes back to the fed and the fed dynamics, which are related to the growth trajectory. Everything is inextricably interlinked with the ramifications of the white house and implications on growth. All those factors are melted in together. Francine went of the markets start believing what the fed is telling them, that they will hike three times . Do you think thats never going to happen . I think they are waiting for hard data. All Central Banks should always argued that they act in relation to the data. In a sense, we probably need to see some degree of residual support from the data. I guess the most important dynamic for not just the Federal Reserve but a number of Central Banks is the fact we have seen labor markets strengthening, and Unemployment Rates coming down. We have not seen an increase in wages. The traditional relationship between the phillips curve which yellen Still Believes holds true, we need to see evidence of that. If we saw evidence into the second half of the year, i think markets will start to believe what the fed have been telling us. Francine what is your target for dollar . Jeremy in the context of euro like at higherld because we think the compelling fundamental story is rather more dynamic in europe than in the u. S. Even with the fed hiking, it is still the case that the dollar is not going to get the trajectory it would assume, because we are seeing other Central Banks moving towards number of other currencies rather than necessarily being the dollar. Francine if you d look at the Central Banks Balance Sheet, we goinglot, are to be a lot wiser about when the Balance Sheets will be redressed . The question is do you seriously think the fed is going to unwind the Balance Sheet quickly or is it going to be a slow and progressive process . That is not just a fed story. When we discuss Central Banks, it is going to be a case of it is not going to be reinvesting maturing bonds. That is going to be the way to gradually erod the Balance Sheet. Yellen does not want to see the Balance Sheet reduction being seen as monetary the presumption of very slow and progressive process. Fed holdingsn of are sub five years. Youve already reduced the Balance Sheet steadily. Francine thank you very much. He stays with us. Lets get straight to the Bloomberg Business flash. Hasstian allied irish bank risen as it returns to the market after the state bailout. The government raced 3 billion euros over a 27 stake in the lender. 679 shares valuing irelands secondbiggest lender at 12 billion euros. Britains first new Nuclear Plant in a generation may cost consumers 30 billion pounds and higher electricity costs. Five times more than ministers expected. They urge the government to come up with a plan b for electricity in case of a collapse of the hinckley c project. That is the Bloomberg Business flash. Francine thank you so much. The bank of mexico he says the peso has room to appreciate after the central bank raised borrowing costs for a seventh time. Carsten spoke exclusively to bloomberg. I would say it is not unreasonable. Comment should not be taken as a central bankers forecast or a central bank is objective. Be reasonable if you take into account the strength of the mexican economy. If you take into account, the policies we have undertaken. Also, the reasons that generated the depreciation that was not sustainable. In yes, i mean, think it is the realm of the feasible. Francine jeremy stretch still with us. Look at the peso. Let me bring you to my chart. This has a like to do with the trump administration. Arstench does mr. C have control over his currency . You are absolutely right. That is reflective of the uncertainty in the market and the relationship to trump. That is still an issue to wait to see how that renegotiation process will play out. We have seen a very impressive timing cycle. The bank of mexico is close if not and of the cycle. Clearly, they want to rein in the inflationary pressures of that oneoff adjustment in the currency. It is going to be the case with issuing Political Risk in mexico and also an ending of the tightening cycle that maybe it will be tough to see it moving from these levels. I think it will oscillate at the 18 threshold in the nearterm. Francine what is your call on emerging markets overall . This is partly in inflation story linked to oil. Jeremy in the context of the e. M space, what we argue is that in a Global Economy, there is an opportunity for some of those currencies to do well. The question is, you need to differentiate between those who still have structural issues and those that are looking inflatable. Those that have political uncertainties are in specifichip to commodities, those of be the underperformers. You just need to differentiate in that context. Francine what is your favorite currency . Is currencies are good bet on emerging markets . May be that push throughs the reforms needed . Jeremy you want to look at those that have got reforms on the agenda or those that are structurally trying to push forward. I think there are opportunities in the space. I think its going to be a case of differentiating in terms of that context. Historically, we like india, for example, where there is plenty of room fo Structural Reformsr. Those are t sort of metrics we will be lookingh at. Francine up next, as the Brexit Debate heats up, the ec makes a play for power overb euro clearing. This is bloomberg. Francine you are watching bloomberg surveillance. The European Central bank has made a play for power over the clear the clearing of euro denominated bonds. The central bank seeks to change its legal statue to be legal confidence over clearing. That is what it said today. Lets talk about the ecb. Jeremy, first of all, on euro clearing, is this power struggles . Individual countries want the power to regulate themselves the ecb is saying we should be in charge. Jeremy that will be one of the issues will continue to see on an ongoing basis. In the relationship between the city of london and the euro zone is going to be an integral part of the negotiation process, but other different nations among the 27 have different sensibilities. What make sense if you are going haveve euro clearing to the ecb as a regulator and the way that they have done in terms of the banking sector. In that context, the concentration of power may cause some consternation in some other european capitals. Francine do we have any idea of how it goes or because it is political and we are in the midst of political brexit negotiations, it could go either way . Jeremy that will be one of the issues. We do not quite know how the negotiation process is going to proceed in how much flexibility there may be on either side because, of course, negotiations start from positions being entrenched and one would hope there would be some degree of pragmatism over time but i suspect that pragmatism will take a considerable time to come to the fore. Those positions could become entrenched it we see those headlines that proved to be damaging or at least highly volatile in terms of the ould causeips that w in terms of markets for euro and sterling. Francine when you look at the eurozone, we had weaker than expected pmi. Is it linked to brexit or currency . The trend is on the way up, but unemployed is still stubbornly high. Jeremy in the context of the pmi, you have to put them in some degree of context in terms of the rapid appreciation in the manufacturing sector. We were due for a consolidation. We have been running on an upward trend over the last 89 months. You would expect some degree of consolidation. I would not overplay i t. It is not implicit in suggesting that eurozone momentum is diminishing. I think it is the case that, yes, there are concerns about labor markets but they are showing signs of improvement. There are still reasons to suggest that more Structural Reforms are necessary. Is aware of that. From a functional perspective, the euro zone macro stories encouraging. And we regard the ecb in a position to start the road back on a stimulus and we have been bullish on the euro. Francine because of the election in france, we underestimate the political scene. We have italy, we may have early elections and we do not know which way that will go. Jeremy thats true. Markets have downplayed the risk in europe on a substantive basis is the first round of the french election. The german election has been taken off probably for good reason but nevertheless, there is the elephant in the room in terms of the italian system. We wait to see the timing and the ultimate result of that process. I guess the question from a market perspective is after a number of euro skeptic, that is the only thing that is a common theme. Think it will be a conglomeration of views around other factors, i think that fragmentation of italian politics may reduce the Political Risk in terms of market performance. Francine thank you for joining us. Jeremy stretch. At cibc. Up next, one year on from the e. U. Referendum result, all the latest on the brexit negotiations. We will speak to the founder of and member of the house of lords who thinks brexit may not happen. This is bloomberg. Francine welcome to our weekly brexit show live from bloombergs headquarters in london. Its exactly one year since britain made a decision that shocked its political leaders, amazed its neighbors and panic the markets. As brexit negotiations get underway, we will spend the next half hour discussing what is next for the u. K. In the European Union. But first, heres a quick look back. The british people have made a very clear decision to take a different path. As such, i think the country requires fresh leadership to take it in this direction. Inevitably, there will be a period of adjustment following this result. But, as the Prime Minister said this morning, there will be no initial change in the way our people can travel in the way our goods can move or the way our services can be sold. We need the negotiations to start as soon as possible. We need to start thinking globally about our future and the other thing i think that needs to happen is that june 23 needs to become a National Bank holiday. We will call it independence day. [cheers] francine well, my first guest on today shows Business Leader who says that once people realize the implication of exit the u. K. Will opt to remain. Im very delighted to welcome lord karan bilimoria, the founder of cobra beer, and an independent lawmaker in the house of lords. For joining usch to you have always said that once people realize what exactly brexit entails, there is a way of going back. I speak to a lot of investors saying the markets believe that but it is wishful thinking. Lord bilimoria it is not at all wishful thinking, because what has transpired is people are now beginning to realize the 22nd of february is the key date because that is the date when David Cameron announced the referendum. If you look at where the United Kingdom was at that time, we the the envy of europe, fastestgrowing economy in the western world. We were flying. Then four months later, a year ago today, the world changed for us. Today from being the envy of europe, we are the laughing stock of europe. Look where we are today. We have got inflation six times where it was, from half a percent to over a percent in wage growth. We are now quite apart from nowpe being in mess and europe is going faster than the u. K. People are beginning to realize, hang on, what have we done . If you look at all the polls for quickly after the elections, the people are saying one, we think the economy is important and to markets are important over and above immigration. I was reading a poll, even leavers who put immigration a top priority are reducing the priority and seeing the importance of the economy and the European Union in the markets. Francine ive seen a lot of polls and for me it is not that clear cut. There are still a lot of people saying if there was a second referendum today, which is unclear that there is because no major party said they would try itset out of brexit, unclear the way people would vote. Lord bilimoria the problem is that people keep talking about and people we are good about respecting the democratic vote that took place. Even if a party wins narrowly, they they win. They are about five years and if they do not perform, we throw them out. The difference over here, it was a simple binary vote, stay or leave but not leave on what basis. Now, fastforward a year from already people are changing our minds. The time to respect the will of the people is not last year. Its when there is a deal and then the people say, do we want to leave on this basis . And people might not want to. Francine are there new elections that would form a Labour Government that would ask a second referendum . In terms of timeline, i do not see how this works. Lord bilimoria in simple terms, you can work with literally the government unilaterally withdrawing article 50. People have been misled by the Prime Ministers saying once i put in article 50, there is no turning back. Wrote article 50, and i asked him, he said absolutely we can withdrawal article 50. Macron, has said, leave, please stay on. Johnson the boris only potential Prime Minister that can reverse what we have been through . Have you met a famous person that was asked the wanted to leave that has said, i regret that decision . Lord bilimoria you just heard leavewart the head of the campaign who was saying that the referendum, today was reading, the saying the referendum should not have been held in the way it was. We all know. I call it the retro referendum. Brexit, what i said in my speech in the house of lords yesterday, soon people will wake up and realize that the Brexit Emperor has no clothes. We have the best of both worlds. It is becoming very clear it has to come from the people. Businesses realize already. We know that businesses unanimously, i speak to audiences all around the country. Stay. The hands go up to the people have to realize and e. U. Immigration has benefited this country. It is not a burden. It feels it is still a very divided society and that the leavers have not said we have got this wrong. Lord bilimoria what is happened is the remainers were silenced because the brexiteers were so aggressive. Especially people like ukip. Where is ukip today . It is a joke of a party. Some people believed in Nigel Farages nonsense. The leavers are so aggressive. The remainers lost their voice. After this election, they have regained their voice. The cabinet says the majority of people want to remain. If there was a free vote taken in the house of commons, 44 majority remain. Now its got to come from the public. Francine different polls. We will talk about the polls surely. Thank you so much. He stays with us. We will also be joined by john fraher who oversees all of our government coverage. Now, lets get a round up of a busy week of brexit news. On monday, the u. K. Lost his first battle over the timetable for brexit talks. On day one, Britains David Davis gave in to e. U. Demands to discuss the terms of the divorce, including the exit fee. Before any consideration on the future trade deal. E. U. E same time as the chief negotiator warned of the consequences would be substantial. The queens speech on wednesday was dominated by plans for the u. K. s withdraw from the e. U. Topics from immigration to agricultural outlined in the ceremony to mark the formal opening of parliament. They will supplement the government main brexit initiative, repeal bill decide to transpose all current legislation into british law which takes effect once the exit process is completed in 2019. The u. K. Prime minister has residency rights of European Union citizens currently living in britain. Speaking in brussels, theresa may told her counterparts that almost 3 million e. U. Citizens of the u. K. Will be able to continue living there after brexit. The proposal met a tepid reception from leaders who stressed that many issues remain unresolved. Global news 24 hours a day powered by more than 2700 journalists and analysts in 120 countries. This is bloomberg. Francine thank you. Up next, a busy first week of negotiations. We will talk about what is next for britain and the rest of the e. U. In 10 minutes we will discuss the future of European Security policy in a post brexit world. We will interview the director of your poll. Europol. This is bloomberg. Francine you are watching bloomberg surveillance. A quick check on the markets. Were seeing a moment of weakness and european equities, the stoxx 600, heading for his first monthly decline since january. If you look at the Industry Groups, energy underperforming, down. 5 , despite the fact we are seeing brent higher today. Most Industry Groups in the red. Health care in the red. Health care was leaving the gains yesterday. After that eu. S. Health care bil news about that came out in the u. S. Also, mentioning oil, we are gaining on wti and brent. Gold heading higher for a third day, but oil is heading for a fifth weekly drop after sinking into a bear market this week. So, we are looking at the goldoil spread. At the moment, gold buying you 29 barrels of oil, the spread it is the highest since november. You will see the interplay between the move into the safe haven and the move out of crude. Then, looking at the dollar, the dollar index over five days, it is heading for his best week since the starts of april, despite the weakness today. Whats lifted it overall is some strength at the start of the week on some hawkishness from fed speakers. We will hear from more fed officials today in were hearing from janet yellen next week as well. The dollar3 on index. Finally, sterling up today as well. Gaining currencies are against the dollar. I wanted to show you sterling a year after brexit, remaining well below its prevote peak. The median forecast does see the pound climbing to 1. 31 by next year. About 1. 27 today. Francine now, one year on from the brexit vote and negotiations are underway but with the clock ticking what will the outcome mean for the future of the e. U. And how business of the affected . With this is the lord karan bilimoria, founder of cobra beer and an independent member of the house of lords. You from the believe that once people realize the impact that brexit will have their economy and their jobs, they will want to reverse the process. What about the 52 that voted to leave . Are we looking at a divided society . Lord bilimoria i would say the 52 that voted to leave last year was less year, exactly a year ago today. It is what will they feel, what will people feel like once all the information is there, once a deal is going to be put before the people will of has to be respected at that stage. That is why this referendum should never have taken place. Too simple a choice. It was never leave on what basis. It is only when you present that to the people, are you happy to leave on this basis . Also, a lot of people do not understand things fully. There are more searches about the e. U. The day after the referendum. People are much more informed now. Look at this one big contradiction. You keep hearing brexiteers saying, the reason, one of the main reasons for brexit is britain can go global. We can trade with the rest of the world. We are ready already 65 of our gdp is straight. Here is the contravention. Say, we can trade with the rest of the world in do free trade to deals. One, they also say look at u. S. And india, they trade with the e. U. Theont need to be in single market. How contradictory is that . Heard all of, ive these arteries. Lord bilimoria do you know how many free trade tdeals india has . 1. 25 billion. The fastestgrowing economy in the world. Nine. Secause free trade tdeal are about movement of people. Were not going to get any free trade deals. Francine if this country and the citizens of this country decide that brexit was a mistake, there will be a way of reversing it. I just dont see that. The tory party lost the election you could argue because they did not get a majority but there was no other Party Offering an alternative to brexit. This is accepted as something that will go through and at the moment you are trying to make the best out of it. Lord bilimoria because people have taken an attitude, which is a laudable attitude, we have to respect the democratic decision a year ago. People are realizing that was a democratic decision at that point in time and it is not fair on the people to have to leave on any basis. This Prime Ministers rhetoric of no deal is better than a bad deal is wrong. Francine do you think there should be a referendum on the deal that is negotiated . Lord bilimoria when the time comes, if the time comes, and it may not even get to that, because the feelings, the way Prime Minister has you turned on so many things because of Public Opinion we didnt need a referendum for the Prime Minister in the manifesto pledge about social care to uturn on that. If the public feeling is so strong, we could pull out, pull back article 50. In if the people are happy, we would not need an election or referendum. That is how sen. Wicker be if the public feeling is strong enough. I think people will understand as time goes on, it is better just a in the European Union. If you have an soft brexit were you have to pay money to the European Union and the have the court of justice, movement of people, why not just stay . We have the best of both worlds. Francine mr. Karan bilimoria, the founder of cobra beer. I need about three hours with you. Up next, we interview the director of europol. This is bloomberg. Francine welcome to our weeklyfrancine brexit show live here in london. Lets get around above a busy witeek of news. Sebastian on monday,the u. K. Losses first battle with the e. U. Over the timeline. David davis gave into the discussing the divorce including the exit fee before any consideration to begin on a trade deal. Deal thede queens speech on wednesday was dominated by the plans for the uks withdraw from the e. U. Topics from immigration to agriculture were outlined in the ceremony to mark the formal opening of parliament. They will supplement the governments main brexit initiative, repeal bill designed to transpose all current e. U. Legislation into british law, which will take effect in 2019. U. K. Prime minister has pledged to safeguard residency rights of european citizens living in britain. Speaking last night, theresa may told her counterparts it is almost all 3 million e. U. Citizens in the u. K. Will continue will be able to continue living there after brexit. Tepid reception after leaders said that many issues are main unresolved. This is bloomberg. Much. Ne thank you so lets focus on brexit and the future of europes secured a policy. Could a failure to agree on affectty, the security. We are joined from the netherlands by the director of europol. Rob wainwright. Will britain carry on sharing intelligence with the e. U. Postbrexit . So, yes but that depends on the outcome of article 50 negotiations. But there is an understanding in london and i think it is shared in brussels that the importance of security cooperation, especially right now when we are facing a heightened threat from terrorism and highly challenging Cyber Security attack as the ransomware showed, there is a recognition that all that means we need to Stay Together as close as possible to fight these challenges and security threats. Francine right. How much cooperation is there with the e. U. At the moment and do you think this will be one of the u. K. s Top Priorities when negotiating . Rob theresa may has made it very clear in the letter she sent in march of that initiated the article 50 process, that alongside trade, security is a top line priority for the United Kingdom. The is reciprocated by institution of the European Union. At the moment, to your question, yes, a considerable amount of intelligence being shared through europol and other Police Cooperation mechanisms in the e. U. To keep british citizens safe. But in return, to ensure that britain plays its part in helping to secure a more safer europe as a whole. Francine can the u. K. Remain a member of the european arrest a team that enables the u. K. To eject criminals . Can they remain part of this post brexit, or is it all about political power . Think it is relatively straightforward for the u. K. To remain part of europol, because we have a number of association e. U. Memberith onnon states. It is more challenging and other areas, including the european arrest warrant. There are issues about the jurisdiction of the European Court of justice that would need to be considered. But all of this is open to negotiation. There is an understanding on both sides that we have got to get the right security deal in place for the benefit of europe as a whole. And at this stage, im not, its not possible for me to predict what the outcome of that might be. Course, the u. K. , of has suffered a number of terrorist attacks in recent months. What have you learned from these attacks . Rob i think it illustrates the trench that we have seen in europe over the last two or three years where we have seen a wave of these terrible terrorist atrocities, how dynamic the threat is from a community of thousands of radicalized individuals. Very often people on the fringes securityknown to authorities, and very quickly being converted into a very dangerous radicalized terrorists who commit the kind of attacks we have seen. My learning lesson from this is the importance of intelligence sharing, cooperation across borders to meet what is essentially in International Security threat we face. But also, it is very difficult to stop every attack because of the highly fragmented, randomized way this community is operating across europe at the moment. Francine how important is u. K. Expertise in fighting terrorism . Some of these attacks and cybercrime to the e. U. . Rob the u. K. Is rightly regarded around the world, not just in europe, as a leading player in the security dimension. World leading intelligence capabilities. And expertise in policing as well. And those help to shape the way that youre that europol has developed in recent years pretty use intelligence and a smarter way to better understand the threats we face, to make the right priority decisions about who we go after. So, theres a strong British Legacy throughout the European Security agenda. And there is no reason why that cannot continue, even if the status of the United Kingdom and the European Union changes in the future. Francine how much do you worry about cyberattacks and how much businesses spend to protect themselves against this type of cyberattacks . Ransomware, we were told that what was quite a simple exploit of a aught so many c businesses out. Some global multinationals had failed to take even some basic cybersecurity steps to protect themselves. So, it is a big warning lesson that weve got to get the basics right. Even before we consider the much more aggressive sophisticated attacks that are also out there, especially to the banking institutions. Were working very hard with the Banking Industry bring together senior bankers at europol next week to discuss also how to fight Financial Crime in a betterway, to bring much systemic improvements in the way we can protect the Banking Industry from criminal activity. Francine thank you so much. Rob wainwright from europol. Surveillance continues. Voteine brexit anniversary. A year on, no clear majority and an unclear brexit plan. An olive branch. That nationals can stay in the u. K. Operatinggest banks in the u. S. Fail the fed stress test. Francine lacqua in london. Tom keene in new york. I had a good conversation as we are in the thick of the brexit negotiations. Tom a year ago, i have the clearest memory of where i was takings ago, 6 00 p. M. , dinner at browns hotel in london in the quiet of the city. I will never forget the numbness of london on june 24 after the results came in. Francine after two days it was forgotten. Now, we are even more clueless, possibly, by some accounts of what happens next. Lets get straight to the bloomberg first word news with taylor riggs. Taylor saudi arabia and its demandsave given qatar in a threeweek diplomatic standoff. According to the associated press, they must shut down the al jazeera tv network, cutback ties with iran, and and relations with the muslim brotherhood. Saudi arabia and its allies accuse qatar of supporting terrorism. Denies the charges. The ecb wants the authority to supervise the clearing of eurodenominated financial instruments. Theon dominates most of euroclearing business, the brexit could change that. Senate republicans have roadblocks in thousand a lot awaited plan to repeal obamacare. Have come out against the proposal. They say that they plan to negotiate. The senate plan largely resembles the house version which includes big cuts to medicaid for the poor and disabled, and tax cuts for the wealthy. A billionaire bond investor protects people will win out on the industry of humans versus machines. He doesnt believe machines will take over finance. He calls roboadvisors a dangerous bet. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Tom a friday data check. On the screen, theres not that much going on. Oil is up . 40 to . 50 from where it was. Nymex crude 42. 93. It will be interesting where that settles out in the weekend. Francine i am looking at pound. Im looking at is the difference between table and the euro pound. Is up a touch, but below 43. Tom i want to bring up this chart, i hope to have the right chart. This is u. S. Confidence with the good times of the late 1990s over to the left. Radio, all you need to know the collapse in confidence for 2009. The major messages we have recovered to 2000 and six. We have not recovered to the good terms 1999. That is a nice feel for the optimism in the next hour. Francine i wanted to look at something brexit related because of negotiations and because theresa may was in brussels laying out how she will protect european nationals living in the u. K. To the beliefack in the market, that people thought that brexit would not happen. I spoke to the house of lords member who said it wont happen because of this chart. I have shown it many times. Up, wagen is going growth is going down, so they will push back against brexit. True,t think that is but a lot of people that were against brexit now dont think that it will happen that were for brexit now to think it will happen. Theresa may told leaders that all eu members in the u. K. Will continue to be able to live there after brexit. It was met with a tepid reception. Matt, theyre basically proposing for the eu nationals living in the u. K. Three categories. Depending on how long you have been living here you will have rights are not. Matt thats right. If you have lived there for five years before the cutoff date, you will get settled status, that means you will have access to things like British Health care and the britis with no issues. If you live there for the cutoff date come and we dont know at that date is coming you get the of that five years and eventually apply for settled status. If you move there after the cutoff date and before brexit, you get a twoyear grace period to apply for legal, residential status. Francine we dont have details of the cutoff point. When do we find that out . Is it monday . Is it negotiations . Matt you want to have to wait too long. Theresa may will tell u. K. Politicians on monday. There are a lot of other issues that are unresolved. U. K. Citizens are not allowed to automatically bring spouses or Family Members into the country unless they meet a minimum income threshold. You citizens are allowed under eu law. Slightly moreve rights than u. K. Citizens. It is unclear if they will be a will to keep those rights under the new rules. We are joined by the and what doeslyst brexit mean . What do we know about the format will take . Not very much. That was shown with policy makers lords, politicians across the board. Yet has a clue what it will look like in the end. How difficult is it to decide what asset class to buy . The point here, the point is uncertainty. Mattust touched on it with in brussels. This is the first proposal would have heard of from the negotiations. All we know is uncertainty. All of the details, the cutoff point, it is unclear. From an asset class perspective, the most likely scenario is that sterling will probably trade relatively range bound. Our fx strategist would rather see it trading to the downside. And then as long as this is relatively orderly, that will feature in do u. K. Equity gains. Of course, for local currency investors. Tom wonderful to have both of you with us. This is really simple. The inflation divide between the United Kingdom and the and nine at states. The election of President Trump down here. More important is this cap between this gap between u. K. Inflation. Will the new inflation regime continue United Kingdom . Elsa it is hard to see it persisting if you think of what is driving the inflation. We nearly had the Exchange Rate with sterling coming through. Where not really seeing wage growth. We are not seeing a wage price spiral. When we soon Exchange Rate work its way through the system, inflation will come back down. That said, we are seeing certain mpc members get nervous about the high inflation in the u. K. Tom do you agree that we will see subdued inflation . Maximilian i think it will be transitory. When we look at the inflation expectations, fiveyear breakeven in the u. K. , 10years, they trade at labels that those make too much sense as you go to 10 year or 30 year breakeven. From here, it is probably down. Francine what is the one question you would want to ask Prime Minister may right now . Is it if she stays, if we will negotiate a soft brexit . Maximilian to be honest, i think that the stands that we take in the u. K. Between soft brexit and hard brexit is something in the next couple of months will not really be answered, particularly not from the continent of europe. Theannot forget that elections in september in germany. Inre will not be much leeway the next couple of months to negotiate. I dont think the leeway in the next couple of months is very great. One key point is the uncertainty. The other is how long this will take. It could be 10 years from now, we might still be talking about what shape future relations will take between the eu and the u. K. That kind of investing environment makes it difficult for longterm real fdi investors. Francine do we lose the clearing, and there seems to be a stronger place in the ecb saying that they want supervision over it, but provisional countries want their share of the pie. Maximilian that is part of the negotiation tactics. We dont clearly know at the moment. I think most of this, the european lawmakers know that if they take this negotiation stance toat is a good go for covered because that would be quite a drastic shift for the city of london. Tom we will get a briefing as we go into our weekend reading. And max kettner. The chairman of evercore. Hyman is optimistic on america continuing to prosper. From london and new york, this is bloomberg. Taylor this is bloomberg surveillance. Am taylor riggs the biggest ipo in europe, the Irish Government raised a . 6 billion by selling a stake in allied irish banks. Ireland bailed out the bank after it tipped the country into financial ruin. Shares of toshiba has been in the second section of the tokyo stock exchange. Earlier today for an extension of their earnings report. Earlier it slipped into negative territory. It faces losses in his nuclear unit. They are selling off their memory chip business to raise cash. David rubenstein says you can find cheap Investment Options in asia. The coceo of Carlyle Group talk to valuations with betty liu in hong kong. Asialuations are lower in by 20 of comparable assets and the an nine at states. That theory has been that asia is expensive. It may seem expensive in certain areas, but it is cheaper than the United States, which is very expensive. Thanks carlyle has done 90 deals in china with 70 billion. Worth 70 billion. Francine janet yellen made it clear she will go forward in tightening on plan. Are pricing and low in the september move and seeing even. Mber increase as an where back with kettner. Ignos elsa i think the problem is even if they tell us they will raise three times, people will be skeptical of what happens between now and december that could derail them. It could be that we will leave it until we see it. We already had this week saying optimistic things about the economy from chair yellen last week here at the fact that it is still only a 5050 bet shows the market will not believe that until we get closer. Maximilian if we take a step back from what the speakers are speakers, but we see at the moment is that we have drastic, drastic negative economic surprises in the u. S. Q1 was relatively weak. Q2 started with everyone expecting this will be a massive rebound. There will be a rebound, but not as significant as some has hoped. It looks like everyone is betting on 10 year treasuries to go towards 2 . I think we might get to this stage in the next couple of weeks were there are too many people trying to do the same thing as far as pricing no rate 5050n september or chances in december. Then i think there might be at some point the sudden realization we have overdone this. Tom is europe outperforming the United States in Economic Growth . That has been a theme this week. Maximilian yes. Basis and a real expectation basis. Remember, if we go six to nine months back with expectations for grosowth and expectations we expectedow what the european economy and aggregates to be right now. When you look at equities, and fx, and in real economic terms, at the moment we see much outperformance. Tom what is your call on the euro . The world is coming to an end. We will go to boy and european auto sales. What are your calls on the euro . Elsa Economic Data is suddenly stronger in the euro than the does not that necessarily translate to the economy. The guess we didnt come a fantastic growth, but because the Financial Bank is dovish, the currency is an underperformer. A lot will come down to how much is the fed willing to push ahead with a rate hike cycle despite the data, and how much will the be lag because it wants to convinced of higher inflation before making a move. Francine like a treasuries, what does it mean . Im looking at the 30 year spread. This is what we are seeing. We have not seen these levels for quite some time. When will this get readjusted . Elsa we heard harker talking about how 10s are very sluggish. The entire yield curve is affected by the feds own action. It is difficult to obtain clear signals from the level of the yield curve when we have qe going on in other countries in the world. We should be focusing on the front end of the curve. That should be what drives currencies going forward. Francine you can see, we will push it out for our radio listeners on social media. This shows the treasury yield spread is the narrowest since the recession began in december of 2015. Both stay with us. Coming up, ubs Wealth Management at 6 30 a. M. In new york, 11 30 a. M. In london. This is bloomberg. Francine tom and francine from london and new york bringing you surveillance. Be anticipating a liquidity this from u. S. Regulatory release in the terms of changes to inflation. Changes in banks moving away from building huge coffers of ultrasafe debt and credit elsewhere. Deutsche bank says it could be in the order of 2 trillion. Thats go back to elsa lignos and max kettner. This is a huge deal. It may actually skew the way that markets were . At bondan im a look markets, both on the treasury side and the bond side come you see how bond markets trading has been impaired from a liquidity perspective. That is a massive, huge change. Francine that goes where . Likelyian the most change will be on bond market. On equity markets they have been of by shareholder friendly measures in the last couple of years since the taper tantrum. Monthly m a volume, absolute dividend payments, dividend growth, Something Like chair by x, the liquidity we had from Central Banks has been feeding through the equity markets. In bond markets from the trading perspective, it is a different issue. Tom the idea of a new global wall street, not only a new city, but a new new york, a new Financial System as well. Do you buy . Elsa the important thing that we get this before the next crisis. Whether that is a global system able to deal with the global crisis, or the Current System with london, new york, hong kong regionalized trading centers, the important thing is we have had a time of extraordinarily loose monetary policy. When Central Banks withdraw that, which they will have to have some point, it is important the private sector step up and take the role of liquidity provider. Francine what is your best bet . Atimilian when you look withdraw of monetary stimulus, that will be over the next six to nine months. A pretty big issue for the ecb. We have an issue at the moment where tom was saying earlier that europe is outperforming at the moment in terms of economics and markets. What happens if growth slows down a little until the end of the year . Inflation goes down . Then all of a sudden we have the ecb tapering because they will be forced to . How does the bond market respond to impair the quiddity . In the near term, that is the best thing to watch out for. Francine his europe one of your top picks . Elsa we going to look for the 105 too remain in place 115. A lot of people are getting excited about the prospect of a high euro. Im not convinced of that yet. Lignos, we will continue. Max kettner, we will see you. Im looking forward to speaking to Craig Moffett about your lousy cell phone bill. The cell phone carriers in a massive price war. Also, the work of his colleague, mr. Nathanson. The future of american media. We will do that the 8 00 hour. It is in new york. Mr. Judge last night, massive home run. 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. Tom bloomberg surveillance. Francine lacqua looking summary in london. I am tom keene, dressed for winter in new york. Us, andeiman will join we will be joined from washington on the Health Care Bill. Korea is speaking out for the First Time Since the death of an American College student it had jailed for more than one year. Huns regime denied they mistreated otto warmbier, they say they treated him according to international standards. Had hinted for weeks that tapes of conversations with then fbi director james comey existed, but admitted yesterday he did not record the talks. Congress had demanded an answer about the tapes by today. May cost consumers fighters more than ministers expected. The government auditor or the price tag for the hinckley project could be 38 billion more. Ministers were urged to come up with a plan b in case the project collapses. President trump has named new york jets owner Woody Johnson to be ambassador to the u. K. He is the great grandson of the cofounder of Johnson Johnson. A longtime to republican candidates and has known trump for years. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs, this is bloomberg. Francine the bank of mexico governor says the peso still has room to depreciate after central bank raised costs for the seventh time in a row. Speaking to the editor and chief of the americas, comments on president donald trump. The currency has staged somewhat of a bounce back. This was his reaction to the idea that the peso could reach 17 to the dollar. The should not be taken at the central bank has forecast. Account theinto mexican economy, with the police the bearishken, appreciation that was not sustainable. I think that we see francine joining us is the global head of sovereign credits. Stay with us is elsa lignos. Mostid we get from the bank, the most Aggressive Central Bank in the world in terms of Interest Rate increases, to the Mexican Central Bank saying we are worried about low inflation . We are seeing a central bank that has been ahead of the curve. The rates are not 7 . Real rates are high. Were seeing inflation converging, likely in 12 months, towards their target. The central bank has signaled a message thatvish hikes are nearly at a close unless theres an unforeseen global risk off event. Francine would be the unforeseen event . Coming innistration and is saying we are building the wall, or something of a different scale . Lupin various factors. Trump policy uncertainty related policyu. S. Or u. S. Related to the u. S. Or trump. Tom it is wonderful to have both of you onset. We have elsa lignos on european finance, and we have lupin rahman. Elsa, are emerging markets the same they were 10 and 20 years ago . Is there a vibrancy to e. M. That makes it a different analysis . The currentk in environment, lowball, not much in developed markets, and makes perfect sense if youre looking at the likes of mexico, looking and japan, europe, people are definitely searching for those good yield stories. In the case of mexico, the central bank has moved aggressively. It is time they stopped and took a pause. We are seeing some of the domestic demand start to roll over. Elsas help us with world, how does fine exchange play in the new emi could . It is not the same dynamics it was 10 years ago, right . Lupin one of the most positive things were seeing in the e. M. Asset classes currency markets is more flexible than they were 10 to 15 years ago. Tingidea that there was floa has receded. In mexicos case you can see the peso appreciated significantly from highs of 21, now closer to 18, because the government about the currency to act as a macro buffer to the shocks it was facing. The peso,mentioning which we are charging for radio listeners. How much does it have to do with threshold reforms, how much do a lot of these emerging markets get simple carry trade . Elsa i think the peso is a significant example of the market overshooting. The level reached in january around 22 were an exaggeration. People pricing in the worstcase. Cenario visavis trump now we are back to reasonable levels. I dont know if that is structural reform. You have concerns now whether they will be able to hang onto power in the next federal elections. Even if they are, how much there is for further structural reform from here. It is difficult to Pay Attention to the details if you are getting front and yields of 70 . Francine when we look at brazil, one of the big banks cut their growth estimate to 0. 5 . The situation is difficult politically, theyre still in turmoil. Is their opportunity for investors . We think brazil has a very strong anchor. You will have president ial elections in 2018. The prospect that we are going to see a central right government anchors asset prices to some extent. We think the local rate curve is pricing in significant amounts of premium related to the passage of pension reform. And therefore there are attractive valuations either in the long end of the curve. They currency is in itself is carrying very well and should do well in an environment where global risk is relatively contained, but i think it is slightly more at risk. Tom a great column in project syndicate today, let me go to you first. Dollarrenminbi, renminbis a stronger less em currency. Is that ever going to happen . Elsa it is a very slow process. We have seen the process of internationalization them to a stand still with the capital control strengthened over the last year and a half rather than weakened. It will eventually happen, but getting there will take a long time. Tom how you treat renminbi dynamics when you look at the finance system . How does the yuan fit into the calculus . Lupin it is important since it is a key anchor of the economy. For us, what happens in terms of renminbi policy is important to determine if you will see significant capital outflows from china, which has an impact on reserves. It isnt an true go part. We are expecting the renminbi to be more it is an intro go ergral part. Mohamed elerian likes to talk about unknown unknowns. Hamans unknown unknown . Lupin geoPolitical Risks from north korea. That is one that we have little clarity on and could affect global markets. Francine pimco head of sovereign credits and elsa lignos stays with us. Theresa may has a speech at 7 00 a. M. In new york, 12 00 p. M. In london on brexit. Are we expecting more clues on eu nationals in the u. K. , probably not. That is monday. But, she will talk about other negotiations. This is bloomberg. Francine bloomberg surveillance. Francine and tom from london and new york. Oil heading for the second week of decline after sinking as bear market pressure increased. Added to this is the impact of increased production from bolivia, which is now pumping the most oil in four years. The bloomberg manager for em energy. With us, we still have lupin elsa lignos. Upin l hasheres nothing that changed to give people much optimism on the market. It looks like we are for the fifth week, which is terrible. People are looking for some kind of change from opec. A signal that they are willing to do more. For opec it is difficult to go beyond what they are doing now. It would be hard for them to get a consensus to cut deeper. There are political problems. Saudi arabias row with qatar, the bad feeling between saudi arabia and iran. It is difficult to see what happens next. Markets will rebound gradually . What does that mean . They all market, people think there is a good chance it will fall in the second half of the year depending on two things. One that opec can keep a lid on production and libya and nigeria are causing the biggest headache there, because production has rebounded. It is hard for them to keep a 32,000 barrels a day ceiling. And for the markets to rebalance, we really need demand to come back strongly in the second half of the year, which it may, but capital demand in the u. S. Is not that good at the moment. A lot will depend on the demand from india and china. Up this chart from pimco, this is inflationadjusted commodities. This is good math. The bloomberg commodity and ask. Radio, all you need to know is south, south, south. What is pimcos view on the commodity cycle . Is it dead, dead, dead . Where not going back to the highs of the last couple of years, but more likely to be traced back to oil being back to where the original forwards were a couple of years ago, closer to 45 dollars or 50. You should see a performing reasonably well. There are pockets of risk in some of the oilproducing nations, but e. M. As a whole has adjusted well to the downtrend in commodities. Tom where is the currency play in dm . I have to make money ticket to monday. Where would you set up for three months out, sixmonth out, one year out . G10n i will give you a one. Trying to take oil out of the equation completely. The trade were looking at is long. Theing into the boc in middle of july, it is the kind of thing where oil will be whipped around from day to day. You are better off trading one petro currency against another. Long cap nokias one way to do it. You can also look at equivalents within the em space. In em i like being long tried. Benefit from lower oil and the central bank has been relatively hawkish in maintaining a more tight stance. Francine there is an ultimatum in capqatar. Will it escalate if it is not resolved . It is a next ordinary list of demands that saudi arabia made qatar. Closing down al jazeera, cutting diplomatic ties with iran. It seems this crisis will go on for some time yet, and will be a cause of regional instability. It is interesting that all of this Bearish Oil Market happened as tensions of increased in the middle east. Not typically what you would expect. Francine does that have a direct impact on the price of oil . If they deal politics escalate, is it difficult to measure, because we have never been here . Historically, tensions in the middle east would raise oil price. It has not happen this time. If it became a more confrontational situation, if there was some risk of real conflict, that would be bullish for prices. Tom only on bloomberg can you do this, wish he can say long and we can bring up the chart. We have had a longterm Canadian Dollar strength versus norway. What is your trade . Montag nokia still against the norwegian krone is a play on relative centralbank policy. It strips oil out of the equation and it is a technical long we like sticking with for now. So much beer this is what you do for the Trading Floor on a friday. You bring up tv and you can see interactive tv, interactive radar, interactive radio. Forget about it. Here is stevie, and bonus round, you can come over here and bring up whatever the previous section steal. Steel and nokie, that is a first for bloomberg surveillance. Taylor this is bloomberg surveillance. I am taylor riggs. American airlines rebuffing Qatar Airlines over a 10 stake. They called the interest puzzling at best and puzzling at worst. U. S. Air carriers have been persian gulfr and airlines for years saying they are unfairly subsidized by the government. Preparing for a transition. John flannery will succeed. Flannery will take a close look at the operating units. Price spoke to bloomberg from the global forum in hong kong. Years ofk over the 16 jeffs leadership, and have created the right portfolio for the 21st century. I think that john understands that, because he has been a part of it. He has put his fingerprints on a is of it, but any new ceo going to take a fresh look. John certainly well. The board will encourage him to do that. Taylor he also said there is no able to they will be fund pension obligations or ge has a 31 billion shortfall, the largest in the fortune 500. The biggest ipo in europe, the raisedgovernment stakes by selling a stake in irish allied banks. They build out the bank several years ago after a tip the country into financial ruin. Theres going to be a lot of this through july, august, and of september. Then on to january of 2009. That is a 10 year look back. His chart thanks to our bloomberg tech people for linking old aip to new aip. This is the financial crisis, the moonshot and fiction, this tothe courage of the irish do what no one else in europe did to clear their market with a vengeance. They were alone on that. With spain a little bit. Then they come out with the ipo down here at four and change euros per share. Francine this is a great chart. Ireland is raising 3 billion inos selling . 25 stake irish allied banks returning the buildout lender to the market. Seven years, what you are showing in your chart. If we look at the mediterranean countries to the south, they had a different economy to what happened in ireland. Ireland fixed it, they fixed it sooner. In certain ways it is difficult to compare them, for example, with spain. Each story isgree different, but it was amazing how a lone island was in 2008. Francine let me bring you to a ireland was alone in 2008. Francine let me bring you a chart. You can see a split from june. I dont know if you want to call it a spread, but they are going in different directions. Ere back with elsa lignos this is a chart that you picked up early in the show that you wanted to talk about. You believe that this could actually continue in this way . Elsa what we are seeing at the moment is a lot of people piling double back, long euro and long european equities. If you look at etf low data, the money going into European Equity etf is almost exclusively going into. That is a strange bet to be putting on. Traditionally equity markets and fx are moving in opposite directions. If you have the ftse, when the ftse is going up, sterling tends to be going down with the nikkei and the yen. Weope is strange that when have had political crisis, the eurozone crisis, the eurozone referendum, the french election, we find temporarily the euro and european equities move in the same direction. That will not last. We are seeing signs of a breakdown in sentiment. As europe continues to strengthen you would see european equities underperformed , or european equities perform europe remain contained. Tom are you optimistic on the American Economic experiment . Elsa i dont see it is that much of an experiment. We had a new president in november, but so far it has been business as usual with no radical policy changes that some people may have expected here the underlying economic fundamentals in the u. S. Slows a little. Economic surprises have turned negative perhaps expectations were too high. The fundamentals are not that disastrous. We are seeing reasonable job growth, in after keep unemployment down. That is a good story. Tom do not be a stranger. Elsa lignos with us this morning. In the next hour, looking forward to ed hyman being with us for a generous amount of time. He has an exceptionally good note. All of his notes are good. Haefele from ubs. Health care inn washington. A strong hour. We will do that next. Washington looking at senator mcconnells bill. This is bloomberg. Q optimism is friday morning. Inflation is and will stay subdued. There is no u. S. Recession and made a synchronize Global Expansion. Edward hyman of evercore. Republicans do on health care . It is a mean debate. Senators paul and portman agree to disagree. It is 200 35 miles from brussels to london. Prime minister may due to speak and belgium before returning to british chaos. This is bloomberg surveillance. Were live from our World Headquarters in new york. I am tom keene. At our World Headquarters in london, francine lacqua. How will the Prime Minister the greeted at heathrow . Francine it depends on who shows up your the new nationals, they will ask what we are expecting more on the proposal. That is coming on monday. If you are brexiteer, youre tonking, do you really want go with soft . I do not think she will be greeted with open arms. Tom right now, your first word news. Taylor saudi arabia and its 13 demandsng qatar on a threeweek diplomatic standoff. Must disband the al jazeera news network, cut diplomatic ties with iran. Bank over a central key issue in brexit talks. The ecb wants the authority to supervise the clearing of eurodenominated financial instruments. London dominates much of the euroclearing business, the brexit could change that. A roadblock to Senate Republicans passing their longawaited plan to repeal obamacare. 4 republicans are against the proposal. They say that they plan to negotiate. The senate plan largely resembles a house version at has big cuts to medicaid and tax cuts for the wealthy. Billion have bond investor win theng people will financial industrys battle of human versus the scene. Versus machine. He doesnt believe machines will take over finance. He calls roboadvisers a dangerous bet. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. Equities, bonds, currencies, commodities, a quiet friday. Futures of 2. Oil, no bid for the week. Will, thank you for providing value on hydrocarbons this week. Francine european chairs are slipping a little. It is our to hold onto the gains. The longest run of recent losses in a year. I would point to u. K. Stocks, the oneyear anniversary of the brexit referendum. Im looking at pound. Table, i aming at looking at europound, 0. 8778. The one in treasury seem to like at the moment. Tom this is a joy. What a great way to have a good friday at the end of june. This is the secret sauce. This was invented 45 years ago at c. J. Lawrence. This was when he used a quill. This is ed hymans report from his evercore isi now. What we loved was the big, ugly black marks bid that was the theory of ed hyman as he told look at this chart. You are optimistic. What do the bloomberg crew get wrong . Easy. At money is really the economy is doing pretty well. The synchronize Global Expansion that will probably go on for another five years. That is what they got wrong, i think. People are shifting now, becoming more constructive than they have been. Tom becoming more constructive. A lot of people miss the bull market. They will go back and say there is a yield curve dynamic. We have done this many times. I just featured this on business insider. This deepness of the yield curve. The gloom is over here, recession slowdown, the world is coming to an end. The bloom crew goes like this, you say no by will we not have an allamerican recession . The 1995, 19 96, 1997, 1998 tom right here. Ed the yield curve is useful when it goes negatives. That was one of the best times of the american economy. Growth was 4. 5 . You had the tech boom. Im worried of the yield curve flattening. That is not the only thing that i look at. Tom we will get serious with a charge at a cost the media for the radio in a bit. The flat curve and a raging debate over what it means for economic dynamics in the United States. Francine tom and i dont talk before the show, but i have a very similar chart that i want to ask about. This goes back to curve impression. Im like at the five to 30 year yield spread. This is what it looks like. Treasury yield spread narrowing since the recession began in the summer of 2007. For radio listeners, we will push it on social media. See that bond markets equities dont . They are more gloomy about the future. Ed i think the dynamic is that you have this massive cutie in europe. In europe. Sive qe 30 or bond yields is negative in europe, 40 basis points. The tenur year yield in germany. Then inflation has evaporated. Bad news, but inflation just isnt there. The money prices have come down. You have amazon doing whole foods. A host of things i suggest that inflation is not there. That has also been coinciding with bond yields coming down. Francine the fed is basically saying because the labor market in the u. S. Is so strong, that at some point it will still circle through inflation, we just have to give it time. Is that right . Ed i think that is right. The cycle, it has been pretty normal. It is just that it is very slow. Initially, i thought it would be like this, then i realized it was like this. Then you wait six months, and do this. That is what theyre having this time, here we are nine years into the expansion and the fed has just started hiking. Tom you must be looking at oil as well, going back to her heart and soul of c. J. Lawrence. I we had the bottom of a range to restabilize, or do you have a concern that he could break down into the 30s on oil . Ed it is not my wheelhouse. Our house fee was oil will go ut i try to focus on things that i can forecast. Oil. Riding if oil goes to 30, that would not be consistent to what i think is happening. I hope that it bottoms here. Im watching iron ore as a sister to it. I think that they reflect something about china. If china is weaker than i think, then oil could go down more than i think. Tom one of the things that we have observed is copper doing pretty well versus oil which is doing less so. I want to go forward to what we will talk about later, your proprietary work on the pulse of corporations in america. These are charts that only isi, great charts about what people are doing. What is Corporate America doing right now . Ed we serve a hundred companies. Those surveys went down in too many 14 and 2015 as the economy slowed to 1. 5 . Since then they have been moving back up and they are trending back of. I know that the data is choppy depending on which indicator, the gdp now, or the index you featured. I think that this economy right now is improving a little bit. Francine either indicators that we should be looking at more than others . Certaind looking up indicators, but you mentioned amazon. The way to see the economy is working and changing so much, what indicator do you look at on the upside or the downside . Ed one is company surveys, two is unemployment claims, they were amazingly low, and celery, the pmi measures. The latest one was the empire. I think the economy is ok, but the economy is changing for sure. Sectors such as the new tech, health care, sports entertainment, those are sectors that are driving the economy that we do not have as much data on as we have from normal sectors like autos and housing. Francine is the biggest risk outside the u. S. , and if yes, is it china . Ed i was a the biggest risk would be oil going down a lot more. The second would be something in china. Third, some sort of policy problem out of washington. Tom lets bring up the most optimistic chart. We will bring this before marty crushes us with pessimism. These are the claims as compared to the number of unemployed in america. You and i never would have this. It is extraordinary how claims have come down over this cycle. Ed i travel around the u. S. A lot. Every city that i go to is booming. The more you find out about it, the more you find out they are booming. From the west coast, the east coast, the southeast, atlanta, nashville, dallas when i travel around, what claims look like is what i see. To stay around for the gloom and doom in washington next. Ed hyman with us, we will continue through the hour. Of Ubsmark Haefele looking at the dynamics of a rebound in europe. Way too much optimism this morning. This is bloomberg. Taylor this is bloomberg surveillance. Am taylor riggs the biggest ipo in europe. The Irish Government raising 1. 6 billion by selling ace take in irish allied banks. More problems for toshiba, the shares have been demoted to the second section of the tokyo stock exchange. Earlier toshiba asked for an extension to submit its earnings report. Shareholders flipped into negative territory. Toshiba has been robbed by multibilliondollar losses in the nuclear unit. They are selling their memory chip business to raise cash. David rubenstein says you can find cheap Investment Options in asia. The coceo of Carlyle Group talks about valuations to betty liu in hong kong. Valuations are lower in asia by 20 for comparable assets to the and nine at states. It might seem expensive in certain areas, but generally it is cheaper than the United States, which is expensive. There is a real bargain here. Taylor rubenstein says carlisle has done 90 deals in china. Om thank you a morning mustread on washington. This is an exceptionally smart note from francis wilkinson. No one seems to like the senate , congress willl probably put a bill on the president s desk that grievously damages obamacare without killing it. Tightening the political drama, but it doesnt stop the play. Concessions are made, victories claimed, the legislation moves towards conclusion, and party shanker keeps his job. Are we going to get a vote . The compromise that mr. Wilkinson alludes to . Mitch mcconnell, a master strategist, will have to make the call if he can take a vote. Even if he is unsure, he may have to take a vote anyway and force people on the fence to take a stand on whether to vote on this bill. Tom we remember when president , grab the elbow, this is what lbj used to do with you and guide you down the senatorial hall. Side, thethe Senate White House is taking a handsoff approach as opposed to the house bill. That may change, but this is a damaged president who is under investigation. His ability to inject himself in the process may be limited. Ed hyman, do you care about marty shankers world . Should you, in investment, finance, care about the drama of marty shanker . Ed sure. Tom i need a better answer than that. Ed i have more. I keep a pulse on what is going on in the markets. Before the Health Care Bill problem, if you ask people do you think trump will get his tax packages through 80 say yes. Today, 20 say yes. The trump factor in the market has been largely removed. Saying, im not counting on it at the moment. It is not a factor in the markets right now. If they got something through, that would be a surprise. I am not counting on it. Francine i want to get back in ifecond, but on eds point, this Health Care Plan is in more jeopardy than the other one, what does that mean for tax reform . Does it get pushed back . Marty it has been pushed back six different times. Theyre hoping for paul ryan hopes for major tax reform by the end of the year. Is, the repeal and replace of obamacare is standing in the way of Everything Else on the republican agenda. They have to get past it. My view is that mcconnell will call for a vote, even if you is not sure it will pass, just to get this behind them to move on to other things. Whether their constituents will allow them to do that is another question. Francine President Trump has changed tracks on the comey tapes. He alluded that he may have recordings, now he says he does not have any. What does that mean for the investigation . Marty various news outlets have pointed out that among former prosecutors, there is a large concern this may put the president in jeopardy for intimidation of witnesses, something he probably did not calculate when he made the tweet. Words have consequences, especially if it is from the president. Tom is the president playing golf this weekend . Marty probably. I am not sure where he will be, but probably. And yourk you to you team in washington for terrific coverage. Maybe a more sane week this week. We will continue with ed hyman of evercore. Im looking forward to the ambassador from china and the senator of montana, a straight talker whatever your politics. Will be joined from maybe bozeman, montana. This is bloomberg. Francine bloomberg surveillance. Tom and francine from london and new york. We need to go to brussels. What she has promised her eu counterparts. One years since the u. K. Voted to leave the European Union. Ehold incomes on the political front, the Prime Minister told eu leaders in brussels that almost all 3 million eu citizens in the u. K. Will be able to continue living here after brexit. We are joined from brussels. Eu national, and a lot of us are in the u. K. There were not a lot of details. She said the issue will break down the eu nationals in three parts, but when do we get the details . A lot of the eu leaders meeting here in brussels have had a similar reaction. The have called it not sufficient, they, and lacking andsufficient, vague, lacking in detail. Theresa may said she would give details on monday. A lot of leaders are withholding judgment and will wait until monday to see exactly what those details are. I think theresa may expected a more welcoming reaction to her proposal when she gave it to eu leaders last night. Francine i have 2 morning mustreads. It was tongueincheek, very not guessaying i did that your leader would have political chaos. He was not expecting it would be more dire despite Unemployment Rates have been lower than when he was a 13yearold and rod s sailing was on top of the pops. Theyre still trying to figure out exactly what theresa mays administration wants at this point. I do not think anyone expected things to be this chaotic a year after the referendum. Difficulty in the election and whatnot, it has been up in the air. The proposal on Citizens Rights was thought to be one of the easy goals. To have theirt citizens have reassurance on their rights. If they cant get this easy thing right quickly, it wont look good for the technical things they have to get done. M Christopher Cross did sailing better than mr. Stewart. I love the minutiae about this backandforth in europe. What are they whispering in our ear . I think they are planning on, hopefully, having a summer the way they usually do. Not too much. Brexit has thrown the whole thing into chaos. What they want is next week to get the Citizens Rights things out there, get the details of the basel. Hopefully they will be able to start working something out. The Court Jurisdiction is one of the big things that comes into this. That is a contentious issue as well. Francine thank you. Ed hyman from evercore stays with us. Next, we have ubs. This is bloomberg. Good morning. Tom im tom keene in new york. Haefele inmark zurich this morning. Thank you. U. S. Nderscored better economy and one of the themes weve had on bloomberg is a better european economy. His europe at escape velocity in terms of Economic Growth . Well, weve been disappointed before on the escape velocity. We think that this time, we may have a winner. That iswere playing overweight and european equities versus u. K. Equity, and overweight the euro versus the u. S. Dollar. Tom bring up the chart here, jason. , we area ed hyman chart stealing from ever core isi to get perspective and i may walk out the the studio. This is my taylor riggs chart. Europe,auto sales in which taylor riggs and ed hyman agree have exploded higher. Thats a really good litmus test, isnt it . Mark we think so. We think we think were going to be accelerating Earnings Growth beyond the auto sector. Broaden out both because of domestic recovery and also the Global Economy recovering in europe exporting. Francine the concern is that first of all, we saw pmis today and euro area momentum easing a little bit. On car sales, and europe have a lot of transition countries transitioning to a cleaner economy. I feel so much richer, i should buy a car, its germanman economy government will offer me this much of a trade in my car. Why are we so optimistic . We talk about trends in the level was horrific. Comparatively year ago, we are growing, but think goodness, otherwise we would be in terrible straits. Are coming off a low base, but i think that provides some upsides safer european equities, particularly against the u. K. Equities, where the earnings expectations are already Something Like 22 Earnings Growth. We see more of a likely to be disappointed on that side than on the european side. Francine are we crying victory too soon . We think Emmanuel Macron being elected president of france means we wont get another way for populism in europe . Mark thats a very interesting question. I think weve certainly seen amongst our clients and lessening of fear of the populace wave. Populist wave. Arelitmus test for populism elections. We work through the worst of the election cycle. Populism like some of these other forces is not the things that spurred the populace populist fears are not going away like widespread inequality and his version of wealth. New colt, the the new religion as pmis, purchasing Managers Index is. You somehow survived before the religion of pmis. Do you care about pmis nation to nation . Ed i care a lot. I dont why european highs are higher than the United States. They are one of my three favorite indicators. They are timely and they are pretty hard data. Would cover both services and manufacturing. Tom do the Central Banks agree with you that are they looking at phillips curves . Ed i think everybody watches the pmis pretty carefully. Velocity escape we are too old for that. We are 10 years into the expansion and we are not going to get escape velocity. Thats early in the expansion. Nothing is really booming. Car sales are up sharply, maybe 7 , but they are lower than they were in 99. Whatnk with happening is people are begun to realize is we have a slow and steady Global Economy that continues to make progress year after year, and its probably going to go on for a number more years. Edncine going back to what was just saying, the concern is we will not get escape a lot for the, that this is the new normal , but we also need to get ready for the next downturn when that comes. Should the ecb and the fed hike rates as soon as possible to make sure they are prepared for the next crisis . Mark we dont think they should. Every central banker would like closerar hawkish and get to normalization of monetary policy, given the period of exceptional policies we have had. We just dont think its justified, nor will they do it, given that inflation is just not picking up, despite the higher employment that we see coming through the system. When we look at this, clearly now that the fed has moved into a hiking cycle, we do think we are further on in the cycle and we are putting on more relative trades. Right in the picture still remains relatively robust, and that means in the asset allocation, we do have a overweight in equities versus the highgrade bonds. Tom we have a real transatlantic polarity today. You and francine actually know what millennials are, me and ed do not. Youve done some Serious Research on all the certitudes of millennials. What is the biggest canard, the biggest myths about socalled millennials . Atk i think when we look millennials, this is supposed to be the me generation, these kids that just air their cell phones. We asked as thats not really the case. This is a generation that will quickly have 24 trillion in wealth that they are responsible for, and increasingly, they wanted them for that towards Impact Investing and sustainable investing. We see them as a positive force in the world ahead, that everyone, not just Wealth Managers needs to start paying attention to. An exclusive,ve tom izzo millennial. Was looking at his phone. How do you communicate with millennials . Channel,the digital millennials our leaders, but while they are ahead, the other generations think that using more Digital Channels is a pretty good communicate as well. The other thing were working hard on his Millennials Want more flexible workplace, that something would you take into account. Tom they want 14 weeks vacation. Ed hyman, this is important. We make jokes about it about dubrovnik. Theyre going to see game of thrones and roughnecks, and we are not. But this is serious. Its about a generational shift. I travel around the u. S. And every place is booming. Every place i go to come of the millennials are always there as the driving force. Theyve gotten out of school, didnt get jobs, now theyve gotten jobs, now they are getting employment and they are apartments. They are a driving force in atlanta, san francisco, austin, texas, they are there. And they are a driving force. Tom how are millennials doing in china . Are they a mystery across all of asia, particularly china . Mark having millennials everywhere are mistreated people of our elder ages. By the same forces, the connectivity is something that is exploded in china as well. I think while there are some differences in demographics are increasingly focus regina because of the retirements going on, there are many features that are similar across asia and europe and the United States. Francine do you invest differently for millennial because they have a stronger conscience . Work life balance, but what they really want is diversity and taken care Climate Change and things like that. In your research, does that show up . Mark absolutely. They are much more willing to invest in things that are sustainable and take things out of their portfolios that they dont believe are sustainable. That is adjusted our work to some degree, in a positive way. Forced estimate commitment it forced us to make commitments like Impact Investing. Im very pleased with the direction of the millennial are taking our research, our firm, and our direction. Francine mark hateful of you be at mark mark haefele. Thank you for joining us. Prime minister theresa may is that to speak about 20 minutes from now in brussels trade we have readers briefing the local press over what they learned in the last 24 hours of negotiation. As is bloomberg. Tom Bloomberg Bloomberg on friday. E, heres taylor riggs. Taylor north korea is speaking out for the First Time Since the death of an American College student in a jail for more than a year. Torturede denied it our warm beer auto otto warmier. Police sayondon, that manslaughter is among the charges being considered in the highrise apartment fire. Authorities said the fire started in a refrigerator freezer. Meanwhile, cladding and insulation on the building had failed safety tests. At least 79 people died in the fire. The countrys First Nuclear power plant may cost consumers five times more than administrators expected in electricity costs. It could be 38 billion more. Mr. s were urged to come up with a plan b in case the project collapses. Saudi arabia and its allies have given qatar a list of demands to a showdown. Diplomats predicted that qatar want will not comply. Named newtrump has york jets owner Woody Johnson to be ambassador to the u. K. Greatgrandson of the cofounder of Johnson Johnson a longtime contributor to republican candidates and is known trump has known trump for your. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Tom a little levity for friday, on fox and friends with important comments he hopes the mr. Mueller comes up with a quote honorable solution as well. President trump with an important headline here. This is exactly how it comes up on the bloomberg worldwide, you never know whats happening with surveillance. There it is. We think the president for listening and for his shameless plug of bloomberg surveillance. Hyman with everglory isi ever core isi. Lets get back to the linkage of the economy into the equity markets. This is a chart that you and i know, it puts us in terms of the dow enough the s p 500. The gorgeous shot of the goression in 1929, and up we. We just seem to prosper along the way. Do you still have a belief in american exceptionalism . And in american capitalism . Ed thats way over my head. Im a practitioner. It looks like its continuing to prosper. Its a very important chart in that we are learning more and more the more the stock market goes up, the more it helps optimism and consumer spending, capital spending. Thats whats been going on. Prices have been going out and the two together with consumer net worth, which is been driving the economy. That is an exceptional charge and and tom i cannot take credit for it. Come a within that though, what has changed is the believe that there are two americas. We allprosper, and can do better, given the polarities we see in our society, like in the Health Care Debate today . That, if the economy keeps growing, those disparities will dissipate a little bit. That focus on is for the bottom of the economy to get better. He top is doing fine the main thing that needs to happen to get that to work is for wages to accelerate. Ive been disappointed in that. 3 hought wages would be over and there are still about 2. 5 . The Unemployment Rate today is 4. 3 , and i think it will be 3. 5 a year and half from now. Just continue to press on that. If its true, the odds are pretty good that wages will pick up, that will help the bottom of the economy. How do you explain that there was almost no wage growth. Is that the quality of jobs being traded in the u. S. . The consumers dont steal dont still feel right about future . Ed i was scared you would ask about that. , when ifigure it out travel around it on here about we just going up i dont hear about wages going up. My best guess is the just have to be patient and maybe in 2018, wages will finally start to pick up. Is your question alludes to, wages are not picking up anywhere. They are not picking up in the u. K. , knocking up in australia, in canada. The other anglosaxon ingles englishspeaking countries all of which have low Unemployment Rates. I think will happen later on in the cycle. Francine this is the impossible question, weve been asking so many people and no one has the answer, do you think it is psychological . ,f Central Banks raise rates with that shock viewers into thinking the world was becoming harder, but that the picture was rosier . Ed what will make wages go up as a rental you just dont have enough labor and whether its in the energy space or the educational space, people will start paying up or losing workers. I do think that technology has been playing a role, replacing there is still that overhang where we remember a little bit the 2008, 2009 big depression and people are scared about that both in terms of asking for a pay increase and for managers giving of a a big pay increase. Tom the comments on jobs are so important that i want to go to this chart. A 4 ve a lot of credit for view one unemployment. Recent leg down to a better outer year ornd so, you see this at 3. 5 , which is better than we were in the glory times of 1999 and 2000. Did we get growth with that great Unemployment Rate . Ed we get Something Like 2 , maybe 3 growth in altering that big drop in the Unemployment Rate down to 4. 3 , growth has been about two pers 4 . My view on 3. 5 was inspired by dean maki. Surveillance, break exclusive. We are on the dean maki zone. Francine ed hyman of ever core stays with us. Exclusive, go into the bloomberg and you see tom keene and you still his charts for free. Augustine tot question anybody difficult question to ed, who will be glad to answer it next. This is bloomberg. Tom the single best ed hyman chart, we will redux what we just did. It is so important, off the great work of the stanford dean down we go toys, an exceptional 315 Unemployment Rate. The forecast of edward s hyman. Francine i just want to hear more about 3. 5 unemployment by next year. It took you by surprise, i want. O hear more from ed where industries that will lose the most jobs . Earlier we looked at the unemployment claims, if you remember that chart down so much. The Unemployment Rate in unemployment claims stack up closely. The employment claims are the ticket to why i think unemployment is going to come down to 3. 5 . The places that jobs are being created in health care, higher education, the tech space, and then sports and entertainment. Those of the places where local economies are being driven. Claims chart is extraordinary. This is claims adjusted for population growth in america. It really talks about one part of america. You mentioned earlier bring the bottom up as well. By the done by policy or corporations of investment . Ed its become organic. We are in a selffeeding expansion. Towards the end of it, it becomes pulling in and the sectors that i mention are coming together and you also driving millennial things, getting energies to local economies like denver is sort of booming. Tom i want to know your thoughts on the future of global wall street in new york and london, and other geographies like hong kong. Ed its pretty tough. The whole Financial Services business on the buy side in the cells side, the top industry. Im not sure its going to get any better. Tom are they still going to buy ed hyman research . Ed i hope so, at a lower scale. Ed hyman is with us and the red sox are in first place. Francine. Francine i like that. We need to thank ed, we sincerely hope you come back soon. Im looking at eu leaders in on what will update us eu nationals can or cant do, whether they can really stay here in the u. K. As part of brexit negotiations but also when talked a lot about the u. S. And europe unemployment is much higher than in new york. Tom looking forward to that and we will watch that through the weekend as well. We need to say thank you to all of our team for a fabulous week. Stay with us, we do more on bloomberg radio, next. Jonathan one year since the brexit vote in britain shows at hand. Prime minister theresa may tells u. K. Citizens they can remain in the eu citizens they can remain in the u. K. Regulators scramble to get holdouts to back the Health Care Field out of a possible vote next week. Where is the tax reform . From new york city, good morning. This is bloomberg daybreak. I am Jonathan Ferro alongside alix steel. County down to the opening bell. Futures really do go nowhere, in the fx market is a softer tone for the dollar. The eurodollar climbs. 1 . Yield higher by a single basis point, 2. 16 on the 10 year. Alix sterling the best performance up by about. 4 . 148 is where it was a year ago