best-selling has e -- selling has ebbed somewhat. david: we get the advanced goods trade balance for the month of may. at nine: 30, ecb president mario draghi, bank of england governor mark carney and bank of japan and the bank of canada governor will speak at the ecb's forum over in portugal. at 10:00, it is u.s. pending home sale numbers for the last weeklynd we will get crude inventories data after oil has come off with its most consistent gains in almost a month. jonathan: that is the lineup for the rest of the day. the lineup for the next 10 minutes, if you want political theater, you will want this. the house of commons where prime minister theresa may will be taking questions for the first time since the general election, pitting her against the labor leader in the opposition, jeremy corbyn. .t is may versus corbyn you can watch that on your bloomberg terminal. that will begin shortly. over in the united kingdom, the story in the world of central banks is the fed taking notice of rising asset valuations. the british economy in london, chair janet yellen describes the climate prices. >> asset valuations are somewhat traditionaluse metrics like price-to-earnings ratios, but i would not try to comment on appropriate ,aluations and those ratios which could depend on long-term interest rates and uncertainty. jonathan: chair yellen is not the only one calling attention to the rally. stanley fischer said so far, the appetite has not led to increased leverage across the financial system. close monitoring is warranted. joining me now is benjamin mandel. great to have you with us. >> is it the unofficial third mandate in becoming a little bit more official? >> two is a lot as it is. it is important to keep in mind that even within the dual mandate system, one is more important than the other. so the fed's objective at the end of the day is to maintain price stability over the medium-term. stability over the medium term is consistent with an array of tasks for the unemployment rate and you can argue it is consistent with an array of paths for financial conditions over the short term. what they are focusing on is the fact that inflation has been soft, inflation expectation measures have been coming down, and now they are willing to look through that in the short term. but that is their ultimate goal of the medium-term. conditions, what janet yellen was that financial conditions have not responded all that much to the initial round of tightening. jonathan: my colleague over in london pointed out we face the emergent paradox, this evolving reaction function that seems to be a moving target with a fed and other central bank as well. as you point out, inflation is getting softer but they remain on the same path. as a market participant, how are you meant to distill the message from the federal reserve? mr. mandel: there is a lot of things in motion. raised, which, judging by economic conditions is actually very low right now, you look at where inflation is. it is not that far from 2%. when you look at the unemployment rate, it is below what most economists consider to be the natural rate and the fed funds rate at one is looking incongruous. economic conditions suggest something probably over to right now -- overdose go right now and we are playing catch-up. there is a balance sheet policy where they are determined to start normalizing and sent into the background as this whole thing unfolds. at the moment, it is more important to signal that you are not on a deterministic path necessarily but that you are committed to the path you set out on in terms of rates and the balance sheet. alix: just to pick up on what you are talking about, look at financial conditions versus the current rate hike cycle. you see the hike cycle pick up but financial conditions are loosening. inflation has really picked up so obviously, that is causing an asset mispriced in the market. that is what bankers are talking about. where is the biggest mispriced in that divergence? mr. mandel: that is the question we grapple with all day long. mixedrkets telling us messages. our equity markets reflecting the fact that growth has picked up and is honest a high and the fact that we are slowly moving through a supportive environment for risk assets or bond markets telling us something. we are ok with bond markets reflecting slightly lower upside risks on real outcomes, slightly softer inflation but the trajectory is still the same. probably, a gradual pace of tightening in terms of monetary policy but i don't think we actually see a mismatch. i think both are actually right. alix: but when you look at earnings yields for the s&p versus the u.s. treasury. it is about that, so people who are bullish tend to make that example, the earning deals are higher, do you buy that principle? equitiesl: i buy that are attractive now in spite of high valuations. u.s. equities. and globally. u.s. equities are overweight in , but we areiews looking at developed markets like japan and emerging markets like higher beta markets. what what chair yellen was saying was valuations are somewhat rich. she has a point if you look at the s&p, compared to what it was on the end of the last market cycle in 2007, it is 10% higher than it was back then. should care about what valuations are telling us. in this instance, i don't really see a negative sign. valuations are not a brick wall. he wasdfather, when driving, used to say "red lights are not a brick wall." alix: wait, is that true? i just got my license. mr. mandel: i'm not actually saying disobey the traffic signals. but the point in terms of valuations is that valuations that are high are not in and of themselves the source of vulnerability. --look at a decent back row a decent macro environment and decent fundamentals and a slow business cycle driving things gradually higher. david: valuations being high may be an indication that there is onital misallocation going because of the lenient monetary policy which must be the concern of central banks. they are causing bad decisions to be made. you mentioned price-earnings ratios? it is not just stocks but there are other valuations. what do you look at to determine whether they are bad decisions? >> if you want to talk about relative valuations, spots are a little bit extensive -- when you look at what is driving bond yields, the driven bond yields being by balance sheets, the term premium, what investors are being paid to hold, that is extremely expensive. look at what are the relative distortions in terms of valuation, i look at the term premium and the fact that for the u.s., it is negative and you have to start adjusting as central banks adjusted balance sheets. we look at asset allocation, we in positive on stock runs part reflecting an environment for equities and in part reflecting that government bond yield will rise. jonathan: the horse has halted. .he japanese are buying etf's president draghi has been buying corporate debt. we are seeing very counterintuitive moves versus where the economy is actually going. look at the treasury curve. it is steeper. there is no data that suggests it should be getting steeper. what we have is president mario draghi taking a step back. maybe remove qe. so how are you going to handle markets over the next couple of years as the central banks try to normalize? what you think is going to happen, what is meant to happen, probably won't happen. >> looking at traditional indicators of the business cycle can be misleading. the slope for treasuries is pretty flat by historical standards and it has been coming down. i would argue that is not the yield curve telling us growth is going to be lower in the future. that is the fact that central and pushe in en masse down the term premium and pushed down bond yields. that is the distortion we are unwinding. that is already in place. jonathan: good luck, right? benjamin mandel will be sticking with us. in the house of commons in the united kingdom, prime minister may is taking questions from the opposition of -- from the leader of the opposition about the tragedy in north kensington. you can watch that as it plays out on live go on the bloomberg terminal. alix: coming up, continuing the central bank conversation, a major gathering of leaders from the ecb, eoe, bank of canada, and boj. draghi, will he take a pause after yesterday's speech? this is bloomberg. ♪ david: this is bloomberg. i am david westin. senate republicans took a tactical retreat yesterday when mitch mcconnell decided not to go forward with plans for a vote on health care this week. he said he needed more time to get a majority together. president trump summoned senators to the white house to talk things through. after his meeting, he said things were close but not there yet. >> we are going to see what we can do. we are getting very close. but for the country, we have to have health care. it cannot be obamacare, which is melting down. the other side is saying all sorts of things before they even knew what the bill was. this will be great if we get it done and if we don't get it done it is just going to be something that we are not going to like and that is ok. david: joining us now is chief washington correspondent kevin cirilli. even before we came on the air, the president came out with a new tweet in which he said some of the fake news media likes to say that "i am not totally engaged in health care but i know the subject well and one victory for the united states." the president has this in hand, where do we go from there? kevin: it was interesting in the clip you just played, behind him, senator lisa murkowski from alaska, who has emerged as one of the moderates that he needs to win over, people like her as well as senator susan collins, and all of that is just really kind of illustrating this division amongst the ranks of the republican party. they don't have the votes. finding themselves after the july 4 recess and they are going to have to wait. of where this goes from here, there is increasing pressure from the sources i am speaking with on capitol hill to not just move on to some other type of issue but to start talking about some type of other substantive policy issued to put forth a plan. don't have several key plans on a host of different fronts including tax reform. david: we have that one page outline and as best i know, that is what we have. how will time help this situation? it seems like if they make it softer they lose the conservatives but if they make it harder they lose the moderates. i spoke with several republican consultants yesterday from the conservative wing and the moderate wing and they told me these lawmakers are going to picnics and family barbecues and they are going to be talking to their constituents. this is a tough sell for conservatives to do this obamacare liked but for moderates it is a tough sell because of entitlement programs. it cuts for senior citizens and planned parenthood and lack of funding for opioid addiction programs. a host of things that all of these republicans campaigned on not in that bill. david: sounds like a long and hot summer for me. alix: for more, we are joined by benjamin mandel, global strategist. we were talking about how you deal with central banks over the next five years but how do you deal with d.c. in the next 12 months? what is your base case for tax reform and health care? mr. mandel: we have had modest expectations. part of that reflects a deeper issue, which is that there are significant constraints to major initiatives in washington including tax reform and health care reform and they are actually independent of who would be in the white house right now. so for example, one of the constraints is that you need a long runway for these reforms to thenacted going back to last major tax reform in the u.s. in 1986, under reagan. that took four years of recovery strength growth coming out of the double-dip recession in 1982 through 1986 for that to come to fruition. the currentk business cycle is at risk right now, but i am also realistic in the sense that i am not sure we have four or years more to get things done. the runway is not there. the second constraint is that fiscal policy is not a blank check. going back to the 80's, those reforms were built as revenue neutral and juries in on that. they were not revenue neutral is not the revenue today to run that experiment. all of these constraints put a lot of inertia into the system high don't have very expectations in terms of the timing or the magnitude of major initiatives coming out of d.c. smallobviously, you buy cash or financials, you along the dollar and short bonds. that was the trade. how do you think about those asset classes now? i know you like u.s. equities but the small caps and financials, if you have to discount anything in the sea -- mr. mandel: you have to put weight on a factor you think is important. story. the global growth there is a business cycle story and there is a policy story. i am saying we are treating the policy story as somewhat neutral right now. as far as monetary policy on a tightening pass, fiscal policy may happen next year, but we don't have high hopes for that so you are putting more weight on the growth path and the business cycle path and where we are in the cycle right now is gradually migrating from the middle of the business cycle into the late portion of the business cycle. so you ask, what is your policy, itr fiscal is for the late stage in the business cycle. you like higher cyclical markets including equity markets outside the u.s. you are still moderately overweight in the u.s. market for exposure to those risks that could be heavily discounted, but you are under way -- you are underweight. jonathan: with the administration, goals of getting gdp up to 3%, gdp is going to have two in front of it and a very low single-digit the next couple of years. are you along with that? does that mean we will not get that late stage knelt up in u.s. growth? this is the 2% economy. mr. mandel: it hasn't really caught on yet, maybe you can help me with that, but it has been a 2% economy in a wide array of scenarios. recession, a disappointing 2%, 2% in 2011 and 2013, we have a euro crisis. e.m. was having its own version of a recession, so what is your forecast for this year? is it 1% or 2%? mine is 2%. we have seen the prospect for a future -- a huge knelt up. david: coming up, as senate republicans try to pick up the pieces of their health care bill and find a majority, we are joined by michael leavitt. former secretary of health and human services. live in new york and washington, this is bloomberg. ♪ >> this is bloomberg daybreak. i am emma chandra with your business flash. first concession to activist investors. euros largest company, announcing a buyback plan to reduce stock prices. it aims to increase leverage even more. phillips has agreed to buy american heart maker. health care is phillips largest business. the dutch company has been waiting for acquisitions to expand it. the cyber attack that started in europe has now reached asia. the virus has infected businesses, and government computer systems. it is demanding users pay $300 in cryptic currency to unlock each successive computer. that is your bloomberg business flash. david: for more on that attack and the broader risk, we are joined by cybersecurity reporter mike riley. but you have you here. take us through what happened as far as you know yesterday. mike: yesterday was when it got unleashed. it looked like an attack that started in ukraine and spread quickly across the globe. kind of unevenly, but it hit shipping lines and a major law firm in the u.s., a russian pipeline company, it hit a lot of government websites and computers, even if he ends in ukraine and now it moved to asia. it spread unevenly. why is it so uneven? david: another question is why ukraine? we had a tax on the power grid in the last year or two and that was attributed to russia because they had geopolitical reasons to attack ukraine. why is ukraine such a focus? it might mike: be a political message, which raises the question about the motivation. this is coming up on a major kind of day in ukraine to celebrate its independence and the timing of it suggested this was something more than just a criminal attack. it is disguised as a criminal attack but why does it spread quickly and who is behind it? ukraine would point the finger at russia but a lot of major russian companies that hit as well. jonathan: you mentioned the objective of the attack. if it is to raise money, they are not doing so well. compare that to the last one. that is what happened. they hold ransom with your computer, they ask for crypto currency, some people pay out and some don't and when it comes to the grand total, what does it come to? mike: it is a good business if you are a cyber criminal but this kind of ramp do effectivet business. it raises a question of the motivation. you have unleashed chaos across the globe and hit shipping companies and law firms but are you really just going to ask about crypto currency? jonathan: you mentioned the geography but the scope is fascinating as well. we talked about law firms and government systems but we don't talk about financial firms. are they doing a better job to protect themselves? mike: the short answer is yes. one of the main ways it spreads is it uses an exploit that we have stolen from the nsa by a group called the shadow brokers. really powerful. one of the lessons is this is what scheiber war -- what cyber war is going to look like. this patch was issued by microsoft in march. by this point, if you are on top of your game, you have taken care of the problem. if you haven't, -- alix: done, silent. jonathan: great to have you with us on the program. thank you for joining us. coming up later, toyota, motor manufacturing president joins us from the assembly line in kentucky where the automaker rolled out its of camrys. that conversation coming up later. here's the stage set as followed. futures go nowhere. after the biggest selloff since may 17, if you switch of the board, the action continues in the bond market. yields high by four basis points. 2.24 on the 10 year. you are watching bloomberg tv. ♪ jonathan: from new york city to our viewers worldwide, you are watching bloomberg daybreak. let's go through the market action. futures are unchanged. popping 1/10 of 1% on the dow and the s&p 500. goldman sachs boosting its year end s&p 500 target to.400 from 2300 previously. it puts them in line with the estimate of the year-end, protecting a 1% pullback for the next six months. the story in the bond markets are on offer. yield high, curve steeper, up 30 basis points on the 10 year and that is the dollar weakness story against sterling and the euro. a high on the single currency, 1.1375 on the euro, up one third of 1%. let's get you some headlines outside the business world with emma chandra. >> in the u.k. prime minister theresa may face is the first test of her minority government. she is taking questions in the house of commons. you can monitor that on the bloomberg function. plansleader jeremy corbyn to challenge the conservatives on austerity in the wake of that deadly high-rise fire in london. they put forth a motion in parliament to end the years of cuts in public services. in france, president emmanuel macron's cabinet took a step towards loosening up the labor market. ministers approved a plan to negotiate reforms of unions and business groups to make it easier for companies to fire employees and also for companies to negotiate their own wage deals rather than rely on industrywide contracts. on capitol hill, the stage is set for a serious few weeks of lobbying to replace obamacare. republican leader mitch mcconnell decided to delay the vote on health care legislation. it became clear he didn't have enough support to pass it. there is opposition from both conservatives and moderate republicans. 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. john? jonathan: it was the catalyst for a market moving the bond market yesterday. hawkish sentiment out of the annual ecb central bank. mario draghi preparing routes to preparing stimulus. >> as the economy continues to recover, a constant policy stands will become more accommodated. the central bank can accommodate perimeterjusting the to its policy instruments. not to tighten the policy stance but to keep it broadly unchanged. jonathan: joining us from the ecb forum on central bank is bloomberg news paul gordon who covers western european banks in frank for it. great to have you with us. outside of the central bank jargon, in plain english, if the economy approves to keep the accommodation constant you have to move up with the economy. is that as clear as he can get that maybe we are in for a move later this year? paul: there are clearer ways of putting it, yes. the basic message here from that section of the speech -- that is important which i will come to in a moment -- is that if inflation rates are rising as the ecb hopes it will do, you can let market rates to rise to not causing real rates rise, maintaining the current level of accommodation in monetary policy. ?hy is it important he also said we need the systems and prudence in dealing with stimulus and the withdrawals of stimulus. the markets looked at the idea that he may be on the verge of a paring back of bond purchases, something akin to the taper tantrum we saw with the fed in 2013. that may not be what the ecb intended >>. i read all the research from various banks and wall street and they focused on those words as well, prudence and persistence and not much has changed. it is the new information, the that seems to be moving the market. how is this playing out? you have the ecb trying to walk this back after the fallout in the market? paul: it is a topic of discussion, i can assure you of that. the vice president said markets are sometimes hard to understand but his message was that really the statement by mario draghi was exactly the same as he said in his press conference after the last policy meeting on june the eighth. suggested board members and 125 governing council members. there is new fodder in the remarks of mario draghi. jonathan: set me up for the rest of the day because we've got some action in portugal and some names begin later. -- some big names speaking later. concludesecb forum with a policy panel where we have mario draghi sitting down with mark carney, and mr. kuroda those heads of banks cover monetary policy for almost a quarter of the world economy between them. the missing elements are the fed and the bank of china. they will be talking about relevantgrowth, the and investments, it is hard to avoid talking about where they are on the path towards normalization. jonathan: looking forward to all of that. -- joining us from portugal, we will bring you that panel right here on bloomberg tv at around 9:30 eastern, about 2:30 in london and 3:30 central european time. we are joined by bloomberg's eurozone economist maxine's body. in new york,office still with us, benjamin mandel from jpmorgan. we want to begin with you quickly. we want to talk about how difficult the task is for the ecb to remove the accommodation and how hampered they might be by the very fact that the timing is going to start from the fx channel. it is going to come quickly before they manage to make a move. >> it remains to be seen how the market reaction persists. i think the reaction we are seeing today is there is -- it is more hawkish than what mario draghi suggests. what he also said is they don't know how much labor market slack there is. this is important for monetary policy consideration. with full employment, we don't see wages reacting. this had a position for core inflation. what he said yesterday is basically that it is very much prudent and patient, that was a missing word, but patient is theally the word qualifying spirit at the european central bank council alix: today. on john's question, andrew, if you look at this terminal, it highlights what john was talking about. eurozoneline is the and the white line is the u.s., the u.s. having lose your financial conditions than the euro zone in part because the transmission affects will be so strong. does this mean the fed will have more room to tighten when all is said and done? hearare starting to some fed officials pick up on that, the new york fed president talking about the easing financial conditions in the u.s. providing more stimulus now. our conditions are more accommodated. even given current settings of levels. what we heard from draghi is the fed is also looking at conditions on the financial side and saying maybe that does leave more of an avenue, more of a cushion to raise rates and not have a negative effect on the economy. jonathan: there is always a risk you could take too much away from market action, but have we learned in the last couple of days that if the fed would like to see a steve for -- a steeper yield curve nejra draghi should take control? mr. mandel: there is something to that. the portion is driven by central banks outside the u.s. and the key player has been europe recently. there are two other factors at play, one of them -- they might drive markets in the direction of overreacting -- one is that you need to see action to believe it on the part of central banks so this has been a story of monetary policy gradually moving towards tightening and skeptical markets pushing back at every step along the way. that gave rise to the taper tantrum result in 2013. ever since then, central banks and very very gradual cautious in terms of their communication. this is prone to happen. the other factor is that the mental model of central bankers is one that is very persistent and one that is not always look at current conditions. central bankers think about the phillips curve or labor market tightness with future inflation as the key determinant of inflation over the medium-term. if you are a central banker today, you have had a bit of andness creep in globally you are looking through that because of your mental model of inflation. david: to pick up on that, i recently spoke with somebody close with janet yellen and asked if this was a question of inflation, even though they are not seeing that, or is it a question of the asset value and miss allocations? he told me he thinks they are concerned there might be a nonlinear function to the phillips curve where it could jump up on them. what do you think is driving them? andrew: historically, it has been true and it remains true that inflation will be a bigger driver for the fed than financial conditions. see ae was saying, we range of opinions across the committee regarding whether financial conditions are something you are supposed to take into account in your monetary policy or something you're supposed to respond to. but we have complete consensus that inflation is something you are supposed to respond to and it is part of the dual band eight. -- the dual mandate. you get a range of opinions around whether the last three downsides should change your medium-term outlook but i would , as much agree with ben global central banks focus on the philip central curve, labor markets driving medium-term inflation outlook, labor markets in the u.s., by any metric that you look at our tightening. we have job openings staying high as higher rates go down. there may be some supply constraints. officials are looking at things like this and saying that maybe we could get some nonlinear response but even if the response is linear, we go back to the more historically normal relationship between unemployment and inflation. with the market largely pricing out of phillips curve relationships, that is still fairly reflected. david: if you are not sure which is right, are the risks symmetrical or not? how do you hedge? are you better off raising faster slow? >> the fed story is one of basic metric risks. it is harder going the other way around if you are wrong and you get a negative shot. i think there is a silver lining to the phillips curve discussion which is the reason that central bankers are so confident in the inflation in the future just because growth has been fairly robust. the main place you are seeing that today is in europe. europe is in a bright spot in the global economic outlook. central bankers are looking at that unexpected, very perspective -- very persistent strength in the future. alix: really appreciate it. bloomberg and ben mandel updating, thank you. a programming note, what are you doing on july 4? david: i know what you are doing. alix: you are watching me at 8:00 p.m. eastern on july 4. we will cohost the boston pops fireworks spectacular live from boston's historic esplanade. this is bloomberg. ♪ >> this is bloomberg daybreak. this is the bloomberg hewlett-packard enterprise greenroom. tonight, the david rubenstein cofounder and's chairman emeritus. that is 9:00 p.m. eastern. now to your bloomberg business flash. lou apron has cut the price to 10-11 its ipo dollars per share. that is down from 15-17 dollars. they are hoping that the price cut will convince investors to jump on board. shares are respected to price after the market closes today. but to bank is trying to overhaul the way it manages risk. it may want to start with derivative traders. it made a bet on u.s. inflation that could lose $60 million. people familiar with the matter say they want to see of the trade is reached with the limits on the deal. alix: it is part two of the fed's annual stress test on banks. this one is the biggest. it is how much the banks will be able to return in payout. let's see where we are at in terms of big banks and their dividend payout ratio. jpmorgan tops them all with that white line. sachs,at payout, goldman that redline has a dramatic change over the last few weeks but still above the likes of city and bank of america, straight in the middle with their ratio at 70%. joining us now is chris kotowski, oppenheimer senior analyst. what is your base case for which bank will return the most capital on test results coming out today? >> in a mature industry like banking, ultimately, your returns are going to be faster than gdp growth. so companies are constantly accreting capital. the we have seen is for regional banks and credit card companies, their ratio peaked in 2014 and the regulators have let them gradually come down. for the big banks, they have been forced to retain capital so they, in the last 12 months, have created 50 to 100 basis points on their capital ratios and what we are looking for, from this round of capital plans is that the regulators finally said, enough is enough. your capital ratios are way above the minimum. they are way above the regional banks. iswhat we are looking for that banks like citibank and bank of america will be allowed to go to that 80-100% pay off ratio. alix: what is priced in? seen a monster rally since the election, filibuster at half a percent a few weeks ago. what is that in terms of the dividend payout ratio? >> mr. kotowski: i look more at the relative pe for banks. this aura clay, it ranges between 60 and it averages in the low 70's. 73 is the relative pe. currently, we are at 66. the big banks are relatively cheap compared to the market, where they were historically. what is not priced into the stock is that the reason why they are cheap now is because their returns are relatively low. they still have bank of america 10%city, they still have a return on equity or slightly less. what they need to be able to do is work their capital ratios down so they can get their returns to the kind of level that everybody else has. david: which of the banks has special circumstances? you talked about citibank and they have some very big deferred tax assets on their balance sheets. it frees those up to distributors. >> citibank earns $15 billion a year. people think makes a pathetic but citibank earns about $15 billion a year and that is more than amazon and facebook combined. so they are earning a lot of money. in addition to that, they are earning back to billion dollars or $3 billion of deferred tax assets. a deferred tax asset is in your book value but not your regulatory capital. deferred tax to assets, that means the regular capital goes up by the 15 billion a year earned plus the 2 billion you are accreting. city is trying to make the argument that the regulators should be allowed to return 16-17-$18 billion ultimately, but i don't think they will go on the winner this year. they will be happy with a 100% payout. for them to maintain that capital ratio they would need to pay out more than 100%. alix: thanks so much, really appreciate it, chris kotowski, oppenheimer senior analyst, those results coming out at 4:30 today. click on our charts and graphics and interact with us directly. just go to tv on your terminal. if you missed anything you can watch it again. this is bloomberg. ♪ david: this is bloomberg. i am david westin. senate majority leader mitch mcconnell has decided he does not have the votes in the senate for his health care bill. what comes next? someone in a position to have some answers is mike leavitt who has served as secretary of health and human services in the cabinet of george w. bush and governor of the state of idaho. he joins from our washington bureau. to the program. governorow this as a and some who administered health care laws. is there a path you can see for mitch mcconnell and the senate republicans to come forward and get 50 votes, at least, behind a health care bill? mr. leavitt: yes. i am one to believe they will ultimately get a bill. we don't know what will be in it but i think we are in a period of negotiation. everybody looks to create a bit of leverage and saying no is leverage at this moment. they are creeping towards a very important deadline, september 30 when the vehicle that they are using legislatively is a reconciliation budget vehicle and it expires. they need to go to 60 votes than and the republicans face then a point in time where they have to go back into an election cycle, having not accomplished what they said they would do. i am not surprised that mitch mcconnell does not have the votes right now. are in a periods of negotiation. they will have to seek a bipartisan resolution. i think that is less appealing to mitch mcconnell and the republicans who have campaigned on the words repeal and replace. that, it abandon becomes a much more difficult mandate for them to have the filled. david: to oversimplify, it seems like we are talking about medicaid on the one hand as opposed to deficit on the other. there is a move to save money on medicaid which is a substantial amount of money but when you do if youou run a deficit give the benefits. as a former governor, how much pressure does this put on the states if they cut back on medicaid to the degree they are talking about? >> medicaid makes up 20% of most state budgets. the entire state budget. it also comes with big obligations for spending in the future. it is not an easy program to reduce once it has been put into place. you have, of the 31 republican governors, you have more than half of them who have expanded their medicaid population. they are feeling quite intense concern about it and that is one of the pressure points. but this trade-off between spending on one hand and tax cuts on the other is a very old conundrum. it goes on perpetually. i believe that one of the components of this discussion that is being left out in the political speak of washington is, what about just reducing the cost so that the number of people who ultimately may in fact be covered by medicaid goes up, proportionately. that conversation will creep into this, but right now it has to be simple fight for the purpose of washington debate. it is all about medicaid and tax cuts. david: but nobody is talking about bending the current cost. mr. leavitt: everybody ought to be talking about that because that, in fact, is the solution. it allows them to have the tax cuts that they want and at the same time, it allows us to take care of the task we have as a society, care for those who are in economic and moral need. limitation inis a the debate. that is the solution overtime. right now, we are not having of david: the political debate. that is governor mike leavitt joining us from washington. jonathan: later on this program, some coverage of this. a major lineup of the biggest central-bank chiefs on the planet. the european central bank, the bank of canada, the bank of japan, as they all come up at 9:30 a.m. eastern time. we will bring you the highlights and coverage of that event right there in portugal at the ecb forum. from new york city to our viewers worldwide, this is bloomberg. ♪ ♪ >> federal reserve officials draw attention -- apublicans delay a vote on health care bill. reaches cyber attack asia after hitting systems in europe. good morning. -- jonathan perera ferrero. -- suries >> a little bit more moderate when it comes to the euro-yen. technology the weakest performer over in europe. up and -- we are going to get the advanced goods trade announces for the month of may. to -- continue at 10:00, it is u.s. pending home sales numbers and 30 minutes later we will get weekly crude inventories. the federal reserve -- the -- not >>et yellen but i would not try to come in on appropriate valuations and long-termos depend on history. of course, there is uncertainty. it would be like hours long. john would hate it. the -- jeff rosenberg great to have you with us. >> federal reserve pointing out violations. what is that mean? find when ben bernanke is is neverubprime the small. nobody wants to be the biggest banker who downloads the financial risks. the headline was we would never -- onefinancial crisis that was looking at a global crisisn to the financial . just because we have strengthened that part, does not foundhe markets have jewish -- >> a lot of people would have wanted to the greenspan space to >> condition to the wrong when it the comes to the prediction of financial markets. difficult to forecast windows 10 reports have been recurrent doesn't compete, but occurs. it doesn't mean we won't ever have another downturn. -- take a look at the bloomberg here. met tends not to be the hiking cycle that we see. look at those blue bars created >> that is really what stan fischer's speech was about. he's been talking about that since he joined the federal reserve. the transmission of monetary -- in theo the real post crisis environment, it is more through financial so when there is a it means they need to continue to do more tightening. -- hat is probably we have not seen that. what is that? >> it is a number of things. one is the inflation data and two shift near forecast independence. they were trying to get investors to follow them in the whole conversation, we will talk longer. and then you have global factors that have been pushing down. >> jeff, you mentioned the what should investors feel us yet? be looking at? the issue is he can't look in the same places page of -- -- the u.s. consumer is one of the healthiest sectors in financial markets. stuff they doesn't show the -- the new manifestations that how tot really know spot. one of the conditions that lead -- a persistent of that riskonment that masks the -- the tightening interested -- interest rate policy. the last time that happened, the fed was not aggressive enough. the concern is you hope the lesson is learned any hope to avoid that. the kind of morning from yesterday. what do you do to protect yourself? >> i think what investors have to do, they have to stress there portfolios around. we've had a one-way move in the environment. -- most people the last onen years have focused higher interest rates. we have seen a shock come from china. your portfolio -- people need to look at how will i respond and can i handle what a different environment looks like? action i should take -- we had an ipo price this morning. -- have/the >> it is typical signs of complacency where people look at credit and credit conditions. -- we are drawing a comparison to the most recent cycle, which was a very high bar to compare to. from that comparison, the signs of repetition are not there. -- and lack of availability in traditional products has force investors outside of the risk factors. -- benefits of >> you are sticking with his toyota member up, joining us. also, the company rolling out its new camry. this is bloomberg. >> this is bloomberg daybreak created blue apron has cut its $11 a share.to shares are expected to price out of the u.s. market close today. amazon is starting a chance to win back merchants who moved to walmart. will torty merchants card republic -- made --com recently named it the most made in america card as well. -- james back on the program. welcome back. >> good morning. have a great -- a great opportunity to talk with you today. >> this is the first time in 39 -- in 30 years. is about timeit -- us to introduce unprecedented changes. over 90%. right now with trucks and suv opularity, >> as you suggest there has been -- sh for suvs and >> we constantly look at our entire lineup and we are always looking for opportunities to productivity. we expect to be able to do the there are good reasons why one you thinkhe --ut the phenomenal in pgd increase. we believe the best card america has gotten better. we are looking to put taken to the mid-size market. -- the stock has not done -- as well. a again, camry has been competitive in the past and believe it will be competitive going forward. we have additional ideas on how we are not going to realize the impact of the change until we have delivered it across other models. thanks for much. breaking news. draghiopean -- the speech on stimulus yesterday. the euro-dollar rolling over at -- wellquarter percent section high. by -- we're down six -33. bloombergng the market as well. looking at the timing -- they did not like the market reaction. >> i feel like only have is how besitive the ecb is going to -- we willthe euro bring in just roosevelt into the conversation as well. >> the economy continues to recover. bank can adjust the parameters. joining us, jeff rosenberg. .hat speech as new information noted market directions the tend to strike a balance. >> that was the pivotal moment -- it is about financial conditions. it is not just about policy just hit andadline --arly we are having a big i'm not sure what is going on pushback you see them in just a bit. >> there was a very clear shift. it was quite a dramatic tone. >> i think the market reaction's has it all. >> for don't reverse it in anyway shape or form. morning that monetary support is still needed. i think anyone in this market, we have moved away towards normalization. the train is at the station and waiting to leave. thend that has been part of expectation. sometime ate this the end of the year. is reallying is what moving fee markets and maybe they're trying to lock it back a bit. the issue is that the acknowledgment is the specter of deflation and has been defeated and if we don't have deflation is a fear, then we don't need monetary -- having -40 basis points and there is a shift in the balance of risk moving us along. yesterday speech maybe have been too big of a move. >> two big of a move? ecb isk it says that at the mercy of the news. -- as so subtle >> let's understand why. because back to we will do whatever it takes. because back to we will have no limits. >> how do you get out of financial oppression? it.t is easy to get into unwinding it, that is a very difficult piece. turnes this probably can janet yellen's statement? this is a fairly subtle move what is it tell you about the violation bank in question mark >> part of janet yellen's comments were about long-term .tock valuation's to history that is one conversation. an entirely different commerce station is the value of a negative interest rate. a we are talking about extorted -- in a manner that getting into it it is an experiment and getting out of it. we don't know how we will caliphate. >> the financial conditions are tighter in the eurozone because of the euro. -- that will pose a real issue for the ecb and they phenomenal what they want. christ i think they will be able to tighten more than what they want. message is the exit policies.ntional that the market reaction will be predictable and that is the challenge. market -- a big spike yesterday. now from the ecb -- -- it is a big story. walk us what we have learned. yesterday, he talked about a potential path to stimulus. the euro rose, bonds fell. it was supposed the a bounce message saying they are all on air. what is most important is that and he must bee persistent and prevent in how you draw a similar. >> the speech was intended to strike a balance between recognizing the currencies .hought does this underscore the difficulty the european central because ifng to have you're an outcome the market is revealing their next move. one, is agility fed said back in 2013. or, you can go the route of the -- when someone does something, then the market does excited. >> in just about an hour we will what is theraghi's strategy when he had to walk it back. he is on the panel with mark raise who is wanting to rates. and then you have kuroda who is trying to find a place in japan without much success. how many times are we going prudence.e word i would not be surprised if more often than previously planned. futures here in the united states of. story in the fx market. euro-dollar funding highest today. . big move yesterday theink there's something trade balance of the more narrow . that is the story with the breaking data. -- big market move, and ecb and i >> really fundamentally interesting issues. the trade deficit big priority for president trump. wilbur ross says the president will take full action to address serial dumpers of metal. ceo of news corp. waiting to that yesterday. -- our country is major role of government. >> this in me feels like sure picking what industries will make it or not. >> there was a lot of concern this year around the potential for trade policy to the disruptive. down.oncern has come we are getting into the industry .y industry issues important the other part to pull up is the .ecommended it has come down in terms of the market drive. >> that leaves the question, could come back? -- we want to take -- global ross appeared by -- shows offutout and they altered and last and then they shut him down. >> none of this is happening in isolation. one of the concerns however is if you don't make progress on the areas that require legislative successes, the -- maybe to the area values refocus efforts on the trade arena and that might refocus attention to the issue. -- inre not really and much -- >>importing it could trigger responses from other trading partners. trying to get something done. 3% of steel is used in military. >> the broader issue is the sector by sector issues, but he pivoted that goes after the .igger issues -- the the longer impact ability to drive negotiations forward. we steal issue is important to the sector, it is not yet a macro issue. >> it brings me to the other issue which is demand. if you want to help certain boost demandve to to do that. if we're going to talk about steel, maybe it is the infrastructure piece that if ,ou're going to have a policy market expectations, our own expectations have been greatly diminished. you see it in market scenes and market performance. sectors, the corporate tax beneficiaries. one of the biggest themes to -- in my have been as a result of a fiscal policy shift low e're back to more >> that brings back at sooner for the election, a shift from monetary policy, the fed can setback. the markets are pretty skittish right now. the price. we had a major steepening in the steel curve right after the election because we were expecting less monetary policy. one of the things you see in bond markets is less important for the economy and more reliant on monetary policy having to lincoln that. period. >> let's get an update on what is making headlines outside of business. globalosoft has traced -- users are being told to aaa -- pay a fee. among those accused him of the and theommander buffett -- the warren has called the health care bill said it would have cut his $680,000. bill by i'm emma chandra, this is bloomberg. >> just a few days, we will be celebrating july 4 in the u.s. eastern.t 8:00 p.m. i've heard it is pretty awesome. this is bloomberg. >> this is bloomberg daybreak. coming up, space station commander will be talking to us from space. >> this is number td. the markets moving words with a speech in the last 24 hours. >> as the economy continues to recover, a constant policy moree will be become common as. -- that team is still with us here. paul, let's begin with you. -- itorts that if how we is relative to where it was a few minutes ago. it was intended to be balanced, draghi was very careful yesterday. it needs to be prudent with theing, but there were ways economy can grow without -- just a financial very mild tent. >> if you look at a transcript of the speech and the words he used, the market reaction and -- one of the concerns among some investors is the ecb just isn't talking. discussions.m of he can't be sure what the reaction will be. a 2017 high. 2017 hieratic there, down. couple ofabout this a minutes ago. is market that seems to be antsy , a little bit nervous and not fully surfing -- fully reserving. shift in a pretty big the speech and it validates what has long been expectations not in terms of the timing, but individuality. >> that is what that paragraph was talking about. if they help with the stands, they would become more accommodative so the markets have a big shift. it is a big deal. what is it going to take for that particular trade we saw play out earlier in 2016? >> i think it is all about the pace of change. rate?it hiking the what is it going to take? >> the other thing is a balance sheet. now there is more confusion about the debate to move on the balance sheet or interest? as paul was saying earlier, there is a lack of clarity. if you look at what the fed does and what the fed did in front of its balance sheet in terms of communicating with the market, this is the kind of work we need. looking at fed communication, you just noted it was very hard-working and having an open discussion. we've got only six months left so as we get close to that, it is going to get cautious. thanks so much. great to see you. you can click on asking guests a question and we will do so in this segment. bloombergwatching daybreak to read about 40 minutes away from the cash opened in new york. let's give you a sense of how things are set up. if you switch out the board, we had deutsche bank revise their call. -- the market is misjudging president draghi's speech. will look at you that chart now. >> we are going to go in a different direction. is elon musk's space x. are they competitors or partners? here for you unique perspective whitson --t peggy astronaut peggy whitson. she joins us from the international space station. me?do you hear >> i have you loud and clear. >> you have spent a lot of time up there. what you doing up there with you enjoy the most? -- what you enjoy the most -- what do you enjoy the most? >> we are having an incredible time up. . , i have another cardiac stemg cells. there are many studies looking at physical properties. we have a combustion rack were redo burning principles with a lack of gravity. there's lots of different physics and engineering investigations going on. >> as a national, you are involved in the government. from thethe news comes private sector. if you were to do it over again, would elon musk beer boss or are there things private can do that public can or the public can do thatprivate can #-- can do public can't? seeing some of the money for the commercial providers, spacex and orbital a tk are providing cargo. think the commercial commercialization is transitioning right now and it is fantastic to see the cargo coming up on all these different vehicles and i really do think it is the future because like aviation, it has to expand in order to be really prolific and having these programs in place is definitely a stepping stone for further development and that allows the government to spend more money on going and -- nding way beyond. there's a lot of talk about colonizing mars. you have been living in space at fairmount. ?s that a realistic goal to set to have a colony in mars? >> i think it is a fantastic goal to have. we it -- we should have colonies on the moon and mars so yes. i think it will take technology development and we are using the international space station to perfect some of those technologies. if we go on a multiyear mission to mars, we need to be able to have a life support system. it is very exciting to be part of the engineering and testing going on right now. >> thank you so much. a real privilege to talk. evengot a tweet that said -- from new york, this is bloomberg. so new touch screens... and biometrics. in 574 branches. all done by... yesterday. ♪ ♪ banks aren't just undergoing a face lift. they're 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. that's how you outmaneuver. tthat's why at comcast,t to be connected 24/7. we're 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. ♪ >> is the market moving words of mario draghi. or not. officials have said the markets have been misjudging the speech on stimulus. janet yellen describes valuation as somewhat rich. republicans delay a vote on a contentious health care bill. mitch mcconnell faces a difficult path to repealing obamacare. from new york city, good morning. this is "bloomberg daybreak." set for 30 bell is minutes away. the s&p 500, positive six points following yesterday's selloff. euro-dollar following again and rolling over my head century it only away from the year today high today, treasury erasing the losses early in the morning, 2:21 on the u.s. tenure. theet you set up in premarket movers, here's alix steel. alix: higher yields have a -- are a good thing when it comes to the premarket. we get results at 4:30 p.m. eastern, how much will banks be able to return to shareholders? banks will be able to move their payout ratio to 100% or more of their net income. currently the payout ratio is 17%. jpmorgan is about 30. will they be able to improve that? in other stocks take a look at monsanto. the next to our earnings stories. they did report a surprised heat on earnings revenue in better as well. remember, months and how is waiting for approval of that with general mills, beating estimates by two cents. revenue also coming in better, raising dividends. in 2018 it wants to return to growth. revenue has been down eight quarters year on year with the company really strategizing to change that in 2018. nonetheless, this is a central bank dominated a. jonathan: global market investors trying to grasp a hold on what's going through the minds of central bank chiefs around the world. mario draghi seemingly yesterday sparking a big rally in the euro, dropping to a one-year high. then the gains stopped dead in their tracks. according to the dutch people familiar with it, they accused the central bank of misjudging the speech. here are his words. >> as the economy continues to , there will become more accommodation and a central bank can accommodate the recovery by adjusting the parameters of its policy instruments. not in order to tighten the policy stems, but to be the wrongly unchanged. jonathan: joining us from boston, michael mckee. man has grappled with federal reserve communication many times. the was the segment of streets that moved the markets in a significant way over the last 24 hours. walk me through the walk back we have gotten in the last 60 minutes. that the ecb is going to its own taper tantrum. sending the message that they are able to end their extraordinary policy, to stop making it looser and more accommodative. that caused the markets to immediately selloff as they immediately took it as coming very quickly a reversal of policy. the same thing happened when ben bernanke started to talk about tapering qe. the fed waited longer and then said that bernanke was misinterpreted. the ecb taking its lessons from the fed, seeming to have put out the word rather quickly, don't overreact. the interesting thing, though, when you talked analysts and get the notes from the trading desk this morning, they know believe the walk back on a longer-term basis. they really do seem to be accepting the fact that yeti of ever increasing accommodation from the ecb is just about over. is how the market thinks right now, validating what everyone is already thinking area i want to thank margaret o'rourke. the ecb with a bit of a walk back. -- mark or rourke. >> the fact is that the economy is getting better. as conditions get better, just to keep policy at the same level, you have to tighten. the initial read that you will see this type of policy out of europe is consistent. it seems to be mario draghi's comments lining up with something earlier in the week where he talked about the fed continuing to tighten because of easy financial conditions in the you aretates, right? talking about having an environment that allows for more tightening, so we will see more tightening. the problem is that for the last decade the markets have been driven by monetary policies from a major central bank. upx: i love the brought that . the bloomberg highlights what financialking about, conditions, white line, u.s., looser, blue line, a little bit tighter or less loose. michael mckee, is that setting up the ecb for a very difficult time because they might not be able to tighten as much as they would like to? especially as they moved so quickly off the usage -- ecb. i don't knowke: how much they want to tighten. you are going to get more inflation over the medium term. which brings real rates up. they are going to start to see things get a little bit tighter. what they want to do is end the basis,es on a gradual taper out of that and sit there for a while. clear talkinge it about prudence that they would be tightening, raising the base rate. they will be starting to taper and that's a question for the markets. we saw this layout over the last year for the fed. when -- when do they do it and how do they do it, it will be more complicated than the united states. --id: michael or rourke michael o'rourke, they talked about inflation on both sides of the atlantic. .he inflation is not going up if anything it seems to be rolling over. how do they square those? that point isnk pivotal, especially in the context of what was said over the the other day. you and though and employment growth are decelerating, that financial condition, the environment and the financial conditions are allowing the fed to continue to tighten and as you know the fed will start with alan sheet normalization and there is still in next vacation that they will have another tightening move at the end of the year. david: michael mckee, what about it? did they mean what they said? mike: his speech was mostly about why inflation is not rising now but will in the future. taking off a number of temporary factors, that in oil prices and a structural change in the way that pay is calculated. people are just happy to have jobs after the trauma of the financial crisis and are demanding higher wages, but those things are can't -- the things are coming. it's the same message that janet yellen in the fed have been sending. that they will expect to see inflation develop over the next nine to 12 months because of these temporary factors, but as prudent central bankers they have to be ahead of it. not everyone agreed with the market moves yesterday. with,e have to grapple seemingly, is a reaction function from the federal reserve in ecb as well. the inflation story at the federal reserve moves against what they are doing. at the ecb there are no conditions that are met for president draghi to be doing anything with monetary policy and terms of inflation. why is he talking about any of theyto begin with? mike: forecast for down the road. their forecast suggests that they will see inflation. which is important. they have been reacting to the numbers that they get. they have data dependent and the forecast has been for disinflation. they now believe the forecast showing things moving in the other direction and they have to be prepared for it. they cannot justify tightening yet, but they can justify beginning to withdraw the additional stimulus. jonathan: let's talk big picture. there's a big did going into europe. a lot of people around the table wanting to buy europe and many of them would have said that the ecb is your friend, remaining accommodative. is the ec will -- ecb still your friend if you are long relative on risk? michael: relatively to the federal reserve, yes. that's the key. we are further along in removing accommodation. inended the asset purchase 2015. it's been three years since we held the balance sheet static and now we will start balance sheet normalization. we are further along the process of taking accommodation out of the market. plus asset values are significant higher. janet yellen and stanley fischer both said yes, they've been at this for 2010 years holiday when they had a fed chair and vice chair on the same day saying high endusd is of the and asset values are an expense of the united states. david: if they have put those numbers in 18 months ago, when they have expected that right now? mike: there's a big debate over the phillips curve in particular. as bill doubly said the other day, it's the best model we have . they don't have any other extra nation other than secular changes they can't do anything about. but if you believe that sooner or later you have to get inflation when the slack is used up, you have to start preparing for it. neither central bank is really tightening. we have looser financial conditions, and it is just sort of keeping the accommodation from getting out of control and bleeding over into things like financial assets, creating bubbles that both of them warned about and mario draghi implicitly warned about yesterday as well. alix: great stuff, mike mckee, joining us from boston. michael o'rourke, you are sticking with us. mike is where i will be on tuesday. tune in to bloomberg on july 4, 8 p.m. eastern. we will be cohosting the boston pops fireworks spectacular live from the esplanade, the second-most watched fireworks spectacular in the u.s. well, let's make sure i don't trip first, but join us, it will be a lot of fun. this is bloomberg. alix: 22 a higher open early in the morning, but earlier it was still down. yesterday we saw a big tech selloff. the question is, is it widespread? the nasdaq 100, equal weight on the blueline, yellow line tells you that this is a broad-based selloff. the nasdaq 100 is a large company as well, all rolling over. joining us on the phone's brian wieser. , where areide tech we seeing the billy guest selloff and risk? brian: it's bigger on business risk than anything else, as the sectors have traded up and up and up. it's not that these are not good businesses, not that they are not doing fine. but to support the growth of the stock requires unless -- unrealistic expectations or willful ignorance of risk. take facebook, for example. there are still real concerns about that, the fact that it can be low single-digit percentages of the actual advertisements being paid for being seen. that's a minor problem for a lot of their customers. that sort of thing is just still working its way through. isir measurement problems another thing. the data is not considered trustworthy in terms of what they send to advertisers. there's all these questions out there. it's not that they won't grow well, it's is that they won't necessarily grow quite as fast as they have in the past. that's true for companies across the sector. goldman sachs out with a note today of a 1% decline in s&p because current valuations are stressed but they feel like some of the big cap names like facebook, amazon, google, saying the margins are going to grow three times versus the rest of the s&p. can you make a case for why you don't care? michael: again, i'm try to look over the long run and play out how these companies perform overtime. take the advertising sector. if you look at all digital advertising as growing by 15% for the next five years, six years, digital advertising would be 100% of all advertising in the united states. and then growth of 3% after that. all of a sudden you are at a terminal roast number. it's amazing how quickly you are getting there. you can make the argument that this is fine. whether it is google, facebook, adobe, they could extend margins, sure. but valuing a company is not about looking at this year. adobe, another company that does wonderfully, it's one of my favorite companies to follow and, unfortunately, i think i'm the only analyst who has a cell on that. if you look at what they are investing against, that's going to help lower margins over. as the mix shifts, that's going to depress margins. it's the same with facebook and video content. they want tv advertising budgets? they will have to invest in premium content. if they do so they will get more advertising revenue, but it's going to be a much lower margin business. over the long-term you can't just assume it's all up and up. david: is there a different form of risk? potentially growing too fast, too big question mark your notes, this is its ordinary, 71% of all digital advertising is accounted for by google and facebook. so, as we heard yesterday out of the competition section, the division in europe, $2.7 million fine against google, is there a danger here of regulation on both sides of the atlantic? michael: yeah, and i cite -- brian: yeah, and i cite your interview yesterday. i was taken aback at how open ended the comments were about the ecb being specific on what to do to avoid fines. that's a really negative -- it has negative implications. not necessarily for their search products, but for their other areas that they are under investigation for. the rest of the advertising business that they are under investigation for in particular. to your point, they have taken so much of the share. whether the argument can be said to create wonderful new products for new advertising spending, i strongly disagree with the notion. they started doing this in 1948 and how it would cause new money to come in. i don't believe that happens. a point where you start to hit a terminal growth. you get extra growth and international markets but google and facebook combined have comparable dominance. there's markets outside europe are going to be faster growing for international expansion and sure, you have opportunity for margin ability, if not businessesf adjacent , but i don't and you can give them credit for businesses that have an even proven yet. it's a reason to because this and it's a reason not to just buy up the stoxx. >> going back through history in the tech area, the governments have not stopped large and dominic companies like ibm and microsoft, but they have slowed them down so that other people can come in with new businesses to compete. is there anyone on the fringe that can step in, if a google or facebook got slow down by authorities? digital advertising in particular, the so-called third force is something much of the industry wants to see. amazon is something arguably different and bigger than that. they are doing things -- we will find out with the whole foods proposed transaction, but there's a ton of launching suggesting that they will be in a good position to take a bunch of shares. this is not a zero-sum high or affixed by. probably wind up taking some shares from google and facebook on the margins. beyond that, verizon buying and completing the exhibition of theo!, they also represent microsoft display inventory. arguably they are a third force if they can are put -- operate well in the near term. brian, greatthan: to hear from you. coming up, the gathering of major bank leaders on one panel in central portugal for the ecb forum at 9:30 a.m. eastern time in approximately 10 minutes. in new york city, you are watching bloomberg tv. ♪ bloomberg. is p i'm david westin. this is supposed to be health care week in washington but the senate put things off because they didn't have to but -- have the votes. reese woke earlier with the former hhs secretary. >> we will ultimately get a bill. we don't know exactly what will be in it will this is a time of negotiation. everyone is looking to create a bit of leverage. we are told by a lot of people that the trump trade is out of the marketplace. yet the market did go down around the time of the amount from mitch mcconnell pulling the bill. there was also other note -- other news. you think they are not anticipating much out of washington? that's started to dissipate. u.s. steel went up over 100% postelection. one by one you seen trump trades , part. as far as the health care bill, we have seen this go to the house and have its issues. there is less confidence these .ays the president set this high bar for expectations and we keep falling short of it. failure, ancremental little bit of that trade comes out of the market. the meantime we are still talking about liquidity in the fed driving the market. we don't see this outright disappointment. i often talk about the active passive shift and quantitative trading. those have shifted the market structure, leading us to a point where we don't see a sharper market reaction to news like that as we would have in the past. does that mean there is upside risk, that they might come up with something? michael: if they actually came up with something reasonable i would say there isn't up side risk, but the big thing that the markets are focused on is tax reform and it seems we are so far away from that. it's just tough for people to make that wager right now. jonathan: what is it now question mark prime content? michael: they were originally shooting for the end of august that we would be lucky to get anything by early next year. my understanding is that if it falls back into next year, we will be back in the campaign cycle and it will be that much higher -- harder. the administration obviously has a lot of issues to quell at this point of time in the investigation and i don't see congress jumping to support this president anytime soon. jonathan: do you see them being able to change the sequencing? michael: my understanding is they can't do it from a budget perspective so it becomes hard to follow this path jonathan: they have laid out. michael o'rourke, sticking with us. thank you very much, sir. the opening bell coming up next. what a 24 hours it has been. of 1%., up 6/10 yesterday's battle for the s&p 500 is the biggest since the 17th. goldman sachs with an upward revision. 2400 to 2300 previously. kind of implying the 1% call back over the last six months adding them in the middle of the pack. if you switch up the board, the euro-dollar is higher at 116. we trade at 100 3037. dominating the market, the mario draghi confusion. you are watching bloomberg tv. ♪ city,an: from new york let's whip through the market action, moments away from the open. 2/10e positive, of about of 1% of the dow. up one third on the s&p 500. the biggest one-day move since may 17. a downside on the s&p 500, recovering some of those losses with the opening bell in new york city. [applause] valuation somewhat rich according to the fed chair. treasuries, yield -- yield firing over the last one he four hours, the story of 60 minutes for the ecb pushing back somewhat or seem to be pushing back against the markets but in their eyes, misjudging the speech yesterday. treasury erasing some of the --ses with the dollar gaming gaining a firmer footing after being a lot softer with the euro strength kicking through. in just a moment we will be in that room are there, ringing you and -- in important panel -- panel. a big panel coming up in central portugal. today is your cross asset story. let's get you to that market open with alix steel. five -- you look at s&p futures they jumped higher after we learned that the ecb was trying to walk back what mario draghi said. you mentioned it earlier, we had a relative upgrade from goldman sachs. is 2400 ended target with a pullback on valuation, so little bit mixed there. toividual names we want highlight for you, amazon and netflix, amazon is relatively flat area netflix is up a tenths of 1%. goldman was positive on internet stocks, calling it attractive are risk reward aces as the dollars really move into online as the malls wind up closing. of ourgetting an upgrade clays, saying, look, these connectors are used in new iphone chargers, a good thing for the company. western digital is off by half of 1%. getting sued for $1.1 billion in damages by toshiba. chip sales processed a little bit of negativity surrounding western digital now. going forward over the next few hours it's really going to be about the central bankers. janet yellen, not there, nonetheless covering as though she's the communications guru for the central bank. somany people -- jonathan: many people have said that mario draghi holds the key and seemingly yesterday that was the story for the bond market and fx market as well. upio draghi really shaking the fx market as well. according to the people familiar with the sinking of the central , his words and speech, remarks on stimulus, misjudged, apparently. a delay of 10 minutes to president draghi's panel. we learned something significant yesterday, didn't we? >> for the time being it's the start of the show. to me it's interesting. i don't think the walk back was necessary this morning. it just makes sense as the economy improves -- and bruising gets better, when you think about the level of asset buying that has happened, it's an extra and it'sion in assets necessary to start to return to some type of normalcy sometime soon. does renick think about rich valuations? michael: that it's a hard to debate point in the market. it's also a nuanced point. ultimately what's very interesting is if you look at the conversations that have happened this year about valuations and tech companies and all of this stuff, relatively things haven't changed her a much. if you look at the earnings yield versus senior yield, that's where was when we were talking about this six to eight months ago. even though it can down with higher prices, the yields haven't really gone anywhere either. they have come down, actually. the relative value for these growth oriented companies, same thing, looks compelling. of gets a secret that a lot elements of the market are fully valued to overvalued. but it doesn't really add a lot to that conversation. alix: go ahead. michael: it's not a good market timing call. something called the reverse fed model where you divide the earnings yield by the treasury yield and add the two together. both assets are more expensive than they have been in history and the risk your, going to stanley fischer's speech yesterday, we talked about the different areas of financial stability risk. asset valuation was one of the areas he addressed. across the board except for housing prices he said most assets in the united states are expensive. the fed wants that financial stability to be a part of their mandate. you have a massive financial instability or systemic risk, it's not going to function. high valuation comes into play from the perspective of that and if they start unwinding and a rapid way they create a real concern. on the flipside you had janet yellen saying yesterday that we are not here to bailout people who pay that prices were things. we are more concerned about systemic risk going forward and to me that was a major pivot in the way that the fed has kind of executed for the last decade. jonathan: talk about walk backs. this not being the time for a rate hike? governor carney saying that the removal of the bank of england stimulus might be necessary. breaking inflation trade off a lesson with mark carney making these comments in a speech in central portugal. he will be speaking live from that forum in just a moment. can we get an intraday chart of sterling and how cable reacted? remember the last bank of england meeting written they got together on strength and there was dissent? another few voices calling for a rate hike. through a 129 handle. the story that the governor just last week said it was not the time for a rate hike and saying that some removal of bank of england stimulus might be necessary. a turn from the ecb, maybe, if you want to see it that way, turning again in about a week? alix: the selloff really picks up there and it brings into question for me where the trade is supposed to play out. with the pair back stimulus from d.c., suddenly it was the reflation trade in europe. he where is it? jonathan: delivered a speech that he got berated for where he set the a rate hikep for and mp turned around to him and called him an unreliable friend. i wonder how many people are going to pick up on that line today and refer to him as an unreliable boyfriend. question of the central bank being your friend, is the central bank still the friend of the market when they get the communication so twisted? >> yesterday was a key pivot in the u.s.. for years i have been hearing don't fight the fed, don't fight the fed from both. i think we are seeing the inflection point this week you will hear bear saying don't fight the fed. instead of goldilocks we are having goalie lost because of -- goldie lost. what kind of credibility do central bankers have right now? >> the market will find a a quote fromhrase jeff goldblum, they will find a way in some sense to justify a way to buy higher stocks. one year ago when we talk to us central bank removing easy money for the market, a jumping yields would be something that would be met with trepidation by a lot of equity investors. i think it now in this sort of post trump world that is very interesting, we wanted those signs of inflation. really up until about a month ago. really through january, when the trump trade kind of stopped. the removal of easy money is more welcome now. perhaps that's just because markets are making a different justification for buying equities because there isn't much else out there, but right now i feel like when you talked it traders and strategists higher yields are not necessarily a bad thing. the economy has this expectation in the u.s. we have this expectation for fiscal spending and is equity investors continue to come back to those flows, showing that they will be resilient in the face of rising yields. david: michael o'rourke, as we wait for this panel to start, is part of the challenge that they have too many options available to them? byfers that were triggered the bank of england, they said they would raise them some more with balance sheet issues in europe. there are deeper ways of curtailing stimulus. it's not just a rate hike. michael: you're right. the stimulus was so massive. most market people would love inflation and growth to take over. the market economies around the world to work without central bank aid. yesterday, wened want nothing more than the central bank to step back from the equation, but it's become a frankenstein monster so big in the markets that they become certain markets and you don't even know what type of influence stepping back a little bit is going to have. as the prices have risen so much it creates a danger zone that people are afraid of. jonathan: this panel got more interesting with the words of mario draghi in the last 24 hours. let's listen in. the staff, the presenters in the palace, for the sites they have provided and for the lively debates we have had in the last two days. the discussions of the relationships have been illuminating and thought-provoking and will continue. having the conversation on these issues. >> thank you so much. let me thank you, president draghi, and organizers from the ecb for inviting me. actuallyinvite you to give your opening remarks, let me share with you some insight about the experience of israel, which has been named the nation due to the active part of the scene. which we have in israel. we have some 5000 startups in very broad range of areas, from cybersecurity to clean energy, aquatech, so on and so forth. the high density productivity has been attributed to a number of factors, some of which are captured by various measures of the degree of innovation in an economy. others may have to do with the way the country has been involved in the challenges it faces. in the international rankings of innovation, inventory ranks high. this measure shows the level of universities providing the economy with the scientific asus and technological abilities between that and the industry. the expansive government support , at least earlier on, to commercial r&d. and the high developed venture capital for the industries making a key contribution to the innovations in the basic economy. forchose the need sophisticated intelligence in the army were young, talented will gain experience in digital environments, including any area of cybersecurity or that need for water supply, for example, for a country that is mostly in the desert, leading to important innovations in areas of drift irrigation, water recycling, and so on. basically you can say that necessity is the mother of invention. to all of this i would add a cultural element. the willingness to explore new ideas, fail, learn from your failure and try again. a small fraction to the market. this is only the right side of the israeli economy. a more complete picture is that israel can be characterized as a dual economy. innovation-based, internationally competitive in a highly educated individuals. and the rest of the economy that is corrupt -- characterized mainly by lower productivity and low wages. innovation is mainly limited to the high-tech sector, which is the broadest definition accounting for all of the above 10% of the workforce. it is actually among the highest in the developed countries, but still only 10%. the rest of the economies benefiting from innovation only to a small degree. there is limited diffusion of innovation in the outer sectors and this is not about cutting-edge technologies developed in the high-tech sector or elsewhere. this economy is unable to compete for talent that would lead to the adoption -- jonathan: when you have the governor of the bank of japan, bank of israel governor, you don't expect them to begin by starting about start -- talking about startups area does not what we expected. when they talk about central-bank policy we will hear from them in just a moment and when they do we will bring you those comments in full right here. let's begin with the conversation where we left it, michael o'rourke. a series seems to be of flip-flops and i'm not sure why. i have really struggled to understand, from big central-bank to big central-bank , what the reaction function is because they seemed to switch it every other month now. michael: not expecting another financial crisis in a lifetime, micromanaging economies is a scary path. we would love nothing more than to see inflation growing, gdp and the market economies working, but instead we have been on training wheels for some time. the central banks just don't know how to take them away. they are trying to do it carefully, which i totally -- as they should, because there's the danger involved if they take anything away to quickly. by the same respect, no one would have expected a 4.3%, 4.4% unemployment rate with the fed funds rate that is 1.25%, basically. the environment we have had for ,ost of the last five years unemployment below 5%, 10 to 15 years ago? ben bernanke would have been ecstatic about that type of consistency. the crisis kind of changed everyone's out look and how the banks react. their reaction was so large and forceful on a global level, it's like they don't know where to start unwinding. it's why they have to keep flip-flopping, essentially, to micromanage the message. the stories in that room vary so widely. bank of japan, decades. brexit, bank of england, radically different to what the federal reserve is going through. but there is one thing that keeps coming up again and again, financial stability. by other tasks, we tend to underestimate the importance ,f innovation, a productivity and of growth. they are very important in informing monetary -- monetary policy. the last several, i was a 15 years, we have seen the decline and as the economy improves in the eurozone and we are entering an upswing in the business cycle , we will also see a cyclical improvement in productivity. after many years we have been subdued and that's a relatively recent negative for the last few orders we expect an improvement on the cyclical front. we have to deal more with innovation and the diffusion of innovation. clearly forceson the policies around investments in human capital that are the first to come to mind. really,ask, what is every look at something that's a very successful, what sort of today have that has led them to be successful? the professor has described the ecosystem of m.i.t. especially for applied research, to have an ecosystem like the one that was described by the professor, or aiming at that, for me it would be deep, the most interest in policy prescription. get there one has to have in place policies that enhance private entrepreneurship . individual initiative. environment that is conducive to this. get all this, another distinction that is quite important, whether we talk about applied research or pure research. we had this in this beautiful presentation for applied most is, what matters individual private initiative. as a strong case for government support. there is a marvelous small book called the usefulness of useless research. it is being written by the director of the prison institute for advanced study. he's a amount mathematician. it's a dutch name, i hope i said it correctly. case thate makes the good for your -- good pure research will produce the results everyone wants to get. very goodnd makes a case that many of the current ventures today rely on research that has been carried out many years before. it's the place where einstein went for argument and arguably the system of mathematicians over the last 20 years. so, that's for innovation. but in europe -- i hope i didn't .nsult anybody i didn't say at each point in time, ok? [laughter] as we go to diffusion, as far as the europeans are concerned things are easier. and there we can see how the estimates were the largest measure of progress and increase in productivity coming from diffusion then innovation in europe. so, we need proper policies that foster this diffusion. and again, these are policies that deal with medical product markets, enhanced competition, making the environment growth friendly. incidentally, something that sort of came to mind listening to this paper last time, remember david demonstrated the increases in productivity in each industry may have a depressing effect on employment. but the spillovers to other industries more than upset a negative effect in one specific industry. to actually get the benefit of these, one has to have label mobility from one sector to another. if there is no label mobility, either you don't have the productivity increases, because they are so kept down, or you are bound to have more unemployment and we -- and without the benefits of higher employment in other industries. creates the label mobility and competition in the product market. most specifically to our own , there are many things that we can do and think and imagine for the coming to enhance confidence. found to have investments that will take several years in an environment of no-confidence. fortunately we are seeing that the environment is changing for the best, so i would expect that on the ground we would be seeing improvements. thank you. -- >> thank you very much. >> i brought some pictures. off, let me thank you, colleagues,aghi, for this invitation. it's an extraordinary gathering here and it is my pleasure to read back. what i'm going to do is a bit more pedestrian. a lot of this discussion has been around cutting edge, so i'm going to talk about investment in the cycle. u.k. as anthe example. using it as an example for some broader trends and expiration for why investment has been weak , trying to answer the question at the start, which is what can central banks do? thing, to put it in context, g4 has represented investment being weak since the crisis. the u.k. his though relatively well but it is nothing to be proud of because this is the weakest investment recovery in half a century in the u.k. why could that have been the case? one explanation is that it was a poor recovery and the weakest since the great depression, but hasinvestment share actually fallen over the course of that time by 2%. that's the case in other advanced economies. course,exhalation, of is that investment after the financial crisis is weak because of the restrictions on credit supply and the scarring. there are plenty of examples of that in the early days of the recovery, the recession in the u.k.. miss allocation, chad jones and others talked about it this morning, quite rightly. this is just trend capital to give different ratios different .cale basic point, the capital overhead is being worked on in the u.k. over the next couple of years. some of the conditions are coming into place for a pickup in investment. zombie firms, looking at macro, we have seen of her for -- proportion of them fall if you do them on a basic who's not covering the interests. they see lots of things that we don't see. we are confident in our data there. now, i'm very sorry to have missed ben bernanke's presentation the other night. he has taught us many things. one of the things that he taught us is of course the option of waiting and investment. firms in the united kingdom have faced a high degree of uncertainty. not just economic, but geopolitical and policy. we all know that these measurements are imperfect what directionally tell us something. whyrobably helps to tell us hurdle rates have been so stubbornly high. that's the survey there in the u.k. of firms at present. aw do you reconcile that with slower growth outlook if you believe anything about the 10 year rate and what it tells us? in a low yield environment, this is using a simple model that i've plagiarized -- plaintiff, actually, so it's not plagiarism. just looking at if you have a uncertaintyher returns, it- future can swamp the reduction of rates and we do think that that is what explains some of what i just said, which is stubbornly high hurdle rates. mario at points made by moment ago, we do see this issue quite strongly in the u.k. data. this is value added per worker on various firms. the gap is widening significantly. negative mobility, hire and the u.k., can be an excellent nation. there are a variety of others. one of the puzzles in the u.k. right now is that despite strong quantities in the labor market, labor mobility is quite low. people are staying in their jobs for much longer than you back with a 4.6% unemployment rate. you are watching a gathering of central bankers there with mark carney. bringing the highlights from those central-bank speeches, a very interesting forum. i'm vonnie quinn, in new york. live let's go over to julie for breaking data. maye: home sales for falling .8, said that means back-to-back declines. aonomists were looking for gain of 1%. if you look at the year over ofr change, there is a gain .5. recent homes data has been choppy. it has partially to do with inventory. there is lean inventory, rising prices, and that home index has had a 5% or more gain for 21 straight months. that is one of the

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