Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170623

Yields up by about three basis points, the vix little bit softer. Jpmorgan says you want to buy hedges against the pickup,. 5 jonathan . Jonathan Jonathan Garland im going to borrow. Whether you think the year has passed quickly or not depends whether you are a sterling fx trader. Its on one year since that vote. The british people have made a very clear decision to take a different path, and as such, i think the country requires fresh leadership to take it in this direction. Inevitably, there will be a period of uncertainty and adjustment following this results, but as the Prime Ministers of this morning, there will be no initial change in the way our people can travel and the way our goods can move or the way our services can be sold. We need a negotiation to start as soon as humanly possible and we need to start thinking globally about our future. The other thing i think the it is tohappen is become a National Bank holiday and we will call it independence day. How many im not sure of those individuals thought there would be working on the following day making the statements. Many of thoseow individual thought it would take this long for negotiations actually started. We hear from Prime Minister theresa may and eu leaders about the summit in brussels as negotiations started earlier this week. Joining us from brussels is bloombergs matt miller. The surprise is a lot of time. How much longer this whole process was going to take after that vote. What have we learned from brussels . Matt one of the things we learned is there is nearly enough time. The concern for the british especially, but also for the europeans is that trade will freeze, come to a halt at the end of this negotiating period. With 27ade deal countries, which essentially all have to ratify any deal that comes up in the u. K. Will be very difficult, something impossible to achieve in 21 months. Divorce theres a settlement, the socalled brexit bill, today and yesterday is really about immigration and solving that issue of the 3 million eu citizens that reside in the u. K. And what kind of rice they will get after brexit. What have we learned, whats been agreed, and we are the differences . Matt so far, theresa may has said those eu 27 citizens who lived in the u. K. And have lived there for five years before the cutoff date will be granted settlement status, which raise the get access to everything the uks citizen would have access to, from health care to pension plans. If you havent lived there for five years but you are still in before whatever day they decide to set, and they havent given it yet, we just know will be from march of this year to march of 2019, you will be allowed to clock up the fiveyear time in the life resettlement datas, anyone who gets and after the cutoff date before brexit will eriod of two grace pwerio years and be able to apply for more permanent residents. Those citizens wont necessarily be able to keep the eu rights they now have. They wont be able to be in the eu courts jurisdictions that they are now. And that is the Sticking Point at the europeans really have a problem with. Jonathan youve been in the European Council the last couple of days for the summit. Give me an idea of the tone of that meeting at the moment. Prime minister abe goes there and the only thing on top of her agenda is brexit discussions and brazen negotiations. 27, im thinking president macron, and they got other things in mind that they want to focus on and brexit is a side issue at this point . Of surprising. Nd i believe i was on air with you yesterday when Angela Merkel came in and she said we are going to focus on the eu 27 with other issues to deal with than brexit. Although we were all focused on theresa mays plan last night, it seems that Angela Merkels and Emmanuel Macron have really been thinking and talking and negotiating more about trade than they have about the u. K. Leaving. The interesting thing about this ,s a lot of european leaders Emmanuel Macron included, want to push and more protectionist agenda for the European Union as a whole because they are worried that other outside nations are taking jobs and taking away their most important companies. Interesting, given the push against protectionism whenever donald trump is over here for the g20 were g7 meeting that the eu leaders themselves are now thinking about putting into place more protectionist measures. Jonathan always great to catch up with you. We will catch up later as we expect Prime Minister theresa may to make that statement at the eu summit and we hear from several eu leaders as well. Shaun osborneg in and david owen. We talk about the kind of things we been surprised about one year later. One thing a lot of people are surprised about that maybe comparatively no one expected europe to be more stable stableally and more economically one year later. David there were so money risks going into this year and the eurozone was still struggling to recover. Now we have much more optimism that the recovery is broadening ,ut the ecb next year will try but Political Risk is being pushed into the background. We do have german elections later this year as well. The mood swing in europe is music in europe. Alix the day after brexit, it was panic in the fx market and now does it feel like we are headed for a briggs a reversal a brexit reversal . Investors are looking more on the evolution of the u. K. Economy. Particularly the twitching this we are starting to see at the bank of england on some parts of the mpc. The u. K. Economy is still struggling with some fairly significant challenges on a number of different fronts. For investors, shocks have been on the political front. Thats been confined to a broad and stable range of this point i think we are waiting for the next shoe to drop, waiting to see how the economy performs and with the bank of englands story is Going Forward and how these brazen negotiations really unfold. Alix i try to wrap my mind around the fact is a stronger European Union is better Economic Data good for theresa may . Or does it make her job harder . Of the dayhe end come it strengthens the position for eu 27, but i wouldnt wish to stress too much on that point. We know the clock is ticking and we know that we wont be able to in the timeline available, it assuming they dont extend 2015,e 50 beyond march theyre not unable to come out with a new trading arrangement with the eu and the u. K. , so they have to move other to the transitional phase or if they wish to, go for a very hard brexit, which is negotiated. Its going to be tough and theresa may has a minority government that can be a vote of noconfidence in some point. The risks are still very high. Jonathan for some people it is still hard to reconcile the dire economic move with the actual hard data points. I didnt guess the the year later we would have political chaos and Jeremy Corbyn would be ahead of the Prime Minister, and the Unemployment Rate is 4. 6 , david. Its hard to match that with the mood. It is, but the u. K. Has lost some momentum in q1 gdp. Real wages are being squeezed. As global uncertainty in the system and i think its going to be the next few weeks and we see whether theresa mays government is challenged. We have a vote of noconfidence in the u. K. , that would be a iny major hit the sentiments markets. The economy of the u. K. Has recovered over the years, its done quite well. The wheels have been showing signs of coming off. Jonathan when we start dealing with the real stuff, trade negotiations and the issues over euro clearing the dominate the city of london . Waltc questions about what there are questions about what wall street plans need to be. A lot of the banks are dealing with this and making the key decisions well ahead of time. I think most institutions plan for london is already well in hand. When he gets a significant challenge for the city Going Forward i think it is something that mainland europe has long wanted to gain a bit more control over. Essentially euro clearing and that sort of thing. Its a pretty significant challenge for the u. K. Going forward. Alix Shaun Osborne and david owens, its good to see you. I cant believe its been a year. Remember looking every halfhour with the pound was doing. Some of those forecasts were predicated that we would go to brussels and trigger article 50 immediately and negotiations with start. Think people out of which a guy mustve trigger article 50 and then we get a snap election and then we wouldnt maybe know who the Prime Minister was going to be for the next two years to these negotiations. Alix we would maybe see a split boe on whether or not to hike. Coming up, its the special coverage of brexit one year finlandsinues with former finance minister and adam posen of the peterson institute. Live from new york and london, this is bloomberg. Alix Senate Republicans unveiled their Health Care Bill and Senate Majority leader Mitch Mcconnell tries to stay positive about the next steps. Week we expect the Congressional Budget Office to release the score and after that we will proceed with a robust debate and an open amendment process here on the senate floor. A process i would encourage you to our hundred senators to participate in. Alix participation already underway, the bill under attack with joakim up gop members coming up against it like rand paul and Lisa Murkowski. Us is as you john. Canmany of these senators republicans afford to lose to get this bill through . They can only move three. The need 50 votes plus mike pence is the tiebreaker and now it seems they are down to 48, the republican senators who came out against it, senators and i haveski, concerns. There will sort of 50 votes right now. All interested in Different Things. Rand paul is on the right end of the spectrum, Lisa Murkowski is opposing a because of planned parenthood and portman is opposing it because of the Opioid Crisis. What can mcdowell mcconnell giveaway . Arit one clear goal might be to get more Opioid Funding in. For states that are suffering from the Opioid Crisis who need more funding, to be able to go home and say there were 2 billion in this bill and i brought it up to 10 billion, thats a concrete goal. Send a rand paul, is never going to get to yes. Canes not really much you do for them and their senators like ted cruz who wanted to move further to the right and close to real repeal. Murkowski who wants planning for funding for planned parenthood. Sweetard as they were the spot, it depends on how long it takes to get there. Jonathan lets about the Opioid Crisis. An absolutely staggering stat that sets many people back. 2 billion, lets talk about how they are going to tackle this crisis. Are they giving away 2 billion and up into to 4 billion, and hoping thats enough to quiet the senators . Arit what weve seen as the Medicaid Expansion has helped a lot of these states that expanded medicaid, and a lot of that money has been going towards funding treatment for people. For lowincome families. Well hear a lot of democrats a little bit to help people, but the real help is coming from the Medicaid Expansion in the aca, and thats where you should work with us to improve this bill. Alix thank you for joining us. Friday they are going to try to hold a vote . Good luck with that. Everyone keeps saying tax reform, when his tax reform coming . They said august. Now, base case is Something Like 2018. Alix First Quarter 2018. Joining us from washington the stefanie miller. Jonathan Senior Analyst for highsecurity. Lets start with tax reform. Tax reform from here, just give me a timeline for how long this is going to take to solve the Health Care Issue . We can move things on to whats next in the agenda. Stefanie first of all, thank you for having me. Investors, one of the overwhelming reasons they care so much about health care is what it could mean for tax reform. Passink health care can both chambers and be signed by President Trump by the august recess. By the end of next month, which would then allow the senate and house to fully pivot to tax reform during the latter two quarters of the current year, create a way for them to pass something by may of next year. Your point about the early months of next year being what youre hearing is very similar to our view. Jonathan is that actually your base case, may of 2018 . A lot of people were hoping the summer of this year. Is it that difficult to get done . Stefanie i think Health Care Gets done by august, i was talking tax reform. Were hoping People Health care can be done by february. And that would have allowed them to turn to the complicated decisions around tax reform in those debates, which are as, if not more complex than the health care debate, which require additional months to litigate some of these most contentious issues. The same thing we will soothe tax reform. I know there many for the reasons why they would want to get it done as quickly as possible, but the reality is that they need to deal with some pretty contentious issues. Without a true forcing mechanism for them to vote on anything, because he bleeding into the First Quarter of next year. Alix the point becomes whats baked into the market and what is not . A look at Health Care Stocks and we see the Health Care Sector really outperform the s p on a normalized basis over the last year. Was this new Health Care Bill from the senate enough to still galvanize performance of the Health Care Sector . Stefanie yeah, there was sort of a rally among Health Care Management companies and Drug Companies yesterday. I think the initial reaction to the senate bill was sort of in part that looked a little meister than the house bill a little bit nicer than the house bill. Theres this issue that investors want to see the republicans are actually policymaking. Ofpart, theres a lot confidence issues baked in, in my opinion. The reality is with the health care what the health care likely placeis downward pressure on a number of sectors within the health care industry. Theres a little bit of a disconnect in how these industries are reacting. Alix is it going to be the insurers exposed to medicaid or hospitals perform up . Or pharma . Stefanie pharma shouldnt be impacted significantly by this bill. Hospitals did hit the hardest, because their fundamental largest great that they are standing on. Any loss in coverage for their patients makes it harder for them to receive compensation for care. Stefanie miller of highsecurity is, thank you. Coming up, the former ambassador to china weighs in on the Health Care Issue and when will we get tax reform. From new york city and viewers worldwide, you are watching bloomberg tv. Alix emma this is bloomberg daybreak. Theanks have cleared minimum thresholds in their abilities to withstand economic shock. Morgan stanley did trail fears peers. Results from the second round of testing are due wednesday. Toshibas shares have been promoted to the second section of the tokyo stock exchange. They asked for an extension to submit its earnings report. In newlders equity smith territory. Its been rocked by losses. Tesla music wants to go along with its cars. They are in talks with record labels about starting its own music streaming service. The carmakers already offers spotify in europe, hong kong, and australia. Tesla works with slacker in u. S. And canada. At your Bloomberg Business flash. Alix you just brought up the stress test and i want to take a look at how he banks are performed today. Wells fargo and bank of america up slightly in the premarket. Where 25 drop in home prices everyone sailed through. Morgan stanley trailed its peers in fundamental leverage ratio. And what that payout can actually get you, Bed Bath Beyond getting hit in premarket down by almost 9 . Dropping,ales earnings missed by . 13. The company declined to update its outlook, never taken as a good sign by the market. If you have traffic in stores and malls fallen, but you Online Stores moving higher. He came with the cost, much higher marketing costs. Therein lies the rub. Blackberry getting hit down by a, this company is in essence Software Company and Software Sales came up short. , and they 8 light announced a 31 million Share Buyback program. It had a huge run so far over the past year, with a huge turnaround for the company. Jonathan coming up on this program, we talk oil, heading for a fifth weekly decline. We get behind that would add oor. With ed m futures a little softer, the s p 500 on the week for the much debt and futures are unchanged as well. The story elsewhere, treasuries on the session yields high by a single basis point, to 60 minute 10year and weaker dollar storage. The cable rate 17 31. 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. Jonathan from new york city, i am Jonathan Ferro. Globally in the markets, here is the picture inequities. Andres are down about. 2 the s p 500 looking as it is for the week on the session, dead flats, unchanged. If we look at the price action, you do get price action in the fx space, the dollar weaker again, the euro and the pound, as well. We are still expecting that statement from Prime Minister theresa may to come. It was meant to come about 20 minutes ago. For some reason, it is delayed. We will bring you that. That is the story in the fx market. Yields at 216 on the 10 year. We are anchored around near the low end of the ranks for 2017. Lets get you up to speed and what is making headlines outside the business world. Emma in london, police say manslaughter is among the charges being considered in that highrise apartment fire. Authorities say it started in a refrigerator. Cutting on insulation in the building had failed his safety test. At least 79 people died in the fire. North korea is speaking up for the First Time Since the death of an American College student. He died monday in ohio after being released by north korea last week in a coma. North korea said they treated him according to domestic law and international standards. Saudi arabia has given cutter a list of demands to end a standoff. They were told to end relations with the muslim brotherhood. Diplomats say it is unlikely kolkata will comply. The accused kolkata of supporting global terrorism. Qatar ofaccused supporting global terrorism. Alix you would think oil would have a reaction with the geopolitical unrest in the middle east, but it is down productive straight week in a row. Here with us now is ed morse. Terminal, youe are the most bullish on prices for the Fourth Quarter than any other analyst in the last 180 days. What keeps you bullish . We are not swayed with what has happened in the market recently. GeoPolitical Risk looms large, but the basic phenomenon is a market which is rebalancing and people looking at the market and saying, it may be rebalancing now but what will happen in 2018 . 2018 is not the summer of 2017, and rethink there will be a tightening of the market and with it, the financial part of the market will rebound. The financial part of the market is at a low point if you look at the length of market has been fleshed out. When it is fleshed out, the market will find it difficult to go south and it will go in the other direction. Alix 52 is your Fourth Quarter call. It was easier to stomach a few months ago. An issue with that is that you will see u. S. Rise in production and eventually sought it will come back into the market with their oil. What will be wrong about that statement . What is wrong is the degree to which libya, nigeria and United States are coming back in the market. It is exaggerated. A more realistic way, we have a lower number. Given the normal delay between where the price of oil is an u. S. Drilling is, pretty soon or sometime in the middle of the third quarter, we will see that drilling rate in the u. S. Not climb every week and it will probably go negative. I think that will be part of the change in the mood. Jonathan that is what we are trying to get into, the potential of price in the United States. 11 . Isbegin back up to 10, that going to be the story , 10 Million Barrels a day in this country . May be a higher number of the question is when . I think this is significant exaggeration about with the rebound will be. 1. 2le are projecting a 1. 1, million barrel a day increase. That is really hard to figure out how that is going to happen. The recount has gone up the rig count has gone up, partly because you need the balance of an inventory, but this is a real congestion problem. How are you going to get that much sand, water into the area around texas in order to get the numbers people are thinking about . Jonathan give us a time horizon. Eed it could be within the next couple of weeks. Focusedds attention is on u. S. Inventory every wednesday. There is japanese inventory every wednesday. Japanese refinery demands said this week was at its lowest thet to the year and japanese market pulled crude out of inventory. They will have an increase in refinery runs by 800,000 barrels or 900,000 barrels a day over the next four weeks stretch. Where is that oil and the system . You will see there, china and runs places where refinery are continuing to rise in Oil Production growth is not there. The libyan and nigerian impact on the atlantic basin, so we have seen an adjustment that has to work itself out but it is not that much crude. Jonathan is there any of as we are waiting for Prime Minister mays statement, it is coming shortly and you will get a statement from Angela Merkel in the same room with the french president Emmanuel Macron. News conference in brussels coming from Emmanuel Macron and chancellor Angela Merkel from brussels later. When we get that, we will bring that for you. You you can believe can believe merkel did not believe she would be having that meeting. Jonathan six months to eight months, really hoping she would have this meeting and not standing next to someone else. Alix exactly. Lets go to geoPolitical Risk. I was struck by American Airlines reporting this, if you suck a geopolitical hedge because of the drama surrounding. Why is nobody in the market . Ed nobody can figure out what the oil outcome is going to be. Everybody in the middle east is hedging oneway or another and a hedge was the hedge of last year, when they bought a significant chunk and it is sort of like the saudi hedge dealing with that in the oil market where they were uncertain about with the u. S. Would be. I think that hedge has had a more probable impact of geopoliticas in the market when you look at the iranianrussian relationship. How you moremapped about sentiment, the idea of risk. GeoPolitical Risk is now bearish because it would mean the opec agreement fell apart attention did all that. Is there something in that . Ed i think there something in the opposite in which we had a change of the crown prince in saudi arabia and the current crown prince owns the deal with russia. It is a different matter from having people say this isnt working. He owns it and he owns it through the First Quarter of next year and in a way that it may be extended and event. I think that is the other part. Alix the other part is the promotion of the print saying, or it is the focus in the saudi external aggression go next . This ago to iraq does it go to iraq . Ed there is that risk and that is what people are saying, yes, that may have been but will it . Alix which country would give the most risk . Ed i think we have been looking in the wrong place. Tension has been rising in the middle east but i think we have to look at an israeli, where oil at venezuela, where Oil Production is sliding and with a risk of the going down by more than that, maybe one Million Barrels a day, i think is the biggest disruption risk in the market now. Jonathan longerterm to fold into this conversation, aramco ipo and how does it should crude right now . Ed i think the aramco ipo is an effort by deciding government to build a different kind of fund that will be able to do privatepublic sector investments within the kingdom to create employment in the bunch of different areas. I think the question is, how do they raise capital for that fund . They can do it through ipo, Strategic Investors going into the company, there are multiple ways. And yes, they own the ipo, as well. Alix that means they need a high europe price of oil going into ipo and they have to keep up whatever valuation they end up getting, which means pumping more now and not leaving reserves in the ground. Ed or it means pumping less now and getting the ipo done at a particular moment in time. Alix but after that happens . Ed in a fiveyear horizon, after that, it looks like the debt by saudi arabia within opec and rush outside of opec, but the world will see a steep decline in Oil Production, a big supply gap emerging. I think that is something they will have to reckon with because it looks like not just shale but oil in canada is making a comeback and that is what unravel the Pricing Power of producers to begin with and it will be on the horizon, a high probability by 19 by 2019 rather than 2018 that that problem will emerge and it is a permanent problem. Alix this is the question in the market no one can answer, the 40 billion question to you, what is the marginal cost of shale . What is going to stop the capital moving into shale on the shortterm . Ed if you look at the least cost shale oil, it is well under 40 a barrel. Keep enough to in itself production running by one Million Barrels a day . Not now probably but we will see what happens in the future and there is an inflation problem on the horizon and that has to be taken into account. E, thank you. Mors coming up, we will discuss the fed stress test results. Joined. R, we will be city, you areyork watching bloomberg tv. E thism is them hewlettpackard enterprise grade rooma. coming up, former Senate Finance Committee Chairman at 8 00 a. M. Eastern emma this is the hewlettpackard enterprise greenroom. Coming up, former Senate Finance Committee Chairman at 8 00 a. M. Eastern. The onetime smartphone maker, blackberry, missed analyst estimates for total revenue. Blackberry shares have risen 60 this year for today and moves now come through software. In the u. K. , the first new Nuclear Power plant may cost consumers five times more than expected due to higher electricity costs. The government warned price tags of the projects could be 38 billion more, making them urge to come up with a plan b in case the project collapses. David rubenstein says he can still find cheap Investment Options in asia. The coceo of Carlyle Group discussed it with betty liu in hong kong. Valuations are lower in asia compared to what you see in the United States, so the theory has been asia is expensive. It may seem expensive in certain areas but generally, it is cheaper than the United States, so there is a bargain here. Emma rubenstein says carlisle has about 20 deals in china. Jonathan we want to get you up to speed on the action and keep you uptodate in brussels are that summit. It is brussels for that summit. It is set to conclude. Alongside Angela Merkel will be the french president Emmanuel Macron. We do not have a time. , that we will bring it to you on bloomberg we will bring it to you on bloomberg. Minister u. K. Prime theresa may. We will bring you the joint conference and any comments get from the u. K. Prime minister, as well. In the United States, it is about the Financial Sector under pressure kind of. Banksf the largest u. S. Cleared the stress test, examining their ability to withstand economic shocks. But a test comes next week when they look at their conference of Analysis Review and they will be watched by investors as they determine whether lending can increase dividends and buyback stocks. Joining us is Chris Wheeler, Atlantic Equities banker. Lets begin with the stress tests and move on to what investors are waiting for, this objective stuff we get next week. Flying colors, go through the banks for me. Chris the numbers look really good. I was going to say i did a calculation, but i looked at the banks covered. They probably have about 500 billion of excess capital above the stress levels they are required to keep. The big banks i follow, the jpmorgans, and the regional a lot ofey have about buffers there. It is actually positive because that means when we see the test next week, we will see how much it allows them to give back to shareholders over the next 12 months and i think it will be a big number. Jonathan before we get to that, which is really, really important, lets just deal with is for. Stress test the areas of weakness you see on Bank Balance Sheets in wall street, are they being tested strenuously enough . Chris there are thousands of inputs which go into this. That is not an exaggeration. In terms of unemployment, rising Interest Rates, markets declining, and then in addition, the big banks have to model at the beginning of this stress period a market hiatus, a market crash and the counterpart of their biggest customer. While there are a lot of complaints that it isnt balanced enough, compared to the european stress test, i think you get a flavor to it the fed is doing. Alix how much do you think we will see the big banks return and you will pay off the most . Chris the stocks i follow, which are the big six trading banks and two of the regional banks, they paid out about 68 billion after the stress test over the next 12 months. I think it will be closer to 92 this time, an increase of 36 . The big increase obesity bank be the big increase will citibank. They are playing catchup at a time when they are generating excess capital because behind them are a lot of the issues structurally and iran mitigation. And mitigation. Jonathan is that the primary reason . I caught up with an analyst who said that is that. What do you see on that particular debate . Chris i have been talking to clients when we started to see the sector come back after the declines from the highs at the beginning of march. We have to face the fact that it isnt only just capital coming back to shareholders. Replacement yesterday supporting the treasurys news of theother parts aspects of the industry. Interest rates are going up. People worry about the fact that the 10 year most of these massiverry about endowment impacts coming through and the Capital Markets are not in bad shape. Alix im glad you brought up regulation. Take a look at the bloomberg. This is what is behind in that. This is holdings of treasurys for commercial banks. Here is when you had some compliance where they had to hold more on their balance sheet. Look how much more they have to hold. Funding trades are getting cheaper. What does that do for liquidity for these banks, do they pass that on . Chris im not so sure about that. The big debate is much more billsnot including those or cash balances in the leverage calculation, which means they could dispose of those. At the moment, one of the things interesting, bank lending has not been firing on all cylinders, but the positive growth is strong. They have to put that money somewhere, awaiting the moment when they can lend it. I do not think there will be a lot of issues around those Liquidity Holdings of government securities. Quickly, you talked about how accounts are sucking up deposits and it is free money for these banks at the moment because they do not have to pay for it. Talk to me about that data and let me expect the shift in Interest Rates. A note out to clients yesterday, what is your top pick for the second half, and i was talking about citibank. And ih them on deposits said, if you look back in history, in 2006, when the fed Interest Rate was at 5. 25, jpmorgan had 590 billion a there was a lot of money in those accounts and that is a profitable aspect of banking business. Alix check out tv , watch us online, interactive does directly. Go to tv on our terminal. This is bloomberg. Think of mexico governor has said the actions they had taking are sufficient to reach the growth percent objective they have toward the end of the year. He spoke exclusively with bloomberg. Ratesbelieve the actual have taken with information we have up until now should be a sufficient to take us to our objective toward the end of 2018. Conditionalhis is on the information we have today. Some expectation of what we do at a form of support, so least we are expressing some confidence of what we have done is sufficient. Will it be sufficient bring out the end of next year . It is hard to say. Itself, as iso mentioned, traders right now are bullish on the pesto. Catalystusted by the bullish on the peso. You have said in the past that they level of around 17 is not unreasonable. Is that still true by your own measures . Agustin i would say it is an unreasonable. Bankershe central objective. It would be reasonable if you take into account the strength of the mexican economy, if you take into account what we have thattaken, and the reasons were not sustainable, so yes, i aink it is in the realm of feasible gear. Jonathan that was augusta carstens . Coming up, more of our special coverage of brexit and some Important News conferences coming from brussels over in europe. With the german chancellor Angela Merkel, alongside the french president Emmanuel Macron. From new york, you are watching bloomberg tv. Jonathan one year since the brexit vote and britain starts showing its hand. The Prime Minister promises 3 million eu citizens they can remain in the u. K. Next week, thanks so find out if there Capital Distribution plans are approved. Vote next week. Tax reform, the 2018 story, really . Good morning, good morning. I am Jonathan Ferro alongside alix steel. Lets get you up to speed on markets. R on the euro up. 2. A stronger euro story. A marginally weaker dollar across the board. Treasuries go nowhere, and crude stabilizing around 42, 43 a barrel. Alix as we wait for merkel and macron to speak later, we have new home sales data, and later, fred speak all day. 11 15 a. M. , we have said speak. We have fed speak. And when the clock and at 1 00, watching brent. Senate republicans released their Health Care Bill and it received mixed response. President Trump Obamacare is totally dead and we are putting in a plan today that is going to be negotiated. We agreed to free americans from obamacares mandates and policies will appeal the individual mandate so americans are no longer forced to buy insurance they do not need or cannot afford. We are potentially voting on it in a week, no committee hearings, no amendments of committee, no debate on the for 10 measly hours on one of the most important bills we are doing with in decades. That brings shame on this body. Trumpcare inflicts great suffering on veterans, seniors, working families, rural communities. It is a job killer, too. Negotiation,n to but we want the bill to look more like a repeal. We are afraid that when we read the bill, it looks like a reiteration or a keeping of obamacare. Us, all of us have leverage and the question for us is, are we going to deliver or not . I do not know what they want changed in the bill. This is an opening offer, not the final deal, so time will tell. This is a tailspin, we made a promise we would repeal and replace the slot. Im happy the senate has worked to put together a bill that keeps that promise. Im eager for them to pass it. I have never seen a more radical look reckless legislative process in my time in politics. The important thing is we stop the harmful bill without a and a republican legislation. They have finally released what they have called a working draft that they have worked so hard to hide all of this time. President trump i would love to have democrat support, or we will not get one, no matter how good it is, but we will hopefully get something done and it will be something with hearts and meaningful. Onx they are coming down partisan lines there. The former senator for the state and chairman of the Senate Finance committee on finance, he played an influential role in the debate of Health Care Reform in the u. S. And a former u. S. Ambassador to china and he joins us now from montana. Great to get your perspective today. This is going to hinge on how good of a negotiator which negotiators economy is. How successful can be at that . Can he be at that . Unfortunately, this is about winning on a partisan basis to pass legislation. Winning at the expense of a lot of people. If Mitch Mcconnell wins, the legislation will hurt a lot of americans, especially senior citizens, low income people, bigdren, and it will give a benefit to the more wealthy america because taxes will be dramatically lower. The real cost is the damage to people and the process. Alix when is it necessarily ensured . You had at least five republicans coming up against it, but they all went Different Things. You have more moderate republicans interested in preserving planned parenthood versus senator rand paul, who is more conservative in the party. Tutors Mitch Mcconnell need to get this done and can he get them over to his side . He needs 50 senators and he will do whatever he needs to get 50. The magic number is 50. Pete just needs 50. The problem is nobody is listening to each other and that is the difference between health care today and seven years ago when we passed the aca. Back then, started out bipartisan. Republicans in Congress Work together to find the solution. This time, it is starting out very partisan. Nobody listens, they are digging their heels in and mitch will do whatever he can to win. Interested in this concept of winning. The passing legislation may be the shortterm win. The medium to long term, what does this mean for the president of the United States and their publicans about to run again in a couple years time in the midterms if a lot of people are about to lose big time . First, winning in the senate is setting a cap for republicans. They cannot stand to lose. They cannot face voters when democrats and others say, hey, republicans could not pass major legislation. They are the Majority Party and they cannot get anything done. Republicans want to win. Longterm, it will hurt a lot of people. When Elections Come up in 2018, i think a lot of people will not like this legislation. Not a lot of people know what is in this bill but after tomorrow, they will find out. Alix is it getting it through the senate and then getting something through the house and on President Trumps desk, is that a win, or is a win saying, we tried and we cannot get it done . Ambassador from mitchs point of view, it is to pass a bill in the senate and house. The next best is to get it passed the house or congress. If it passes the congress, the president will sign it. He has to get it through the senate and then he will work out a deal with paul ryan and then it will go to the president s desk and become law. Jonathan what did we learn with theirprocess capacity to get tax reform done efficiently and quickly . Ambassador good question. Is ase taxes form complicated, if not more, than health care legislation. Experience, you have to sit down and talk to people and listen to people on the other side because they probably have a good idea. It is compromise. You have to put different pieces together. You try to jam something that someones throat, it isnt sustainable and that is a problem with this Health Care Bill because if youre not going to reduce uncertainty in the marketplace, it will increase uncertainty for insurers, for consumers, and for providers. More uncertainty because it is not a negotiated, a great solution. Jonathan you speak to investors globally and about health care, we want to follow up with one is tax reform going to come . What is the face case in your mind for when they can get tax reform signed, and passed . Ambassador i do not think they will get it done in 2017. There is not enough work that has been done on it. The president himself is not sufficiently provided enough capital. In my experience, major tax reform passes only when the president has a lot of capital and reinvest a lot of that capital and works well with the congress. I do not see that happening in 2017, maybe not 2018. In addition, you do not see people working together, that is, congress is so partisan, democrats are so upset, and frankly, to some degree, they wanted to force the president to releases tax returns while they work on tax reform. It will be very partisan i fear. Alix you could make an argument tax reform is something everyone once, along with infrastructure spending. That is my point of what is a win to mcconnell . Even if it doesnt happen, lets get tax reform done, does that getting itse for done sooner . Ambassador no. Health care reform does not pass, it will make it more difficult to pass a tax reform because there are in the Health Care Bill that help in the congress do tax reform he does not to health care if he, tax reform doesnt do Health Care Reform, tax reform will be more difficult. Jonathan ambassador, thank you for bringing your perspective. Coming up later, we are awaiting a joint News Conference with Angela Merkel, alongside the french president Emmanuel Macron. When that comes, we will bring it to you live on bloomberg. Coming up, when your coverage of brexit. One year coverage of brexit. With eyes on the city of london and brussels, this is bloomberg tv. Emma this is bloomberg daybreak. Library appears to have hit a speed bump. They are not out of the hardware business and missed analyst estimates for total revenue. Before today, sure said risen 16 . Most of its revenue now comes the software. More problems for toshiba, shares have been demoted for the second session of the tokyo stock exchange. Earlier, they asked for an extension to submit the earnings report. Shareholder equities slipped into negative territory sprint toshiba has been locked by lawsuits in their nuclear unit and they are selling out the memory chip business to raise cash. General electric is preparing for a transition. Later this summer, ge vice chairman says flannery will take it close look at the operation units. Bloomberg from a forum in hong kong. Any new ceo is going to take a fresh look and john certainly will, and the board will encourage them to do that. Emma he also said theres no question ge will be able to emma he also said there is no question ge will be able to raise its pension shortfall. Jonathan thank you. Under pressure or not quite, thanks examining their ability to withstand shocks, but there are more tests to come next week and for investors, that is what will matter. Joining us now is Gerard Cassidy, managing director at rbc capital. Capital distribution, i backs, dividends, that is what buybacks, dividends, that is what we care about. You are right, it is about next weeks results and yesterday, that is a good base for what we are expecting next week but it is about capital return and more stock buybacks because the industry is overcapitalize. Jonathan let me get a number, give me a number, what will move the dial . I think it will be based on each bank, if they can come in with numbers higher than expected, you might recall in vast in past see cards, they have said they do not want them to pay over 100 of earnings, especially banks under 250 billion in assets. Jonathan it is really subjective for a lot of people and subjectivity, you can move it down on that as you like, are they going to get easier from here . Necessarily this year but 2018 could be a blowout year for them to back out and the banks get back more capital. Alix the reason the ratio is important for banks is it a is it is happening to make money. What bank is best positioned to raise its payout the most to offset a week of fix . Gerard the challenge is it is a mature industry, so returning back excess capital is important. When you look at banks with huge increases, citigroup is probably top of the list, along with bank of america, because those have been held back because of troubles in the past. Jonathan it is interesting we have had this big move in financial equities and at the same time, negative guidance ofm wall street in the space 24 hours, how do reconcile the move with the guidance we have had . Gerard when we look at the wall ofeet numbers, from income the biggest banks, that is part of their business only. When you look at jpmorgan, which is a dominant player on wall street, they are a Major Commercial Bank in the United States and consumer bank, so Consumer Banking and lending is mrs. Are very healthy businesses are very healthy. More importantly, Interest Rates. The margins are growing and that is powerful for increasing profitability. At a isnt the 530 curve 10 year low . Girardi think yield curve has climbed a bit, but commercial loans are tied to the frontend of the curve. Loan, rising large shortterm rates are profitable. Alix this also becomes, how much can these banks steal from each other, a lot of things are getting creative in how they are trying to make money. Goldman sachs is automating the seven steps are ipos and tried to be more active in lending money. Who set up best in have created do they get . Gerard we are seeing it on the investment side and traditional side of banking. The bigger banks, because they can afford to spend money on technology, are the ones getting market share. Jpmorgan last year in their shareholders letter indicated they spent 9 billion on technology, the billion dollars of which went to innovative strategies. Over the next five years, that is where you will see market share gains. Jonathan what kind of business do i want to expose you to . You speak to guys at jpmorgan, jamie dimon, and you might start with credit cards. Brian moynihan might start with deposit growth. What kind of business do when exposure to . Gerard i think you one exposure to consumer deposits, i. E. , deposit growth. So other banks that have strong consumer deposits in the rising rate environments, especially as the fed pointed out they will unwind their balance sheet, that will put pressure on the deposit growth, so banks with Strong Deposit growth will be the winners in the next 12 months. Jonathan we just had a comments on the bloomberg terminal, we are seeing diminishing impacts of credit qualities deteriorating in Capital Markets and activity is slowing. Im assuming he is on financials, so where is the momentum . Gerard charlie and i go way back, he is when my favorites. I will say the growth comes from the return of capitals. As long as the economy continues to grow, the credit quality i think you are going to see will be strong. In subprime auto and a few other places, it is starting to deteriorate but that is not a major problem to the Banking Industry because there is less exposure there. The growth will, from continued cost savings, you get a rise in rates, and nobody knows what will happen to that 10 year when the fed starts to pull back from its balance sheet. That could be beneficial to the banks. Was about quarter, it low volatility, no one wants to make trades, the vix is under 11, and it is an uncertain environment we do not see enough m a, so you are getting hemmed in on both sides, what will be a catalyst to help volatility or banks . Gerard you are right, the low volatility is disappointing for traders and world events will contribute to it in any surprises contribute to it. Will contribute to it. It is a very tough business to predict but volatility, should it come up to the surprises in the economy, like brexit, im not calling for another brexit, but that volatility is good. Alix world events like President Trump getting elected [laughter] cassidy,sidy gerard thank you. Coming up, more on financials. This is bloomberg. Jonathan from new york city, i am Jonathan Ferro. You are watching bloomberg daybreak. Momentarily, you might be watching a joint News Conference between Angela Merkel and Emmanuel Macron from brussels. We have been expecting it for about one hour. You know things in europe do not go to time or happen quickly. When it happens, we will bring you coverage. Alix isnt it lunchtime right now . Jonathan i understand there is a meeting that is taking place and that has been delayed. Alix joining us now is an Aberdeen Asset management senior. If you are a fly on the wall that meeting, what is the one question you want answered . Good morning, definitely not lunch, i have so many questions. Certainly, i would like more detail in the plan Going Forward. There has been investors have been quick to embrace positive intentions from these leaders, but the reality for the way the European Union and eurozone work is it is the intentions necessarily that are the impediment to improving the structure of the organization, it is the ability of the countries to make decisions that need to be made and how they can do that with respect to their own political difficulties. I am talking about italy and france first and foremost, and theyll would like to know from Angela Merkel what her plans are for parliament in terms of the fiscal situation in germany because one of the big problems has been that germany running surpluses in terms of the current account and budget balance create imbalances, which make the problem more difficult. Jonathan what are the focus is at the moment for Angela Merkel . She has her eyes on the Election Campaign within her country and maybe less so on the brexit negotiations that Prime Minister theresa may would like cap on the top of the agenda. James i do not think she can have pies entirely on the domestic situation but what we have heard from chancellor merkel in the last be days is suggesting her focus is towards the existing members of the eu after the u. K. Has left. I think most of europe at the moment is such a rare situation for them to be enjoying political success and economic success in the near term. They would love to be able to keep pushing that forward and Gain Momentum in the brexit negotiations and i think they are an unwelcome distraction. That being said, we cannot afford to take their eye off the ball better. Alix what are they going to see as the biggest risk, italian banks . James i do not think so. The bigger banks have managed to raise capital. The Smaller Banks have got problems. That is definitely still a problem, but go Smaller Banks should not be of sufficient size to shock or scare markets too much. We have seen the mechanism work well, so i think italian politics is a bigger risk than italian banks over the next six months to 12 months. Jonathan james at the will james athey will be sticking with us. York, you are watching bloomberg. Alix jonathan from new york city, i am Jonathan Ferro. Getting you set up for the open in about an hour and 20 seconds. Future a little softer on the dow, down by 1 10 of 1 . Unchanged through the day and through the week. We go nowhere the past for trading sessions. Treasuries unchanged. The price action in g10 in the fx space is very much a weaker dollar story. The weaker dollar giving the euro a list, and cable as well. Up about one third of 1 . Slows tonflation rate 1. 2 on the year in may, versus a forecast of 1. 5 . A big discussion about what the Canadian Central Bank may or may not do. It is a stronger dollar story against a weaker canadian dollar. That is the story in the fx market. Lets get up to speed on the headlines. Here is emma chandra. His tweet about possible tapes with james comey may have had an impact trump reiterated that he did not tape the meetings but raised the possibility there was government surveillance. In london, police say manslaughter is among the charges being considered in the highrise apartment higher. Authorities said the fire started in a hotpoint refrigerator. Meanwhile, the buildings failedg and installation safety tests. At least 79 people died. North korea is speaking out since the death of an American College student a jail for more than a year. Deniedguns regime cruel treatment of otto warmbie r. North korea said it treated him according to international standards. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Jonathan thank you. A year after britain voted to leave the European Union, officials gathered to discuss negotiations this week. We heard from donald talk task some of my friends asked me whether brexit could be reversed and whether i could imagine an outcome where you stay part of the e. U. I thought in fact the European Union was built on dreams that seemed impossible to achieve. So who knows. You may think i am a dreamer, but i am not. We did not think donald tusk would quote john lennon alix with a straight face. Jonathan may need a little work on the delivery. We get a joint News Conference between the leaders of germany and france. Chancellor Angela Merkel and president Emmanuel Macron. Joining us from brussels is matt miller as we await the News Conference. What are we looking for in this News Conference, the joint News Conference between medical merkel and macron. What is taking so long . Matt we are not sure, but clearly the meetings and negotiations have gone a little over time. There was supposed to give their this was a press conference we did not know about officially, but they were supposed to get their press conferences in general, the different nations, around 1 00 p. M. But obviously, they have a lot to talk about. It is interesting to look at the tusk piece of sound there. Alix points out, he takes this kind of talk very seriously, a dreams come true kind of talk. He grew up in communistcontrolled poland. Impossible being made possible by government is a very real idea that he wants to follow. The idea that brexit could be turned around, almost everyone says it is incredibly unlikely, has been picking up so much momentum. Last week, short of a sch euble said he would welcome the britons back with open arms. We heard from the luxembourg pm, the president of the european parliament. More and more people are saying if you turn it around, we would be willing to take you back, because it does not look likely that a deal is even possible. Jonathan help me understand where this momentum is coming from. For a lot of people in the u. K. , it is hard to understand. There was only one major party looking to reverse brexit, and that party did not perform well at all. Labor is looking for pretty much the same thing as the conservative party, which is brexit. Draw lines around it, but it is the same thing. The majority of the company voted for those two parties, overwhelmingly in the recent election. In the referendum last year, 52 . So where is momentum coming from . Comesi think the momentum starting from the election. A lot of people say yes, labour but theyexit broadly, were not specific to your they also cite the youth coming up to vote in this election that did not vote in the brexit election. If everyoneay be voted, it would not have been 52 for leave. There is also fear on the side of the e. U. That this could hurt both economies if the u. K. Leaves with no deal. As they look at the possibility of a trade deal being negotiated in a short amount of time, realizing it took of them 20 years to negotiate such a trade deal with canada, it seems more and more unlikely. E. U. Officials are increasingly afraid it would be detrimental to the entire european economy if the u. K. Left without a deal. Ofathan the Prime Minister the United Kingdom has put forward her proposal to keep some 3 million e. U. Citizens in the country postbrexit. How is her proposal coming down . Oft i think at first, a lot e. U. 27 citizens living in the u. K. May be felt a little relief. If you have been there five years, you get basically the same rights as a u. K. Citizen. If you are already there and stay another five, you can apply for that easily. That e. U. Officials started pointing out these citizens would still lose the rights they have as you citizens. As an as e. U. Citizens. Cann e. U. Citizen, you bring and family members without having to prove income levels, which u. K. Citizens have to prove. You are also in the jurisdiction of the European Court of justice , which would not be a possibility in the u. K. Postbrexit. Now you are hearing more voices at the summit say theresa mays outline did not go far enough. They need more details, and they will not get those details until monday, though theresa may is due to give a press conference any minute now. Inathan nothing happens europe through the summer i know it actually does. Tell me about what is on the calendar, the kind of negotiation we can expect through summer. Matt there is actually a lot going on through here in the European Commission, even outside of brexit. This summit, they agree to lengthen sanctions on russia by six months. Probably the most important thing they will talk about the summer or through autumn, as you may call it in britain, is what to do with e. U. Authorities located in london. The medical authorities, like our fda, the banking regulation. And the ecb also wants to have euro clearing moved into the e. U. Donald tusk said they would talk about these things and make a decision by november. There is a lot going on in brussels for sure. As far as brexit negotiations, they really have to get over this question of a divorce payment. Skip the seasons the Fourth Quarter. Easier for everyone. Matt miller, we will bring you in later. I want to bring in alex stubbs now. Now and james athey still with us. Talk to me about how difficult or easy it may be to get things done at this kind of summit. Guess i have been on both levels. Toave been a note taker, and be honest, a lot of the work is already done in the lower levels. Ambassadors and diplomats take care of it. Then about 5 on the top level. The problem with the top level is it is always linked to the media and statements. So it is not easy. This one started quite well, i think. Jonathan how do you expect immigration debate to evolve from here . HerPrime Minister put proposal forward to keep 3 million e. U. Citizens in the country. Is that an area where you can foresee conflicts . Alex probably in the long run, but it was a generous offer. They need to sort out the issue of Free Movement of people. It next issue is how much will cost. Finally, to have a look at who will decide jurisdiction at the port. But we are so far from a deal. It takes a long time. Alix obviously having some video issues with skype, but we still have audio. You mentioned a generous and good offer, the immigration theresa may laid out. Theresponse to the from e. U. Is its a start. What do we learn from the tone . Alex i think the tone is good. If you look at the chemistry between david davis and michel barnier, that is where it will take place. Thousand will be 100 issues we will have to deal with. This is just the beginning. We talked a little earlier about the reversal of brexit starting to filter through conversations. How did negotiators deal with that on one hand but reality on the other . Alex they half to take that into consideration. I think the negotiating handle from the u. K. Has been weak from the beginning and it has not gotten stronger. Find aortant thing is to solution. We do not want brexit to take place, but it will probably take place, so we need the best deal for all europeans. All of us. Jonathan as we reflect on a year since brexit, i am not sure how many people anticipated that it would take nine months before article 50 even got triggered. Now, we are in a situation where it is a small window, because the 27th will ratify whatever is agreed in individual parliaments. When you think about the timeframe to get this done, your experience as finance minister and Prime Minister, how quickly can they do this . Alex i sat in the spot a year ago and gave interviews about brexit. I would give it until summer 2025 to get things sorted out, but then we talk about transition theory and a new deal. Iexit negotiations will end march of 2019, and there will be a lot of cleaning up after that. Jonathan when you look at individuals things that need to be agreed, things like passport and rights for the city of london, what do you anticipate will be the really sticky difficult issues that will boil up in a big way . Alex usually, it is all about money, i am afraid. If someone will open a hand back backy i want my money and someone will respond you back, itget all of it is easy to count. But there are thousands of underlying issues behind the money issue, and i think that is a small token in t his big european and british tragedy. Alix thank you alex stubb, former finance minister. We have not heard about the brexit bill yet. Impressedi was just with alex stubb. Finance minister, Prime Minister, and cameraman. I feel like alex stubb may be on vacation. [laughter] week,coming up next Michelle Sharma of Morgan Stanley, and david harris. This is bloomberg. Emma this is bloomberg daybreak. I am emma chandra. Coming up, the irish finance minister at 11 30 a. M. Eastern time. From new york city, this is bloomberg daybreak. In a moment, we have been waiting about an hour and 40 minutes, we will get a press conference from theresa may at summitu at the e. U. In brussels. And we will get a joint press conference between Angela Merkel and Emmanuel Macron. Right now, we have juncker. The president of the e. U. Council set to speak shortly. The one we are waiting for is the joint News Conference between Angela Merkel and Emmanuel Macron. Alix it is hard to get your jacket on right. [laughter] in the meantime, you have seen european equities have about 13 weeks of inflows. That comes to us from bank of america. At the same time, we learned euro area pmi rolled over a little bit. May factoring was holding up pretty well, though. Still with us, james athey of Aberdeen Asset management. How much do you want to be buying here . James not a lot, i am afraid. I will talk a little more negatively. It is fantastic that they have managed to put together a solid growth picture. In terms of the fixed income assets that we look at, i still do not think there is a huge amount of value. The bund that 25 basis points does not look attractive to me. And the italian spread has tightened, as have french spreads. What we are now expecting is that qel be back is will be back, moving forward from here. The scarcity of german bonds is definitely front row and center in thinking, in terms of restrictions and may be preventing them from extending qe policy further into the future. We have seen this in the u. S. Onceifficult it is, even the economy is on firm footing, to reverse course in terms of Monetary Policy and the impact that can have on markets. I think with equities, it is a different picture. I think there are some interesting sectors in the broader european picture, but overall, it has come a long way quite quickly. I am still concerned about the currency aspect of where that may help or hinder Going Forward. Jonathan to talk about italy specifically, i talked to one asset manager who said that italy has the same risk profile of an emerging market but with substantially yes less field. James it is very much like that. You are talking about a company that is borrowing that it does not have Printing Presses for. We have seen that the currency can be impactful there, and we are dealing with credit risk as much as or more than Interest Rate risk. It is a different way of analyzing. Markets react to income information in different ways. When you look at the politics in the economics, you see something that is very much like some emerging markets, where the political situation gets worse rather than better. And the structural issues the economy is facing is a handbrake on growth. Jonathan we have comments from donald tusk, speaking with Jeanclaude Juncker, saying that the Citizens Rights are the number one brexit priority for the e. U. 27. We want to ensure full rights for e. U. And u. K. Citizens, but mays offer is below expectations. On the issue of brexit, apparently, it took up little time. Suggestioninisters for those 3 million e. U. Nationals to remain in britain after brexit, currently donald tusk saying that the citizens offers below their expectations. Interesting, sort of throwing back. I said at the start, the tone was not that exciting. James, the idea of reflation trade in europe, it would go from the u. S. To europe, long equities you seem skeptical. Can you tell me if you would make the opposite that bet . James the reflation trade is a bit of an inaccurate description. It means Different Things to different people. If part of the reflation trade is about the inflation picture rather than the Growth Outlook improving, then i am hugely skeptical. Previously, i have written in the past about how far from understanding inflation i think we are and how far from reacting to the way a lot of central bankers and economists expect it to you. I do not think it is the case that the growth we have seen in the u. S. Leads to the kind of inflationvirtuous cycle we would expect and desire. The other factor here is a lot of asset prices have front run recoveries globally, because Central Banks have been throwing money at the problem with impunity and not a lot of Economic Impact but market impact. It is not the case as we would have done historically, reading a cross into Interest Rate policy and therefore leading to asset class level views. We have to think about liquidity in the system and how that picture will change Going Forward. I think they are for further advanced, and equity markets are more going to be a function of the economic picture and fiscal picture. Year of europe is way behind in that picture. Of the central bank will stop the qe picture first. Lix james athey, thank you i finally found my bear in europe. Jonathan on the bond is specifically. Lets get back to European Council president donald tusk pay of the European Council is president donald tusk. The council represents the 27 heads of state. That counsel. The french president , Emmanuel Macron, currently speaking. I believe he will head to that News Conference in a moment. For we get there, lets get back to the headline. The president of the European Council, donald tusk, saying offers belowtizens our expectations. You also see the head of the ,ommission, Jeanclaude Juncker also speaking. We are bringing you these headlines from europe. We are awaiting german chancellor Angela Merkel to speak shortly. We also expect u. K. Prime minister theresa made to speak. Lets listen in to Emmanuel Macron. Pres. Macron it is more than a symbol. It is work ethic and the willingness to Work Together. As a matter of fact, this goes back to our legacy. In a couple of days, we will of chancelloreral helmut kohl. Conference ist even more important given that council spoke about different issues. On each of those with the same conviction or belief europe is our best protection against global challenges, the major disturbances or threats. France and germany Work Together cooperations this which is for our common good. We refer to our core commitment and europeanmate defenses. Defendert offender of the paris climate agreement. Fightprovement we have to terrorism online. We also will achieve major breakthroughs in the field of defense. Toould like to pay tribute the european commitment. It will enable us to pool our resources. Thelso talked about framework will allow any country willing to take its decisions on defense to move forward together. Next, we talked about the migration crisis. It is our common challenge. Oncee allow me to say again what i said a couple of months ago. By decisions taken chancellor merkel were brave decisions, in the hope that we did not need to repeat such decisions. In any case, we will do anything to prevent it, because this common challenge requires common answers. On this basis that we continue , the current migration crisis is not just temporary. It is a longterm issue. Thanks to resolved policy in favor of development in africa and in the middle east. We shall host refugees. It is a matter of tradition and order. Refugees are not just any migrant area they are not economic migrants. People fleeing their country because they are in danger, including for political reasons. We decided to speed up the procedures to deal with them. And we express our joint willingness to intervene operationn matters of , including the live in border and to strengthen these borders. To implement matters of the. Order is certainly the right level of protection and on action. We do not necessarily find i die, but we decided to build from consensus. Like i said, it is also in this same period that we talked about projection in the economic and social field. The mindset has changed. We are strongly in favor of and open market economy, in favor of trade and the open market. In compliance with bilateral laws. We also need some major countries. But it does not mean that we shall be naive in europe. We wanted to say that we want to defend the rules and make sure they are complying complied with. Sure it is not the law of the jungle. We therefore are strengthening in working on a better frame for should teach it investments. We did not talk about greece today at the European Council. Is somehoway this good news. In the first few weeks, dealing with the chancellor, we did the am most that this topic would not be on the agenda, because it is better if the topic can be oflt with by the ministers economy and finance. As a matter of fact, our ministers worked handinhand in order to build a strong consensus and to find an agreement. This agreement is supporting the recovery in greece and the reforms implemented by ella to sipras. S t one more word to think president donald tusk and Jeanclaude Juncker, as well as the Prime Minister for the work achieved. Confident we have been working together on what will be coming after the first of july, and we are meant to see each other soon in hamburg on the occasion of the g20 presided by angela. Ladies andmerkel gentlemen, we had a European Council meeting which, i think, hs really demonstrated a has really demonstrated a spirit of her new confidence, and perhaps germany and france have enabled to lead the conservations to this. Meeting ofer the rome, it was clear that the work of 27 Member States, as we will be in the future, should be given priority over negotiations of brexit, which does not mean we will not pursue those negotiations intensely, but this has brought home to us how much we have to look into our own future and how to prepare. This is why this Council Meeting was so important. We did the Work Together with our teams, and i think it has clearly been a result that has been a resilient one. Obviously, we will not be in agreement with each and every one of the issues, but we have been working very intensely on all of the issues. We have given a very clear commitment. To the paris climate agreement, we have underlined clearly this is a global instrument, where globalization needs to be shaped. But we also underlined with this forced agreement, we are to pursue technological innovation, which is essential for the future of the European Union. We talked about defense and security issues, as Emmanuel Macron just outlined. It is a step forward. As i see it, particularly the is of of cooperation prime importance, and also the creation of the European Defense fund. At this time, i would like to think the commission for taking this step. Of e that wasa report looking into the future with confidence. He said we have the lowest Unemployment Rate that we have enjoyed for a long time. We have 10 million new jobs created. Employment is very high. Jeanclaude juncker also some countries in the deficit process, and the fact that we did not need to deal with greece is good news, because it clearly showed that we had found good answers. Jonathan that was german chancellor Angela Merkel alongside president Emmanuel Macron. Prime minister theresa may has just begun to speak. Just as british people suffered in the attacks in paris and stockholm. I say this in a city which has itself suffered great loss from terrorist attacks. These atrocities have strengthened our Work Together to keep our country safe. I urge other leaders about pressure on Technology Companies to create extremist content from the internet and ensure Law Enforcement agencies can access encrypted data. Has been agreed at this European Council, and it builds on the recent work i have done with president macron of france. We must Work Together to combat to defend our values and keep our citizens safe. On defense, we have welcomed plans for europe to step up kid abilities. And for the you for the e. U. And nato to work more closely together. On climate change, this European Council reaffirmed the commitment of the e. U. And all Member States to fully implement the paris climate agreement. The u. K. Welcomes that joint agreement. Trade must be fair as well as free. The u. K. Will continue to play a reading leading role in pushing this on global trade. On migration, i emphasized the u. K. Would continue to play its part in tackling the ongoing migration crisis, which is a challenge for the entire continent. We must deal with the drivers of migration and also stem the flow of migration. The summit focused on the Central Mediterranean route, and i confirmed a new u. K. Bilateral agreement of 75 Million Pounds to meet urgent humanitarian needs and also facilitate the return of migrants, making these treasures journeys. Er the construction constructivist art to our brexit negotiations, i want to set out to my federal fellow european leaders. I want all e. U. Citizens living in the u. K. , who have made their lives and homes in our country, to know that no one will have to leave. We will not being seen we will not be seeing families split apart. This is a fair and serious offer. It gives those 3 million e. U. Citizens in the u. K. Certainty about the future of their lives. And we want the same certainty for the more than one million u. K. Citizens living in the European Union. Monday, i will publish my proposals in full and look forward to reaching an agreement at the earliest possible date. Now, any questions . Thanks, Prime Minister. Bbc news. Votersago today, british decided to leave the European Union. You have always said voters gave politicians a clear instruction to control immigration. But under your plan, for nearly another two years, as many europeans as they like can still come to live in the u. K. , and more up until the point of departure can earn the right to residence. Four voters, d zinc for voters, do you think that will sound like taking control . Voters, it think for was that United Kingdom could establish controls on movement into the u. K. That is what we will be doing. As was announced earlier this week and that governments forthcoming program in the twoyear session of parliament, as well as the repeal bill. We will be introducing a number of other bills which will be reflecting issues that we will be dealing with when we leave the European Union. One of those will be an immigration bill. Used theminister, he words fair and serious to describe this offer. Your fellow leaders have used insufficient, likely to worsen the situation, and only the first step. Are you willing to go further . P. M. May i said this was a fair and serious offer. What we are saying is those citizens in e. U. Countries have come to the United Kingdom and have made a lives and homes in the United Kingdom will be able to stay, and we guarantee their rights in the united and him. I think that is a serious offer. There are differences between that and the proposals the European Commission put out. I have said all along i want this issue of Citizens Rights to be the first addressed in formal negotiations, and it will be. Prime minister, when you spoke to e. U. Leaders, what mandate did you bring to them . Electionaw from the that you have a full majority mandate for leaving the customs union. Clarify that you blocked and otherwise united cabinet that wanted to offer a unilateral guarantee to citizens after the referendum . P. M. May that is not my recollection on the last one. Is one of the first issues that formal negotiations will look at. Fair. We have made a answer is offered to all of those, confirming and giving reassurance to all e. U. Citizens living in the unite kingdom. By also United Kingdom. But also one that reassurance given to u. K. Citizens living in the European Union. On the question of the mandate, as i have made clear tonight to my european colleagues, if you look at what happened in the general election, over 80 of voters voted for parties committed to the u. K. Leaving the European Union. P. M. Han that was the u. K. Theresa may speaking at the summit in brussels. We will bring you more headlines from that in a moment. I want to cross over to matt miller, who is over in brussels. A series of briefings and News Conferences are going on, one with their Prime Minister of the United Kingdom, another joint News Conference with the french and german leaders, Emmanuel Macron and Angela Merkel. Another with the e. U. Council president donald tusk. I want to get to the headlines from donald tusk. The idea that theresa mays citizens offer is below expectations. Talk to me about the tensions around immigration and the e. U. Nationals who will or will not reside in britain. Below expectations is one thing. Saying what donald tusk said, proposalwhat mays reduces Citizens Rights, is a true slap down of what theresa may has been forward to the eat you to the e. U. That is a serious, as to the way the e. U. 27 see this. Definitely the kind of thing that would get negotiations off to a rocky start on this topic. Contrary to that, to some extent, what theresa may did say as she was answering questions was that she thinks this new piece of legislation put forward will help keep families together. This is really the concern e. U. Rightsthat allow you to bring family ambers over without proving certain income level. The u. K. Does ask for that proof. Issue willing to go for that kind of proof or even allow these citizens to be in the jurisdiction of the European Court of justice . That would go a long way to appease her opponents. Alix at the same time, she said at least twice the u. K. Offer on residency rights is a fair and serious. It seems like she got a little irritated. Heresa may not giving any was tusks comment definitely more aggressive than any others you heard you journalists than any others you heard. Journalists in the room gave it to her in aggregate. One person says it is insufficient, one person says it does not go far enough. If you load them all together, i can understand why it made her frustrated. Her use of the word fair was more interesting in regards to trade. This is an issue at this summit. Macro macron and others Emmanuel Macron and others are pushing for protectionist members. This is something in the past they have chided the u. S. For. Hearing that from theresa may and Emmanuel Macron is interesting. Jonathan thank you. We will catch up with him before the end of the program. We want to head over to adam there will be a whole group of investors looking to buy into story. Opean would you be willing to buy into the u. K. One now . Adam absolutely. It will not be perfect. You definitely have a great story going on in europe right now. You have almost sure victory the upcomingn election. The Banking System is better. Macro policy is better. Growth is not dependent on external demand not for europe as a whole. I think there will be summer reform in france, even. Europe will leave the u. K. In the dust. Alix we have seen investors catch up to that. Over 13 weeks of inflows, 20 billion so far this year. We had invested james athey on earlier who was concerned this would price in too fast that it may not live up. Is there a risk that optimism is too high . Adam i am not in the business of evaluating stock market toluse values alix not stock market value, but optimism in the economy. So is the optimism in the economy to hide too high . Adam i do not think so. I think theyre a lot of people in the u. K. , london, new york, that is a skeptics little overdone. Is growth story in europe better than people have priced in. It is only in the last couple of months people have recognized how good the forecast is. The stuff we were saying out peterson six months ago has come true. They will not grow 3 , but the depth ofbreadth and gdp growth is strong. Jonathan we have had three News Conferences around the brexit negotiations. About the european economy. Lets talk about the u. K. Economy. Mohamed elerian wrote in and asked me to ask you how you back inact if you were your old job with the bank of england. Of him to give me that softball. I started forecasting a year and a half ago, that the bank of byland would be hamstrung brexit. You have a rise in inflation, decline in purchasing power. It has been several months lag, but now it has kicked in. I do not envy my former colleagues. I think the call Governor Carney made to keep rates from going up right now is correct. There is no major inflation. The pound has not fallen out of bed. You do not want to manipulate Interest Rates just for the sake of the pound, unless things get out of hand. It is a difficult choice, but or now, there is no reason to raise rates. Jonathan how do you explain it . Majority of people anticipated that you would see sterling rollover, inflation would go higher. Not many people anticipated output would remain as stable as it has done relative to expectations. Thought the bank of england would look through the shortterm spike in inflation and focus on supporting output, so what is happening now that was not happening in 2011 . Why are they so focused to move on rates . Adam good question. I think there are several key differences between todays postbrexit u. K. And the u. K. Economy during the crisis period. It is all about whether you can look through the temporary surge in inflation. Idiosyncratic just to the u. K. It is not the whole globe is slowing down. This is a change in the regime. This is a change fundamentally and how the u. K. Economy reacts with other economies. So it makes sense there will be uncertainty in a lasting way as opposed to yes, it is a financial crisis, it is bad, but we know we will get through it. And the productivity numbers in the u. K. Have stayed abysmally low. I,the time governor king, and others were keeping it low, comelieved the u. K. Would back up to the productivity growth it has had for decades. It has not, which means it looks like there is more inflation risk than there was. Finally, there is a real adjustment to be made here. You mentioned the fact that gdb gdp growth has stayed up, which is surprising, but Foreign Investment has gone down. Consumption has continued to overextend. Because the u. K. Does not have the Consumer Debt adjustment many other countries have, it is more vulnerable. Those are four reasons today is different than 2011. Alix great stuff, adam posen. Next week, we have an allstar lineup of guests, including the johnson and johnson ceo, the Morgan Stanley this is bloomberg. Alix this is bloomberg daybreak. Senate republicans unveiled their health care deal. Mitch mcconnell tries to stay positive about the next step. Next week, we expect the Congressional Budget Office to release the score. After that, we will proceed with a debate and open amendment process on the senate floor, a process i encourage each of our senators to participate in. Alix the bill is already under attack from some members, either conservative or democratic. Either way, they have to wait for cbo scoring, something the house did not have to do. With us is adam posen, also on the cbo panel. They give you the Health Care Bill how do you score it . Adam the cbo is doing an awesome job of staying nonpartisan and doing things with a short turnaround. Lineou score this bottom as something that will hit the real wages of almost everyone in the country, increase health care inflation, increase the problems we have with pricing in health care. It is basically going to be a huge hit to the economy. As a result, it will not gain on revenue net. I think that is what the cbo score will show. Alix so it will not actually need to do the offset it will need to do for tax reform at the end of the day . Predicting the cbo score, just the general economics. But i think the basic economics are this is going to make the system less sustainable and have more people going to Emergency Rooms or losing dropping out of the workforce due to health problems. That is generally bad for revenues. You are going to get some offset, because the direct outlays of the federal government are going to go down. But it is not going to get them anywhere close to where they want for their tax cuts. We saw medical Services Inflation rise the last few years. In terms of effect, without necessarily be a positive thing . Bad kind ofhe inflation . Adam i do not think it is bad versus good inflation. It just means in persistent zero inflation and no nominal growth, in this weird situation, has a beneficial side effect. Otherwise, inflation is inflation. It makes things more expensive. It is not as bad as it would be if inflation were at 10 are year, but it is still not a good thing. Jonathan breaking news for you. Glencore, headed by ivan up riosger, offered coal and allied to 2. 68 billion. Glencore rolling over a touch on the back of that news. Down by about seven times of 1 on the session. But it company that looked to acquisition of rio many years ago, now looking for coal and allied. Alix and not even that, they are also interested in monkey, trying together handprint back into the ag business. They want to buy stuff, and now they are doing it. Jonathan no longer about trimming debt but finding growth , and finding that by buying companies. Byncores author is backed an enforceable guarantee. That headline just crossing the bloomberg. Rio tinto up by about three quarters of 1 . Alix you were just talking about the Health Care Bill and what it would mean for the economy. The other part is what it means for tax reform and when that may end up coming through . What kind of tax a form and when would we need . Reformo me, the tax would be something that is revenue neutral, which would plug loopholes, and lower the marginal rate. It is boring, but that is what a means. It means it means more territoriality for u. S. Nationals, it means giving income taxpayers something back, if we repatriate a lot of the money being held abroad by u. S. Nationals. That is what it should be. That is not what we are getting. We are getting large unfunded tax cuts, tax cuts in the Corporate Tax rate, which will not matter much because the effective tax rate is bad, not closing any loopholes, redistribution to the richer. It is budget busting without much advantage. Alix but the story in terms of the markets, let me talk to investors, does it matter whether Corporate Tax rate is or does it matter that washington would get something done considered probusiness . Which would make a difference for companies to start putting hire more people, up wages . Adam i do not think being probusiness in this sense would do anything for corporate investment. You have to change the incentives to do that. What happens instead is you get more stock either ask, more rise in stock prices, more dividends. Which is not necessarily a bad thing, but you are changing none of the incentives to get into the real economy. Jonathan real quickly, we talked about your former role on the Monetary Policy committee at the bank of england. Lets put you to the federal reserve. Would you be behind another fed rate hike . Adam again, a tough call, but not as tough as the u. K. I would still be in favor of one more rate hike, along with the limitation implementation of the stop rolling over of the balance sheet. You need to look ahead and recognize we have to get this large unfunded is go boost fiscal boost out of congress. It does clear the way for tax cuts. Jonathan adam posen of the peterson institute, you will be sticking with us. Coming up a little later, irelands finance minister will be speaking to bloomberg tv at 11 30 a. M. Eastern time. In the market, lets get you spread out. Moments away from the opening bell. Future is a little softer on the dow by about 1 10 of 1 . The s p 500 dead flat through the week. We are up by a single point. As you hear the opening bell ring in new york switch up the board, the dollar was weaker against prematurely thing in the g10 space and that has changed but it in the last hour but still weak on the day. We are down by. 2. Stability,ith rare 42. 74. Lets get you to cache open up alix steel. Alix softness in markets here. The dow jones and s p 500 coming off a threeday slide. We have not seen a fourday slide for the s p 500 since the end of march. A little bitso softer on the day. Lets get to the banks because that is the important part we have seen after the stress test. Looking for the card results on wednesday. Jpmorgan is the best of the lot, they can america up. 6. It didpass the test, but like behind its peers in terms of its abilities to function in a crisis in terms of capital ratio. Roundup been able to pay dividends is the question, some analysts saying they could return billions of dollars to shareholders over the next four quarters. That is about 80 of their profit and that could impart be leading the rally we have seen a financial shares. Health care and financials are the two big stories today. The is a normalized chart s p 500 health care, s p energy and s p financials. Financials are the purple line. We have had a rally but they significantly trail what we have seen in the Health Care Sector, but he much all the way back to the end of january. We have seen a monster rally in health care. S and p is the blue line and has pretty much gone nowhere. The double question is one sweet end up getting the results next week, outperformance of banks continue or is the optimism already priced in . Something we will be breaking down. Jonathan thank you. I want to begin with news that came out the moment to go, sky ,ridge capital, which was owned bounded by anthony scare mucci, reported a filing that as of ofch 31, 1. 6 billion outflows, that marks the first time in a decade the outflows for a fiscal year exceeded inflows of the 5. 4 billion fund, all of that on the use of its sale to the chinese conglomerate. This puts the numbers at the end of march 31st, but investors pulling 1. 6 million from sky bridge. The big question for investors trends is part of a take which Anthony Scaramucci did downed and now fell to a chinese conglomerate. We will bring you more a little later on bloomberg. Joining us now is a equity strategist. Really big monster financials and we are trying to get into whether it is about capital this division and what make it approved next week. I think it is an Interesting Group because there are certain things you have to weave through that are now different than what everybody was looking at postelection because i think that there are always so many Different Things happening with companies. We kind of got my optic about the way we view them, were after november, it was about how is policy and regulation going to affect bank policy . That stress test time, people want to know how well banks are prepared. It seems like everybody is in the clear, but i think this ties back a fewnks come days but they are just middling along. Once you get parity from d. C. On what is happening, we will come back into focus. Jonathan it has been a very that whenat next week you get the Capital Distribution story approved, that is it. We had the big rally. Do they believe the same thing . In terms of banks . Jonathan yes. We watch valuation closely and any time thanks get cheap, they come roaring back. I think we have a generally, gradually improving outlook, so i would still buy the dip. Jonathan what is the driving force given the other big story this week has been the yield curve, which has been flat. Think theeconomists 10 year will move up by yearend. I think you have to have that happen to get the banks working. The gradual increase in Interest Rates means banks can make more money at the end of the day. The other thing to Pay Attention to his ownership. Even though we saw mutual ownership, they did not go back to the nova structural overweight, so this goes back to one of the raiders stories in town and you have a natural buyer. Alix how much will that be dependent on deregulation . Lori i think it is huge. In terms of different sectors of the market, the banks of the Number One Group in terms of positive correlation. I think that matters in the shortterm, but it gives you opportunities when the wind is blowing the wrong direction. Alix we are joined by jeff from we spoke to Chris Wheeler of Atlantic Equities and Gerard Cassidy and this is what they have to say. Next week, what we see is how much of that capital the that will allow them to get back to shareholders over the next 12 months, and i think it will be a big number. It is all about next weeks results and that is a good base for what we are expecting, but it is about more dividends and stock buybacks because the industry is overcapitalize. Alix how much do think the need to return in order to make up for their loss of revenue . Jeff really, you cannot almost make up for it in payout from a revenue perspective. As much as higher dividends, bigger buybacks are justified because capital levels are getting almost to a silly level, at the end of the day is the Business Environment and i think in the uncertain environment we are in right now, i think we will see the topline performing better and the banks will do better when that happens, more so than their dividend payout that goes to 30 or they can return to 100 for earnings, the jet think is a reasonable expectation for the next years for the large banks. Alix what is your base case for what we see other d. C. And how does that feed through these top lines . Jeff from a realistic perspective, tax reform would be nice. I think we will see something along those lines. The other part is regulatory reform. Taking your. Offbra taking your foot the brakes at this point. We do not need poker to be repealed. We need date we do not need vlkulkar to be repealed. Requirementsting proved you do not have to be propped trading every day, have a little bit of leniency and put more capital on trading debt so those daytoday changes can make a meaningful difference to revenues beyond what is unrealistic to expect doddfrank gain repealed. Buy whichlori, companies . What kind of businesses, thanks do you want banks do you want . Lori they both look pretty good. I would say that the regional story do look a little bit more overvalued, so i would prefer the bigger caps. Jonathan is that the story as well to the people you speak to . I think much of it depends on regulation. If you look at reactions to the stress test, the overwhelming signal we saw was that now that you have this clear bill of health, this is possibly going to be a kind of a reason for the Trump Administration and mnuchin to say, heres what we have seen from the test, people are good, lets move on with regulation and loosen things up a bit. If you are still thinking about u. S. , domestic, you have the small caps there, as well. Alix what bank to you feel is best edition to take advantage of the catalyst you previously mentioned . Jeff i agree, the place here to be as the universal banks, where the valuations are not stretched. They have more of an International Presence that we see balance growth across the globe. Importantly, scale matters more ever then matters more now than ever. I would probably be looking aosely at that order, citi head of b a. Jonathan thank you. In the markets, about nine minutes into the session. A flight one throughout the week. 10 minutes into the cache open, that is the picture. Point to down on the dow. 2 down on the dow. From new york, you are watching bloomberg tv. Is bloomberg daybreak. Coming up on bloomberg markets, an exclusive interview with ceo provider. Index rallied after pharma rattling the last couple months. Joins us on the phone and oliver renick. Who are the winners if the senate Health Care Bill goes through as it is . The clear winner is not the hospital over the long run, it is the health plan, and we specifically like health group, which we have violated at a 200 and a 200birated price point. If you look at the next two years, where it is more or less the status quo being preserved, a whole lot less worse than the house version, the hospitals to ok for a couple of years but the back end of the bill is potentially pretty damaging with the medicaid cuts in figure and sometimes absolute values matter and that is not good for you to our position is better than what we had not good. Our position is better than what we had in the house, not good long term would be better if you were able to preserve coverage. Alix i like that you brought up Medicaid Expansion because insurers are exposed to that. The absolute reduction is worse than the house, so is this a fail signal when it comes to these guys . Cheryl lets sheryl these intense cuts do not start for seven years and the first cuts to not start for part two years, and that is nearly infinite seven years from now but four years is a lifetime. The fact that you are stabilizing the near term is reported to these companies and allows them to have the breathing and planning and growing room a need. Asre is an argument that medicaid spending comes down, states that have not managed to care well,file for and the depths of the medicaid population that is covered by managed care will increase. The client rally in health care, Bloomberg Intelligence was talking about it yesterday. What do you think will happen once the political debate happens in d. C. . I think areas like utilities and staples are still overvalued, not necessarily great fundamentals. When we talk to her analysts, they did not tell us clients think Health Care Reform is going to happen, so i cannot say that i think politics has been a huge driver. People are starting to worry about tech recently and finding a way to part that money they have been pulling out. Jonathan the next stage in sequencing is in d. C. , and once you get through this, next is tax reform. I have heard many people talk about tax reform in health care in the same sentence, you are not, why . many people of said you need to get health care done before you get to tax. Alix as we have heard, immune to what is happening in d. C. , i talk us through this rotation in equities. Add imagery . Jonathan permission granted. Eight i am looking at stack to bart chart with health care financials that show the percentage of Companies Getting 52week highs. Look back roughly around may. All the screen is tech. Green is tech. Briefly, we were talking about financials and there is a little rotation. That did not last long and now we are seeing health care. One theory is investors are looking for Growth Stocks that we know. They have been pounding value stocks throughout the year. After tech showed weakness, investors said, were can i get that growth to a lower valuation . Downside from the previous number, 52. 1 on u. S. Manufacturing, the preliminary number four the month of june. Ber for the month of number for the month of june. I asked about the tax repatriation story and what it means for the healthcare sector, what does it mean for the sector . Lori people have talked about how technology is the beneficiary. We are starting to hear more people talk about this in regard to health care. Pharma biotech is one of the Big Companies to cache overseas. If you bring it back home, you have a lot more cache and a lot more m a could happen. With a group that is not over owned at this point, that could create upsides down the road. Alix great insight. Lori calvasina, oliver renick, and sheryl skolnick, thank you. Later this week, we will be joined by irelands new finance minister. This is bloomberg. My First Impression is my First Impression is lets be clear about what were saying, what we are saying youhose citizens from the countries who have made their homes in the United Kingdom will be able to say and we will guarantee their rights in the United Kingdom. Eu citizens who have been in the u. K. For five years will retain all rights. This is a good start that there are many questions. The Main Objective of this council is to start defining or redefining this europe that is protected and that we need. Jonathan speaking at that eu summit, joining us now from brussels is matt miller, who has been following the action. As that summit concludes, did the leaders put out what they got out of it and what is your conclusion now . Matt Emmanuel Macron has really been the star of the summit. He held a joint press conference with Angela Merkel, which is something leaders typically do not do it eu summits, and they both stressed that europe right now needs a strong frenchgerman coalition to help push through reforms faster and just build on the progress that has been made. They were optimistic, they struck an optimistic tone. They claimed mario draghi gave them reason for that optimism in the field they have a lot of momentum. Even theresa may, who the United Kingdom is on the way out, only ine checked Emmanuel Macron her speech, so he has real star power since his election in france and can feel it at the summit. Jonathan that is the tone, lets talk about the policy and what is happening with it. The immigration story and how you protect the rights of the eu nationals, whether they reside in the u. K. After brexit, talk to me about the proposals the Prime Minister put out and what it could mean for the sequencing of these negotiations as they get underway the next be months. Matt at the heart of this disagreement is whether or not the eu 27 citizens who are living in the u. K. , and there are about 3 million of them, will be given teed the right stick will be guaranteed the right a currently have under the eu postbrexit when they are only subject to the jurisdiction of the u. K. Courts. Theresa may has intimated that she may have some workaround for that, that she would not give the details of her plan until monday. One of the ideas floating around is that there could be maybe some workaround to u. K. Laws to about eu 27 citizens in the jurisdiction of the justice really understand how they will do it. Everyone waiting with baited breath for the details to come out from theresa may on monday. Alix in the press conference, i thought it was interesting someone asked theresa may what her mandate was coming in and what has been the reception of theresa may in brussels . Matt there has really been a lot of bewilderment about which direction she is going to take and the eu will take in these brexit negotiations. On june to the election 8, it was clear theresa may saw a fairly hard brexit and she thought she had a strong mandate to do that, even though only 52 of the people who loaded wanted to leave voted wanted to leave trade post the june 8 election, when she lost the majority, everything was left to question, and so many leaders have said they do not know where she is coming from now and they do not know what the eu once and they were hoping to get answers. On the other hand, they do not know theresa mays government will be the one they continue to negotiate with the the next 21 months. A lot of questions. Jonathan yes, im an investor standpoint, they are interested in the brexit negotiations but even more so getting exposure to a recovering your opinion economy and where they get that exposure and whether politics gets in the way. When you listen to Angela Merkel, the eus future must take priority over brexit talks. Is brexit for the likes of macron unbuckled a sideshow sideshowd merkel a given what they have two do to make the eurozone a success . Matt merkel and macron are trying to ask though investors act though investors do in regards to brexit. It is either they come away with no deal or basically some long transition period. That is the expectation. Since there is so much uncertainty there, merkel and the cron went to put that aside and focus on the things they can control, which is the progress of the economy of the eu 27 and migration issue. Jonathan fantastic work. We appreciate your time. Whether you think the year has passed by quickly or not probably depends on if you are a sterling and that sex trader. Fx trader. D this show. Up from the daybreak team, thank you very much. Vonnie it is 10 00 a. M. In new york and 10 00 p. M. In hong kong. I am vonnie quinn. Nejra i am vucevic. Nejra. E to i am a v welcome to bloomberg markets. Vonnie a lot to cover over the next two hours, but lets start with some data on the u. S. Housing markets, so lets get to abigail doolittle. Abigail we have breaking data on new home sales for the month of may. 610,000 versus 590,000, representing a 2. 9 month over month again, a little less than expected but it comes after the disappointing april based on an unusual seasonal pattern, so the rebound is largely priced in. We were looking at small declines before the report and we are still looking at small declines. We had small gains for that russell 2000. Today is the