Transcripts For BLOOMBERG Bloomberg Surveillance 20170629

Parliament holds its final vote on Prime Minister mays legislative program. This is bloomberg surveillance. S happenay. Theyre rising for the first day in three. Investors shrugging off the prospect earlier of the prospect of higher Interest Rates. Stocks have inched lower in the last few minutes. The euro continuing its upward movement against the dollar. Draghi bolstering bets that the ecb is preparing to unwind. Sterling gaining for a sevenday. Best run since april 2015. Mark carney says the Monetary Policy committee may need to begin removing stimulus. Crude oil gaining for a sixday. U. S. Crude production easing pressure on opec led efforts to drain this global glut of oil. Lets get to the first word news. Banks haven announced larger than expected payouts for investors. Jpmorgan, citigroup and bank of america led the way and unveiling plans to boost stimulus and stock buybacks. It is the first time every lender has cleared the regulatory hurdle. Shares across the industry the trump travel ban will come into effect at 8 p. M. Eastern time. The restrictions will apply to refugees and migrants from six countries. The department of Homeland Security is imposing new demands for increased Airport Security on flights from other countries in an attempt to combat the threat of terrorists hiding bombs and laptops. South koreas new leader is due to meet President Donald Trump for the first time today. Their different approaches to wa with white house likely to press south korea on imbalances and cars and steel. The European Union is waiting on its demand that judges protect the rights of e. U. Citizens in the u. K. That will put the onus back on britain to increase the level of protection, which the eu. U. Sas is below existing rights theresa may will face a further test for minority government ahead of the final vote of the queens speech. As the labour opposition tables and amendment pushing for the rich to pay more tax and for britains key membership of they e. U. Customs union. Fulll ballot on the legislative program scheduled for later in the day. Global news powered by 2700 journalists and analysts in 106 countries, this is bloomberg. Mark the cost of borrowing is headed higher and markets had better get used to it. That is the message from the World Central Bank figures. Bank of England Governor Mark carney suggested the time is nearing for a rate increase. Canada indicating the same earlier this week. Janet yellen said her policy tightening is on track and even the possibility of an ecb hike has slowly grown. The euro strengthening against the dollar after mario draghi bolstered bets the ecb is preparing to unwind stimulus. Ian, thanks for joining us today. Is it a coincidence that draghi all turned hawkish in the space of 24 hours . Ian i am not sure that the banks compared notes before and. Before hand. It is suspicious we are getting similar noises, but im not expecting the bank of england to go hiking anytime soon. We will not see a drastic change in the ecb, but they do have to recognize things have changed. After all, the european economy has been way stronger than anybody expected. Big inflationany issues but we do have a stronger infirmary economy. So, that does require some recalibration. Mark but it proves the move and markets, especially on tuesday, that its going to be a difficult process recalibrating that. Ian what we dont have is the broad pick of core inflation which draghi wanted. In the u. K. ,. We do not have upward pressure on wages we dont have a second round affects. Enviat and five, ronment, the u. K. Economy unlike the eurozone is not strengthening. Its more likely to weaken. There are nuances everywhere. Mark carney, not being an unreliable boyfriend. I was throwing it out yesterday with a 2014, he was labeled an unreliable boyfriend. Is than an unfair is that an unfair lablel . Ian he has a split committee to start with. Own. E held in his chief economist called about in the opposite direction. He has to recognize that the labor market is tighter. He has directed nice inflation has been higher than expected but there is no forward pressure to keep it high up. So, hes got an uncertain Business Environment with brexit coming up. He is managing an economy and a committee. Him. D of feel sorry for mark some have tried to dig up the august can almost see the case for reversing the quarterpoint easing. At that time they were worried about the wky fal the sky falling. You can justify taking that 25 back out again but to go any further with the crazy. Id be surprised if they move in august but it is no longer a 991 shot against. Mark the odds have gone from 7 to 50 . Ian it is not long ago that markets were talking about 2019 for the first hike. I think that reflects the inflation picture has been significantly worse at the hea dline level that the bank of england expected. I cant see the wage markets saying, where is the u. K. Wage growth is accelerating. Mark yellen has been surpassed by carney. Theres a narrative and there is a less hawkish narrative than the fed is peddling. You say that is wrong. You say listen to the fed. Ian they are not kidding. They have hiked in december and june. They established a pattern. 4. 3 . T promise its dropping fast. We had a period of softness and some of the data which im convinced might in the three payroll reports between now and september fomc, when the market thinks they will not do anything, we could see a real swing and sentiment. Mark at the end of your notes he said the unwinding may prove painful and is likely to start very soon. Is that the Market Reaction . Did we get a taste of it this week . It was by draghi. It was by the other guy. Are we getting a taste of it . Ian absolutely. Mark sentiment has become externally finetune. When you see a shift in the data, you can see positions swinging very quickly. The market right now is looking feda 50 50 chance of the raising rates and after that they are done. If markets begin to get a sniff of the idea that maybe the fed is serious about this and the data are moving back to support that action, youd have to unwind and expectation wishes the long way short of what the fed is promising. I think it is going to be a very long and hot and volatile summer. Mark stay tuned to bloomberg. Weve got an exclusive interview with mark carney 11 30. Do not miss it. Stick with surveillance. Plenty coming up, including labour seeking to exploit the tory division of brexit in another test for Prime Minister may. We look ahead to todays crucial. Clean speech vote why u. S. Letters of announced windfalls for shareholders. This is bloomberg. Mark lets get the Bloomberg Business flash. The u. K. Has opened up an investigation into pricewaterhousecooper. Review will cover fiscal year ending march 2015 through 2017 and is designed to investigate and sanctioned requirements. Rupert murdoch should find out today whether his own 11. 7 pound bid for buy skye is likely to go ahead. It comes six years after a previous attempted the u. K. Culture secretary is expected to Tell Parliament what she intends to do about the takeover. H m says it will be to markdown clothing prices after a 2017 surge in inventory as firsthalf sales missed expectations. Pretax profit rose to 7. 71 swedish krona. The company says it plans markdowns with the aim of giving the autumn season the best possible start. Mark Prime Minister theresa may will face of further testify minority ministration as labour seeks to introduce elements of its own manifesto. Pushing for britain to keep the benefits of the e. U. Single market and Customs Union but falling short of calling to retain membership of both. The amendment comes ahead of the final vote of mays queen speech scheduled for later in the day. Cant speak today, is with us as well. Simon, thanks for joining us. She has overcome one hurdle. Will she overcome more as well . Smimon she has a suspected working majority of 13 with the dup. That should be enough to squeeze her through. Mark there has been not a rebuilding within the ranks but signaling seemingly a difference of opinion whether it is the transition period or expected pay rises. Simon the government forced to say that nothing had changed regarding public pay. One of the indications of the election result is increased irritation that the pay cut the Public Service workers faced for some years and might spill over into the broader economy. Some suggest the private sector pay is related to Public Sector pay. There are some irritation there. Yes, on brexit, met with secretary hammond on monday and tuesday. The long transition and david davis, the brexit secretary, suggesting otherwise. It all suggest that theresa mays iron grip which as recently as april was imposed on all areas of government has loosened in the wake of the election. Mark we know some member of the tory party think that austerity play a big part of the election result. What does that mean for austerity Going Forward . Simon less of it. Theres a weariness in the country after seven years of this. It is selfdefeating. I its not the only part of the story but i think it is significant. People were promised another five years. Given 12 years of austerity. And they think there is a general feeling that enough is enough. And mays authority has diminished enormously on this front. The voices within the conservative party have become on easy about austerity and are willing to push harder to change things. Mark is the narrative being driven by the labour party . Who wouldve said this even six months ago let alone a year ago. Is labour driving the narrative now . Simon the new look conservative party is still driving the need for theresa may to keep alive previouslyshe pushed aside the rise of the soft brexit fans in her own ranks. Labour has momentum behind them. Jeremy corbyn has been transformed from a figure that people rolled their eyes, to actually he has a bit of a hand. Labour, signs that the party has some strength it did not previously. Mark does jeremy corbyn, ian, have Prime Ministerial credentials economically, or not . Ian it depends. From a micro perspective, a lot of thing he was suggesting are just normal and excessive. Publicly owned railways and utilities. In europe, everybody says, what is the big deal . In the u. K. , it is presented as radicalism which are probably isnt. Right now is not the question. He is the guy with momentum. He came second. But the momentum is with them. The tories are deeply fractured. Who knows . Or 18 months we could be going to an election where he could become Prime Minister. Mark in regards to the European Court of justice, are we getting a mini climbdown from the e. U. . Simon the question is if they will get that the on brexit. Bloomberg reporting yesterday that the signs of the e. U. Going to give ground on that. Their original demands is that e. U. Must have some role in policing beyond brexit. The british of said that is a red line. Russell said they might be open to a compromise, one, being david davis they have a new body, a new arbitration body set up. Yes, some welcome ground being given by the e. U. Mark thanks a lot. Simon kennedy. And Ian Shepherdson stays with us. Post financial crisis first as every u. S. Bank passes the stress test. How shareholders are set to benefit. This is bloomberg. Mark you are watching bloomberg surveillance. Americas big banks announce a larger than expected payouts to investors in the wake of the feds annual stress test. The first time every lender has cleared the regulatory hurdle since the 2008 financial crisis. Shares rallying in late trading. Lets get more with our managing editor. Milestone . Assive i think it is. The First Time Since 2008. It really sort of december 5 the u. S. Rent modod music the banks face compared to european banks. European banks are on course to embrace 27 billion to replenish capital to show how far behind they are to their u. S. Peers. Mark are they credible . Every time we have a stress tests results, you get that question, given that everyone past. Wells fargo was in doubt. Are they deemed credible . I think so. Obviously, the Economic Conditions are different from what we are having in europe. It wasnt a huge surprise but what it is leading to his massive payouts now with some bansk on average paying in the order of 100 of earnings back to shareholders which is mark compare u. S. Banks to european banks with regards to Capital Safety stress tests. Right. You have got the european banks are still raising capital, bolstering their books. Economicgot yo conditions you have got brexit that will feature in the stress tests here. You have got frothiness in the credit consumer market. The bank of a limit question higher offers in relation to that. In europe we have got the italian banks that are still cleaning out in a burden with hundreds of billions of bad loans. And spain is also still finishing up the cleanup that resulted from the bust in the real estate market. So, you have got a lot of cleaning up to be happening in europe. Mark are we closer to getting to where the u. S. Is with the european Banking Industry . Ian in the long haul. The mechanism to do it isnt there the turnaround in u. S. Banks is absolutely remarkable from the wreckage of 2008 to today where you could argue that some of the bigger banks are over capitalized. The bigger payouts are more than overdue. Mark does that mean a lighter touch Regulatory Environment in the u. S. . These stress test results. I know the change in personnel on the fed might be the more business friendly rather than regulatory hardened approach. It appears that way. The regulatory tailwind as opposed to headwind, which im not sure the europeans are seeing this poinside of the pon. Potentially more activities. Banks have not been engaging in it heavily, which tend to be the more profitable business. Theyve sort of had been holding back on, because of the greater capital demands. Mark thanks for joining us today. Right. Up next, how should the world deal with north korea . Well focus on the agenda ahead of the white house meeting later today. This is bloomberg. Mark you are watching bloomberg surveillance. Lets get the bloomberg first word news. Estian americans big banks have announced a larger than expected payout in the wake of stress tests. Jpmorgan and bank of america boost dividends. The first time every lender has cleared the regulatory hurdle says the reviews began in the wake of the 2008 financial crisis. Shares rally in late trading. Thet rump travel ban will the trump travel ban will come into effect at 8 p. M. Eastern time. The researchers will apply to refugees and migrants from six countries. The department of Homeland Security is imposing new demands for increased Airport Security on flights to america from other countries in an attempt to combat the threat of terrorist hiding bombs and laptops. The European Union is willing to give ground on its demand that is judges protect the future rights of e. U. Citizens in the u. K. Officials,o they could settle for an alternative to the original position that the European Court of justice must be the ultimate arbiter. That will put the onus back on britain to increase its level of protection. Facehile, theresa may will a further test of her minority government today ahead of the final vote of the queens speech. Labour opposition tables and amendment pushing for the richard to pay more tax and for britain to keep the benefits but not membership of the e. U. Single market and Customs Union. The vote will take place with a ballot on the full legislative program scheduled for later in the day. Global news 24 hours a day, powered by 2700 journalists and analysts in 120 countries,. And this is bloomberg. Mark south koreas new leader moon jaein will bring a different view on north korea when he meets President Trump at the white house today. While americas longstanding ally prefers dialogue, trump faces pressure to get tough following the recent death of the 22 year old u. S. Student released from prison in the north. Lets get more with our bureau chief. Peter, what are the expectations of an agreement on how to deal with north korea . Peter well, the expectations here at least in south korea is not much. Not likely to be any substantial agreement mainly because both moon and trump are basically walking in seychelles. Both of them egg shells. They do not want to appear contentious. They want to give a good appearance of solidarity mainly because they do not want to play into the hands of north korea which has been trying to put a wedge between the two countries. So, i, the expectation is that the u. S. And south korea will least emphasize their agreement that north korea should stop developing a nuclear weapon. As to the details on how to stop them, that will go to another summit. Mark on the other focus of bes summit, will moon able to convince trump not to alter the bilateral trade agreement . Peter they have put in all stop effort to do so. Top has taken 52 of the executives of the major conglomerates here. Last night, they announced in pledged billion investments in the u. S. Moon will is that yes, to trump and say, there could be some updatings and modification but the trade agreement has benefited both countries. So, we should not look to make some big changes to the bilateral trade agreement. Mark thanks a lot. Thank you for joining us today. Lets bring in our next next, the global head of strategy at schroders. The other big event is the result of the stress tests. If it does lead to regulation that is lighter in touch and the u. S. , could that in danger the safety and the soundness of the u. S. System . No, im not sure that is the case. I think those stress tests were a great vote that u. S. Banks were in good health. I thought the recent mnuchin report was far more thoughtful. If you go through the entire 149 pages, it is very thoughtful. What i found behind the scene is the toughest bank critics, its a wellwritten report. I do not agree with everything in it but i think it underscores the importance of Bank Regulation to Monetary Policy which is one of the big issues at the moment. U. S. Banks have shrunk their 1 trillion in five years as he focuses on america first. Europeans need to focus on it. It does contemplate looking to stress test once every second year. Mark which you are not in agree with. Certainly not in europe. In the states, it gives more certainty to the bank spirit to be honest, i think the stress test where one of the most compelling pieces of new regulation since the second world war. Just like we have an and a health check, why shouldnt a ba nk . In europe we have not learned these lessons and i think we need to , we need health checks. Mark what can europe learn from mnuchins summer read . One is, it is first and foremost about the flwoow of credit to society. Regular is quite cumbersome. Does it help work . If we do need to bleed a few vols in the system, we need to do that. Two is where there are problems, as quickly. One lesson in italy or in spain, we need to address the issues. And this connection between Monetary Policy and bank regular asian. Bank regulation. I think negative rates are one of the biggest policy mistakes of the last year, because the Central Banks do not understand effectively how the credit Transmission System really works in practice. Mark what it is changing. The rhetoric of this week seems to be turning. From negative rates to hey, guys, get ready for tighter money. Absolutely. Ion trade is back on but it is in europe rather than in states. Ec will have to reevaluate its policy. Bfor my money, i expect the rates first, it takes off some of the steroids in the system. The conventional thinking is that they will take the first. Mark what happened in italy this week. There has been so much written about it. Nonlevel playing field, nationalizing losses, privatizing gains. This isnt what the European Banking Union was meant to do. Are you critical of bank resolution, or do you say its working . Look, Banking Union is only half finished. There are times where i wonder if of half finished product is better than no project at all. It is always been the case of owners, you have to think about it in a different way. The way the spanish debt with it, they compensated them from missellings. The italians realize the size of the problem was so large they did not want to do it. The problem with the Banking Union was the speed it was introduced. The new rules were in place before we solve the crisis of the last. Who was going to pay . Mark and are we closer to solving the problems of the last crisis, or not . You think about it. In the last 12 months we have made tremendous project. The re capitalize asian of the larger firms. We have force through some of the smaller institutions. ,here might be the odd one left for the fact is senior debt markets are as tightly as they are signals that the system is in much better mark we are over the worst. Whensummer, july time, Deutsche Bank was going to its ills, is that while behind us . So, i think with banks there is always the scale of the problem and how they can earn their way out. I think the good news with the reflation rate is there is greater confidence that Interest Rates move forward. If you felt we would have the same negative rate policy for the next five years, there are plenty more problems in the system. Its why the banking decisions makes a much difference. Banks always trade on the back of the yield curve, and that is why they need rates to go up. Mark the yield curve, despite its downward move, is on its way back up again. Is this week a sea change . I think it was bubbling under. The split tis very nuanced. But i think it is something that will intensify as we move into next year. Still think that inflation is going to be rather subdued but the more that we take these emergency measures out, the more we can get banks banack on. Mark stay there. Right. Stay with surveillance. Plenty coming up as yellen ramp on assetion valuations, are equities overpriced and is the iphone turns 10, we look at apples flagship product changed the Companies Fortune and perhaps the world. This is bloomberg. Mark you are watching bloomberg surveillance. Lets check in on the markets. Hesitationa bit of and European Markets. Not really sure where we are going after the biggest selloff in six weeks yesterday but there is one message prevailing in the markets coming from central bankers on either side of the atlantic, borrowing costs are heading higher. This is the all country world index hitting a record high. The turquoise line set for the first half, a gain of 11 . A really strong move for global stocks. The bloomberg dollar index doing the opposite thing in the white line. Lowest level since september. Lets have a look through the european fx markets as well. Euro index rising for a third day. Investors slightly hesitant about exactly those comments from draghi, how to interpret those by the euro index is near a twoyear high. Bunds continuing to head higher. The yield im talking about that 12. 5 basis point assent on tuesday. The direction is very much upwards for bunds. Finally, i want to talk about oil. Because it is rising for a six day. Wti for as long as streak so far this year. U. S. Crude production tumbling it easing the pressure on opec. Have a look at this. This is it on a monthly level. Were set for o ur fourth consecutive month of declines. We have not seen this since 2014. Fromrices tumbling down 100 a barrel to as low as the 20s. Are we set for more trouble in the oil markets . Mark it has been a key work of central bankers key week of central bankers. After speeches that were given in portugal. Janet yellen caused u. S. Stocks to drop by the most in six weeks after her comments about rich asset prices. How do investors keep up with all of this . As central bankers keep is aware that they are going to be less loose and their policy action, how do we as investors prepare ourselves for this changing landscape of Monetary Policy . We have never seen a monetary experiment of this scale in size. I think the fact that despite the feds tapering, the ecb and bank of japan have injected a further 1. 5 trillion this year has been one of the winds in the sail of markets. As we start to contemplate reduction, we need to think what an impact across all asset. I always think, are the central bank is likely to move a little or a lot . Are they likely to do it slowly or quickly . Consensus remains that it will be a little bit and slowly. Aret were hearing our ne nuanced comments. Mark the biggest moving the year, that shows you that the precariousthe ness. At an extraordinary tightness so even a couple of basis points makes a large difference. We do need to start taking the foot off the gas. It is clear in europe we have moved to a more reflationary perspective. World is at an alltime high. We can take some of the Monetary Policy injection off. But it will be slowly. I think we are going to watch very carefully. As i mentioned, i think tcp should move its rates up earlier. And just make sure they want to reload just in case there are problems around the corner and it leaves them exposed with a negative rates. Mark as yellen said, asset prices are a bit rich on some metrics. Are they . And how should we protect ourselves against that . The challenge is here that we have had good earnings increase. We have got extraordinarily cheap money. Up by a their small quantum. And so, i still think the environment of economic recovery and relatively cheap money is very supportive. In a very long rally. Naturally, after anything as long as this 1, 1 wants to test oneself. We think the growth assets look interesting. But you need to be very thoughtful about is it e. M. Or u. S. . The european recovery story looks very interesting. Mark what about e. M. . I think it is a very mixed picture because some of the politics, but theres continued momentum and one of the really big debates is china, tightening and so forth. I think we are constructive for the moment about the market there, but i think one key question we keep wrestling with is how constructive is the chinese policy . Are they going to loosen again . It is similar to the central bankers debates in the west. The level of accommodation is critical. Mark mark carney this week suggested may be rates could rise. A week ago he was saying rates would stay unchanged. Whats your overall assessment of the u. K. Economy and assess given this tricky two year brexit negotiating. Period . I feel for the bank of england that coming into brexit there is a lot of uncertainty. They felt they had to put more accommodation in the system. Cutting rates was probably a mistake. Now they are reevaluating that. The most important issue is a areit and populist policies inflationary. It is one of the few countries in the western world were inflation is galloping ahead. Probably because of the cheapness of sterling and therefore i think reflecting on their own forecast. Ofcan debate the merits their forecast, they are well ahead of targets for the next couple of years. Its appropriate that they should reevaluate it. But is going to have a hard grind. It is one of these known unknowns. What is the exact consequence of brexit . You can understand why they want to keep open and keep the caps running. Mark inflation would stick elsewhere . s slowing. It in the eurozone tomorrow, we will get data which shows it is slowing. We keep being told by fed officials that inflation will hit our 2 target. Draghi seemed confident about the path for inflation. Do you share the view of central bankers, inflation is going towards targets . Im a little bit more cautious. Central banker about once every two weeks, what do they think . Do they think inflation is coming back . I think one of the Biggest Challenges is what is technology doing to Wage Inflation . There are a brighter explanations technology, excess workforce. Could it be just the scar tissue from the financial crisis or delayed reaction . I think that technology has transformed Wage Expectations because of what technology can do. Goods very little Academic Work that allows the central bank to reevaluate what they are doing. They continue to believe that their actions will still inflation. On a mediumterm view, exu. K, it is still quite modest. Mark thanks for joining us. A decade of dominance as apples iphone turns 10. We look at how it changed not just the industry but society itself. This is bloomberg. Mark you are watching bloomberg surveillance. Lets get the Bloomberg Business flash. Financial the u. K. Reporting council appointed investigation into pricewaterhousecoopers. An move comes after accounting scandal at the italian unit that lets to a writedown of 530 million pounds. Of marchw will cover 20152017 and is designed to investigate breaches of auditing requirements. Rupert murdoch should find out today whether his 11. 7 billion pound bid to buy the rest of sky is likely to go ahead. It comes a previous attempt was sunk by a phone hacking. Scandal Karen Bradley is expected to. K. Today when she intends to do. That is the Bloomberg Business flash. Mark the iphone turns 10 years old today. It jumped far beyond the competition propelling the resolution in apps and spurring rapid changes in society. Em today apple is going to reinvent the phone. 2007, on june, 29, consumers got their hands on the very first iphone. Later, thede smartphone has proven to be the undisputed king of apple products and, in turn, revolutionized an entire ecosystem. Destroying heavyweights of the day and scoring new rivals across the globe. The iphone open doors what is become a large chunk of the companys revenue, apps. App sales have generated 100 billion in Gross Revenue with 16 Million Developers worldwide producing apps ranging from uber to snapchat. The launch of the iphone did not just change the way people work and socialize. It also transformed the company itself. Apple grew by every dimension, going from a company with staff iphone, to8,000, pre workforce of 116,000. And sales went from 19 billion in2006 to 215 billion a decade later. It does not stop there. Since its launch, apple has sold 1. 3 billion iphones, generating more than 800 billion in revenue, and that blows other devices out of the water, including nintendos game boy, which sold 118 Million Units in his lifetime and sony walkman that sold 200 million in a 38 year period. With that astronomical growth rate comes heavy dependence. The iphone makes up a whopping 623 of revenue for apple, making at the companys most crucial product. Are tech heavyweights sounding the alarm about the future of smartphones with longtime Silicon Valley investors saying he does not think there will be any more innovation here. It is clear that apples ceo tim cook sees a different league. Tim i think we are just getting started. So, im incredibly excited. And clearly, there is nothing that i think virtually anybody would say is going to replace the smartphone anytime soon. Emily as apple looks towards the decade, a major question remains how long can the iphone remain at apples core . Mark now bloomberg surveillance, continues with guy johnson. Theyll bring you Francine Lacquas escort of interview with mark carney as he publishes report on Climate Change. Look forward to that one. This is bloomberg. The midlow inflation crony, draghi, and yellen, coordinate. The market says, maybe not. Two big distress banks, will . Hey increase sharing purchases select tories want the Prime Minister. This is bloomberg surveillance in new york. Johnson. Guy is there really going to be a tory mutiny against the prime queens around the vote . Guy it will be interesting later on to see if he believes a tory leadership contest, if we were to able to get through the queens speech and the Current Administration is in place. Francine is not here, you are missing her desperately, is because she is down the road. Let me not oversell this conversation. Many are saying mark carney is coming up. We will get another bite of the apple and see where he thinks Monetary Policy is going. We wont get that fight. It will be about the environment. Not the Monetary Policy environment, the actual environment. Tom with your first word news, here is taylor riggs. Before Parliament Takes the final vote on legislative programs today come the labour party will propose that the britions pay higher taxes. President xi jinping is expected hong kong against challenging beijings authority while emphasizing the benefits of closer ties. In the u. S. , President Trumps travel ban will take effect tonight according to persons familiar with the matter. Embassies and consulates worldwide will have enough time to figure out how it works. It is a 90 day ban on people entering the u. S. From six muslimmajority countries. Susan collins of maine and the senator from south dakota criticized the repeal of a surtax on net investment income. Mitch mcconnell has put the bill on hold while he tries to round up enough votes. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Am taylor riggs this is bloomberg. Tom lets do a data check. What a shift on what we will call the center pack. All that we saw yesterday, including the meeting in portugal, everyone is trying to raise rates with the curve steepening. A stronger euro. , 9. 87 shows dislocations between the market. The dow did not lift much. 9. 87 is a remarkable number. Bond. U, 0. 28 on the swiss that should be green at the bottom of the screen. Economicarea geo confidence just hit the bloomberg. The estimate was 109. 5. In context, that is a decade high. It puts really what were hearing from the central bank in context. This is draghi thinking about the european economy might outperform. That is something you want to Pay Attention to. You can see it running through the data. This is the guy johnson chart. Been so much going on. Guy nailed this yesterday with the german 10 year yield with brexit on the left. What is important about this chart is the range of where the german 10 year is traded. Up once more. The real question for all involved is do we get to escape velocity in some form of new environment . With all of the central bankers appearing to be somewhat coordinated, you wonder if the guy johnson chart is the chart of the year. Guy you and i are of one mind this morning. Lets bring in our next guest to talk about the 10 year. We are joined by the schroeder global head of strategy. The bloomberg tells me the year on average forecast is around. 6. His. 6 a stretch or easily done . It is possible. I love your chart because it speaks to the european reflation. It is likely we will see a withdrawal of monetary stimulus from the ecb. The ecb Balance Sheet is larger than the fed. It is about time. One way out is the taper. September tod january. That is what the market is expecting. Another is they enter the brexit early. Exit the brexit early. There is a chance that they could bring the negative rates up. What is too much . They still have an inflation mandate. Huw on one level they try not to think about the currency, but the faster it rises the more puts it down or on inflation statistics. That is why they got out yesterday. It will be a subtle movement. I think that the currency hangs over them. Qs inflation has been disappointing, i think that also overhangs it. I think the stimulus is starting to come out. Tom theres so much in this stress test in the nine at states. Also among central bankers. Lets say central bankers right s of george cella bella Deutsche Bank said mario draghi said i dont care but low inflation. Bankersee good central trying to avoid low inflation . Is that what is going on . Huw what i took away from the speech is that the inflation in the economy is strong. As mario said the unemployment score is higher. The unemployment in the eurozone is where the u. S. Was five years ago. There is concern, that is why the Balance Sheet has been expanded so much. They are starting to hit selfimposed limits. Hit limits. Can the markets take the limits, or delete set ourselves up for the doom and gloom, mini tantrums along the central pack pack . Huw for the Central Banks move a little or a lot, whether they move quickly or slowly, the assumption is slowly. Given that it is mini taper tantrums. We were worried about a derailing market. That talk is gone. The ecb, boj, and the fed remain dovish. They will try to take their foot off of the gas slowly, but it is tough. There will be a series of mini tantrums given how low the rates are. Guy this is the u. S. Real yield spread over six years. The dollar index is the white line. A big yield advantage. You have the dollar index here. They usually move in lockstep. They are not. Theyre breaking apart. Is the move against the dollar heavyhanded . Huw it feels there should be support given the differential in yield. They should be taking their foot off of the gas. That is why the currencies are saying appreciation. I think that correlation is something will watch closely. Tom where is gdp growth . Europe hasuggest reached an escape velocity of solid Economic Growth or is it uroscolosis . Huw it is above escape velocity to trigger the ecb to rethink the right policy. The challenge is the northsouth divide. Growth in germany is running hot. Confidence hadc a boost since macron. Challenging was work to do. It is too early to declare victory. I am encouraged by the reflationary stimulus. The optimism around macron. Joining us, steenis the global head of strategy at schroeder. We have a conversation with mark carney. Lacqua, mark carney, talking about the environment. The actual environment. Not the rate environment. This is bloomberg. Taylor this is bloomberg surveillance. I am taylor riggs, lets get to the Bloomberg Business flash. The fed told the banks they have more than enough capital. And citibankital, revealed plans more than analysts expected. Making the biggest bet on retail. The firm agreed to buy staples for 6. 9 billion dollars. It is a wager that the officesupply chain can emerge as the seller of businesses. Rupert murdochs 21st century fox will learn if it will be allowed to pay 14. 9 billion dollars to buy the rest of sky that it doesnt own. The British Culture secretary will Tell Parliament her decision. Murdochs bid to buy sky was rocked by phone rocking scandal six years ago. Rally inre seeing a the banks index this morning. To be honest, i think that the numbers at this stage are driving the bulk of that. The follows financials in u. S. Asia cripple through that story. A shareholder windfall when it comes rippled through. Todfall when it comes unveiling plans to boost dividends of stock buyback after passing the fed stress test. Joining us now is the bloomberg gadfly columnist. Good morning. Evenurprise to me was under stressed conditions they did pretty well, u. S. Banks. Putting that in context, the amount looks ok. The symbolism is the pendulum is swinging away from capital bringing capital ratios down. The fact that the numbers suggest banks will pay out all of the money they are projected to earn over the course of the year tells you that banks are ready to start reducing the. Quity in the equation it is good for people who own the stocks of those banks. Is the gap between europe and the united states. It is Crystal Clear . The picture of Bank Regulations and Balance Sheets are different. The economy as different as well, a different part of the cycle. The eurozone has more to do to catch up and get credibility, but there is recovery happening and we have seen a big jump. We will see similar potential in europe. Tom you know these numbers. Thats bring them up on the bloomberg. I rarely do this, but it is important. Function on jpmorgan. Is that there was 3 billion in the blowup of operating income that crawled back to 9 billion, they were all going to die, the world is terrible. Now they are grossing up 32 billion, ramping up to 42 billion, 10 times as much operating income is the ugly year of 2008. It is clear for these people. Do they have too much money on the Balance Sheet . Are they making too much money . I think they are in rude health and the stress test has showed how strong of healthy u. S. Banks are np or is still underestimates the impact of deregulation. Is a veryn report good and balanced report which allows the banks to return capital over the next three to five years. There is a lot of capital return. If you are for income in a low rate world, financials look interesting. Lionel, if we go to one of the original functions on the 13 rg, jamie dimon it at 13 fiveyear Dividend Growth. They cannot sustain that . A bank is not good in doubledigit Dividend Growth . If youre jamie dimon, you will say look which banks are in the best position in terms of Balance Sheet strength and profitability . The biggest banks, the most diversified banks. The only bad news we could find was most of the credit cards exposed providers. Lobbyistse for the and big ceos. Guy to take that point on board, how do you follow this . It depends on what kind of investors get interested in what they ask for. If you believe that rates can rise, and even if you incorporate credit losses, the banks will still make a ton of money, may be should get involved. Saying, why dont you merge . Is there a quicker way to grow . Is the market growing faster than we intended . Investors have been too reliant on the passive idea to sit back and wait for money to flow. It depends on who is buying into the banks and what is their request for the next five years. In europe isy radically different to what it is in the and and it states. Banks are on a european recovery. You have to be selective. You talked about the northsouth in the european recovery story. If hilderbrand as hilderbrand says we are heading for a golden , you have to on them. What is different in europe is the Interest Rate environment is tougher. Iswhat center is telling us that rates go up, that is positive for banks over a long time. In the states has been modest. In europe it is accelerating. Normally loan growth is a lagging function of confidence. Third is do the banks have enough capital . In europe you have the haves and havenots. The u. S. Is loaded on capital. Om we will continue i cannot tell you how much i love doing surveillance when you see the guest quality from lionel to huw van steenis. Joining us in the next hour on this important day, maybe well call it coordinated centralbank policy. Us. R hooper will join he has been out front of what Central Banks want to do. From london and a beautiful new york, this is bloomberg. Centralbank is confusing people, the bank of england. We have not figured out exactly what is going on. Francine is talking to the governor about the environment. The bank is never far from my mind. The chief economist of the bank of england is a cat amongst the pigeons talking about a rate hike. To see thenice context. He is saying the boe needs to look at raising rates. He is saying he is happy where rates are now. We are seeing data out that suggests the credit impulse is returning. That might be why the buffers were raised a couple of days back. From schroders. I would have thought that banks would always look seriously at Interest Rates come it is its job. When you look at the august meeting coming to you think the bank will be discussing the possibility that rates will go up, or will it be impossible . A third leg to the story is now they are raising buffers, is that a more logical way to have been down issues with Consumer Credit . Huw the dramatic increase in Consumer Credit concern, it is the pickup in inflation in their own expectations of inflation. It is right to look at Monetary Policy. Cutting0 hindsight, rates around brexit was unnecessary. At a minimum, lets put that on the table. Emergency measures, when emergency is over they should give it back. Long, hardbe a thing. We should pace ourselves. Revealing that could be helpful. Om thank you for joining us coming up later, this is a real treat. The Massachusetts Institute of technology is truly americas most important technologist. He and andrew mcafee, their book, they have a new book about how you will survive the technology onslaught. I cannot say enough about this in the next hour. A changed world with significant curve steepening. From london and new york, this is bloomberg. The washington of itlth care, of travel bans, is also the washington of centralbank policy. One of our great themes this morning. We will touch on that throughout surveillance on television and radio. Taylor the European Union might be willing to eliminate a major roadblock to progress in brexit talks. It is to demand that judges protect the rights of eu citizens living in the u. K. That would put pressure to increase the number of protection they are offering. Is the highestranking vatican official ever charged in the Catholic Churchs longrunning sexual abuse scandal. He denies accusations, has taken a leave of absence, and will go to australia to fight charges. The new south korean president prefers dialogue to get north korea to drop the nuclear program. Stopping short of expanding the laptop ban in airliner cabins, but new demand for increased security on flights to america to stop terrorists from hiding bombs in airports. News, 24 hours a day, powered by 20 700 journalists and analysts in 120 countries, i am taylor riggs, this is bloomberg. Chinese president xi jinping has arrived for his first visit in hong kong since he became president. It is the 25th anniversary of chinese rule. Byg kong has been rocked waves of street protests against chinas seeming encroachment. What can we expect in terms of what this trip will deliver . I understand that security has been gradually ratcheted tighter . Absolutely. There are 10,000 Police Patrolling the streets, one third of the Hong Kong Police force patrolling the streets over the next three days. They were disturbances last statue, a Golden Flower statue that was given to hong kong by china 20 years ago to symbolize the unity of one country. Joshua, the teenage student leader that became famous during the occupy central protest, was arrested along with nathan. They are demanding full universal suffrage. That goes to the essence of the tensions between china and hong kong. Hong kong believes it has been full universal suffrage. China only wants to grant its version of universal suffrage. Guy is there a sense of disappointment the u. K. Has not delivered on what was expected . David there has been. Who used to be the number two Civil Servant here, she has often talked about how she is disappointed the u. K. Has not pushed china to uphold the International Treaty that agreed there would be one country, two operating for hong kong. Yes, there has been disappointment, certainly. Tweed,ank you, david joining us on the hong kong story. Our next guests needs very is at all introduction. He has a seat in the u. K. Cabinet and, right to the point of the hong kong story come the last governor of hong kong, now chancellor of Oxford University. He just published his book, a sort of memoir that explores the identity between are you disappointed with how it turned out . Two things. Would you didnt see when president xi got off the airplane was a group of presumably hong kong people the haven like a north korean crowd waving flags. The idea that you would get people in hong kong to do that ishout being choreographed for the birds. Secondly, would you can depend on is the only scenes that will Mainland China will be enthusiastic crowds, you will not see protesters. Mi disappointed . Yeah. It is not only thwarting the appetite for democracy in hong over but what has happened the last two to three years while prison at xi jinping has been there is the Chinese Communist party while has been xi jinping there, the Chinese Communist party has a tighter grip on hong kong is when the pipe windpipe. The international community, britain in particular, has not made the fuss it should have been. Your sentence at the handover i relinquished the administration of this government. Thedid a blurb for wonderful book, lets bring up a quote from 10 years ago. A modern history of hong kong. Orther governor patrick anyone representing the people of hong kong, if the transfer of power was a moot point. They are not represented in the handover. That is what the professor is saying at oxford. Help me with the modern hong kong. Do they have any representation today . They have some, but very little. The really important parts about the people of hong kong is an understanding of the relationship between pluralism, rule of law, prosperity, free markets, free politics is part of their dna. It is good from around it is not only older people that feel that way, it is younger people. People like joshua wong and the Younger Generation that feel passionately about freedom and should be represented in the government of hong kong. Iny usually win a majority elections, but your elections are limited in what they can achieve. The executive is chosen like an iranian president from a list of trustees. Tom if we were to go back to the courage that you showed 10 years plus ago, if we were to visit the act, what would you need from President Trump . You have been an observer of our new american policy on hong kong and china. What is the patten prescription for President Trump . Gov. Patten i am not his biggest admirer. By prescription would be they should ask can we trust china to keep its word . We know already, and this is a point that President Trump has been right to indicate, we know in access to the wto negotiations, and i was part of the european team, that the chinese have slithered away from what they promised they would do. It is more difficult for a western company to invest and sell to china than a Chinese Company to do the other way around. That, can you trust china elsewhere . The way they behave in hong kong, they are treatybound to keep hong kong as it has been. If you cannot trust them in hong kong, people will raise questions about where you can trust them. North korea, can we trust them in north korea . Gov. Patten theyre nervous about their ability in north korea to choke off the president ial Nuclear Ambitions of pyongyang without destroying the regime. Theyre terrified about the collapse of the regime in north deluge ofthen a refugees into the rust belt of china. North korea is one of their pals. They have a dodgy set of friends. Zimbabwe, and one or two others. Guy what is the future of hong kong as a Financial Center given what we have seen with the relationship with beijing and the rest of the world, how difficult the last few years have been . Gov. Patten the economic balance has changed. When i left hong kong of chinas gdp. Because of the welcome 3 . Lopment and china, it is that does not mean that hong kong has ceased to be important. It is incredibly important to even Mainland Companies because. T has the rule of law a lot of Mainland Companies will go to hong kong to sign contracts, because then it is in a system they trust. And alle rule of law you can achieve with it, that is vital to hong kongs continuing importance and success. Is what i want to know. Ive never asked you this, but it is an important question. Have you ever sat at the bar in the Peninsula Hotel and looked over your hong kong . Gov. Patten i have. And if i may be slightly vulgar i have taken a pee in the tory and it looks like you are doing whatever you have to do over the city. Hong kong remains a feisty say. Pockets of the old hong kong around every city. Mean for does brexit hong kongs future . Gov. Patten were told that brexit means Global Britain and we will take on new markets. I worry that in relation to china, we sell nine times as much to the European Union as to china, it will increase the tendency to think that in order to do business with china you have to count out politically. I can see that feeling increasing if we are outside the European Union and do not have the immediate support of oureu colleagues. Tom we will continue with lord patten, maybe find out how oxford is doing. Lord patten to continue with us. July 4 is a day when the colonies got upset. Worldwide. Pops tuesday, july 4, 8 00 p. M. This is bloomberg. The switch yesterday as Deutsche Bank went to a strong euro. They have been good on that for 24 hours. We will be joined from Deutsche Bank on the center pack. This is a new phrase he is a coordinated response of Central Banks as they attempt to raise rates. He will join us at the top of the 6 00 hour. Guy johnson . Lets look where cable is trading. The chief economist of the bank of england talking about how the bank should look seriously at raising rates. Theyre comfortable with where rates are now. Cable touched north of 130 earlier. Now, the cable rate is declining. 100 30. Ub we get a vote later on the queens speech. What happens next, that gets interesting. How long will theresa may be the british Prime Minister is an open question in westminster. The former governor of hong kong , a member of the british government, amongst other things. Also, a more recent hat, the chancellor of Oxford University. You think there should be a contest post the queens speech . Mr. Patten no. It is because the conservative party will be terrified of a leadership contest because they have no idea who would emerge. Rightly clearly and nervous about precipitating another general election. Awful way the last one was conducted, we managed to turn jeremy corbyn, who is not a bad man come but has crazy views into the nations favorite grandfather. Not only because he appeals to young voters, but because he was ahead in the polls with voters up to the age of 45. That is astonishing. It took an amazingly bad campaign to make that happen. Guy that demographic is fairly proeurope as well. On the other side of the channel, we do have a clue what the u. K. Wants from brexit . Mr. Patten i would not have the faintest idea. It is a reason why referenda are such bad things. Having seen how referendums have been used in germany, we the germanem in constitution. They are terrible things. When people voted last year by an era margin for brexit, they were told Different Things about pitted theymeant would have more money every week for the National Health service, they were told we could get outside the European Union all of the things we had inside the European Union. You believe in fairies if you believe that. You cannot have the same relationship with the European Market if youre outside the Single Market and customs unit. The reason that sterling has come down 14 is because the markets recognize that. Tom this is trade weighted sterling. Something that chris patten kn ows well. With massive british strength, then we rollover with the brexit drop. If we have brexit and a weaker sterling, we will recapitulate the British Empire and do a unilateral trade structure and k toything will dash bac when your father was playing jazz years ago. Is it feasible we get back to a British Empire . Mr. Patten it is ridiculous. And you look at the facts, intimidating thing to do, you determinedly export six times as much to europe. We export five times as much to the European Union as the commonwealth. Sayingeading yesterday what tremendous exports there australia, but we export 43 times as much to the European Union as to australia. It is a terrible pretense. It is demeaning to put these arguments i have been a part in the past a trade negotiator. The first lesson is that you double the distance you have to trade half the amount of here that may have been changed slightly by globalization, but it is still a pretty good indicator. We are deluding ourselves. The sterling story is a worrying one. Tom what is your prescription for Boris Johnson . R. Patten tell the truth pretty oldfashioned. Telling the truth would not be a bad start. Unfortunately, he is an intelligent man, unfortunately he has allowed himself to fudge the difference between being a politician and comedian. Guy what will brexit be for Oxford University . Mr. Patten the worries we have is maintaining our International Status and staff here at we worry a little about money, but that is less important than the staff issue. Were the biggest recipient of grant income in europe. We worry a little about , researchion collaboration. Were trying to deal with that. Signal itbout the sends to the rest of the world that we might be closed to the academic and Business People want to see. I think we will get through it because we are so good in areas Like Life Sciences and can demonstrate were still a great university. Guy thank you for spending so much time with us at bloomberg. Next, talking about the Central Banks. Francine will return shortly after talking with the governor of the bank of england. Tom should you take luggage . On top ofdo anything your bag at the airlines . We will find out. Berlin, an expert on this. How bad will the lines be at heathrow or frankfurt . Hi from berlin. Fairly chaotic at the beginning. More than 300,000 passengers every day being funneled from europe. , 200 airports. Chaos is something we can expect. That is the bad news for you and i who have to handoff everything to the containers and let people screen everything we bring on. The good news is that the laptop as we we laptop ban, got to know it, is off for these airports. Guy what is it mean for the carriers that put the laptop bans in place . The question if this new and enhanced screening will supersede the laptop ban. There is hopeful noise and the middle east on that. Will it bring these carriers back into the game . They have the advanced screening technology, the sniffer dogs. There is no reason they should not be able to comply with the standards. People are looking for other routes to dodge these bans. Appreciate it in berlin. A real uncertainty about the laptop ban. We have an exceptionally busy 6 00 hour. Peter hooper will join us as we look at coordinated central bank action. Saravelosing george his lead with inflation impasse of what the bankers are doing, including mark carney. Francine lacqua in conversation with Governor Carney. We will have that conversation, centered around Climate Change and the environment, as well. We will do that in a bit. A changed data screen. A steeper yield curve and currency. What you need to know is dollar weaker, 1. 1415. We thank Christopher Patten talking about 10 years on from his hong kong. From london it, from new york, this is bloomberg. Low inflation, carney, draghi, and yellen coordinate. The markets say no. The stress tests are over. American too big to stress banks. Mutiny. Select tories want Prime Minister may out. This is bloomberg surveillance. After a conversation with Governor Carney, Francine Lacqua parachutes in. Briefed you one everything. Give me the scoop. Francine the interview was on stuck tohange, so i the rules. I tried to talk a little about policy, or understand if the market repricing we heard yesterday after his speech in portugal was the right thing to do. He wouldnt talk about it, you do get a sense they are worried about the market movement. If you look at this beaches, what we heard from Governor Carney yesterday and a few weeks ago, they look similar. My bloomberg terminal is if you can hike pricing. Well get to that in a second. Another test for Prime Minister theresa may and her minority government. Before parliament makes a final vote on mays legislative program the labour party will propose the richest pay higher taxes. They will call for the u. K. To keep the benefits of the Single Market and customs unit. President xi jinping is in hong kong for he will confront the over independence. He has warned hong kong over challenging beijings authority while emphasizing the benefits of closer times. Closer ties. President trumps travel ban will take effect tonight. That will give embassies and consulates enough time to figure out how it works. A Supreme Court ruling provides the 90day ban on people entering the u. S. From sixority majoritymuslim countries. I am taylor riggs, this is bloomberg. Tom we have to do a data check with markets on the move. A grinding reversal. A 9 handle 10 handle move. Breakout, but it gets your attention. The euro is extraordinary, 1. 1415. Paying off big this morning. Ae next screen, the vix stunning nine point 92 real complacency. I put in the eurodollar twice i was so excited. Is it an entire Governor Carney data check . Francine it always is, but unrelated to the interview on Climate Change. Climate change is important when you are a global ceo, but it hasnt moved the markets. What has is more than understanding in the markets we are looking at tighter financial conditions. That is having an impact on the european stoxx 600. Banks have gained in europe and asia after the stoxx 600 in the u. S. Rebounded. Tom peter hooper is a lucky guy. Can call on george stravelos. He has written great notes on the central pack. Is essentially summarizing what we have seen, all of the Central Banks sounding more hawkish. Confirmation in yesterdays panel where we had governors speaking. The message is that Central Banks wanted to move away from emergency settings. You predict more market volatility. Be significant market taper tantrums, or can we have smallgeable set of tantrums along the volatility that . Volatility path . George we are starting from a low volatility base. Be a bits that it will higher over the last few weeks. Arekey point is while we Central Banks outside of the u. S. Becoming more hawkish, the other aspect, the fed, and what was written in recent notes was called a phenomenon by which the fed is sounding hawkish but the market is not responding. The reason is that the fed is so much ahead in terms of tightening. The marginal differences from all of the other Central Banks that have been dovish. Even though the central pack designers may wish for lower eventuality may be leading to higher volatility because of the fed. A not see something similar from governor mark carneys speech yesterday . It was fairly similar to what we heard a couple of weeks ago. Is there too much nervousness on the market of getting things wrong . George the market focused on carneys sentence where he said now is not the time to raise rates. Futureints the limits of guidance if you try to find 10 expectations too much, the ecb and the fed have talked about that if you try to do too much finetuning you end up with more volatility because the message could be misinterpreted. Francine is the message misinterpreted or are they looking at different data points . George it is mostly they are looking at different data points. What happened with the fed is as they are hiking they are. Pproaching the rate of 2 as we are approaching the end, the market goes to the next question, is it time for a fed pause . A different phase of the cycle. Inflation at of the u. S. Remains low. Tom doug tell us in with the scathing review in the telegraph, do we have instabilities . Are there instabilities and over leverage within the Financial System now . Moment, thehe fascinating thing is the market is taking the hawkishness well. One reason is because the fed is communicating that the terminal. Ed to fund is quite low even know it might be quicker than the market is describing, the stability is because the market is not perceiving the fed is behind the curve. As long as the ecb and bank of england are hawkish because growth expectations are going up, it may not be that bad for the market even though it allows some volatilities in currencies. Francine the global head of fx research. We have an exclusive conversation with bank of England Governor Mark carney. It was on Climate Change, not on policy. Still, an important subject. That is 6 30 a. M. New york time, 11 30 in london. This is bloomberg. Tom lets get to washington. I will try to be health care free. The courts especially, chief Justice Roberts and kennedy did not want the course decision to be read as a partisan rejection. F the trump legislation the justices would really like to avoid ruling on the travel ban altogether. Kevin cirilli joins us. What are we going to see . When do we implement whatever we are supposed to implement within all of this confusion . Marty the travel ban goes into effect at 8 00 tonight. The court legal battle has not moved fast enough for the critics and opponents of the travelban. Ar the white house this is policy victory. This is something they campaigned on that they have to deliver. This is something that faces opposition from the left. I think that you will be seeing more across the country today from protests at airports and at capitol hill. Francine any news on the Health Care Bill . Do we regroup after july 4 . I put this question to senator ted cruz of the hallway. He says he does not want to commit to any kind of artificial deadline. He is the conservative senator from texas who oppose the bill that hes that was not conservative enough. I spoke with more moderate yesterday. They do not want to be tied to an artificial deadline after july 4 recess. Intense pressure from the white house and activist groups ticket something passed ahead of the fall to get something passed ahead of the fall. Tom Deutsche Bank research has been on fire, led by peter hooper. They put together an exceptional team. Dr. Hooper joins us now. Do you by the fact that we are seeing centralbank coordination . Peter i think that george is onto something. Hint. Nly draghi dropped a Central Banks generally do not coordinate. Seemingly ino act concert when the data is in the same direction. This is interesting. By the way, david landau is head of research tom we look forward to having dr. Hooper and dr. Landau with us. That doesnt even go to the research over the years. Excuse me, that was my faux pas. Iter, you know this chart, is supposed to happen. The two lines are together. The table rule is nowhere near where we are now. The orthodox is this normalized fast. What is constraining the central bank . Is it productivity or inflation . Peter it is inflation right now. Inflation is low. Productivity is low. Has the ability to move slowly because inflation, if anything, is surprisingly to the downside. Core pce below 1. 5 . There below target. He gives them they are below target. It gives them the opportunity to go slow. Francine the fed is saying they want to hike more than the market is pricing in. If you put the Market Expectations on this chart, the market is way below where the fed is saying theyre going to be over the next couple of years. It is interesting that you have in recent days, said speakers talking not only about the economy is doing ok, inflation is a little soft, we think that is transitory but we are getting concerned about Financial Stability issues in the mix. Is an agreement, it is probably that there is an partsion lull in some are likely transitory and we will see things moving upward, but there is also a sense that there might be things looking a little rich. Francine bubbles, if you see bubbles, where exactly . Eter not bubbles we dont think the stock market is significantly overvalued. I can say that the risks, the return on corporate equity, as my colleague noted recently, is low. There is reason to think there is risk. That theye challenge are encumbered by Balance Sheets . Are we away from orthodoxy and a dialogue in school because we have the Balance Sheet. Percent of thehe Market Equities and bonds it is stunning. The national bank, with they own in microsoft is job dropping job dropping. Pping. Jaw dro it is not in the text books. Peter it is historic. We also went to zero bound on inflation. A very unusual situation in the global macro economy. Central banks have had dip two intohis balance d ip Balance Sheet policy. The u. S. Is leading the way. It is time to be reversing this policy. Concern the there fed and Central Banks wanted to normalize sooner because they want enough ammunition for the next crisis . Peter that is part of it that they wanted to get rates up before tapering on the Balance Sheet is part of it, yes. Low levelsat such they do not have much ammunition now if we get into another problem globally. That is a factor. Tom we will continue this important factor of the linkage of market into centralbank action. A good time to, speak to mr. Brady. The congressman is opinionated about what is going on in his washington. Look for that in the 9 00 hour. With markets moving, curve steepening, in london, new york, and hong kong, this is bloomberg. Francine this is bloomberg surveillance. Rom london and new york lets talk about the stress test in the u. S. Following a Strong Performance in the u. S. And asia. This is after news of a shareholder windfall and a suggestion from central bankers that Interest Rates may rise. Jpmorgan, citigroup, and bank of plans toere among the reduce dividends and increase buybacks after the stress test. He left london for new york, michael moore. Great to speak to you on the phone. The big winner in europe is hsbc after analysts saying this may boost buy out. Banks across the board were winners. No one failed for the First Time Since the fed started doing this test. Announced capital. Eturns above expectations the banks have figured out the stress test and have enough capital to start getting some back. Francine so you say everyone the index, the industry is one of the biggest gainers in europe. Europeans, some more unknowns then the u. S. . Michael you have had Deutsche Bank in their struggle with the test, but the fed made a change that some of the banks that are smaller in the u. S. , including some of the europeans, are only judged on the numbers, not the qualitative process the way they have been in previous years. That is what has tripped them up. The fed it is sizing their process rather than their numbers. Tom i want to go to the Financial Analysis of jp morgan, one example of two profitable to stress. Profitable to stress. The operating income of jp 2008. , 3 billion in in the last couple of years rounding up to 40 billion of operating income. They are minting, minting, minting money. Is the idea doubledigit Dividend Growth . Jamie dimon would say that this should have happened a couple of years ago, that they had too much capital and holding too much of their own profit for a while. They finally have the green light. The banks will start returning 100 of earnings over the next year. That is the fed indicating the banks are fully capitalized and the earnings are going to go to shareholders. Tom thank you so much. Us. R hooper with say this, Alan Greenspan has told me repeatedly that a good Financial System goes right into the animal spirit of gdp. Do you agree . Peter absolutely. The improving health of the u. S. Banking system, the growth of factor thatis a after pence a good macro performance. The problem is in the u. S. Economy the supply side is growing slowly and productivity is not picking up, but aggregate demand is moving along well. Francine thank you, so much. Bank hooper of deutsche still with us. Coming up, an exclusive conversation with governor mark carney. We did not talk about bank policy, it was agreed beforehand that we would talk about Climate Change. Longertermfx and some of the effects longerterm of Climate Change. European stocks down 0. 3 . This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the first word news. We are expecting a decision on sky and fox news. Heres taylor riggs. Eliminateopean union a major roadblock to progress in the brexit talks. The block could back off its demand that judges protect the rights of european citizens who live in the u. K. That would put pressure on the u. K. To increase the level of protection. Police in australia have charged pope francis is Financial Adviser with multiple sexual offenses. Is the highest official ever charged in the Catholic Churchs longrunning sexual abuse scandal. He is taking a leave of absence and will go to australia to fight the charges. North korea will be the charges when the new president meets with President Trump today. President trump is under pressure to get tough. The u. S. Has stopped short of expanding that airliner cabins. It is imposing broader demands for security increases. The goal is to stop terrorists from hiding bombs in laptops. Global news 24 hours a day powered by more than 2700 journalists and analysts in over 20 countries. Im taylor riggs. This is bloomberg. Francine earlier i spoke with mark carney. Interview on the back of his speech. We couldnt talk about policy. We will make him talk about policy very soon. This was after he was asked by to compile a study weighing the Financial Risks implied by global warming. Report that will be issued to the g20 and a lot of including bank of america, dow chemical signed up to this agreement. I just asked the governor to explain to us what the main risk from Climate Change were. This is a core point of the economics of Climate Change. Term. E used this i sit in one of my roles and manage Monetary Policy limit change doesnt come into the equation because we are managing a two to threeyear when we stabilityt financial risk its present for Something Like general insurance and reinsurance. These guys are actually very good at managing. They change the pricing. They change the coverage of insurance to adapt to Climate Change. Because they see the physical manifestations of Climate Change. Make sure as supervisors that they are on top of it. In general they are very much on top of it. The fact that things roll over as wer makes it there will be changes in policies that have change in technology. Inre will be potentially anticipation of such changes. Whos going to win, whos going to lose. Whos going to benefit. Whos going to be penalized. If im allocating capital i want to have the information in order to make those judgments and i want to have some perspective soft information on whos thinking about this so i can make those qualitative judgments about management and Risk Management that unlocks bigger value. Francine is there a chance theres no risk . That longerterm if you dont know how to price the risk what if something is impacted but you cant actually measure it so its very difficult for a company today to decide on how to disclose it . Part of that goes to think you cannario think of various degree scenarios from a carbon price perspective. Thats almost the simplest way to do it. If you are shell you have much more sophisticated ways of thinking about the energy mix. I can play that through my business and look at my scope missions and look at my exposure and how competitive i will be in relative terms. Adjust, whats easy and what should i do today versus what should i put off. Whats the optimal time. Rely onextent should i technological change. Thats what you disclose. The risk is that people arent thinking about this. Sufficiently. And theres a bigger adjustment that comes. You get a moment where there is much tougher regimes put in place. Bigger technological displacement. You do get things such as we have seen in june german utilities. Thats avoidable with information. I couldnt stress this enough. This is disclosure so its neutral. It can be that the adjustment is delayed because for whatever reason on a technological or the Global Political agreements take longer to come. If im in a market i want to be able to make those choices myself. You announced this month you are starting a review of climate related risks in the u. K. Banking sector. Will it be a public review . A deeper dive in insurance for all the reasons i gave. It does cross over. I have listed a number of u. K. Banks that barclays has signed up today as well. You have a number of these institutions on their own who are working through disclosure. Help inform that sort of review. At presentn banking relative to insurance i would expect to be lower because of the horizon and the nature of the products and the pricing. We will see. That was the bank of England Governor Mark carney. We only talked about Climate Change because thats what we could do. The uncertainty surrounding all of this is whether the Trump Administration decision to stimulate fossil field means the g20 next week in hamburg will be a little bit more shy to adopt some of the proposals. The governor now saying its up to private businesses to make up. Tom you were too nice. I would have grilled him on the present state of whatever. Governor carney, tell me about mr. Holding. Francine an agreement is an agreement. I dont think you would have done anything. I did a guy johnson chart earlier on german tenure. The white line United Kingdom wage growth. You mentioned this earlier. This is a conundrum of coordinated centralbank action. When do we see wage growth . Wage growth has been taking its time. Signs of ang uptrend. The last couple of ratings have been a little soft. The targeting of the legal labor markets as we are getting there. The last time we were in this situation was the mid1960s. At that time we saw the Unemployment Rate come down. Wage and Price Inflation actually eased. Core Price Inflation dropped even with the Unemployment Rate at 4 . The next year we saw a jump in both wage and Price Inflation. That could happen. Tom jump in with dr. Hooper. Francine i know you are not seeing bubbles or anything like that. What will take for the markets to reprice overall . A centralbank move or Something Else coming from china . The Global Economy is looking better. Our forecast have been revised up. Our forecast going into the rest of the year is stronger than earlier. China we think is going to be able to get growth in the six and a half percent range. We could well see a correction. Im not anticipating negative news on this for another year. Market in the u. S. Continues to tighten there is potential for the fed to begin to fall behind the curve and have to catch up aggressively. That is still a ways off. Thats what i expect to be the basis of the next major correction. Tom peter hooper with us. We have a wonderful book coming up on technology. This is really speaking of technology would taste to the fireworks of the boston dogs. They are legendary. Coast to coast. Stay with us. This is bloomberg. Tom good morning. Bloomberg surveillance. Francine lacqua in london. Im tom keene in new york. For the movie next fourth of july. It is extraordinary their new effort. Heres what you need to know. Its not about technology. Its about society and economics and none other than Christine Lagarde of the International Monetary fund. Congratulations. I want to go to two ideas. You say steve jobs almost blew it. Steve jobs came this close. Bring up the quote from the book. Nerdy peter hooper world. Is he bloated and what he needed was microeconomics. Outside and inside apple argued in favor of external app developers. He needed to realize the battle over the Worldwide Industry was not about the product. The product was gorges. He was famous for that. He built a beautiful device and he wanted to control it too tightly. His colleagues had to convince him over the course of a year to open up the app store and turn it from a product war into a platform war. Once it happens apple defined the terms and won the battle. Tom why is this in a Technology Book . Its an outrage. We were teaching this book before we finished writing it because we use our students as beta testers. They were telling us what works, what doesnt work. Whats clear, whats not clear before we delivered it to the rest of the world. You have to understand supply and demand curves if you are going to understand the world that combines superpowerful technology. Wencine what is one thing misunderstand about digital and our future in it . Tooher we think there are many jobs being replaced. Is there something people assume that is completely wrong when it comes to digital . People massively underestimate the wave of technology that is just starting right now and they overestimate our ability to adapt to it. Changed our business models. We havent changed the way we are making decisionmaking. There is a growing gap. We are trying to tighten that a lot with some of the models we present in the book. Francine isnt this what disruptors do . But its the Old Companies that need to survive. Thats why the new guys are giving us innovation. Thats exactly right. When theres a Technology Change this big rarely the incumbent economy makes the transition well. Give ae the book to playbook to the startups and disruptors and the incumbents as well. Buried in this book is a really important insight and that is management and the new world of leadership and management. Iteration is a key process for management today. Explain what that means. We are moving too much more datadriven approach. There is so much more Data Available for everybody and companies are switching from relying on their judgments to testing new ideas and iterating much more rapidly. The kids today are different. This is foreign to you and me. The kids believe in this from their soul. How do you speak to longer younger employees . We had to learn these concepts as a second language. When we look around these companies will of twentysomethings this is mothers milk to them. They are all in gala terry and about ideas. Datadriven. They have absorbed the lessons of the moneyball world. Moneyball did pretty well. Brad pitt is going to be in the movie for this wonderful book, machine platform crowd. A definitive Economic Technology read of the summer. Clearly on the short order as book of the year. Peter hooper will stay with us. We have a little bit to talk about. Tv , let me show you what you can do. And be iterate transparent with tv and you can come over here and click on something and you can steal the taylor riggs rule chart from us. Francine this is bloomberg surveillance. Im Francine Lacqua. Tom keene is in new york. We have had a couple fewer questions for peter hooper. They are talking about Central Banks. This person asks are central wholebound to manage the yield curve Going Forward in order to maintain their credibility and capacity to react to any shock sometime later in the future . Certainly with their action in Balance Sheets they do have some control over the yield curve both long and and short end. Not total control by any means. If inflation begins to take off things could get away from them a little bit. I think you are for the time being seeing Central Banks work out the yield curve and the slow process of normalization of of Balance Sheet is driven in part by their wish not to have a major effect for the time being at the long end. A real mystery to it. Its original territory. In the background is the fed funds target rate. Recently we adjusted for inflation and the shocking 10 year moving average of the real fed funds rate has come down and down and the conundrum, five to seven years ago is this movement to negative real funds rate. They desperately want to nudge this into positive territory. That chairs the day yellen gives us a positive fed funds target rate . Good things happen right . If we get there in the reasonably near future as the fed is projecting that is assigned the economy is going to be doing really well. Tom i want you to push against the doom and gloom crew. Last friday they were out in full force. If they raise rates my economics is there is always a first or maybe second order condition. Thats a good thing, and i write am i right . If they dont raise rates quickly enough, if they slow down as much as the market is anticipating there is a real risk they fall behind the curve. On with thist process. This is a historically slow rate of assent. The fed has never been anywhere near this slow in terms of raising rates. This is a market that is not used to the kind of action we have seen from the fed in the past. Francine do you worry about a temper tantrum . The fed has been signaling that they are ready to normalize. Markets have largely ignored that. When they actually start do you see the kind of market schism volatility . People are accepting the fact that the fed is going to be tapering later this year. This has been laid out abundantly clearly. We have a number of Key Communications along the way. The latest at the june fomc meeting making it very clear this is happening. Its going to happen with a whimper as far as Balance Sheet normalization. I think the surprise will be that we get another four rate hikes over the next 12 months. Tom what will that do to the dollar . Pact that we have, does it mean weak dollar . Is it Donald Trumps best gift to the presidency . If the market wakes up this is going to be a plus for the dollar. Dollar strength is enough. Its a slight negative for trade. Its going to be a little bit of a drag Going Forward. The dollar, george has a point. He calls it does on the vacation of the fed. Inflation has been low. Inflation recently surprising to the low side. There are a number of transitory factors. We will see as the year wears on. Tom congratulations for just terrific research over the last 48 hours. With thisving cacophony that we have within the markets. Of ways to go. Let me look at the Foreign Exchange right now. The report is very eurocentric this morning. Look at the euro across the repairs. Sterling in recent days outperforming euro. Im watching stronger euro weaker swiss bank. All of this will come back. The guidance got to worry about this, bill dudley of the new york fed. To be someone really interesting to listen to in the coming days. Good morning in downtown new york. What a gorgeous view. Onbe with some news in a bit fox. This is bloomberg. Jonathan the big banks on wall street unleash major payouts after the Federal Reserve gives them the green life. Central bank leaves investors bruised and confused. D. C. Gridlock pushes the tax reform story towards 2018. The struggle to secure enough votes to pass the republican Health Care Bill continues. City, this is bloomberg daybreak. Im Jonathan Ferro alongside alix steel. We are welcoming and a Redwood Redwood from anna london. Lets get to the board. 1 on the s pp 500. Eurodollar prints a new 2017 high. We have a 114 handle