furious about what he considered an illegal leak by mr. comey to reporters. the state of michigan is suing flint for endangering the public. the flint city council's failure to approve a long-term water plant with the public, already troubled by a water crisis, into new danger. instead of going with mayor waivers 30 year plan, the council ok'd a short-term extension with the great lakes water authority. president emmanuel macron's cabinet today took a major step to loosening of the country's labor market. ministers approved the plan to negotiate reforms with unions and business groups. they want to make it easier for companies to fire employees and for companies to negotiate their own wage deals rather than rely on industrywide contacts. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. ♪ julia: live from bloomberg's wild worl world bloomberg's will is in new york. scarlet: u.s. stocks having a winning wednesday. the question is, "what'd you miss?" scarlet: policymakers sound a more hawkish tone. a finale results from part two of the annual exercise. blue apron slashes its ipo price range. the company says amazon's recent bid for whole foods is a reason for cutting is target market valuation. julia: let's look at where the average is down. abigail: we are certainly looking at a rebound rally for the major averages today after yesterday's selloff. 500 all nasdaq, s&p up.the nasdaq is on pace or close to erasing yesterday's decline. impressive trading after some of the bearish action yesterday. based on the fact that the nasdaq is outperforming the other two averages, you would think tech is the sector today, but look at banks. this seems to be a bit of a sector rotation. this is the third day up for the financial sector. this ahead of the third releasing the second part of the stress test results when we will find out whether the big banks can distribute loss of capital. some are saying $122 billion, much more than last year. yields rising for a second day in a row with the banks trading up in sympathy. investors think that will help the lending activity. a lot of strength in tech with the nasdaq trading higher. apple, facebook, microsoft, these are some of the top gainers for the nasdaq and the nasdaq 100. bloomberg equity analysts and strategists told me earlier that what is happening here is there is really solid growth for these names. if you are bullish, you need to go back into these names. that is happening today. there does not seem to be anything from a mental behind this just as there did not think to be anything fundamental behind the selloff yesterday, but apple has been below its 50 day moving average for 13 days, the longest since the election last year. it is the biggest waiting to the nasdaq and s&p 500. that is bearish. you want to see that recover. there could be some more bearish activity ahead. this is a five-year chart. it is the protocol ratio on the qqq's or the nasdaq etf. lot of talk how the qqq's sliced below the 50 day moving average, something the nasdaq did not do. it almost touched the 50 day moving average. today, off of it. qqq did. it is not a five-year high. there is bearish activity going on. one expert told me earlier this probably reflects the big put by action earlier this month. is this a hedge or outright short activity? there isee whether more selling activity in the nasdaq or if today's rebound continues. julia: time will tell. thanks. joe: "what'd you miss?" with him us on set to become more powerful thanks to its planned acquisition of whole foods, they are growing interest in the economic impact. a diversionary force in the economy that is thwarting the fed's goals. are covers the fed for bloomberg news. neil, i will start with you. there is this meme going around the last few weeks. isld it be that amazon having a meaningful effect on the overall inflation rate? neil: i think they are. a lot of this, if you look at whole foods in particular, let's think about that. you have the intense competition in the food retail industry. i think it is a little bit overhyped because it is amazon. fresh direct. these things have been out there for a while. let's say there is a lot of competition in the retail industry and at drive down prices for food at home or grocery store inflation. it is not immediately clear what that does for wages. to me, that is a boost. in time, people will allocate into different areas. for example, look at what happened in the 1990's when you had the opening up of the global economy. you had this secular decline in court commodity deflation. ultimately, we saw a relocation into other areas of the consumer price basket. joe: headline inflation, however, continues to be undershoot where the fed like it to be, raising questions of, aer some of thesre some of these mos broken? is there a financial re-think that is broken in light of structural changes in the economy? what do you see on that front? the amazon and whole foods deal comes at an interesting time. we got the news at the same time we got this unexpectedly weak inflation data. it is coming a lot of questions on the fed's or model, the way they look at the economy and set interest rates, the phyllis kerr we have heard so much about. if you take a look at the phillips curve, it is extremely flat right now, which means there is no relationship. joe: this is obviously quite obligated. walk us through what we are seeing, what dot plots are, the red lines. this plus them, a quarterly basis for the last 17 years. on a rate is on the x axis. changes in the core inflation rate are on the y axis. there is no relationship between the two variables. the red light on the left is what the fed thinks is probably going to happen. that is why they are raising rates now even though inflation has been so disappointing. this is basically what policy looks like right now. the question is, and this is why some people like charlie evans are looking at this amazon stuff and asking, is our model broken? heart of their larger forces in the economy potentially going on at work here that really explain inflation dynamics more than this relationship that seems to not exist anymore? scarlet: let's just tell you exactly what charlie evans said in his comments with regards to amazon and whole foods. he says you know technology is disruptive. it is changing a number of business models that used to be very successful, and you have to wonder if certain economic actors can continue to maintain their price margin or if they are under threat from additional competition, and that could be an undercurrent for holding back inflation. jeff bezos but it typically when he said your margin is my opportunity. he's looking to go in and take away margins from other companies. to the extent that companies can even raise prices with the economy the way that it is. that spells a longer period of low inflation. neil: companies have no pricing power but they are going on a hiring spree. is that the argument? it sounds kind of odd. if i am a firm and i have no ability to raise prices, i am going to go out and hire lots of people? because that is ultimately what the data is saying. i think the data is weak on inflation. everyone is in agreement on that. the data is what it is, but what is the mechanism? the fact still has a model -- the fed still has a model of inflation. what is the alternative model? people talk about demographics. immediately clear to me why demographics keep inflation lower because if you look at the price pressures for older cohorts, the prices for them rise faster than for everybody else. i don't know. i think you can make the argument about expectations being a little bit lower. maybe that is the reason, but to me, it is ultimately an identity. if you are talking about a margin squeeze, one of two things will happen or a combination of the two things. either companies start to lift inflation and raise selling prices, or the extract a little more productivity. the one where they can do that is by slowing the rate of employment growth, presumably, or aggregate hours. that has not happened. there is no indication of it happening because hiring intentions are up. temporary help employment are up. without tax receipts are up. eld tax receipts are up. i would hardly call it a squeeze. we have been talking about the margins in the stock market for the last several years, and they are still kind of high. julia: i know you have a chart that looks at this phenomenon, corporate profits versus inflation. do you want to explain what you see going on here? matt: neil mentions, what is the alternative model to the phillips curve? the answer is we do not know. it is interesting that if you take a look at this chart, it shows the correlation between corporate profit growth and core inflation. up until the year 2000, this correlation was negative. when inflation went up, it would eat into corporate profit growth. since then, there has been more of a positive correlation. it seems something significant happened around 2000. now we have this correlation where when corporate profit growth increases, accelerates, inflation goes up, and vice versa. and really is important to focus on pricing power of firms in order to determine what is going to happen with inflation. we do not know exactly what is going to drive pricing power or the profit margins at the moment, but it seems like there is a relationship year that needs to be considered. julia: hysterical's and making comments like that when they talk about the impact. based on the information they have, the filibuster, the impact -- the curve, the impact, is the effect doing the best it can right now? neil: the fed has a very difficult job. i would not want to be in their seat. i would rather be here on bloomberg. julia: you are. neil: this is a single needle to thread. their model, their outlook, versus what is going on. i do not think the fed should be speeding up the rate hikes based on unemployment rate coming down. i think they should take into account the price inflation data. julia: hysteria? neil: i think it is a mixed message.if you are talking about the retail competition, that is an upturn in productivity, which implies higher neutral interest rates, which would imply the fed should presumably chased those neutral interest rates higher unless they want to be policy even more accommodative. scarlet: neil and matt. discusses phil knight his lessons of leadership with david rubenstein. aced the preview of their conversation on -- a sneak preview of their conversation. this is bloomberg. ♪ julia: what did you miss? 2017 cap mark a year of change for nike. the company is cutting jobs and revamping as global operations in over to compete with the likes of adidas and under armour. let's look at nike. the company has seen its revenue growth take a hit, slowing from the double digits advance we saw in 2015. nike's new strategic plan may not accelerate sales in the short-term. investors and analysts will be watching closely for nike's 2018 fiscal year outlook. nike is facing a resurgent adidas, which gained footing in. the u.s. when comparing the revenue growth of both companies -- which gained footing in the u.s. when comparing the growth of both companies, nike hold interestingly when it comes to margins -- hold an industry lead when it comes to margins. if more production is realized and speed to market is improved, it is not just revenue and margin that investors are concerned about here. nikes worldwide futures will be a key number to watch. those orders fell 1% in the first quarter, the first drop since 2009. 2%.s reducing headcount by the overhaul is an attempt to speed up development and refocus on key markets. this month, bloomberg reported amazon will begin selling nike shoes directly through the brand's registry program. it would be part of nike's push to boost sales directly to consumers.and will be focusing thesee focusing on all of changes after the thursday u.s. closing bell. scarlet: we will see nike knight talked about whether he ever imagined the company's success. >> when you first started the company in 1962, around then, you knew nothing about shoe design. you did not know about management. you did not have any money. did you ever imagine when you first started this company in the early 1960's that it could ever be what it became? phil: sometimes when i get that question, i say we are exactly on plan. [laughter] phil: but with you, i cannot be smart. >> you mean that was not original question? scarlet: he also asked how the iconic nike running she was born. david: did you design issues yourself or were you the person who figured out what issues were going to look like? phil: we were in a hurry. it reminds me of they asked john kennedy how he became a hero. oat.aid they sank my b we were in a hurry. the virtues we did in office of tokyo, japan, over the course of a weekend. scarlet: that was still night speaking with david rubenstein. you can watch the whole interview tonight at 9 p.m. eastern. shares of nike are higher by 8/10 of 1% before the company's reports results tomorrow. it is up 5.7% if you include dividends. dow is up by 10%. julia: time for the bloomberg business flash. central banks across europe and asia are exploring using virtual currencies. that is despite the influx of cyberattacks and the wild swings of crypto currencies. dormant college economics professor andrew evans told bloomberg digital currencies can benefit small businesses and consumers. vietnam, china, and denmark's central banks are said to be considering options. investors blame a brokerage firm on the regulatory inflation for the sudden plunge of hong kong stocks. companies say more than 90% while 17 others dropped more than 40%, losing a combined $6 billion in market value. hong kong's benchmark indexes among the year's best performers.the selloff drop those enterprise markets, the most since 2015. 2015.ce joe: i wanted to talk a little bit about the hong kong crash. check out this chart. there are two reasons i like this chart. one is you do not see stocks plunged 95% in a day very often. this is an umbrella company. you do not hear about publicly traded umbrella companies that often. publicly traded umbrella companies in hong kong that are part of the big small-cap concern related to the brokerage plunging 95% in a day. quite a story. julia: liquidity issue there. [laughter] scarlet: engaged in the manufacturing sale of umbrellas and umbrella parts. h and the shaft. scarlet: a programming reminder, tune in on independence day for the boston fireworks live starting at 8:00 p.m. eastern time. alix steel and matt miller be bringing you the time-honored event. from new york, this is bloomberg. ♪ scarlet: some breaking news now on staples. according to dow jones, sycamore said to be near a deal to buy the company for more than $10 a share. staples shares surging to a record high or a session high right now, excuse me. a session high. there is the stock price, up by 8%. interesting. julia: private equity interests there. scarlet: yes. another retailer being targeted by private equity. julia: yes. scarlet: let's move on to treasuries and the bond market. i am going to look at treasuries because we have seen them get back some of their gains over the last two days, but it does not change the fact that they have done very little this month. when you can see here is yields on the 10-year note have actually fluctuated by less than sitting basis points in june. you have to go all the way back to february of 2006 for the narrowest monthly range that we have seen for treasury yields since then. quite sometime. in the face of slowing inflation, basically -- joe: or maybe signs of the market breaking out of its slumber here. julia: this is the interesting thing about yesterday. i apologize to scarlet, but what we saw was excitement in your that lifted yields, lifted the europe yesterday as mario draghi made comments. the whole market jumped on it taking it was hawkish. then we got the ecb today going steady, back off. you can see the second part of the chart, the drop back in yields. the euro is managing to hang in there. some false moves by the market or some central bankers. scarlet: if only the ecb says study, all. hold they did not. . they did not say that. joe: a selloff, even in asia. australia, singapore, korea.these are 10 year yields . if we zoom in on the last few days, we can see increases everywhere. the theme right now in the markets is we heard it from marconi today and janet yellen yesterday and with a rate hike, central bankers trying to tap the brakes verbally a little bit, not have investors think they have free reign. we are seeing this back up in rate. it is not that big in the grand scheme of things, but it is interesting. julia: calibrating. we have been talking about this for the last few months. they are starting to at least acknowledge at some point this has to end. scarlet: moving in a direction. julia: yes, exactly. very important yesterday. scarlet: that is a snapshot of what is going on in bonds. u.s. stock market close is next. take a look at the major indexes with less than 4 minutes before close. technology and the nasdaq leading the way.from new york, this is bloomberg . ♪ ♪ julia: "what'd you miss?" u.s. stocks hold a session highs, even a central bankers warned borrowing costs ahead are higher for bonds around the world. i am julia chatterley. scarlet: i am scarlet fu. joe: and i am joe weisenthal. if you are tuning and live on twitter, we want to welcome you. we begin with market minutes. we talked about how technology led the way down. by 1.4%,ch is up gaining more than the dow and s&p. this, the nasdaq has erased its monthly loss, the eighth straight month of gains. it would be the longest streak since september of 1995. joe: wow, that is impressive. it is all about the tech stocks. scarlet: it is. i am looking at industry groups and how they performed today. tech is certainly up there. not doing as well as financials, which we will get to and a moments. we will get part two of the stress test results in 30 minutes. utilities and bond proxies, faring badly. utilities down 1%. real estate investment showed little change. continuing to move the needle. whether it is growth or value, both sectors represent those different investing styles. citigroup,rica, jpmorgan all gaining by better than 1.5%. we are going to break the headlines for you on the banks' at 4:30.st results citigroup has a lot of room to make up because it was restrained by the fed in recent years over how much it could used its dividends, currently paying out $.10 a share per quarter. breaking news on staples we brought you in the last 10 minutes -- according to different reports, sycamore partners, a prime equity firm, is nearing a deal to buy this office retailer. --re are different prices some are saying $10 a share, $10.25 a share. getting close to the $10 level, up 8.5%. joe: let's take a look at government bonds. in the last block we were talking about the global selloff. today, a little more muted. two-year yields down a little bit to 1.35%. u.s. 10 year yield ticking risk on action and equity market that scarlet just talked about. let's take a look at two-year yields in the u.k., a one chart. they zoomed to the highest level of 2016 on ther two-year. remember, we had that boe decision last week, slightly hawkish commentary from carney today. the short term and the general theme of local central bankers, a tad more hawkish. ofia: this global theme central bankers trying to be as transparent as they can be is confusing everyone all the more. but it is playing into the currency market, up 0.4% for the euro-dollar. we saw sterling spike higher. the government for the bank of england diving back -- saying they could cope with higher inflation, based on what brexit would mean for the economy. this was contradicted by the chief economist. now he thinks there is less dissension in the ranks. but hey, i interpreting -- have to be careful. you can see this is lower by 1.3%, another hawkish central bank governor in canada, reiterating his point. lots of fireworks, hawkish fireworks today. a beautiful place, i was there last year. let's take a look at what is going on in commodities currencies. dollar brazil lower -- higher than the dollar. oil gains, joe will discuss shortly. some weakness there, but all coming out in the wash. commodities, on oil having another good day. getting close back to $45 a barrel on texas intermediate. gold futures not doing much. what is impressive are the week, of gold springing topping $700 a barrel for the first time. this is a one-year chart of spring wheat, which i learned today is high in protein. it is grown in the upper midwest -- minnesota, the dakotas. conditions had been pretty bad and there is much less supply. massive surge in that protein-rich spring wheat. julia: protein basil, i like the sound of that. scarlet: i wonder if that has to do with people's eating preferences? the demand picture is always interesting. let's take a deep dive into the bloomberg, you can find the chart using the function of the bottom of the screen. we mentioned part two of the stress test due out in a few minutes. banksts are looking for to return a somewhere around 85% of their profit in the next four quarters, that is up 75%. america might see the biggest jump over the next four quarters, a 65% increase from the same time last year. citigroup have to play catch-up, they may pay out more than 100% of their profits. jpmorgan will go from 62% of its profits to 89% in the next four quarters. wells fargo will be the wildcard. their control mechanism which are under the microscope after the fraudulent account scandal last year, this is the qualitative part of the fed's annual stress test. there might be harsh words there for wells fargo. joe: we will find out in just under 25 minutes. we have a macro allocation fund comanager that manages a one point $5 billion fund that joins us from chicago. thank you so much for joining us. i want to start with financials. interesting time here in the united states, and also what we are hearing from the spanish and italian banks in the last few weeks. what do make of this, is their opportunity? >> thank you very much. macro top-down fund, we do not go into individual stocks to name, but we take a view on sectors. financials seems to be one that is fundamentally attractive on a medium to long-term basis, not without its risk of idiosyncrasies. positive toately those, yes. the immediate wake of the election, thinking about bond allocation, any holding, especially treasury, was a major drag on portfolio as equities ripped higher. given the action the last few days and the tone out of central bankers, how are you thinking about the bond portion of your portfolio? tom: bond yields are very, very low. most global bonds selloff. in context, not that much. volatility remains relatively low. it is a fairly micro move. we have seen a number of central banks -- i do not think in a coordinated fashion. there were hawkish statements recently. the bank of canada, australia, new zealand, england, we see that communication and correction from that cb, -- the ecb, as well. bestal bank doing their increase certainty and decrease the supply of uncertainty. but it puts him in a corner because the market hangs on to their every word now. julia: i am looking at the list of currencies you are short here. you mentioned a lot of those, the central bank governors that a been more hawkish, whether it is the kiwi dollar, the canadian dollar. even the euro. any concerns about the currencies, given the changing tone we have seen? tom: i would not say it is concerned, but i would day the big currency opportunity in the developed world is to get short of the u.s. dollar. that is one in our portfolio we have not expressed in a big way yet. the relative stance of monetary and fiscal policy, even though it is unconventional in kiwi and that stuff, will remain dollar-supporter for a while yet. but that will swing around. the market is not that well-prepared for substantial euro gains. we have seen it trade up to about 113, the highest in a while. that change is likely to happen, yes. this tends to be against currencies in the emerging world. bigger medium-term opportunity because those currencies have been driven down a long way the last few years. julia: it is an important distinction to make. scarlet: absolutely. you are short the u.s. dollar, as well. i want to talk about trump trade, able do not talk about it being a positive catalyst anymore. where you stand with full day expectations about what reform it can get -- whether it is health care or other types of regulation? seen, thewe have trump administration's progress is slower and more labeled -- labored than we might have hoped for. trump trade has been wound back because of those observations. some things likely to happen tend to be, that have broader support in the legislative chamber -- infrastructure spending, maybe a modest tax cut. we think the lightly outcome of be quite big and late. unpopular,clude the cyclical effect on the economy. thank youom clarke, so much. the latest in the health care battlefield. what happens now that the senate bill has been delayed until after the fourth of july recess. this is bloomberg. ♪ ♪ >> i am mark crumpton, it is time for first word news. the united states will push for increased security on the electronics of u.s.-bound passengers at overseas airports. this is in place of a blanket ban of laptops in cabins. john kelly said the move is a reaction to intelligence indicating terrorists were working to hide explosives in electronic devices. is time we raise the global baseline of aviation security. we cannot play international whack-a-mole with each new threat. we must put measures across the board to keep the traveling public safe and make it harder for terrorists to succeed. -- according to a person familiar with the plan, they swab more devices for traces of explosions, increased bomb sniffing dogs and more security for airports. nikki haley says the trump administration wants more accountability to the north korean regime and work to save lives by warning syria against any further chemical attacks. speaking before the house of foreign affairs committee, nikki haley said when she was sworn in, she said she would never sit passively while american interests and friends were jeopardized. i can say i have not been quiet on the issues important to the united states. and i can say this -- i have kept my promise. our friends and our rivals know that america has once again, found his voice at the united nations. mark: ambassador haley address concerns over a boycott and sanctions targeting israel, saying she is very concerned we might not be able to defeat this. venezuelan president nicolas maduro is calling tuesday's helicopter attack on the country's supreme court a terrorist attack and attempt to remove him from power. the assault was stopped and no one was killed. it follows months of deadly antigovernment protests. in caracas today, president maduro condemned the violence but added a stern warning to his opponents. he said, we will never surrender. what we could not accomplish through votes, we will with weapons. francis gave the catholic church five new cardinals today, instructing them to act as servants and not princes. they are often referred to as with thef that church, prestigious roles in advising the pope and electing his successor. he said jesus did not call you to become princes in a church, but were chosen to serve god and people. the five cardinals are from developing nations and regions. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. julia: "what'd you miss?" i am markpresident trump expectm on the senate health bill today. president trump: i think we will get close. it was a great, great feeling in that room yesterday. what also came out is the fact that this health care would be so good, it would be far better than obamacare and much less expensive for the people. and actually much less expensive for the country. julia: tomorrow, trump will meet with south korean's president, moon jae-in. north korea expected to be a major topic of discussion. joe: joining us from washington, anything new on the health care bill? greatmp promised a great, surprise in a meeting with reporters. we are not sure what he was talking about. he may have just been indicating we will be surprised when the bill actually passes. so far, there is nothing new to report. it remains stalled in the senate. mitch mcconnell has had a slew who haveican senators concerns about the legislative in his office today to talk about it. but there is no progress of note. somei sense in his voice, skepticism from alex. alex -- you know. the other issue is timing. nevermind anything else that has got to go on. we are to pull up the congressional calendar. when you show it we have seen since the august recess, how are we going to do this, in sense of timing? alex: there has been talk they might cancel the recess, by a few members of congress. i do not think that will happen. that would be almost unprecedented. members of congress tend to like their vacations. i think the august recess will happen. when they come back in september they do not have a lot of time to do really controversial, complicated stuff. they have to get a spending bill done before october 1. there has already been talk there could be a government shutdown because of disagreements of funding planned parenthood and a host of other things. just funding the government will be hard enough for them in september, nonetheless having the health care bill. scarlet: a significant to do list there. this is bloomberg. ♪ scarlet: "what'd you miss?" the last time the nasdaq said a record was on june 9. in tech,oday's rally the nasdaq is down 2% from that all-time high. is there worse selling ahead? here is abigail doolittle to break it down. abigail: we also have a top-ranked technical analyst on the street. thank you for joining us, i have a tremendous amount of respect for you. you did a phenomenal call on tech at the end of 2015, a bearish call of technology for the first half of 2016. you have been completely right. we have had volatility recently. we have a near-term chart of the nasdaq here. can you take us through it? eric: i think what is going down goes to the difficulty in fighting the trend. you have a strong, bullish trend for the tech sector. the rhetoric is that it is due for a pause. more recently, we have seen it come down to its 50 day moving average. with its daily momentum indicator coming up one of its most oversold conditions of the year. for us, it is putting too much emphasis on these short-term indicators. i think this is the forest for the trees, a secular story. this is a sector that takes us higher. tech is due for a pause. if you do fall below that 50 day -6000, that was the nasdaq's 50 day gap in april. that would only constitute a minor retracement of the strong gains. abigail: sounds like you could see midterm choppiness, but every reason to be bullish? eric: that is right, the long-term trend is still in place. this is a secular story. do not try to time of the ebbs and flows. abigail: do you buy the dip? -- seelly if we say another day like tomorrow or friday? to buyes, you want against weakness when you have a 200 day moving average. add to those positions on the pullback. another topgail: sector you also like, the banks. we have a longer-term chart of the regional banks. this is a great example, where tech is now, banks could have been coming into what the beginning of the year. surge,ar parabolic q4 they just traded sideways. you had correction through time bank's 200 day moving average catch up to price. now we are seeing inflection higher again. we think this could possibly be marking a resumption of the strong breakout still intact from the fourth quarter of last year. abigail: i have a little bit of a charting background. when i first saw this chart we put together, that area looks like irish congestion. maybe suggesting we could see yields go lower, like they are on the year. what do you think if we did see pullback from that congestion? my view, this is bullish congestion or flag pattern. it is occurring within that 200 day. if you cannot hold a low, it starts to break down. as it stands now, benefit of the dow goes to the rising trend. abigail: the trend is your friend. there is no doubt you are bullish. let's look at the market chart decline line, it shows buyers are in control, is that true? eric: that is correct. we had this rotating leadership. but, internal breath is holding firm. you do not see the breakdown beneath the surface in absolute terms. here is in york stock exchange's advance decline line. this is making a new high as recently as june. we see this as a sign of broad strength, typically the hallmark of a healthy bull market, why we think the bullish cycle is intact. abigail: what would make you nervous -- is there a tell you would watch to reverse these views you are sharing with us today? eric: one trouble area for us is energy. our view is that energy is building a base. if we do see a resumption of the energy sector's long-term downtrend, that is a potential spot to drag equities with it. as they had, equities will stay away from. abigail: you want to watch a oil and energy. any sectors you would be neutral on? eric: relatively cautious on retail. traditional retailers in this multi-year distribution pattern, if we are wrong in the cycle, it is a weak getting weaker. retail is another area where i am more cautious than bullish. abigail: it took us right through the market sectors, macros. really appreciate it. scarlet? coming up, we are minutes away from results of round two of the fed's bank stress test. this is a qualitative part we heard last week that major banks passed the stress test. point -- canto the they buy back shares? this is bloomberg. ♪ scarlet: we are getting headlines for the second round of the federal reserve bank's stress test results. the fed does not object to plans, but capital one, the credit card issuer, has conditionally passed the stress test. resubmit its capital plan, so it is not a clear passing. this is a pretty good mark for the banks that are looking for permission to be able to return cash to shareholders. , who covers this. problems with bad credit card debt not so long ago. >> this is the qualitative portion of the test we find out this weekend. not everybody is under the qualitative portion anymore. capital one is one of them. that is the part they almost failed. they passed with conditions, as you said. , the fede they do this is a little -- a little vague in its prophecies and data collection and all these systemic ways to look at risk. they mention how they are looking at risk. of theirioned one biggest, most important material businesses, they were not looking at risks properly. you get that credit card. last week, when the fed was released in the qualitative figures, talked about an uptick in credit card loan losses. there are issues in credit cards anyway. apparently, capital one was not looking at it that well. scarlet: we saw how capital one shares are falling in after-hours trading. capital one does pass the stress tests, but conditionally. they need to resubmit their capital plan. more prominent banks have passed with conditions in the past, a stress to of the fed test results. how they go about fixing what they do not exactly know? how to they -- what did they do, how to they go about doing that, and how long does it take? yalman: last year, morgan stanley was a conditional pass. it meant they could still do share buybacks and dividend increases. and they did increase dividends. but yes, they had to submit another plan by december, which fed reviewedch the and said, you've met the conditions, you are fine, we accept your revised plan. we do not know what is in that revised plan. it is not about numbers or how much capital they are trying to distribute to shareholders. it is more about the risk management process we were talking about. case, it isne's wherever the weaknesses were that the fed was not happy about. when they talk about this, and i keep questioning fed officials, it is about all the formulas and stress tests. what goes into a stress test? variables, and they going to these risk formulas and where you lose money, where you won't lose money. sometimes those models are not great. they are ok, but they are not amazing. the fed said, you have to have better formulas, better models, so they have to include those models. julia: it is not all about american banks, but european banks that operate in the u.s. there have been gains over the last two years. dividends holdings, of the $5 million. several years of the fun and games now they are announcing they will push capital out to shareholders. yalman: yes, they kept trailing, the qualitative portion. the models were great. which meant that even though qualitative, they cannot send money back to their parent company of spain. was not onsantander the qualitative group or part of the 13 banks that fall under that. thus, we knew they would pass. the quantitative numbers were good. not surprising they are giving money back to spain. scarlet: wells fargo getting no objection to their capital plan, they are seeing a boost of $.39 a share from the previous $.38. that was a little bit of a surprise. if anything, analysts were saying wells fargo might be more vulnerable to more scrutiny because of the fraudulent accounts scandals. yalman: very similar to capital one. they had issues. wells fargo's were a bigger scandal. we talked about it for a long time. a they had millions of accounts open without authorization that regulators did discover. some analysts suspected that would result in a qualitative fail, because if you have millions of accounts opened over many years, and you are not realizing that, maybe her controls are not so wonderful. it will pass, and wells fargo when it submitted all the formulas of risk management said, maybe we messed up in the past, what we fixed it. that is probably how they passed. julia: morgan stanley also mentioning share buyback of up to $5 million, and also an increase in their dividends in line with expectations. that was one that had more question marks over it in the past. there was an amount of pay out in terms of revenues from the big banks. that looks to be 100% in some cases. yalman: one of the numbers, this was not in the release, we were briefed by some officials and they told us the aggregate amount the banks are stress tested can return to shareholders is going to be 100% of their earnings, going forward, in the next four quarters, which is higher than it was in the past. last year's figure was a 65%, according to the fed. that was a big jump. it might be jumping even more than we expected. now all the numbers will be tallying as the banks constantly come up with their figures, how much they are buying back and how much of their dividends are increasing. these are positive numbers. even with a conditional, it is a pass. they will increase their dividends and share buybacks. julia: these are stressful tests enough. scarlet: morgan stanley to buy back more than $5 million of $.20., jumping to regional financial including a 7 billion.4 another boosting its dividend to $.18 a share. julia: they plan to give 100%. thank you for your wisdom. let's get the first word news. mark: president trump today had for charles -- chuck schumer to discuss a bipartisan health-care deal. the president made his comment at the white house with the chicago cubs. president trump: we will find out if he is serious. obamacare is such a disaster. he wants it -- it is hurting a lot of people. it would have to be very, very serious. and he justking, does not seem like a serious person. mark: nine republicans came out against the new bill, the health care vote has been postponed until after the fourth of july recess. rex tillerson is clamping down further on hiring as part of his least to overall all of his department. 26, hemo sent to june ordered to temporarily stop all transfers and reassignments, and they are barred from appointing new envoys. any other requests to increase or proliferate organization structures in the department must also be stopped. the british prime minister theresa may told parliament she will not accept an unlimited transitional phase as the u.k. leaves the european union. brexit terms of caused a rift in may's conservative party. phil hammond is trying to soften the country's approach to the split. the investigation continues into that deadly london high-rise fire. prime minister may said today the outer covering known as tower,g used on grenfell was not compliant with building regulations. jeremy corbyn claimed the blaze exposed to the disastrous effect of austerity. british police have increased the number of people killed or presumed dead in that blaze to 80. they say a final death toll may not be known for months. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. scarlet: more headlines, morgan stanley increasing its dividends to $.25 a share from $.20 and announcing a $5 million stock buyback. american express raising to $.35 a share. citigroup, a buyback authorization and needs to make up for lost time after not being allowed to raise dividends or buyback plans by that much. its dividend goes up to $.32. this is bloomberg. ♪ scarlet: let's give you a recap of headlines that just crossed. american express raising its shares to $.35, a $4.4 billion buyback plan. morgan stanley, a $5 billion -- $5 million buyback authorization. a $15.6 billion buyback authorization for citigroup. fargo, shares a penny higher than it was. we have a professor of economics at stanford university, author clothes."nker's new arnold, you look at the banks from a credit perspective, the bond perspective. -- areshare buybacks good for equity investors. is this good news for bond investors, as well? >> let's step back. is not reducing the equity levels by a lot. is,stress test right now are very the banks cautious with their capital returns. we are excited about 100% pr ratios. which means, net income they are making for the year, they're looking to pay it back to read it is not out of control, but it means banks are healthy and they are able to do that. professor, big picture, the stress test. what is your assessment of the assessment? >> i marvel at the fact that it is been 10 years since things went bad on all of us. i am extremely dismayed when dividends are paid for, to big banks in particular. from my perspective, a dollar paid out is maybe, the bondholders are not that worried right now. but it might be money we might lose. in some cases, what i see is incredibly unhealthy institutions. we can talk for hours about wells fargo. from my perspective, these are not healthy corporations. they are dangerous and systemic and should not be paying dividends. joe: are the dividends bad, per se, or only bad at this level of capital health? beother words, were they to healthier, would you be fine with them paying dividends in the future? >> of course, all companies have to pay. but some companies are very healthy, including a bank shareholder like warren buffett. pay dividends, they have things to do with the money. if you take it out, it is a symptom of having a lot of debt overhang. case, it is extremely unlikely. so everyone lets them. that does not make them healthy corporations, in my view. if they were anywhere near where other companies are in terms of overall embeddedness, then sure. julia: the bank's equity ratio has doubled since 2009 to 12.5%. capital would you be happy with at this stage? when you have a government talking about deregulating these banks and the central bank governor saying, what we have got for the banks is enough -- where did your logic come from? fact logic comes from the why they think they can get away from -- get away with this is the starting point. my logic comes from the fact that i think if they did not have an explicit guarantee, they could not possibly do it. their creditors would not let them pay out. i look at it from the perspective of somebody that knows about corporate finance. i am not too pleased on the issue because i do not see the problem and cause. they could fund with less equity and more debt. i would want them to move somewhere completely different from where they are today. they would not have to worry about every little loss and shakeup of the economy. they would be able to function like other companies without living so close to the edge. i am not impressed. i am sorry, it was completely inadequate. all of a sudden we discovered it was inadequate, right after they did the stress test? we may miss that. even without a crisis, there does not have to be a crisis for this to be an unhealthy industry, acting with impunity. scarlet: jpmorgan announcing a dividend boost, and a capital buyback program, of $19.4 billion. julia: some say they cannot do their jobs properly because they are overregulated. i want to go back to what i asked you about the equity ratio. percent, wouldt you say is reasonable and that you would consider safe? >> we are nowhere near there. in 2010i wrote a letter with 20 academics, including nobel laureates, who said the starting point should be 15% of on weighted assets. this is just to throw a number that would begin to get us where we need to be. these are levels that historically banks had before we had so many safety net. they do lots of things right now. obviously, the liquidity level has to be equated to the risk. but some of the risks we do not know about. i do not feel confident that we do notat they are, i feel confident the fdic knows its own exposure to relative risk. there are a lot of things i am concerned about with regards to the opacity of the banks. other people have spoken about that, including holsinger -- paul singer. i am not the only one saying that. do the annual stress tests lack of validity because everyone passes? capital one,ase of where the fed says there are qualitative concerns, it did pass conditionally. is there value in these exercises, if everyone just gets a go-ahead? arnold: it is the first time the big banks have passed, unprovoked -- unconditionally. it has been a decade since the financial crisis. the point of the stress test is to raise equity in the banks. that is what they did, at the time. the banks are really retaining most of their earnings. it is only this year where, in terms of our analysis, we believe all the biggest banks have more than 150 basis points above their 2019 capital requirements. a year and a half away, they are already above that 150 basis points. it seems like a reasonable time when the biggest banks can return capital to shareholders. the same regulator, the fed, they are the ones that feel the economy is in a better place. they raised interest rates three times in the last year, unemployment is down. banks our macro-oriented companies, so why not let the banks do a little what they want? julia: we have more questions, you guys will both stay with us. we will continue to discuss, plenty more to come. this is bloomberg. ♪ scarlet: bank of america to buy back up to $12 billion in shares, as well as boost its quarterly dividend. 11.5 billionup to dollars buyback. citigroup, up to $15.6 billion. julia: i heard everything you were saying about concerns and the banking sector. banks would say, look, we cannot do our job properly because we are overregulated and some of that needs to be pulled back. where is the middle ground? pravit: i do not favor all of the regulations, from my perspective, i put capital ahead of liquidity regulations. there are a lot of things i would be willing to ease on. not quite the way they talk about it, but in the general direction. if you can reliably bear risk and be trusted not to abuse privileges, i would mind less. but the evidence is that it is not the case. conduct in banking is really pretty bad, repeatedly. ,he rap sheet of these banks $321 billion in fines. that is to above the iceberg. not feel it is an efficient industry. joe: bond investors care about these stress tests or make their own assessment? is this something they check in on occasionally? arnold: the equity investors right now, stocks are high and bank bonds are pretty tight, as well. we do care about them. the fed has additional insight into what we do not seen. definitely, maybe we will look at capital one again, american express. credit card exposure, capital one more on subprime sign with autos and credit cards, maybe there is scrutiny in terms of how things are looked at over there. these are the topics that are in the news right now, people are concerned about these things. or trough,n the peak and we might see things changing. i think the fed is doing its job . it is 10 years since the financial crisis, we are a different world. unlike europe, where you have banks that pass the stress test and fail a couple days later. julia: we will see where it takes us. arnold, thank you. and pravit chintawongvanich, thank you very much. joe: coming up, what you need to know for tomorrow's trading day. this is bloomberg. ♪ scarlet: don't miss this, president trump posting south korea's president moon jae-in for the first time. joe: and i will be watching data in the u.s. economy, we turn to releases of u.s. first quarter gdp and unemployment benefits. those are out tomorrow. julia: rite aid releases earnings tomorrow. if you have not heard, spent july 4 with bloomberg television. p.m., we will00 host the boston pops fireworks spectacular. i will be watching that. scarlet: that does it alisa: i'm alisa parenti from washington, and you are watching "bloomberg technology." president trump is urging congress to get moving on immigration reform. the house votes tomorrow on the so-called "shourie for criminals -- "no sanctuary for criminals" act. the move is considered a bid to stop antagonizing the special counsel investigating links between the president pass campaign and russia. rex tillerson is clamping down on hiring. it's part of his push to overhaul his department. the euros are ordered to suspend all transfers and reassignments and are barred from appointing areenvoys -- bureaus ordered to suspend all transfers and reassignments and are far from appointing new envoys. homeland security secretary john kelly said this is a reaction to intelligence that terrorists look to hide explosives in electronic devices.