2016. Gold still getting a bid despite the fact that Central Banks might pull back over in europe by 5 10 of 1 . David time after the morning brief. We get the case schiller home price index for april. At 10 00 a. M. , Consumer Confidence for the month of june. At 1 00, Federal Reserve chairman janet yellen in a yell and is slated to speak on electronic issues. Also, the u. S. Treasury will auction 34 billion in fiveyear notes. We will hear from the eu regulator who just imposed that record 2. 7 billion fine on google for favoring its shopping Comparison Service over rivals. The European Competition commissioner will join us at 9 30 a. M. Eastern time. Jonathan the news in the central banking world in the past hour, bank of england planned mark carney as with his Financial Stability team to increase Capital Requirements are u. K. Lenders by 11. 4 billion pounds to tackle risk posed by Consumer Credit growth and prepare for the uncertainty of brexit talks. That News Conference after the Financial Stability report still ongoing. I want to bring in guy johnson from london. We have to talk about the countercyclical counter buffer. You through the policy and what the Financial Stability team over the bank of england has been up to . Guy Monetary Policy, which is another core competency of the bank, is a blunt instrument. What we are talking about is a much finer tool. What they are trying to do in some ways this slowdown a key area rather than trying to slowdown everything. Credit card lending is going up at a significantly faster rate than mortgage lending is at the moment, almost twice the rate. That is causing some concern. Is way of dealing with that effectively to tighten the rules up when it comes to credit availability. As a result, you may slow part of that down. That is a key concern for the banks. What they are doing here is the wayust raising things are attached to these loans. As a result, you may slow down that portion of the economy. Monetary policy is kind of a last resort in this area. This is a much more precise targeted use of what we are seeing here. They are also aware of the fact that brexit is coming and we want the banks as well to kind of have a little bit and reserve to make sure that can be couple of. Coped with. Jonathan the last time they did this, some people called it a stealth rate hike. How countercyclical is this particular move given that a lot of people think the economy is expected to go through a bit of a choppy patch . Guy in some ways, this is an easier way of dealing with it. It is a neater way of dealing with the problem of raising Interest Rates. The problem the u. K. Has at the moment is that Consumer Lending is running fairly high. The saving grace is being run down. Rather than raising Interest Rates, which would hit a whole bunch of things and will hit housing for instance, which has a much stronger trickledown effect, you will be targeting that particular area. The consumer is stretched. This is maybe one way of kind of squaring the circle and dealing with that. The reflationary issue slowing the consumer down but not shutting everything down at the same time. The bank maybe this is of englands way to tell consumers that tough times are coming and you need to stop borrowing. Wages are not going up anytime soon. I do wonder on the other side of the bank of england come on the mpc, whether this will be enough in any way shape or form to stop those talks for rate hikes because inflation is increasing well above their mandate. Guy you wonder whether or not this will be enough just to keep that story on hold for the time being. I suspect that it probably will be. There is a balancing act going on in the bank of england. Some of those that may have voted for a rate hike may believe that their core concerns surround the issue of credit and how that is pumping up and inflationary story. That is clearly being driven by the currency. To may end up being able take that off the table by doing what we were talking about here, but we dont know yet. We will have to see what effect that ultimately has. Jonathan guy johnson, great to catch up with you as always. Present mario draghi spoke earlier in portugal and said the threat of inflation is gone and reflationary forces are at play, opening the way for the start of tapering potential. It is headed for the biggest quarterly gains in the past six years. Joining us now to Stephen Gallo. Stephen, for some people it is news that you put a bid on the euro road. For other people, we have heard hiis from president drag before, havent we . Stephen i dont think much as changed as a result of what mario draghi said today. The important thing for the ecb is very much a key variable in this situation is the currency. If the ecb is very actively hawkish, they risk creating a buying frenzy of euros. I think they are very mindful of this risk. If you look at fiveyear forward inflation swaps, theres a pretty neat tie up between eurodollar and inflation expectations, meaning that a stronger euro fuels Market Expectations of disinflation. They do not want to be in a situation where they are making a difficult situation worse. They should be looking through elements of inflation that are temporary in nature. There some types of disinflation of the central bank cannot control through demand push inflation or creating stronger domestic demand. They do not want to make a difficult situation worse. I do not think that has changed as a result of what draghi has said today. Alix we are seeing Market Expectations of a rate hike move up in terms of their timetable. Two weeks ago we were in a world where it was centralbank divergence. Now feels like maybe centralbank convergence story. Do you agree with that . Stephen yes, broadly. Im not saying this by virtue of the fact that i am an fx strategist and therefore think everything related to fx is the most important, but fx is important and currencies are important. When you have convergence of central bank policies, we are seeing that now with the boe and a talking this, the ecb. The fed has been in a ho hiking cycle for two years. Convergences done to limit Exchange Rate fluctuations. I think that is a better situation to be in them one of extreme volatility in the Foreign Exchange markets. David no question fx is important. Oil is important. Mario draghi talked about a lot of the forces of inflation. To what extent is the ecb looking for what happens with oil and deciding whether it can raise or not . Stephen i think it is somewhat important to them, but more important to them for example would be the structural impact on nominal wages and prices in countries that have pushed through some Structural Reforms and some reforms of the labor market. That is probably a more important factor than oil. As i said before, there are things that are temporary in nature as it regards to press of moment and there types inflation and disinflation that the tank cannot do anything about. As far as the inflation outlook is concerned, its an excuse for them to the accommodative are a bit longer and to take their time with withdrawing stimulus. Its also inability for them to make a difficult situation worse with the inflation outlook. Jonathan if they removed all stimulus tomorrow, is there any evidence of the economy right now that inflation is durable and selfsustaining from what you see . Stephen no, probably not. Not when i look at the annual rates of core inflation in most countries. In most countries it is below 2 in the eurozone. In some countries, it is particularly low. You also have to consider the fact that the eurozone is an economy that is recovering from liquidity trap conditions. Saving rates are higher in the eurozone coul. Demographic factors are weaker in the eurozone then in the u. K. Or the u. S. They are not in situation where they want to tighten aggressively. The impacts that tightening can have on credit spreads right now we are in the environment given the decline in Political Risk and given some of the recent news on banking in italy. We are in a very Good Environment for credit spreads. They are certainly not going to want to upset that in the near term. David Stephen Gallo will be staying with us. We will bring you Federal Reserve chair Janet Yellens remarks from london at 1 00 p. M. Eastern time today. Live from new york and london, this is bloomberg. David this is bloomberg. Im david westin. Let yesterday we got that allimportant scoring from the Congressional Budget Office and it found that the legislation would likely save over 20 years, but it would result in 22 Million People having fewer health care. The chief washington correspondent kevi kevin cirilli. For the disappointed or happy with what they got from the cbo . Kevin disappointed. Senator susan collins, perhaps one of the most prominent moderate senators, already saying that she is not going to even vote to have Senate Majority leader Mitch Mcconnells bill brought to the floor. Meanwhile, centered rand paul saying he is going to do the same thing. Because he thinks the bill is to moderate, but he does not think it is conservative enough. The score from the cbo really putting a nail in the coffin so to speak for this bills chances unless it is significantly changed over the next few days. David do they have time to do that . They are talking about a vote as early as thursday. Can they come up with yet another version of the bill . Kevin i would not put pass anything anything past the Senate Majority leader, but its looking like its not going to happen because this version of the bill is so unworkable for the different competing factions in congress. I can count off the top of my head for republican senators who are against this thing. Ron johnson, rand paul, susan murkowski, dean heller. Shockingd, it would be if there was a breakthrough by the end of the week. David anything is possible, but lets assume they dont make the deadline. Then what happens . We going to august . Why giving more time is it more likely to get the senators on board . Kevin aides are capitol hill were saying that this could potentially be the majority leaders effort to move beyond health care to work on other policy issues and then to have some type of breakthrough by the end of the year. You will remember that several folks, including the Vice President himself come have try to push back the timeline for reforms. F health care perhaps this could be the first step in trying to punt the issue a little bit longer. Reforms. Theres no question that this will be a devastating blow from a policy standpoint and take the wind out of the sails. President bypassed the from securing a major legislative victory in his first year in office. David we will check back with you later on. As Washington Trust us sort out where its headed on health care, the business and financial world is trying to sort out what it means for them. Joining us now is the Morgan Stanley chief u. S. Policy strategist and still with us is Stephen Gallo. Give us your take on where things stand in the senate and congress on health care. Michael kevin nailed it. Republicans can only lose three votes. Right now there are too many unaccounted for. It is unclear what really changes can be made to buy those back into the process. For us, the real question is whether or not Mitch Mcconnell will be able to put this on the floor and either let it live or die and move on. David early on there was some suggestion that they one of down and they can move on to other things. Is that part of the strategy to get to tax reform . Michael is hard for me to get into mcconnells head exactly, but as far as markets are concerned, that is what you need to focus on. Areher or not we effectively removing a roadblock to tax reform because we will move on this issue pass or fail. The next phase of the reconciliation process, which clears the path is starting to work on tax reform. Im not going to say that that makes tax reform happen a lot faster. We are still very skeptical about that happening in a quick manner. Is important in a market where we think low expectations have really been built in march since anything getting done in terms of fiscal stimulus. Alix that we market looking at tax reform and potential Health Care Reform in the process, but for the fx market, is the dollar looking at d. C. Or does the dollar need a more hawkish janet yellen . Stephen not really. The impact on the dollar from fed policy is really starting to wane. It started to wane a while ago. In terms of leverage money positioning, we are within striking distance of going to a net short and futures aggregate on the dollar. I would say its less to do with the fed and more to do with the Corporate Tax reform debate, which is possible could get delayed further. Our view on the dollar is that when the Corporate Tax reform starts to be debated in congress, it will provide a little bit of upward impetus on the dollar on the risk that something to get done. 40 ow we think that there is a chance altogether the absolutely nothing gets done. The remaining 60 , the highest odds are on something akin to a cut in the Corporate Tax rate in the top rate of individual tax. May be a form of the house plan, but without border adjustability is possible. More likely the higher odds go to just a simple cut in the Corporate Tax rate and a cup in the top rate of individual income tax. As you can probably tell from those factors, theres not going to be a big impact on the currency market from those development anyway. For the most part, we think the dollar bull run is finished. It has been finished. Unless we see big steps on Corporate Tax reform, things like porter adjustability, its not going to rally much. Alix big steps are not what we will expect out of d. C. We were talking to the ceo Johnson Johnson and the cfo of starbucks. Wassked both of them if it the absolute rate that you need or the certainty of getting something done . They also the latter. Is at the same thing with Health Care Reform . Get something. We just dont care what it is. Michael its not even about getting something. Its about moving on. Theres really no credible path to bipartisanship, which means you need to use the somewhat arcane budget rules to work with than republicans only. Practically speaking, you cannot move on to tax reform until you disposed of health care one way or another. Its about the uncertainty of moving on as to the uncertainty of getting something with health care. On tax reform, theres a question of whether getting a simple lowering of the tax rates or something truly fiscal stimulus that will add to the deficit matters a lot. The former is something that you can expect. You will see a rate cut that probably matters to corporate, but its probably not going to meaningfully increase the deficit. The idea that theres going to be an exhaustion is positive shock to the economy is something that we are really leaning against. Any positive sentiment that might we created this week because we are moving on to tax reform, i think thats valid , but we would lean against the. Toathan is that still true the negative side of the Health Care Story is what . As well . Michael its hard to determine. I think the republicans made up local mistake by going Health Care First and tax reform second. I dont know if its question of whether or not the Republican Base sort of ones health care more than tax reform. , tax reformspeaking tends to be the ideological norstar of the republican party. It is probably easier to agree on the principles together. Is fair possible that Mitch Mcconnell civil wants to it is very possible that Mitch Mcconnell once to navigate the republicans out of what has been a massive Health Care Reform than what they expected. Alix thank you so much. Good to see you. Stephen gallo, youre sticking with us. More than 1 trillion in deal so far this year. Deal stafford joins us with why he says m a activity is actually slowing down. This is bloomberg. Emma im emma chandra with the Bloomberg Business flash. Bmw chording President Trump showing its rebound made in america suv. Bmw also said it will increase spending their and hire another thousand workers. Jpmorgan Ceo Jamie Dimon protects that the banks headcount will keep rising despite automation. Jamie dimon says that jpmorgan is using bots, but that will not stop the banks from opening retail branches or hiring private bankers or expanding in africa. The European Union has slaps google with a record fine. They said it abused its market dominance in the shopping Search Service. The company has been given 90 days to cha