francine: big oil, small profits. 45% drop in earnings as low prices continued to erode income. democrats descend on philadelphia as the fomc convenes in d.c. how will politics affect policy for the fed? the currency heads for its biggest gain in a month as the fed kicks off a two-day policy meeting today.

this is bloomberg "surveillance." francine the clot, tom keene in new york. the currency moves -- francine lacqua in london, tom keene in new york. my number one message is that markets are on the move. you do not see it in equities. bonds,om equities, currencies, and oil are a jumble not lows but nevertheless markets on the move. bp,cine: when you look at the refining margin is nowhere to be found that they are sticking to the dividend. let's get to the bloomberg first word news. bernie sanders supporters ignored his pleas not to protest on the opening day of the democratic convention in philadelphia, many angry over revelations that the dnc favored

hillary clinton. sanders did not directly call for his supporters to vote for clinton but made it clear where he stands. mr. sanders: any objective conclude are -- observer will conclude that hillary clinton become the next president of the united states. taylor: senator elizabeth warren urged reluctant liberals to vote for clinton and told the convention that when democrats turn on each other they cannot fight against a rigged system. a japanese man angry at being fired from a home for the a rampage,nt on killing 19 people and injuring others. preacher thatate turkey blames for organizing the coup attempt is denying the allegation. he also accused the president of using the failed takeover to oppose authoritarian roles.

he lives in exile in the u.s. concerns about terrorism are portugaln in spain and , both forecasting a record number of terror -- tourists. france, the world's most visited in foreign a 9% drop visitors and the third quarter. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs, this is bloomberg. tom: equities, bonds, currencies, commodities, equities not doing much. right now, negative two. futures are in 1.54. euro is churning and oil cannot find a bid. looking for oil to find stability and work higher. stronger, again not to

record strength. sterling threatening a 1.30. the mexican peso has been weaker over the last few days. francine: this is what i am seeing, european stocks retreating, pound retreating. it goes back with the fact that the market is trying to figure out whether kuroda will surprise on the downside. , i am looking oil at a lot of the oil stocks. bp seriously messed profit estimates. tom: the commerzbank news as well. we will get to that with catherine man in a bit. the surveillance wall, in honor, in memory of chip case of wellesley college. wellesley, robert shiller of yale university, and

there is the boom, there is the collapse. we put on real stasis at 5% per year. my question is, what were you thinking when we were doing 12% and 13% year over year gains in housing? chip case was an outstanding academic and teacher, and he was smart about month over month, or do you look at year over year or in my case, i look at three-month annualized. that was part of the magic or mathematics of chip case. francine: it is the academics when you look at the financial crisis that seem to have forewarned the world that they were coming. us is what i picked. this is basically the u.s. and u.k. to year yield spread. it has been reaching the widest since may 2000. i brought it back to the yard 2000 -- to the year 2000, 2-year

and gusheduse we saw a pickup and economic data in the u.s. that we are not saying and the u.k.. for some of the big equity moves , let's bring in andrew sheets with morgan stanley. great to have you on the program. i think we need to look at what is going on in the market. equities, that a boring, oil down a touch. they keep on rising. the real story is playing out in bonds and currencies. andrew: i think what we are seeing is some of this test of divergence and how much divergence we can really see in between what has been stronger u.s. data and weakness elsewhere. divergence is going to be tough to continue. we were already at historically wide yield spreads and you have

seen repeatedly a challenge that if the fed tries to get more hawkish in light of better u.s. dollar -- data, the dollar strengthens. generally speaking if we think about these yield spreads, if we see it narrowing between treasuries and jgb's and european yields we think there is too much priced in. francine: what kind of levels? andrew: we think the treasury anlds will be lower based on economic fears that the data is weaker in the second half of the year. we need to watch that closely because some economic data has suggested stronger data but some of the weakness in oil and other commodities suggests a little bit of a weaker picture so it is something we would have to watch. we have more conviction we would see a narrowing between the yields in the u.s.. strategy atcs and

morgan stanley is a fractious group. your u.s. team has been bowl. -- bull. you folded into a headline making 1% yield call. do you translate that transatlantic? can you bring the u.s. perspective over to europe? challenge, and a this is one of the more interesting parts of our forecast, we have treasury yields falling. yields rising and one might dismiss that, but we think it is and we think it is based on the fact that you see there is significantly more richness already priced in to the european market. when we look at what was priced and from a policy standpoint, the markets are already pricing

in an additional ecb cut and not pricing and further easing on the u.s. side. when we think about market technicals and risks of illiquidity, we see that much greater in the european market and german bunds. bond --d still see bunds that are performing. tom: here and up fully it back to the great global system. in london, the system is euro-sterling. it has not moved. europesterling, stronger even against a beleaguered europe. what does that say? i think first and challenges the ecb is clearly facing with trying to weaken their currency. this is one of these challenges of negative rate policy.

once you go negative and have been executing qe, what more can you do to create a marginal impact that will weaken the currency further? there case of the u.k. was a significant shift possible and monetary policy expectations and economic expectations that helped it weekend that we continue to see the pound weaken against the euro. seems like every economist but comes on says there is fiscal spending and central bankers keep doing more. do we have any clue with this government -- what this government and this cabinet wants to do? fiscal spending may be the only solution for the u.k. andrew: that is something we could extrapolate more broadly. if we look at where governments can borrow, the lack of demand in the private sector, there is a good case for fiscal stimulus.

if we look at the u.k. specifically, it is hard to tell it this point what the government plan will be. certainly be something that would support higher yields and steeper curves in the u.k. because it would not just raise inflation expectations but increase supply into the market. so far i think it has been rhetoric and hint much more than any concrete demand. an increase in fiscal spending is something we would see as positive for u.k. growth numbers but we do not have much penciled in and we are expecting a technical recession. francine: andrew sheets stays with us. we speak with oecd chief catherine mann. this is what european stocks are doing, the yen is soaring to a one-week high. ♪

francine: this is bloomberg "surveillance." francine lacqua in london, tom keene in new york. anheuser-busch has sweetened its offer for sab e-mail your test sab miller. ab inbev was responding to concerns about the deal structure after the pound dropped in the wake of the brexit vote. germany's second bank says a key measure of financial -- fell in the second quarter. the bank made accounting adjustments. earnings plunged at bp, the tost major oil company report results. there are being hurt by lower oil prices.

crudecrease in brent provided a prospect of some relief. in hobby let's bring blas. ts -- javier when you look at bp, the problem is we thought this would be the best of this year and they disappointed. what does that mean for the sector as a whole? year the refining sector was providing a lot of cushion. refineries were making a lot of money. the refining engine has not stopped but is really sputtering. bp was the weakest second quarter since 2010 in terms of refining and that is taking away a big support for big oil companies. we probably will see more when show reports on wednesday and

exxon mobil on friday. francine: are the dividends at risk? javier: i think they are safe because the companies are willing to take on debt. the key question is, at what point is this too much debt? -- even if we have lower prices around $45, $50 a are say theynies will probably be able to do so in 26th -- 2017. that is a big question mark for investors. ago, the great oil strategist of the u.s. was demand, look at the analysis and he demands a lower price for oil. this is a classic oil rollover

through 200 day moving average. tell me what you know about demand dynamics right now. javier: demand was very strong the first quarter but since then it is not really that strong. we are beginning to see signs of a slowdown in the united states. we have seen a slowdown in india which was key in late 2015 and early 2016. we are going to have a big problem because it will hit crude oil prices and refining margins, which have been sustaining a profitability of big oil in this crisis. tom: educate us how the man dynamics funds -- demand dynamics finals from upstream to downstream. they are switching to summer production of fuel to winter

production, educate us on that nuance. javier: refiners at the beginning of the year decided there would be quite a lot of demand in the united states for gasoline during the summer. we have particular whether in march, february was quite warm in the u.s. so people were driving a lot. that contributed to refiners to believe that would be a good summer for demand. andave come to this summer americans are driving but not nearly as much as they expected so we have too much gasoline for the summer. refiners are saying, forget about summer, we need to start thinking about producing gasoline for the winter. the winter is not looking great and oil prices are coming under pressure. that is why we have such lower margins. at some point refiners are going to say, we need to stop doing this, process a bit less, and

that is when it goes back to upstream. tom: thank you so much. a great briefing on the demand side. we are also supply. demand matters at's well. next hour we demand you pay attention to gene munster of piper jaffray. we spend a little bit of time on twitter. this is bloomberg. ♪

"surveillance,"

from new york, from london, francine lacqua and i. we are not from philadelphia. kevin's a really a pulled the shorts draw -- short straw. kevin, president clinton will speak tonight in support of another president clinton. what will he not want to say? kevin: he is going to not want to try to this unify the party. the dnc got off to a rocky start. debbie wasserman schultz had to resign because of the wikileaks scandal. want toet the idea they move forward and i think mr. sanders did a great job last night saying let's move forward. the you have a planned message from secretary clinton's shop?

is there a unifying message so they can get away from last night's discord? kevin: i think we saw this a little bit from first lady michelle obama. she did have arguably the best speech of the night, without managing green -- without mentioning donald trump's name. tonight will be about the political theater because this is the night when hillary clinton will formally become the first female nominee for either major political party. francine: did bernie sanders do enough to help hillary clinton along the way? kevin: i think is the little bit too early to tell that. there were boos within the convention hall and cries against hillary clinton throughout the day, chance of like, m iup." i was still in cleveland? they differ the progressive base

on the tpp and they were disappointed that hillary clinton chose tim kaine. we will have to see how all of that shapes out. strategists i spoke to in the democratic party are confident they will be able to unify. francine: how does this play out on the markets or the fed past thinking? -- fed's thinking? andrew: the shift away from free policy is in arguably a negative thing if you think about long-term growth. there is a good argument about why this debate is here, the benefits of that trade have not been shared broadly but if you think about modeling long-term growth, the shift away from trade is a negative. as we see these polls tighten up, this question of fed policy and what would a trump

administration mean he comes incredibly important. we have markets that have been very focused and dependent on a particular trajectory of fed policy. trump has been critical and i think that would raise questions and uncertainty. francine: thank you so much, andrew sheets, and a thank you to kevin. oecdxt we speak to the chief economist, catherine mann. this is bloomberg. the big, brutal moves on pound and yen, it is all about currencies and overall market. ♪

tom: good morning, bloomberg "surveillance." markets on the move, equities not, but commodities are weaker.

right now to our first word news. taylor: supporters of bernie sanders undermined the image of unity the democrats hoped to project. they ignored his pleas not to angry overny revelations that party officials backed clinton over sanders. sanders said he was backing clinton but acknowledged there are still hard feelings. : i understand that many people here in this convention hall and around the country are disappointed about the final results of the nominating process. i think it is fair to say that no one is more disappointed than i am. taylor: senator elizabeth warren trashed donald trump, saying he only cares about himself. she urged reluctant liberals to support clinton.

-- turkish president hasn't accused the eu of breaking an agreement on refugees, saying the eu has not given turkey all the money promised in exchange for stopping refugees. a new report says that the u.k. needs a new financial watchdog to punish wrongdoings. a new enforcement body would a repeat of 2008. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. mrs. bloomberg. -- this is bloomberg. francine: markets are bracing themselves for the upcoming stress test on friday. will they give lenders the needed boost or undermine them

at a critical time? let's get to catherine mann. us.ew sheets is still with when you look at european bank stress tests, they are very relaxed and say they will talk about the bail in roles for italian banks. they have a banking union and it is not as bad as they think that the markets want a resolution. are they right to offer something straight away? catherine: the banking union is extremely important for europe. it is a centerpiece of maintaining or even accentuating growth. the stress tests are going to put some premium on the better banks but we have looked at them in terms of their equity prices, and they all have been significantly hit. we would like to think they have hit the bottom but i'm not so sure. stopine: do we need to

with these bail in roles? if you look at the italian banks and possibly german banks and the future, this could put a serious damper on european growth as a whole if these rules are upheld. there is a challenge to improve the balance sheets of the banks. at the same time, there is a challenge to respect some of the range of rules that are part of the european community, specifically the state aid issue. coming up with a strategy that allows the banks to be cleaned from their balance sheets allows the private sector to play a role in doing that and ensures that the fiscal situation of countries that are particularly at risk, those are three things that all have to be balanced against each other to promote growth. tom: you know the word dysfunctional within economics.

the dysfunction i see in the market right now is the bond market, the folly of negative rates. ring up the chart because catherine mann knows her deviations. of standard deviations higher yields on the u.s. two-year. we have rolled over well outside three standard deviations, low yields. vigilantese bond signaling about the global economic system? catherine: we were projecting at 3% global growth this year and 3.3% next year. that was before the most recent economic,nts, both referendum wise as well as a range of terrorist incidents which have potentially undermined what looked to be a better climate for growth in europe. we are in the process of doing

some revisions. the imf came out with their revised outlook and that was down. when a look at the picture for 2016 and 2017, it looks like it is going to be a downgrade, very unfortunate. there does not seem to be enough on the horizon. is, isur classic book the trade debt sustainable, it was magical. donald trump is a market to list. has a trade policy which is basically a limited and limitation policy of all we have accomplished since world war ii. speak to our audience about how we need to stay away from neo mercantilism. catherine: the recipe is that trade enhances growth, trade and

hence his choice for consumers. it allows for bigger marketplaces for businesses to exploit economies of scale. it adds productivity growth but it is very clear that there are losers from trade as well. we have to acknowledge that moreghtaway and with much reasonable policies and implemented policies in order to turn the equation around such that those who gain from trade are able to get the benefits, and those who lose from trade are not bearing the entire burden. we have not done a good job with thoughts, it is very clear across the board. we have not handled the loser problem in a sufficiently aggressive way, and we need to do that in legislation. companies have to play a role as well. they cannot stand on the sidelines and ask for somebody else to pick up the ball.

francine: this goes back to the dysfunctional policymaking that we are doing or markets. what do you see is the biggest mispriced asset? andrew: i think a couple of things that we need to look at, i think you are clearly dealing with an interest rate market that over a very long period of time seems to be implying something very different from what we see elsewhere. even in the u k and the eurozone, we see markets are priced for real interest rates to be negative for the next decade. i think that is the situation that seems unsustainable. it certainly seems unsustainable relative to where equity markets are pricing and i think there is a tension between a rates market saying, this is not going to get better, and in equity markets that is currently priced for more optimism. book money and banking,

none of this is in that text book. how do we clear the european banks given this distorted interest rate structure? ratesine: the interest are not the main reason why the european equities, european bank equities are so soft. in part because negative interest rates as an implementing tool by the central banks has not really percolated through two deposits. the negative interest rate margin is not really the reason why banks are so soft. the reason why is there is not sufficient enough activity in order to get lending going on which they could make a margin. it is also the case that when the ecb implemented a policy of negative interest rates, they also implemented their tltro

strategy which allows banks if they do lend to make a good spread. the problem is a lack of demand for loans in europe and that goes back to the growth situation. also an issue.nk i spoke: earlier on exclusively to the luxembourg finance minister and i was trying to get a sense about what the future of the u.k. banking system will look like and the u.k., if they lose their passporting writes can move to luxembourg. .> this is a very serious topic let a first say that we have a banking union which was very difficult to achieve. a lot of commentators thought we never would achieve that. we have a common number relative protect european banks so that is better than having nothing. francine: we talked about the timeline needed to sort out the italian banks but overall

because of brexit, how long does it take that we understood -- before ray understand the possible consolidation of banks and what the european banking landscape will look like? catherine: a lot depends on what happens with the discussions regarding cross-border trade and financial services, and under what umbrella the london city will be able to participate in the european system. how long that is going to take is, that is pretty much anybody's guess. of issues thatge have not yet been completely resolved with the european banking union. the single supervisory mechanism is very important but until we get a single backstop and get some consolidation which has associated challenges, a tax treatment of nonperforming loans on the ballot sheets of different banks, until we address those issues, the

banking union is incomplete and the fruits of the banking union will not be felt around europe. tom: catherine mann from the oecd. i want to come back and talk about this nominal growth weakness and what it means for the consolidation of global industry. oil, for 2.83 a barrel. this is bloomberg. ♪

tom: good morning, everyone. francine lacqua in london, i am tom keene in new york. andrew sheets with us, catherine mann is in paris with the oecd. in ourpped by months ago

new york studios where you said, here is the reality -- there is they can only go out and acquire companies and it is leading to an unhealthy consolidation of business. what you predicted is occurring. we see that in the health care business in the united states with the doj saying, you cannot do that. will that be the next trend where the government pushes back against corporate consolidation? catherine: i think what we are seeing in the united states is a question mark about how much consolidation leads to two big. it happened in the banks before and now it is happening in other industries. why we worry about it so much as we find that when there is that much consolidation, attends to undermine productivity growth and innovation.

when we look forward we care a lot about having a more innovative and higher productivity economy. i think it is fair to say there are other countries and other sectors where consolidation is necessary. a segment on european banks and here is a case where some consolidation is sustainy in order to productivity growth because the banks are too small. what this says is when we talk about a cartel or too big for toductivity growth, we have be very careful about making decisions for what is too much consolidation. it takes a lot of analysis to come to the conclusion that and mergers and acquisitions are bad for the economy. i am glad that greater examination of the question is being done in the u.s. talks aboutglitz our discontent with

globalization. is there a new globalization to be discontented with? catherine: the globalization that people are discontented with is a technology fired globalization. it has been with us for a while. if we had managed to have faster growth along with technological advancements and globalization i do not think we would be sitting where we are now, trying to fight 14 tp or to tip. rangeunately because of a of issues including too much attention to fiscal consolidation and not enough attention to growth, we are in a situation where growth benefits have been absolutely not widely shared. in backlash we have observed many countries and around the world has left us where we are now. we have to come up with a new policy set as well as a new

narrative about how globalization and technical change can be beneficial, and needs to be made beneficial for a broader swath of the population, not just in the united states but in europe and other countries. francine: what you are alluding to is something we see with the rise of trump, with the brexit vote. where are we now? do we need to get used to the low nominal gdp growth and just ever accommodative central-bank policies? catherine: what we have said over and over again actually here at the oecd, is that we cannot just stick with this low nominal gdp growth . as policy makers and politicians we have to recognize that we have the tools, fiscal, monetary, and the full range of structural policies, climate

policies, innovation policies, we have that full range. we can deploy them and get back and itster growth rate, is our responsibility as policies and policy makers to do that. our youth will not have jobs and our old people, we will not be able to pay their pensions. this through commitment and implementation and we need to have more ambition. mostine: one of the troubled countries is japan, partly demographics, partly nonstructural reform, partly a flight to safety. will they be able to get the job done? andrew: i think catherine focuses on an extremely important point, these are often seen as binary choices. you can either have huge budget deficits or you can have

infrastructure spending. there are reality significantly more shades of gray in between and i think if we think about japan, what japan is trying to do in theory's long-term fiscal investment into capital expenditure to offset what will be a demographically declining labor force, that is absolutely what they should be doing. that is the only way to boost productivity enough to keep the economy going, invest more in education to increase the labor force participation. the theory that japan is proposing is the right things. i think it is a question of confidence around that and the point that you raised, tom, we have seen this experiment with negative rates and rather than increasing confidence it has probably undermined it. tom: i only have 30 seconds left. olivier blanchard says that

helicopter money is a scam. is it? catherine: helicopter money is not going to do the job. if you are a saver, if you are a consumer and a saver you will take the helicopter money and put it in your mattress. helicopter shopping coupons, we could talk about that where you have to go spend the money. helicopter money by itself is not going to be any more effective at gaining economic growth than what the central banks have been doing already. catherine mann of brandeis, she is at the oecd. i need to do a data check, equities are not the story. it is about foreign exchange, interest rates, sterling weaker. oil south. mexican peso weaker over the last 24 hours. this is bloomberg. ♪

"surveillance." tom keene, francine lacqua. we say thank you to michael tarred of them km partners.

fransen,target marty you talk high yield and that is what michael mckee is talking. michael: 10 trillion in negative rates around the world. talking about pushing down on rates, everybody is pushing into and justifying higher equity ratios, and that is becoming a problem because more countries are having a problem paying their bills. the default rate reaches 5.1%, the highest since the depths of the great recession in 2009. movies sees the rate reaching sees the rates reaching 6.4% by the end of the year. tom: does janet yellen care? thatel: if you raise rates puts more pressure on overstretched companies. out andbert pointing

bloomberg view that we have a real problem with rates because borrowing costs are so low and we are still seeing this default rate. tom: bring back the bart chart. mckie has been awesome on charts. 2007, that isith all you need to know, right? points out that we have artie passed all the dollar volume from last year. companies cannot pay their bills and the attention of higher rates in the united states, borrowing costs in 2009 were much higher yet we are seeing similar default rates. francine: some people are arguing the fed needs to go ahead and hike. --rew: i would disagree of with the characterization of the high-yield and default. i think the predominant names that are defaulting at the

moment are heavily concentrated in energy. what we are seeing is not necessarily a function of countries that would be saved or , these the fed moving are companies that need oil to be $10 or $20 higher for their business model to work. i think the current issues in high-yield, we are seeing a major energy default wave. in terms of the market stability to withstand higher fed rates, that is where we feel a little bit more relaxed. tom: andrew sheets, michael mckee, thank you so much. this is a big deal. markets are on the move. stay with us. worldwide, this is bloomberg. ♪

a tom: this morning, all but equities are correlated and lower.

yields to send. the federal open market committee begin a two-day meeting. -- dead or alive, janet yellen cannot ignore the market vigilantes. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. i am tom keene. with me, francine lacqua. do not believe the first lady spoke last night of mr. trump. francine: she looked very presidential. there has been a lot of talk in europe about the difference between the democratic convention and the republican is amazing. they had heavyweight speeches on day one. tom: as i was going to the white house to see jason furman and his team late one night, it was not :00 and cold. we are outside -- it was 9:00 and cold. we are outside, and security, we

could hear the girls in the bedroom listening to the music very, very loud. it was dazzling. but the first lady had to put up with her daughters in the white house for eight years, and they are now older. we need to go to first word news. here is taylor riggs. politics,arted with reporters are saying -- they ignored sanders please not to protest. that -- in ay primetime speech, sanders said he was backing clinton but acknowledged there are still some hard feelings. mr. sanders: i understand that many people here in this convention hall and around the country are disappointed about the final results of the nominating process. i think it is fair to say that no one is more disappointed than

i am. taylor: senator elizabeth warren trashed donald trump, calling him a man who cares only for himself every minute of every day. she urged reluctantly girls -- reluctant liberals to support clinton. killedthe hostages was before the police rescue attempt. the paris prosecutor's antiterrorism unit is investigating. in japan, prime minister shinzo abe's administration has outlined a fiscal stimulus package. the outline calls for continued cooperation with the bank of japan. the government is hoping the central bank will continue efforts to reach 2% inflation. the cabinet is expected to decide on stimulus projects by next week. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom? tom: dupont is out with a

conundrum of the moment, a good look at earnings. gross margins increased, unit volumes across a number of divisions increase. a very constructive report from dupont, which is the conundrum which is the conundrum of corporations moving forward. let's go to the data board. equities, bonds, currencies, commodities. equities not a part of the story. a little bit of weight there. oil cannot find a bid. let's move on. -- -- francine: the bp drop, the fact that it missed estimates by so much is putting pressure on the european stocks, especially when you look at gas and oil stocks. pound, 1.3119.

martin we'll did a bold call. let me go to the bloomberg right now, in honor of chip case. today we get case-shiller. dying after a heroic fight with illness here over the last number of years, and bob shiller of yield university -- of yale university. again, come back with another boom, and we stabilize year over year at 5%. you worrys legacy, do about month over month, year over year, three-month annualized? which is what i look at mostly. francine, what do you have in the bloomberg today? moreine: have something

simple and focused on this week, on what the boe may or may not do and what the fed may or may not do. come over to the bloomberg terminal. u.s.-u.k. you the two-year yield spread. we started back in 2000 and this is where we are today. the extra yield that investors get for holding the u.s. paper instead of -- basically it shows a pickup in economic data in the u.s., but here the boe is very much more difficult to predict what they will do next. tom: we have a wonderful set of guests. it is great to have an economist and a strategist with us. -- and george: -- harm bandholz and george goncalves. occasionally they touch on international relations. george, the fed is doing shadow

cuts, and even though it appears the fed may make one rate increase and we all look at the phenomenal level, when you sum in all the economic data, this is a thread that has been very restrictive already. harm: absolutely. if you look at the rate projection, that is where the shallow cuts come in. you look has gotten better and better over the past several years, and in spite of that they kept lowering the dots. dovish theame more better the data got. that has been puzzling. we have now gotten used to it, and maybe can agree on this, that it was a challenging time for fed watchers, and i think right now we understand more -- tom: the reality of this is card and horse. you are the key vigilante. the bond market -- are they out in front of the fed or are they chasing fed rhetoric? i think there is a

little bit of chicken and a, too. tom: how about horse and chicken? george: although the fed has lowered their dots and have been more dovish lee inclined, what would the economy look like, or how would financial conditions look if they were not as dovish? the chicken and egg comes down to with a be more dovish, and therefore they lower their dots. we have a long recruit cycle because the fed has kept things accommodative. if they had not been, perhaps we would have much more of a shallow period. that is the argument. francine: are you sharing your terminal, tom? tom: let's bring up the dots right now and show everybody. george goncalves will not come on unless we show -- look at that -- from bleed bloomberg, it

is a really cool function. there are a lot of moving -- from the bloomberg, it is a really cool function. francine, those two little yellow dots at the bottom, i believe we can call that bullard of st. louis. francine: it was great getting him for an hour 15 or 20 days ago. george, going back to your point. we look a lot on u.s. growth and we look a lot on companies and earnings, but actually do we not need to just look at dollar? everything seems to be related to the dollar. the dollar rallies a little bit, growth comes back, and the fed becomes more dovish. at the end of the day, we need to figure out whether there is a dollar rally underway or not. george: if you take a step back and look at what happened, the big dollar move over 18 or tournament -- over 18 or 20 months, that was a fed move as well. -- now the dollar looks

much more stable on an annual look. i am with tom, i look at the moving averages, too. it is moving quickly for my liking as well. the anticipation of others around the world easing further, the dollar connection breaks out here and that could lead the fed to really be even more dovish and push back. francine: harm, what is your take on this? will we see more dollar twists and turns against other currencies? harm: i agree the dollar has become a very important piece of information the fed is looking at. but why is the fed watching the dollar? there has been all this focus on international development. itself has noty become much more vulnerable to currency sharks or much more international. -- ihe dollar is becoming

think we can talk about, is it justified that the fed tries to beef up the stock market or not. on the currency itself, our view has been that most -- we have seen most of the dollar strength. 1.12, and at the end of year last year we we go .1.bout .1, well above francine: overall, is it your general ascension that the fed wants to stay put until at least the u.s. general election is underway? does it mean that they have strong data? it is almost counterproductive because then they would be stuck in how they communicate to the market. harm: the election itself is not an obstacle. we have heard chair yellen's last speech where she highlighted all these uncertainties. since then, we got decent data,

but i do not think these data reports that we have seen are ord enough to calm down solve all the problems that chair yellen mentioned a few weeks ago. she wants to buy more time. is: i think what harm said that it is a dead meeting, but we are still going to cover it. they do not have a job if it is a dead meeting. it is an alive meeting because we say so. speaking of alive, gene munster has had a hell of a 24 hours. oh, the scandal. he is out on twitter. it is bloomberg. ♪

francine: this is "bloomberg surveillance."

to theet straight "bloomberg business flash." here is taylor riggs. the new price, $103 billion. sab miller investors would get next to $1.30 per share. ab inbev was concerned about the deal structure in the wake of the brexit volkert amazon is teaming up with the british government to test delivering packages by drones. among those being tested, the drone possibility to avoid obstacles. british official criticized amazon for not providing guidance about how to fly drones safely. earnings plunged at bp, the first major oil company to report second-quarter results. missingell 45%, estimates. bp has been hurt by lower oil prices. that is your "bloomberg business flash." tom: thanks so much.

give your heart a break. demi lovato singing last night at the democratic national convention. megan murphy was in the groove. they dance better at the democratic convention better than they do at mr. trump's convention. but it was a terrible, ugly dance, wasn't it, megan? you said as we were coming to break that this was the most disorganized convention you have seen? megan: last night was the rocky is start they could have -- the a conventiont as that they could have seen. in primetime television last night, when elizabeth warren was speaking on behalf of bernie sanders, on behalf of hillary clinton, on behalf of the democratic party, bernie sanders supporters actually booed her at one point. bernie sanders supporters booing elizabeth warren. we had a come-together last night, a great speech from michelle obama, but there is no

question that the party is in a bit of disunity right now. tom: i remember the take kennedy speech in boston years ago as being a game changer. can bill clinton change the game tonight for his party? megan: i think a lot is going to be riding on his speech. even more is going to be riding on the president's speech himself. whyking the message of michelle obama is supporting hillary clinton -- that is what bernie sanders supporters need to hear. why should we vote for this woman over bernie sanders, and more importantly, over donald trump? francine: you are talking about what happened on stage. on the podium, you had some strong headline speeches. you were mentioning michelle obama, but also bernie sanders was quite convincing when he endorsed hillary clinton. megan: the biggest issue right now that we face with bernie sanders -- are his supporters listening to him? wehave a whole week where

should be hitting the highest stride since november. can he keep hold of his own supporters and direct them in the way he wants them to go? the speech was very powerful. it was a full endorsement. but even in bernie sanders' speech, there were scattered boos. this is a party that does not feel unified. we have three more days of the most high-powered speakers. will they get behind her? merewe forget monday as a blip on the radar screen? francine: who can unify them? is it a mood, a person? is it bill clinton? megan: it is going to have to be hillary clinton herself, who comes to the convention with an image, and why should they vote for her? this is a woman who after two decades in public life seems like an enigma to many people. she needs to make the case of

what she is making for america. why does she have a more positive, more optimistic vision? tom: there is a tradition that the opposing party is quiet during the convention. what did you observe from republicans yesterday? what did you observe from mr. trump's twitter feed? megan: let me give you a small taste. an actual boxing ring here, where they are staging actual oxime matches to show the discord within the democratic party. verye priebus has been outspoken about, look, they feel they were pilloried in cleveland, and it is their chance to get back. the chairwoman of the dnc resigned on the eve of the convention. that has never happened in the history of people who have been watching this, the history of conventions. they are going to make a meal of this. no one can fault them if they try and do that.

francine: megan, thank you so much. you will hear plenty more from megan throughout the day, the week, and months to come. harm bandholz and george and call this stay with us. stay tuned. we have plenty more coming up on the dnc. due respect" at 5:00 p.m. in new york. this is bloomberg. ♪

"bloomberghis is

surveillance." tom, this is a picture overall for stocks. a lot of the movement is happening on yen, the yen spat for the dekes -- for the best day since brexit results. more investors think governor kuroda will shy away from the stimulus. other investors favoring immediate stemless. -- immediate stimulus. tom: george goncalves is with us. harm bandholz is with us from unicredit. that sets up the "morning must-read." this is a terrific note on the new globalization. tom: harm bandholz, it is a new world out there, and it is

definitely becoming more mercantile. harm: i think that is the reaction. a lot of what we see, be it terrorism or they talk during the election that protectionism is good, this is a reaction of that. it has to do with technical innovation, technological progress, and globalization. we have heard the chief economist before, and she mentioned politicians have all the tools but i do not think they know how to apply them. tom: what they do not have is a financial system that works. everybody looks at real rates, inflation-adjusted rates. in the future are we looking at disinflation or deflation-adjusted rates? george: you cannot shrink your way to growth, so how do these negative rates and the market expectations of rates stay low for longer with the real rates staying as low as they are? -- itses a challenge for

forces people to sit on their hands and not do anything. francine: but this is the new normal, isn't it? we are seeing more respected economists telling us that this is -- we are not going to grow more than 1.2% for the next 10 years, just get used to it. george: a lot goes into the growth function. obviously productivity. you want good deflation coming from automation, and hopefully those who are displaced can find other work. everyone is fighting for the same pie, and globalization has really the potential to need to change. no one has figured out how to make that shift yet, and they are using these tools to adjust problems that have been with us for a number of decades. deflation is the way we are trying to fight that war. we are trying to create

inflation, but deflation is holding us back. francine: harm, who is the best thinker? who should be in charge of monetary policies worldwide? think then't know, i setting with the various global central banks are all fine. we have this g-20 meeting a few months ago where we talked about there should be more correlation on the monetary policy side, mostly content -- mostly kitchen -- mostly to contain the effects side. but i do not think it is a monetary policy that is -- tom: we will have to come back. lily out with a very nice feed this morning. this is bloomberg. ♪

hohey s w'oiit ghong, estcak ?hoestcak .th lais p hceotas hke hyso wn' aret't ey llkelica hotkes? cwithstomcain business rnan fid e.ju ddst aus a czetomimeey e y towiour rofi pas splgeh pa an u'd yo 'll yeachstr somer eie esr a adylr -ju ddst aus a czetomimeey e y iresevicrofi pas splgeh pa .or upder . 'it'ha tstn jui, wif c itelan howp grr younebusiss. odintrg ucin pwifiwiro, fi hthatpselusur bs.ines u 'doe t eth dvery.ay ascomcbuss t builbufor sssine tom: francine lacqua in london, i am tom keene in new york. dupont out wh pretty good earnings. of indiana -- we hadin the

control room, two purdue boilermakers in the control room. is the important here unit growth forward, and their revenue growth is actually pretty snappy, pretty good nominal feel to what eli lilly is doing at the top line. at 7:30 thister morning with a robust earnings report this morning. enough on that. let's get to our first word news with taylor riggs. bernie sanders supporters ignored his pleas not to protest on the opening day of the democratic convention in many were angry over revelations that party officials favored hillary clinton in the primaries. they marched, food -- they marched, booed, and heckled. mr. sanders: any objective

observer will conclude that based on her ideas and leadership, hillary clinton must become the next president of the united states. taylor: meanwhile, senator elizabeth warren urged reluctant liberals to vote for clinton. she told the convention that when democrats turn on each other, they cannot unite to fight against a rigged system. and the islamic preacher turkey lames for organizing the coup attempt is denying the allegation. turkey's president erdogan of using the failed takeover to compose authoritarian rule. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. tom: let's pick up the debris. gene munster with us now. gene munster on with us later. two times we get to speak with gene munster today. let's do a little bit on yahoo! before we turn to apple. i have been trying to defend

marissa mayer. the stock went from point a to point b. is her compensation deserved given what the stock price did during her tenure? gene: no way. $230 million for a business that declined over 10 years? i have to give her credit, she pulled it off, but it does not justify $1 million let alone $200 million. tom: great chart showing verizon and yahoo! together with aol, so small versus facebook and google. do you just assume verizon has to get much, much more scale fast to make this pipe dream work? gene: that is exactly right. they are parlaying what they are doing with aol, adding yahoo! on

top of that. they want content, users, the mobile side, and that is what they are putting together. this is part of a bigger picture strategy from verizon that is coming together. francine: i want to move it to apple. looking at analyst notes this morning, i have not seen analysts more at odds are it is it over for apple, or at least its peak, or can they continue growing and getting market share? gene: i am traditionally more optimistic. i think this is a time to be particularly optimistic. what is unique about owning apple in the next couple of quarters is that you get two shots on goal. typically when you own apple you get one shot, which is the opportunity to own and anticipate numbers going into an iphone cycle. but in this case you get low expectations for the 7 and the anniversary phone coming out in 2017. there is an added safety level in terms of owning shares. it has nothing to do with the

report, it is all about what is coming in september. francine: we hear about the chinese smart watch going head-to-head with apple. own the agentn market, and that puts apple in trouble. gene: a small part of their business is the watch. call 86%. the ibc number suggests it will be about -- the idc number suggests it will be about 6.5%. you will be able to ultimately use the watch as a stand-alone, to be up to do text messages and phone calls on it. you have to have your phone with you. to it,ely when they add the trajectory will change from the gloomy outlook for the watch we are seeing right now. build over theh

last four years. $206billion, $155 billion, billion, $233 billion. will they surprise this time around with the use of cash? gene: we will probably not get much of an update until they report the march quarter of 2017. you might see a slight shift to more of a dividend versus the buyback. before that, the big focus is, can they use the balance sheet to acquire things or invest in things? tom: what would they buy? gene: i would say this. i cannot comment, speculate about m&a myself. i can tell you what most investors think, and that is netflix and potentially tesla. those two are areas -- the netflix piece, investors believe that makes a lot of sense because it beefs up their services segment. that is an area that apple has been intensely drawing on. this is the sector that benefits from pokemon.

francine: what does it mean for what comes after the iphone seven? -- the iphone 7? if they do acquisitions on content and software, will it be bringing out an iphone 8? gene: that is on the side as far as growing the service businesses. the 10th anniversary one that comes out next year, that will be a slightly different form, look a little more futuristic. there is still room for the smartphone market to have some real innovation. the part being talked about now is the ability to use your phone , and eventually your phone will flip open to be a tablet. two-in-onealmost a type of device. if that is one of the trends, apple will be there. tom: gene munster will be with us on "surveillance" radio

later. we observe the yahoo! soap opera yesterday. what is the distinction of twitter's future right now? gene: i do not cover twitter. but what i can say is that the world of social has basically taken over what twitter was really good at, so from an outsider perspective, it is a difficult road form. -- it is a difficult road for them. tom: gene munster is with piper jaffray. on bloomberg radio as well, on his game of golf, on marissa mayer. that will be interesting. this is bloomberg. ♪

francine: welcome back to "bloomberg surveillance." i am francine lacqua in london. tom keene is in new york. let's get straight to the "bloomberg business flash." taylor: dupont raise the lower end of its full-year profit forecast. later this year, dupont plans to complete the record $59 billion all stock merger with dow chemical. porsche will take on tesla. the automaker will spend more create itslion to first battery-powered sports car by 2019. commerzbank tier one ratio decline for the second quarter. made accounting adjustments to adjust operational risks that lenders have to shield against. that is your "bloomberg business flash." francine: where seeing pressure

on some of the european banks ahead of the stress test on friday. we are seeing quite a lot of pressure on the commerzbank after it came out with some announcements this morning. let's bring in nicolas, the german finance reporter for bloomberg news. he joins us now from frankfurt. great to have you on the program as always. this was an unscheduled update from commerzbank. it shows that operational risk for a lot of these european banks is -- >> precisely. the big question is how much read across is there from other banks? we have a note from morgan stanley saying it does not bode well, reporting their earnings tomorrow. are they ahead of the pack or catching up on this? we have seen banks reported significant increase in their operational risk. rwa's. what that means is that they are holding more capital for the risk of rogue traders that will

increase litigation, or several of the issues plaguing the industry right now. francine: so we are expecting this to continue growing. is that the bottom line that you are mentioning -- is that the bottom line? you were mentioning deutsche bank. does it make a more likely that certain banks will fail the stress test? see what we have to the results show. obviously operational risk is one thing in the stress test. it is a growing area which is sucking up more capital with european banks. the question for many banks is whether the next iteration or the adjustments to the regulators to the framework, if it is going to kick it into hyperdrive and demand ever more capital for operational risk, or if it will not quite be as heavy as expected. but the stress test is going to be an exciting moment it we can

see one area of how the banks are performing. it will be the one to focus on. tom: it is time for my snarky question of the moment. and government institutions in bed together? is everybody on the same page trying to get through this, or is there legitimate attention -- from european banks the european big banks and regulators? nicholas: it is a legitimate question. the stress tests in the past have been criticized for being too lenient. this time around, it is something they will definitely want to be overweighting, and indeed the assumptions going into the stress tests are a lot tougher this time around. you are definitely seeing the link between sovereigns and banks slowly eroding in europe. it will be a while before they disappear. tom: nicolas comfort with

bloomberg news. harm bandholz and george goncalves with us as well. germany and europe, the idea of where is the growth -- there is euro sclerosis, isn't there? harm: i think the growth rates are ok. theave been talking about growth overall being too slow in the world. in the u.s. we talk about 2% growth, in europe, 1.5% growth. the problem is that we have demographics working against us. population growth is not as strong anymore. you talk about relativity and population. population growth is against us, and the big innovations have not been there. which means potential growth around the world in the u.s. and in europe is much slower. i think we have to benchmark what we see against that new moment. francine: the problem is, if you do not fix the banks in europe, they cannot do that ---important transfection

that all-important mechanism. if they are struggling because of regulation and a lack of growth, the economy in europe will continue to stagnate. harm: it certainly is a challenging environment for the banks, and i think it is good that there is the growing acknowledgment that banks play an important role in supporting growth, particularly more so in the europe -- in particularly in europe than in the u.s. there are signs that things have gotten better. the brexit is of course another curveball, but i think we are on the right track. the european banking sector is on the right track. tom: i will go on that optimism, but, george goncalves, where are the rates? they are not there. there is a massive distortion between your world and his world. george: you need the lower rates

to make sure that lending growth increases. that is the conundrum. the negative rates being proposed in europe, the chase for yield -- you can argue that is causing a dislocation and potential bubbles down the road -- but it encourages people to get out there and went. space, doe cartesian you get a smooth glide path within your optimism, or is it an ugly junk condition? harm: i think we in europe need low rates. if they have to be negative, i do not know exactly. but they have to be low because the unemployment rate is still high and correlation is still very low. it is a totally sick -- it is a totally different situation in the u.s. and erik nielsen are optimistic. here is the arch question. goncalves'ape george where world, will we do it with glide paths or with a junk

condition and a lot of instability? harm: i think it is a glide path because when we adjust interest rates, it does not mean that we ratchet them up by a couple of hundred basis points. everybody talks about regular interest rates. i focused mostly on the fed, but i am looking at europe as well. when the fed is raising interest rates at some point, more important to the economy is what is going on in george's world, along the curve. there are so many forces globally that keep the long part of the curve down. i am not worried at some interest rate hikes causing a breakdown in growth. francine: we have to continue the conversation and look at more of the negative rates. and georgelz goncalves. rbs, as we speak, sent a letter

to business customers saying that if the bank of england cuts the base rate below zero, it could result rbs -- it could result in rbs charging more for interest rates. the is the picture for markets. the quirky market, i would say. a note of caution dominating financial markets. european stocks falling, even assets, and yen, but also government bonds and gold all gaining. ♪

" on "bloomberg surveillance economics and finance. foreign exchange for yen stronger. a lower number is a stronger yen. 1.3124. weaker, i would also note the proxy dollar-peso -- midrange but weaker over the last number of days. francine? francine: coming up shortly, it is "bloomberg ."

jon, good morning to you or you are looking at yen. it is the single best day results for yen. that is not good for governor kuroda. jon: on the stronger yen, the helicopter money hopes seem to be fading, the speculation diminishing somewhat. that means a stronger japanese yen. we will break that down. ellen zentner of morgan stanley -- never mind longer rates for lower, longer rates forever. that is all coming up on "bloomberg ." tom: let's bring in our single best chart. we show this earlier for george goncalves and harm bandholz as well. we call it the lollipop chart. the two-year yield, over the last 18 months, migrating. in the great rollover over the last year is in hindsight. janet yellen wants to get back

to the green circle. you are not predicting that, are you? george: no. if we get one hike this year, we should be happy about that. the bond market is being driven by other forces. there is a lot of money coming into u.s. bonds, keeping yields lower than where they would be, regardless of what the fed does. francine: but it will impact what happens with treasuries. where do you find the best deals out there? george: in the five to 10-year part of the curve, a continues to be in the area where there is decent yield pickup, especially were foreign investors are looking for yield. that is where people are looking to place their money. for u.s. investors, they are looking for high quality names in good credit space. you guys were mentioning before -- what the real story will be this week is what the boj does. if they can deliver and keep this risk sentiment in place -- if not, august is usually a big market -- a big month for bull

markets. tom: this is three uneven for four standard deviations outside the normal trend. the yellow line, the yellow arrow down below, is an extrapolation of two standard deviations. down to aolz, becomes fed or any central-bank wedded to orthodoxy. are they wedded to a folks curve or -- to a phillips curve orthodoxy? harm: i think it should be. the fed has continued to lower the. stephen though the data has gotten better. so i think the fed is getting more worried -- to lower the dots even though the data has gotten better. i think the fed is getting more worried. i think there are growing doubts and concerns whether the drop in the unemployment rate, the

issing of the outlook gap, indeed leading to as much inflation as it used to. but they are still believing in the phillips curve. but i think there forecast changes, speaking a bit of a different story. francine: how should governor kuroda look at what the fed is doing back go -- how should governor kuroda look at what the fed is doing? harm: remember a few months ago when japan tried to weaken the end, and it completely backfired. -- tried to weaken the yen, and it completely backfired. the central banks around the world are getting increasingly powerless when it comes to impacting their currencies, because we are already notably in europe and japan at the lower end. they almost would be happy if the fed would come across a bit more hawkish because that would

probably strengthen the dollar a little bit and help the bank of japan. tom: let's leave in there. harm bandholz, thank you so much. george goncalves as well. gene munster will be joining us on radio later today. harm bandholz will be here at the top of the hour as well. show and mostting interesting markets as the fed begins a two-day meeting. tomorrow afternoon, we will give you perspective on a live or dead meeting of our central bank. i think it will be surprising what they come up with. looking forple are boredom. i am not sure i agree with that. tomorrow, our special fed coverage. it is a sweltering new york and worldwide. this is bloomberg. ♪

. .

jonathan: seven members of the dow are reporting today, we set you up for the reports. david: the fed kicks off the

today policy meeting, calling for stimulus. but the yen heads for the biggest gain since brexit. alix: i'm with her. bernie sanders calls for solidarity within a splintered party. how politics affects policy for the fed. jonathan: a very warm welcome to "bloomberg ." i'm jonathan ferro along with david westin and alix steel. david: a lot to cover today. we have oil at a three-month low, the yen heading for the biggest gain in a month as traders scale back expectation about the japanese stimulus. in a treasury auction of two-year notes sound the weakest demand since 2008. defend kicking