♪ francine: crafting policy with language, with no inflationary pressure, markets look to mario draghi for a better outlook. the ecb meets in estonia. comeyfbi director james in washington after saying the president asked for loyalty. after plummeting stockpiles. qatar continues. this is bloomberg " surveillance."

i'm francine lacqua in london. a lot of news to get through. it is ecb. u.k. election. we cannot talk about polling, anything to do with the various issues at play, but what we can tell you is polls open at 7:00 a.m. in the u.k. and will close at 10:00 p.m.. you will have the first indication of who will be the prime minister of the u.k.. meantime, let's get on to data. investors seem to be a little more at ease with some of the key events. we are not seeing huge moves. financial markets mostly steady, investors avoiding big positions ahead of key events in europe. the u.s. and the testifying of edgingomey appeared oil higher. a nice snapshot of what we are looking at. 46.04.il in the u.s. at

workerst to the first -- first word news with nejra cehic. in the u.k., polling stations are now open for the country's second general election in two years. 650 westminster mps will be elect did with 46.9 million people registered to vote. on the for our special u.k. election 10:00 p.m. london time you get an analysis of the markets as exit polls are published. in the u.s., james comey will today public plea -- publicly say donald trump him for loyalty. also that he saw a forbearance for michael flynn and asked him to lift the cloud of an investigation hanging over the administration. we will bring you special coverage about that hearing on tv, radio and twitter. luber customers can follow that on tliv go. have put itatings

on negative watch. the sun concerns -- this on concerns finances will be weakened. the saudi led group of nations -- could put pressure on economic growth and fiscal metrics. china's overseas shipment accelerated from a year earlier as global demand showed signs of picking up. in may and imports increased 14.8%. that left a trade surplus at $14.81 billion. the bank of japan is recalibrating communications to a knowledge it is thinking about how to handle a future exit from monetary stimulus without giving the impression it is on the agenda anytime soon. officials realize it is unrealistic and unconstructive to remain silent on issues and the boj now wants to make it

known it is conducting simulations internally on how an exit can play out. north korea has launched a series of short range missiles that appear to be designed to attack ships. south korea's joint chiefs of staff said the rockets were fired from the eastern port and flew about 200 kilometers. japan's defense minister said they don't appear to be a type that could reach japan. your $46 arading barrel after the biggest drop since march and american stockpiles rose for the first time in nine weeks. an increase by three point -- 3 million barrels by march. hewlett-packard enterprises ceo has said she is giving donald trump's administration the benefit of the doubt. bloomberg, she had publicly backed hillary clinton last year, said she supports some but not all of trump's policies. are in favor of tax

reform. we think the ability to repatriate cash at a lower tax rate is important. a lower corporate tax rate would spur growth in the united states. on the other hand, we are not for the border adjustment tax. that is difficult for companies and work on lot o low margins. a lot of technology companies, that is not in our best interest and by extension, investiture's of the united states. nejra: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm nejra cehic, this is bloomberg. francine? francine: thank you. decision day for the ecb and central banks are expect to keep interest rates unchanged. offaces the challenge expanding growth and weakening inflation. investors will be listening to mario draghi in estonia later. matt miller is joining us from the capital. great to have you on the program.

this has to be a finely tuned messaging. inflation will be lower, but growth is taking on the upside. what will the market interpret? yesterday, we did see the euro react quite abruptly when bloomberg came out with a story that the ecb was planning to lower its inflation target to 1.5% -- not its target, its forecast to 1.5% this year, next from 1.7%n 2019 across that spectrum. the target remains 2% and the problem is they can't get their, especially on a sustainable level and that is one they want to take a more dovish tact with their outlook. as far as the language in the statement, we do expect them to is noe risk to growth longer to the downside but balance. the first time they have used

that phrase since august 2011. ever since, the risk of growth has been to the downside and now they will push up their forecast for growth. growth looks better, inflation not so great and that is the conundrum of all the central banks around the world. the fed is dealing with that problem and the bank of japan. francine: is it fair to say the markets will start unwinding their unconventional stimulus by the end of the year? the markets still expect draghi to talk about unwinding stimulus by the end of the year, to talk about the taper by the end of the year. but where it economists we talked to thought september was going to be the month he would start that discussion, they are saying maybe october or as late as december before he starts that discussion. the problem is in this sustainable inflation. the ecb is saying the energy cost is the problem with their

inflation outlook. we all know wage growth has been an issue, as well. they had no effect on jumpstarting that wage growth, even though unemployment has come down. they want to reserve the possibility -- or continue reserving the possibility to move -- hold that stimulus alive into 2018. a question is how quickly they will be able to taper after that? , ourine: matt miller bloomberg news anchor in estonia for the ecb. we have the investment portfolio manager, head of emerging markets across as a. thank you both for joining us. how difficult will it be for mario draghi to have this communication where you move markets without saying that much? >> they are trying to square the circle. they're trying to be optimistic on growth, but without tapering

to early. still has why europe a lot of bumps on the road, including elections in italy and some other banks to fix. they are wary of spreads. now, the ecb board is split into two. the macro data is improving and says you should taper early, but there is political uncertainty in italy and macron in france and merkel in germany, they haven't delivered anything yet, even though their fiscal plans are strong. wait untilng to there is a fiscal decision and potentially an electoral result in italy, which means q4. francine: q4 and what does that mean? when you look at the fed -- we thought the timelines would be different, but the fed is also struggling with low wage growth and inflation. how does that impact the market? >> core inflation in the u.s. has shown some signs of life and

in europe, very little signs of life. the levels are different. the good news is if there is anyone who can communicate in these times it is draghi. i think they move in september in terms of communicating. they will probably tighten communication in terms of dropping the easing by some interest rates but that tapering announcement is likely to come by september. i concede there has been no inflation on the headline side. in the u.s., if you look at the toutes -- the fed is keener move on and by the end of the year, we will get two hikes and also the balance sheet unwind. francine: the markets don't really believe them. this is something mario draghi would be thinking of. how does he get the message that the markets believe? expectation is half the job done. alberto: and you going to the euro which has been strong,

moving from 105, the favorite short of everyone to 112. the euro appreciates more and the ecb cannot be as hawkish as they need to be. hishe end, trump and policies, if there is a delivery on corporate tax cuts, you have two fed hikes and a hawkish path , more than the market expect and the ecb can taper more easily in september. today, we don't expect a big announcement, but these are other unknowns. problem ofhere is a inflation in that there is missing inflation. i was always told that the lower energy prices shouldn't inflect inflation so quickly and they have. theis what we are expect in ecb to do, lower their forecast. i we measuring inflation differently than we should or is there a deflationary russia problem? we have demographics

that have changed. there is less demographic growth, technology is noninflationary. we share the same car. jobsobs, you have substituted by machines. amazon factory warehouse, you are going to have drones moving packages, not people. this is a structural phenomenon. it doesn't mean banks should stay with negative interest rates for too long. the normalization you can have -- it is still good -- it won't be as strong as a normal cycle because there are structural drivers. also, people who are out of a job and have gone into the wrong industries for 40 years, into financer real estate, are now not adapting to the new economy. there is a miscommunication of resources. francine: you both stay with us.

thank you both with us for the hour. we will bring you the ecb's policy decision at 12:40 5 p.m. u.k. time, followed by draghi news conference 45 minutes later. users can follow that using tliv . stay with surveillance. plenty coming up including investors beware. .ond investor will gross warns qatar in isolation. what the snp cut qatar's rating? we are live. this is bloomberg. ♪

♪ this is bloomberg

"surveillance." let's get to the business flash with nejra cehic. nejra: alibaba has predicted 49% revenue growth this year compared to an analyst projection of 35%. investorhina's largest -- invest in online media. air may -- ariba's may be thrown a lifeline. talkses is said to be in to buy more planes as airbus cuts production. $8.7rder could be worth billion before discounts, although people familiar say the carrier hasn't decided how many planes it wants. we's investors will buy more than 99% of the rights offer raising the turnaround plan. this is the second issue since the ceo took over two years ago.

funds raised will complete his business overhaul and expand in wealth management. partedl, credit suisse with its lucrative swiss operation. that is the business flash. francine: you are looking at pictures of theresa may, who is about to go and vote. her constituents -- constituency. polls are closed and these are the rules by electoral law in the u.k. atcan say the polls opened 10:00 this morning london time and will close at 10:00 p.m.. 10:00 p.m. is when we have our special show, any market reaction and you can follow us on the bloomberg terminal and live on television. jonathan ferro and guy johnson will be doing that throughout the day. theresa may the current prime minister voting. onto another big event of the

day, there are three. the u.k. elections, the ecb and the testimony later today. trumpfbi chief will say asked him to end the program into michael flynn and requested a public announcement that trump wasn't underestimate -- investigation. comey will also say the president repeatedly called for loyalty and asked what could be done to lift the cloud over his administration. for more on what to expect, let's bring in jackie simmons, still with us alberto and bhanu. jackie, we have the transcript of this testimony. thatere anything illegal president trump asked him to do? jackie: that is the concern, there seems to be consensus that on a strictly legal basis, perhaps not.

but the bigger issue is how appropriate was a for the president to be asking the fbi director do not come -- to go away. put this in the box. it is more a question of appropriateness, rather than legal, but that is part of the debate right now. francine: we are talking about obstruction, all of that, but it moves the markets? what are you looking after? is it the tone, the allegations? this is bakedof in. we have a sense of what comey is going to say in his testimony. unless there is a huge divergence from that, people will be looking for body language, looking for extra clues if there was obstruction per se, if that crossed the line, but we have to see what comes out today in his testimony. francine: we also heard from just -- jeff sessions might resign because of disagreements. president trump is apparently

frustrated according to sources, will he fire him? jackie: officials have said he is not there yet. the question is, do you want this extra disruption in a chaotic four months that he has been president. you want sessions out now? it looks bad, it is a further distraction and an impediment to getting through a lot of other plans and reforms. i would be surprised he would want him to leave now but time will tell. francine: quickly on theastructure, we heard president was on script, on message. -- does this get factored into economic growth? no enough,don't therefore we can't factor this into projections because there are so many other distractions, nothing has moved the needle on tax reform and in the structure. big question mark. jackie on top of this

story and the trump administration. ? will he tweet over it? and is that with the market is looking for? i think the issue here is, does this make the trump reforms less deliverable? does it put more pressure on them to deliver something. the easiest thing they can do is a tax cut, easier than tax reform and that is what we expect. when it comes to tax reform, much harder to do and requires more consensus and infrastructure. there is a longer process. it reduces the impact. francine: i know we want to get on, but if this goes badly for the president, does he become more protectionist or do we isolate the two cases? bhanu: i don't think the risk of that is high in the near term. mexican negotiations take years.

the trump trade in terms of reflation and small caps, breakevens and in terms of the dollar, has already been given back. the part of the market that may suffer if this begins to go further is sectors like financials and i.t. because the surface -- the sectors that have recently benefited from the trumpflation. most markets have given back to the gains. small caps are where they were. broaderthink this has a read through into emerging markets and even within the u.s., a lot of this is in the price. francine: yesterday we spoke to bill gross and he warned the u.s. market risks are at the highest since the global financial crisis. bess told investors to cautious about the high cost of treasuries. bill: treasuries are the most attractive of the developed market, in comparison to the tenure bund, 25 basis points.

190 basis points and relative to year, 205 basis points. more attractive on a yield basis, but still, i would suggest they are overvalued pricewise and under yielding and investors should be cautious of how much they want to own relative to cash. francine: alberto, this is how you measure things right? marketed about what the expects and the fed is telling us. the concern is that treasuries are telling you one thing, which is growth is not going to be that great -- equities are telling you something else. who is right? alberto: i think it is treasuries this time. the equity market is in a separate world. the only reflation trade that has an corrected.

we have been fading the u.s. reflation trend. there are a lot of risks to the trump administration reforms. reflation is more live in europe where boones are at 25 basis points and direct low and growth is accelerating. in the u.s., we see growth hitting bumps. we could see treasuries going back to 2% or even lower. you shouldeans is still be fading the reflation in the u.s., looking for higher bund yields and a higher euro-dollar exchange rate. bhanu: i can't disagree with any of that really. i think the fed is in a different place today. china allows global financial conditions allow the fed to be in a different place. you don't see the wage growth, 4.3%,employment rate at you could argue the employment population ratio is providing the wage growth and the ratio is

still recovering modestly. the fed wants to normalize and given where margins are in the u.s., there are one sector doing well, the i.t. sector has driven 50% of the gains in the s&p. it is more likely japan closing the equity market. francine: if you look at the markets, a little more stress-free and you can see this is the measure, markets are the calmest since 2014. treasuriesby more because yuan is stabilizing? has reserved pickup, china has indicated they will buy more treasuries. in either direction, i don't think china is the swing factor for treasuries. treasuries of these levels are getting expensive. the in has come in a lot. the two-year is quite expensive. there flattens more than bowl flattens. francine: that is bhanu baweja and alberto gallo.

both stay with us. , decision day at the ecb. for look at what we can expect, we will speak to the former ecb board member. .e will ask her about inflation in the meantime, these are your markets. investors avoiding big moves ahead of the ecb and james comey testifying and u.k. election day here in the u k. oil edging higher and this is bloomberg. ♪

so new touch screens... and biometrics. in 574 branches. all done by... yesterday. ♪ ♪ banks aren't just undergoing a face lift. they're undergoing a transformation. a data fueled, security driven shift in applications and customer experience. which is why comcast business

delivers consistent network performance and speed across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. tthat's why at comcast,t to be connected 24/7. we're always working to make our services more reliable. with technology that can update itself. and advanced fiber network infrastructure. new, more reliable equipment for your home. and a new culture built around customer service. it all adds up to our most reliable network ever. one that keeps you connected to what matters most. ♪ this is "surveillance" and we have breaking news out of south africa. the appointed director of national treasury and that

appointment is effective immediately. he has acted in that position since may 15 of this year, but this has been a prove. -- approved. 1285.40 nine. at a little volatility with political comings and goings over the past months. is this significant? when you look at stabilization of south africa, what do you need? he got one, but he didn't get two. this news is neutral but there are big concerns in south africa. -- within the domestic economy, there are issues of fiscal sustainability and in terms of the savings rate and competitiveness. dollar-rand and what has been priced in bond markets is a benign picture of the world.

if commodity prices turned on aom here, they don't have competitive leg to stand on and that is why the risks are higher than what the market is accounting for. a lot of their fiscal in this case comes from they believe growth will be better. we're going into a recession. francine: we will get back to bhanu and alberto. here is a rich age. nejra: polling stations are open for the country's second election in two years. 250 westminster mps will be elected with 46.9 million people registered to vote. in for our special on the u.k. election at 10 a clock p.m. london time or you will get instant analysis on the market. in the u.s., fired fbi director james comey comey will publicly say that donald trump pressured him for loyalty. he will testify that the president salt forbearance for tohael flynn and asked comey

lift the cloud of a russia investigation hanging over the administration. we will bring you coverage of 2:40 p.m. u.k.om time on tv, radio and twitter. kluber customers can follow that on tliv . in the middle east, snp ratings have lowered qatar's long-term rating and put it on negative the row witherns other states will weaken finances. global news, 24 hours a day powered time -- global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: time now for your market update mark barton. mark: geopolitical risk is front and center today with the trifecta of events taking place. the bank of america merrill

lynch market in this index. -- risk index. equities, rates, currencies and commodities. any figure below zero indicates less stress than normal. anything above zero is more stress. right now, we are at the lowest level since 2014. s choosing to focus on a global economy then low in freshman. says markets are at the highest risk level since before the 2008 financial crisis. because he says investors are paying a high price for the chances they are taking. one of the big events is the ecb today. continuation of the dovish thing from president mario draghi? headline inflation versus core inflation, clearly slowing. we had that story yesterday

according to officials familiar, the ecb said it was preparing to cut its inflation forecast across that forecast horizon ahead of today's meeting. core inflation will stay the same. gdp growth will be pushed up. that back the narrative draghi has told us in recent weeks? giving it is a big day and week. the boj was in the news. it is recalibrating communications to a knowledge thinking about how to handle a future exit from monastery stimulus -- monetary stimulus without giving a clue it is on the discussion. that is what is happening on china. china exports and imports rising. francine: thank you, mark barton there with your asset check. the european central bank will

cut its inflation outbreak -- outlook because of weaker energy costs. that is according to officials. frome joined on the phone vienna, austrian economist and former ecb board member, gertrude tumpel-gugerell. winky for joining us. -- thank you for joining us. what do you worried about the most? are we discounting political risk in europe? how the ecb deals with lower inflation higher growth? or is it italian banks? gertrude: first of all, it is a pleasure. recognize the outlook in the euro area has improved. we have the best sentiment indicators of the next three years now. there is no reason for euphoria. the growth is only a little momentum and inflation remains lower. francine: is there a point when unconventional stimulus becomes harmful?

i am trying to understand if the ecb continues by the end of the year, could it cause consequences? -- rude: wencine: i don't know if have lost the line. if you can hear me, when i was trying to understand -- i think we lost mad and gertrude, so we will get back to her in a couple of minutes. alberto, when you look at the italian banks -- i know you follow it closely. we touched on ecb, but how would you deal with elliptical risk in italian banks? we saw banco popular being bought. does there need to be more pressure for more resolution integrally? alberto: spain and italy started doing recession with similar issues, italy was hit harder by

a crisis, but they reacted differently. spain did reforms to banks, italy was slower and spain was quicker in restructuring banks. popular in italy, the process is dragging slower. only country -- the only large country that has not done reforms. macron in france, you have spain, this is the achilles heel of the recovery. a strong faith -- franco-german alliance but unsolved issues in italy. banks and many aggregate them into more efficient banks with less branches, technology is stronger. francine: it depends on if the regulator wants bigger banks -- we have reestablished connection with alberto gallo, -- .ertrude tumpel-gugerell at what point does this

unconventional stimulus hurt the economy more than it helps? gertrude: what we have seen is that the stimulus has worked and down the ecb will look for the right time to get out of it. this has to be dan carefully. corporation and signals have come from the ecb they have moderated their purchase program and are ainking of exit, but in careful and smooth way. therefore, we have to be patient. francine: you believe mario draghi today will use the words has risks being balanced? a word we haven't heard since 2011 at at the time, it was john patrice day saying them. gertrude: can you repeat? francine: we are trying to

figure out, when you look at communication and how central banks need to communicate with markets, we think in his communique, mario draghi will no tiltedtalk about risks to the downside, but risks are balanced. you think that would be a good way of characterizing what we are seeing in europe? gertrude: it is one possibility, but i don't guess is communication. will also signal the growth has developed [no audio] lostine: i think we have madame gertrude. communicating,o it is obvious that it is the phone lines that don't work. we saw a little bit with the boj, there seems to be a race for most of the central banks in the world to communicate the markets instead of doing

anything are looking at data. have things changed or are we over analyzing? bhanu: they might be a little bit because they are telling us that policy has been unorthodox to an extreme. growth has improved, inflation has surprised everyone on the downside that does that -- that that does not mean we don't begin normalizing. tapering is beginning to normalize. you are not talking about raising rates and that speaks to in thet that inflation wages is low and interest-rate normalization will be more protracted than what markets are pricing in, even for the u.s.. nonetheless, if you think about normalization a policy today, a will take confidence in that growth is at 1.6% in early numbers were strong. it does make sense to start the downside and

normalizing and talking about tapering in the next six months. rancine: thank you so much, .hanu baweja and alberto gallo stay with "surveillance." we're live with the latest on qatar and later, we talk with the blackstone ceo and talk about president trump's relationship with president she. this is bloomberg. ♪

♪ "bloomberg:

surveillance." i am francine lacqua in london. qatar's long-term rating has been cut one notch by snp --s&p. , yousef gamalis el-din joins us. it was quite an adventure to get there at this point but if you look at saudi arabia, it may be piling on pressure. ofre is a growing list nations to isolate qatar, including turkey. >> jackie: -- yousef: in terms of political efforts, he's meeting with the qatari and he has been trying to patch things up. not clear if they have made progress. we do know there is a list going around in reports that there are demands, including stopping the

funding for global terrorism. that is happening regionally and here on the ground. you mentioned turkey, this is fascinating. you have turkey fast tracking a bill, making some amendments to be bit -- able to capitalize and provide troop support to qatar. they are taking the opportunists -- oppositionists crying foul on that. they are trying to mediate and to have russia trying balance between interesting qatar and the fresh opec agreement they have hammered out with saudi arabia. and you have the wildcard of china. plenty to keep us on the edge. uncertainty remains on the ground. progress has much he made in his attempts to patch things up? no tangible process. a lot of smiling and hugs on this trip.

here, there is no clear announcement as to whether they have been able to come up with a list or an agreement. the turks have said they have been trying to freshen up their diplomatic contacts, but we have nothing to go with here. all just visuals but no cleared deals. francine: yousef, thank you so much and we have great charts that we will get you in a couple of hours. the people that have the most exposure to these qatari bonds. let's bring back alberto gallo and bhanu baweja. this has a huge impact on stocks, but this has more of an impact on oil globally and emerging markets rather than the or geopolitical middle east story. bhanu: geopolitics is important, but qatar is a bigger natural

gas producer than an oil producer. it produces less than 1/10 of the oil the u.s. produces. the oilf, it won't tip market into a major deficit. you are not going to see oil suffer. the biggest implication is local inflation. i don't think that means the peg is likely to go. i can neither the saudi or qatari pegged are likely to go. for the region, it takes place when you ran gets involved. -- involved. saudi and iran, that is the axis we need to pay attention. francine: so far, markets have ignored this. bhanu: they have, and we have the biggest divergence between indexes and market volatility in recent history. to me, this is a symptom that the middle east is a situation the market is ignoring and many

countries -- saudi in the first place -- need a bigger adjustment. debt and aith low lot of assets with very low risk premium. but the business growth model is changing. they can't rely on oil. they have a workforce that is not used to a new economy and they are going to become high debt countries and riskier. geopolitical risk goes together with financial risk. it will change. implicationso has in on terms for the euro. dollars,t lower petrol the implication is lower euro-dollar. .rancine: thank you so much we are talking with steve schwarzman about donald trump and markets. as is bloomberg. ♪

♪ "bloomberg:is is surveillance." line the bloomberg invest some in new york. spoke aboutzman

china and its current relationship with the u.s.. >> it is hard to measure different periods it is easier to talk about now. the mar-a-lago meetings were very important because the chinese like order. things were pretty disorderly before those meetings and they have four different work streams, teams from china and the u.s. working on both of them. the relationship between president trump and president xi is actually really good. forget what is reported. -- in china one of the nice things is they are so well courtney did as opposed to our government, -- coordinated that when one person

tells you something, it is the view of the group. in three or four tell you, you are sure. they keep minutes and everything is circulated to read -- circulated. the relationship between the two leaders was a really good one. >> are you surprised by that? >> sort of interesting. that the president likes meeting people. that is the way he relates to people, and he invited president xi to come, which is a real high risk invitation. leaders of chinese companies don't just show up to somebody's house as a houseguest or something. was well choreographed behind the scenes by some of the members of the u.s.

administration and the chinese side. with the process. this was a process meeting and i was there for a little bit. and you had your four different trains in different rooms and it left the two leaders sitting there -- or standing there, or walking around. so in a way, circumstances of aerything created a bit of must be with each other type of thing. we have all been in situations like that but don't all work out well. this is one where it did. the blackstoneis to steve schwarzman speaking

-- at bloomberg invest in new york. here is nejra cehic. nejra: alibaba has predict did 49% revenue growth this fiscal year. the forecast compares with an analyst projection of 35% as alibaba invests in other areas including cloud computing and online media. airbus may be thrown a lifeline for its a380 superjumbo. emirates to buy more. emirates is the biggest operator in the world. the order could be worth $8.7 billion before discounts although people familiar say the carrier hasn't decided how many planes it wants. credit suisse investors will buy $4 billion9% raising for the banks turnaround plan as the second share issue since the ceo took over.

in april, credit suisse ditched plans to list part of its swiss operation. that is the bloomberg business flash. francine: tune for our one-hour special on the election at 10:00 p.m. u.k. time. exit polls are published and number customers can follow that on tliv . guy johnson and jon ferro will be headlining at. bloomberg surveillance continues in the next hour. tom keene joints me out of new york. we will be talking to alex friedman. this is bloomberg. ♪

no convincing inflationary pressure. mario

draghi weighing an inflationary outlook. former fbi director james comey is ready to be cross examined in washington. fluctuating crude oil gains. we are live in doha. good morning, everyone. i'm francine lacqua. , it is finally thursday. the ecb, we have the comey testimony. tom: i think we've really been remiss in not focusing on the ecb. it is a mystery of inflation, francine. it will be fascinating to see what president draghi says about inflation.

it will be fascinating how he targets the markets without saying too much. let's get straight to the bloomberg first word news. taylor: president trump's attempts to pressure james comey are being called wrong end zone, but probably not illegal. don'tay his interactions constitute obstruction of justice. his opening statement was released yesterday. you can watch his testimony on bloomberg tv, that begins at 9:40 a.m. eastern. u.k.'sis underway in the general election in two years. tune in for bloomberg tv's one-hour special today.

we will have instant analysis of the market as exit polls are published. it is another provocation by north korea and kim jong un. according to south korea's military, the short range missiles were probably cruise missiles designed to attack ships. 's finances could currentby its relationship with the saudi's, the uae, bahrain, and egypt. global news 24 hours per day powered by more than 2700 journalists. i'm taylor riggs. tom: thanks so much. those cruisend

willles, james street us join us later. quiet markets into the ecb meeting. , iittle bit of a rebound will point out oil, oil, oil. $45 handle yesterday. 46 point 06 on west texas intermediate. francine: i'm looking off yen strength. i think this probably talks to the wider concern about central banks in general. steadyal markets mostly head of the big events. investors are trying to avoid adding big positions ahead of the ecb, the testimony, and the u.k. elections. tom: very good. it is an extraordinary newsday. francine has organized the dash.

part of it centers on james comey this morning. he will testify in washington. last night, his written testimony was released. surprised that the written testimony was released early? quite -- typical for someone to post their opening statements today before. i have spoken with several top sources within president trump's political circle who said they feel this is proof that there is not an obstruction of justice. the democrats clearly found criticism in it, as well. tom: i want to give you a 60,000 foot question with all of the macro analysis done of his

testimony, even the president's harshest critics question whether anything illegal was done here. parse that for us. what is the new wants of legal and illegal as we go to the 10:00 a.m. testimony? kevin: you are going to be hearing obstruction of justice a lot today and that is a very high legal bar for anyone to clear, particularly if you are trying to accuse the president of the united states. if you look at this seven page testimony in particular, mr. comey says that he was never to not have an investigation into general michael flynn. he did say that the president asked him, it would be great if you could let it go, but that is very different than the president getting involved directly and that is why you are hearing people like new jersey governor chris christie publicly saying that that was just "new york talk."

they are going to aggressively refute any allegation, but also the flare, the style of the director's testimony, it is like reading a john grisham novel. tom: yes. very interesting. francine: i love that. "surveillance" is like new york talk a lot of the time. [laughter] francine: anytime tom's says something. tom: shade. the shade! francine: our guest host for the next hour, he is alex friedman. great to have you here on set with us for the hour. let's look at the markets and how you see this comey testimony and the ecb playing into it. this is the fear factor. are the markets not seeing the risks or are they right to

ignore them? alex: that is a good fundamental question. dynamicsm political tend to not have much affect on the markets against fundamentals. you go back to say clinton's impeachment and the equity markets at the time. the fundamentals in europe are pretty good. the fundamentals in the europe ok.he u.k. are most of the rest of the data around the world is decent. the sport for the rick at -- risk assets looks pretty good. i don't think james comey's testimony is going to move the markets all that much. is it and that on whether growth is sustainable? or is something else playing into it? alex: which region of the world

we want to start with? the valuation on the equity markets are pretty full. equityumption is that markets in the u.s. can continue to rise largely on the fundamentals of growth companies , as opposed to a rising tide environment. the big uncertainty is whether there will be a corporate tax cut. in europe, it is really accelerating fundamentals on the equity side. tom: within this is the great divergence. bring the chart of. the u.s. line is 10-year note -- excuse me, the two-year note. the yellow is the german two-year note. what is the source of tension between germany and the united states? alex: i guess the ecb is the big

buyer right now of everything in europe and i don't think the tapering, to the extent there will be tapering, it is going to be very gradual. we will see if there is any language change coming out of mario draghi. that is the main driver to me. tom: very good. alex friedman with us. let me tell you about our special coverage. the testimony of the former fbi director, look for that across all of our bloomberg platforms. in washington, it is david gura and david westin. , as always, helping out. stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." credit suisse has raised $4.3 billion in share sales. the rest will be sold in the market. credit suisse leaves the money for the ceo's turnaround plan, which requires less volatile capital operation. level demand is picking up. chinese exports rose better than expected. imports were up almost 15%. a brighter international outlook is supporting chinese manufacturing sector. alibaba's investments are paying off. that is well above analyst estimates. alibaba has been expanding into

new areas from cloud computing to streaming media. that is your bloomberg business flash. tom: thank you. ecb decisionis day. the challenge for president mario draghi to way improvement against the lack of convincing inflationary pressure. forstors will be watching clues. matt miller joins us from the estonian capital. it is going to be quite difficult. he needs to say inflation is coming down, we don't have inflationary pressures, growth is better, so less risk, but i'm not ready to taper, is that right? matt: that's right. economists that we spoke to a bloomberg news said, maybe we are going to start hearing the ecb talk about the taper in october or december even, rather than september because they will be reducing their inflation forecast. we are expecting them to cut inflation forecasts down.

very far away from that on a sustainable basis. we understand that they may remove from the communiqué the fact that there are no downside risks. if they use that word, we would not heard that phrase since august of 2011. yes, the last time we heard that, mario draghi was not even sitting in the seat. he has been saying there a downside risks since he took the job almost three years ago. economists are expecting we could see other possible changes. they reserve the right to hold extraordinary levels of monetary lower until the

end of quantitative easing our past. they could change the language, as well. tom: because we are in estonia, is the press conference going to be any different or is it just business as usual? matt: the press conference will be held in a school. street,r side of the they do this once a year in a different location. other than the excitement of being in a different country, there will not be much of a difference, except for the fact that they will change the language. that is what everyone is looking forward to. francine: thank you very much. we're back with alex friedman. we are talking a little about inflation. why is there an inflationary pressure in europe? is it structural or a shifting economy? alex: that is a big question and it is unclear for much of the

world. i suppose there are probably three or four reasons. cyclical changes to employment tend not to drive wage inflation changes. people running companies think they are temporary and they are market looksat the like. there is a lot of job insecurity . there's less unionization. at the same time, technology efficiencies have probably made it harder for companies to pass on increases in prices that drive inflation. francine: is it a similar problem that we have had with the fed? is it a different dynamic than when we say, there is not enough wage growth than where we wanted to be? alex: i think that is true globally. francine: doesn't mean we are measuring things wrong?

because of technology and things like that, maybe inflation should not be at the forefront of our mind, but we look at it differently? alex: it is possible. the last time the central bankers said technology was changing the paradigm was right before the dot com bust. i think they are probably hesitant to do that. tom: i want to congratulate you. on have had a balanced view the market, participating in the market and measuring the risks. what is the number one risk that your strategy team sees right now for people that want to be in the market, but they've got to get their radar up? what is the number one risk right now? alex: larry hathaway is phenomenal on that point. the number one risk i believe has to be geopolitical. if you look at the amount of danger points around the world right now, whether it is what

you see in the middle east with essentially the proxy war between iran and saudi arabia playing out in qatar, whether it is north korea, whether it is china's upcoming election and further tailwinds for aggressive action on china's part, and then nato and perhaps a weakening of to u.s., i think there's got be almost a super saturation dynamic around an avalanche were one more snowflake can set off the slide. geopolitics has to be the biggest threat. tom: take the snowflake avalanche model further. what do you see in the liquidity model? i'm going to show a chart later which shows a remarkable quiet since in the short-term paper market. alex: we have not seen a lot of liquidity threats right now. i suppose high yield is an area where there is a lot of

potential concern around. investorsany retail who have more than their average high-yield exposure. there is kind of instability in the energy market. you could see them heading for the exit. francine: alex, thank you so much. stay with us for the hour, stay with bloomberg for the latest. we will bring you live coverage of the ecb rate decision. then, we are followed by the ecb president mario draghi's news conference. that is 45 minutes later. this is bloomberg. ♪

needs to start with a clear restructure the foreign policy to stop supporting extremism, stop supporting terrorism, and, again , enough is enough. the link, enough is enough. the terrorism that is undermining society. financial and logistical backer of it. uae'sne: that was the foreign minister.

's long-terms qatar rating has been cut. to thee, let's get bloomberg markets: middle east anchor. first of all, well done for just getting into qatar. i know that was quite something. talk to us about the spat. does kuwait make any difference in bringing the two sides together? they are making slow and steady progress? if you see the hugs and handshakes. arabia -- around saudi arabia and everything. is also a list of demands flooding run.

a quick fix is not around the .orner francine: i guess it will test other countries' neutrality? >> we are seeing obviously the out inoody's has come the last hour, they are commenting as well. we see an interesting rebound when it comes to stocks. they have an agreement with inar, who is a big investor

the sovereign wealth fund. tom: get out of that 106 degrees heat. coming up later on bloomberg television, on bloomberg surveillance, this is wonderful and always well-timed. , my book of the summer, his book on leadership. a new book, as well. a fabulous book on strategy. james stavridis. joining us in the next hour. this is bloomberg. ♪

francine: this is "bloomberg surveillance" with francine and tom keene. taylor: in the u.k., voting is

underway in the country's second general election in two years. a total of 650 members of parliament will be elected. almost 47 million people are registered to vote. tune in for the bloomberg one-hour special at 5:00 p.m. eastern. we will have instant analysis of the markets as exit polls are published. the u.s. is considering whether to add strengthened sanctions against russia. the iran penalties are aimed at the country's ballistic missile program. there is a new director general of african security. foras the chief of staff the finance minister. president jacob zuma fired him -- the old one earlier this year. i'm taylor riggs, this is bloomberg. tom, francine? francine: thank you so much.

the fired fbi chief james comey -- the president repeatedly called for loyalty and asked what could be done to lift the cloud over his administration. is our principal russia analyst. still with us is alex friedman. let me come to you first. we are trying to figure out whether anything that president trump is actually illegal. you were telling me that it takes time to go through the documents and understand what happened. alex: obstruction of justice is quite difficult to prove. all we have seen so far is the prepared remarks from the fired fbi director. we would not expect there to be legal conclusions and he cannot release any classified information. an investigation is going to take a while to go through and

will be much more relevant in getting at whether there are patterns of obstruction of justice. francine: alex, you said geopolitics are one of the biggest concerns on the market. are you expecting markets to move in any way on the back of the comey testimony? alex: no, i'm not. the geopolitical threat is much more around military conflict or some kind of fundamental change around commodities, something you might see in the middle east around oil. what do we know about the relationship between the trump administration and russia? there are a couple of people under investigation. when can we have a clearer picture? >> that is really the thousand ruble question or however you want to put it. frankly, we don't know. there are a lot of unknown unknowns about what role russia played in the u.s. election and how it played it. we have seen evidence of some

links between figures and president trump's organization and entourage, but we really don't have any smoking gun yet. there is some smoke, there is not a lot of fire. at this point. what this has done is it has put the trump administration in something of a bind with regard to russia, in that president trump has expressed consistently a desire to improve relations with moscow. the testimony of james comey and others has kind of close to the political space for doing that. we have had reports that there were policy queries early on in the administration about how they would go about lifting sanctions, how they would go about repairing the relationship with russia. the politics and the optics are such that they cannot afford to be seen doing that. tom: i want to go to the optics.

here is jonathan bernstein in "bloomberg view" with the priorities. obstruction of justice is the big one. abuse of power, harder to define, but nevertheless important. then he gets to your world. the russia scandal, trump behind closed doors. what does mr. putin want to get out of this testimony this morning? beagh: i think it would difficult to categorize as him wanting anything specific. more that russia would like what has been going on to continue going on. the very process of the investigation itself, the testimony, the political scandal or however you want to label it, has reduce the bandwidth that the u.s. administration and

washington as a whole has for engaging in other political issues, and that includes geopolitical issues. how they are going to engage with russia, how they aren't going to -- they are going to engage with syria. this has left the field clear for russia to operate at will. it has also raised questions about how is russia going to interact -- how is the u.s. going to interact with traditional allies in europe? how is that going to affect russian strategy in europe? we really don't have very clear answers to any of that because it is difficult for washington to define its policies and define what it is going to do given the other pressures. tom: given clear or transparency, do we have any indication of the linkage of the russian government to the various financial entities that anyone around the trump administration would speak to?

do we really know who owns what? daragh: well, that is a very big and difficult question to answer , given the financial structure of the trump organization itself. it is a privately held company, so a lot of this information is not public, if i'm saying that right. effectively, we have not had a smoking gun yet. we have had allegations and evidence of some links, betweenl and otherwise, certain people within the trump campaign and later within the trump administration. but there is no clear evidence of collusion or real russian influence over any decisions that were made by the campaign or the administration. again, there is quite a lot of smoke, but there is no fire. there is no real chain of events or agreed-upon narrative of what actually happened. francine: is this a distraction for the trump administration and

doesn't distract them from getting the job done when it comes to building enough infrastructure for it to matter on gdp or on tax reform? alex: undoubtedly. it is easy to say that the legislative agenda is completely stalled at this point. the senate is stalled on health care. a major tax revision is one page of bullet points. it is hard to see any fiscal stimulus coming from the united states under trump's leadership. this creates a big headwind. tom: very good. we will continue with mr. friedman this morning. we are asking you to stay with us this morning with incredible news flow. our u.k. coverage at 5:00 p.m. new york time tonight. atore that, our coverage

9:40 of the testimony of the former fbi director. this is bloomberg. ♪

thisexceptional news flow thursday. francine lacqua and tom keene. a lot bloomberg special coverage through the day. this is a joy, whether cubs or white sox, carl tannenbaum is from chicago. chief economist with a wonder global -- wonderful global perspective. wonderful to have you here. you just got back from china. i showed a chart of the real u.s. two-year, which has been negative since time began. china is a different view. let's bring this up to read this

is the china five-year. there is no other chart like this out there. they actually have real interest rates over on the right side. what do the higher rates of china signal? i think you have to realize that the chinese rates are carefully managed. they are managing them to do two things. they have leverage problems. i think they are being honest in addressing them. short and long-term rates have been raised to take the edge off that. in addition to that, because domestic investors are confined to investing in china, that has left a lot of capital to go into markets that are overheated. they are giving investors a little more incentive to stick to something safer. tom: but the government will still by the u.s. paper, right? carl: absolutely.

the maintenance of their foreign exchange reserves is critical for them to maintain control over their currency. in addition, for years, china has exercised mercantilist financing. they have got to provide us the credit to buy their goods and services. francine: alex, what do you make of this? how much do we know that their , it isy is stabilizing just not stabilizing because they are intervening in it? alex: very hard to know. i really have no idea. it is so opec. francine: is there a particular region where markets look buoyant at the moment or where you can actually make money? alex: globally? europe looks the best right now. you have accelerating economic fundamentals. emerging markets, depending on the market, on the debt side, local debt looks kind of attractive. francine: carl, what is your take? carl: i think it has been pretty

persistent. i don't think in the realm of worries that the treasury secretary has chinese participation is not the highest worry. he is more worried about hitting the debt ceiling and it does not seem like they have a plan to avert a nasty situation this fall. tom: i want to go to a holistic view. normal?nywhere near if you were to have the march , can you tell our audience that we have a normal u.s. economy? or is it as out of whack as our politics? carl: i think we need to adjust our sites. the demographics of this country are far different than they were 10, 20, 30 years ago. the labor force is limiting our potential growth.

there are changes in the mix of goods and services that we buy. credit is very different, it is still in repair in some sectors. i don't think we should be altogether disappointed. it is almost as if the president wants to create a miracle like the chicago cubs. do we need to get used to a euro rate of 2.2%? carl: i'm not sure i would make that comparison historically. i think we will be quite a bit more dynamic. needheless, i do think we to make investments in improving productivity so that we can compensate for the slowing of population growth and keep us on a very strong growth trajectory. francine: when you look at productivity, it is one of the problems that we have in europe, it is productivity, but it is also a competition. how can you be so sure that france will pick up competitiveness? alex: yes, it is very hard.

it is like changing social behavior and trying to get the average french working week up to 50-60 hours. getting about 30-35 hours would be something. it is like japan, i think a change immigration policy, you would be about to stimulate the economy quite a bit, but it is hard to do that. francine: carl, what is your take? alex mentioned japan. when you speak to ceo's, they are telling you the world is getting a little bit better because inflation is not at 2% in japan, but we are seeing signs that things are getting a little easier in japan? carl: japan has the world's worst demographic problem at the moment and i think they are doing an admirable job to try to overcome that natural limitation. it is very hard for them to reach their 2% target consistently. i think globally that we do need to make the key investments that will enable populations to be more productive. that is for infrastructure and human capital investments are

going to be essential. tom: on this thursday, we forget about comey, we forget about the u.k., we forget about this, that, and mario draghi, we got to carl tannenbaum on the land of the geek and that is the counting of the beans in washington. you are the expert with the nabe, there are these words on how we measure inflation, do you trust the inflation data? carl: i do and thank you for calling me a geek, by the way. ideafrancine, no, but the is do we trust inflation is a theme that francine and i are talking about constantly. carl: inflation is hard to measure, especially as we transition from industries that are hard to count. what we have not done is invest

in the techniques that will enable us to get at what inflation and productivity are emerging industries. one of the tragedies of the budget cuts that have been proposed is that funding is already at a paltry level and it will be cut even further, threatening the potential for the census coming up in 2020. we've got to make those investments so we understand the economy better. enables us to manage economic growth better, they will pay for themselves many times over. tom: i got an idea francine, we are all moving to the united kingdom. francine: great idea. more, but we can't talk about the united kingdom. we have rules about that because we are voting. answernot allowed to questions about the u.k. you can still ask of them. load the video up and ask us a question. you can directly ask questions

to alex friedman. stuffs some of the geeky we all like. we are back with carl tannenbaum and alex friedman. also coming up, we will be talking about some of the things we are looking out for in the ecb and that is currency. ♪

surveillance," good morning, everyone. tom keene in new york. francine lacqua in london. alex friedman with us. on investment right now. larry hathaway in august wrote a spectacular short, cogent essay on active and passive and he made very clear that his theory and your theory is a complementary investment field of passive and active together, rather than competing. how does active management and passive management complementary? main point isthe that what active is really good at his hunting price deficiencies. if you only have passive

investment, then you have large-scale movements that leave pricing inefficiencies. bothuestion is can they coexist? the rise of passive investing creates more opportunities for pricing inefficiencies and that is where active inefficiencies -- efficiencies. as we have moved away from that, it is a better time to be an active investor. tom: within this is a disease. for those of you who did not take the cfa exam last week, alex friedman brushed up on it last week. use toive managers manage very tight to the benchmark. are we going to see active managers with a different portfolio than their benchmark? case, we have never

been benchmark huggers. we deviate quite a bit from benchmarks. allocators have become much more sophisticated, they have started to take their money back from active managers that are benchmark huggers because they are not adding any value compared to passive offerings. i think you are 100% right that the space for active managers really requires that investors who are active managers earn their money. francine: how profoundly will these change and will we see consolidation because of it? alex: i think it is already changing quite a bit. passive investing probably accounts for 35% of the industry and that will shortly go up to somewhere around half. that will continue to eat away at active managers who have a majority of assets in retail exposure. moving pretty are

much across the board to passive offerings. where active management seems to have the most promising future is in differentiated, specialized strategies very hard to replicate with passive strategies. francine: on an monday, are you , are you buying europe, the u.s.? alex: i think you will see more &a to take out costs. the thing is is that it is quite hard to do m&a in asset management because it is driven by people, which is driven by cultures. yesterday atpimco the bloomberg invest conference, they talked about the sub 2% 10 year yield. is that a melt up prescription?

that get yields, if we get , does that guaranty and equity buildup? -- melt up? alex: that is an interesting question. i could see him melt up for another year or two. if you go back to the pre-dot -- period w have a risk on period, you have a risk-on. i think the change has been from the idea that value will outperform again to maybe growth-specific stocks. francine: we have a question from a viewer. this feels a little bit like the battle of europe versus the u.s., there you go. that working 50 hours a week can produce more than working a 30 hour week? alex: welcome approved. i can mow more lawns and 50

hours, so i can make more money, there is more productivity that comes from working more hours. francine: that seems pretty basic. i guess it is one of the arguments that the u.s. may compared to europe, tom. tom: very good. i'm going to stay away from this one. francine: really? tom: i'm clocking in a work week this week. let me remind you of our coverage. 10:00 a.m. this morning wall street time, the comey testimony. time, thewall street polls. that is much later in the united kingdom. our coverage, the united kingdom decides. innerl james stavridis her next hour. stay with us. ♪

tom: is it wrong, dumb, legal or

illegal? establishment of america stops for the comey testimony. what is the price of loyalty? there is a quiet in the markets. mario draghi will hold a press conference. there is an election in the united kingdom. at 5:00 p.m. new york time. this is "bloomberg surveillance." i am tom keene. all of us have strict rules on the united kingdom when the polls are open. booths openeding about four hours ago.

tom: i wish we did that in the united states of america. what a newsday. 's attempts to pressure james comey on the russia investigation are being called wrong and the dumb, but probably not illegal. his interactions with the former fbi director do not constitute of structure of justice. call mean's opening statement was released yesterday. at can watch his testimony 9:40 a.m. eastern time. way in thender country's second general election. almost 47 million people are registered to vote. in to our one-hour special at 5:00 p.m. eastern time. another provocation by north -- kimnd kim jong and

jong un. north korea has conducted 10 missile tests this year. hurt.s finances could be that is according to s&p global ratings. saudi's, uae, bahrain, and egypt have cut diplomatic accusing qatar of backing islamic extremist. i am taylor riggs. this is bloomberg. equities, bonds, commodities, quiet. oil cratering yesterday off

belowory data, brent way 50. 46.14. a tepid bounce on oil. no big market moves. a little current siemens. investors will try to avoid big moves as we have big events. i want to talk on what we are seeing on yen. after we heard from the boj that they want to communicate differently as they redress the balance sheet down. tom: what will the character of the questions be with the testimony of comey? >> i have spoken with top

republicans who have been working on the strategy and they are going to flip the script. they are going to go after james points.r a couple of why was he keeping private written memos? with trump but not obama. pressure him on the notion for why some of the actions he took with the meddling in the 2016 election. they are ready to go. they are working with the rnc. have a high bar in order to press the president has an instruction of justice. there is no evidence, at least testimony.t

tom: this stuff comes out. to theirilli goes brookings institution. let's go to what he wrote last night. director's seven-page direction makes no allegations and expresses no opinions. question is do we care. who does not care about this testimony.

>> he was critical of the testimony. he was critical of the former fbi director. i want point, he left trump tower and huddled in the van, proposedor graham has legislation with senator cardin to put sanctions on russia. where policy is important. the senate banking committee is in charge of moving that type of legislation. the house is voting on dodd-frank. unless there is a nuclear option, they will have to address russian sanctions first. this would indicate lindsey graham is with the president, that he is pressing me president

to put sanctions on russia. francine: is obstruction of justice the same thing as being illegal? obstruct justice would be illegal. bar is so high and the white house feels the biggest potential of political threat and legal threat is that , the accusation of obstruction of justice. they are confident there is no evidence of obstruction of justice. -- e is no doubt francine: what will you be looking at in the testimony? >> any bombshells.

president is not under investigation, but whether he says point blank the president did not obstruct justice. to difference of his ability questions he is going to have to answer. clock, is the bombshell here that call me will defend the attorney general, mr. sessions? the stories on the terminal now about how this relationship is involved. they never thought there was that much strain between them. , heas the attorney general told the president if you are unhappy that i recused myself

from russia, i will do whatever you want. they have said there relationship is back on. tom: thank you. great questions from london, as well. here is our coverage. all will be watching. we want to give you a smart briefing in conversation. ,avid westin, kevin cirilli they do that at 9:30 this morning. ♪

francine: it is ecb decision day. the challenge for mario draghi growth in the face of

increasing pressure. miller.t to matt is challenging because inflation, coming below expectations, growth accelerating. how do you communicate that to markets without sounding hawkish? we just got the final readings of euro zone gdp. better than what we thought previously. 0.6% in the first quarter. strong news for growth. the market expects of the ecb to normalize. at the same time, they cannot get sustainable inflation that they want. the way they deal with this is by reducing their inflation targets. if inflation is that far below target, that far out, the market

knows they have to cool their heels a little. francine: how many questions do you think president draghi will get on said? matt: he usually gets one our two on the said. he seems to be able to avoid them. he does not want to answer any said policy questions. the ecb is in the same boat as the fed and the boj. ,hey are getting the growth they are not able to get the wage inflation they need to underpin that sustainable core number.

tom: we dive deeper into the liquidity markets. libor and the oddities in the market. when you come in in the morning, what do you look for to see financial stability within mario draghi's europe? there is not a concern about stability. tom: the economy is better? exactly. growth numbers are the only concern, it is about inflation. they will acknowledge that, revise the inflation forecast lower and make some tweaks to the language. there has been some discussion about this. they may take the downside risk out of their statement and they may rethink -- and they may

tweak some of their guidance blinds. how do you respond to the turmoil of a bank being taken out for one euro? >> we know there are some problem banks. markets have confidence it is contained. mentioned,as you there has been a one euro takeover. francine: the biggest headaches it the italianis banks? >> that is right. it is a headache, but it is manageable. 2011, 2012, 2013. markets are confident, the ecb's

ability to manage what is going on. it is a headache, but it is a manageable one. santanderyesterday, bought a spanish bank. talk to me about currencies. are expecting strengthening, but not as much as you might expect based on growth numbers. is potentially going to main changes we discussed and that will provide some lift. that is where we are right now. francine: thank you. stay with bloomberg for the latest from the ecb. we will bring you live coverage of the ecb rate decision. by mario draghi's

conference. this is bloomberg. ♪

tom: we welcome you. .n extraordinary news day i cannot think of a busy year day than what we have now. 10:00 a.m., our coverage of the comey testimony.

we know harvard and m.i.t.. bill came out of a different cambridge, out of austin college, did tours of duty for miami, the new, york bombings of 1992. the fbi assistant director joins us. i want to know what mr. mueller is going to be looking at in this testimony. this relationship between two know.ou bet jim comey will not stray beyond the papers released yesterday. i am not sure bob mueller has reviewed that statement and is in agreement with it. >> they will continue to

do the job they have done for years and years. does it create turmoil? sure. with the naming of a nominee for the new director, that is of concern. please. were key distinction

. the main thing, the primary thing you have to look out for is somebody of great character and ethical performance who can be independent from any other outside causes that may try to influence his decisions. is it forhow unusual someone such as comey to be taking detailed notes of conversations? >> it is not unusual. it depends on the situation. happens, he never did that when he dealt with president obama, but he did not deal with him on a regular basis. in this case, if your antenna has up, where someone something to say, but they did not cross the border, but i am going to make a note of this.

we work on the adage that the person with the paper usually wins. francine: how to qualify the working relationship between the trump administration, or the theident, and the rest of fbi? >> the staff of the fbi remove themselves from political theater. the reach is a little more than the bureau used to do. tom: the terror today is different. why do we have less terror

involving the character, the religion we have seen within europe. what are we doing correctly in the united states? upthe high gain antenna is 24/7. they have been extremely fortunate in having great relationships with police departments, the joint terrorism abilityces, to put the of everybody together, the street police officer, the street agent, everybody working together in harmony. things some of these from occurring and to prevent them from occurring.

francine: how important is intelligence sharing between a u.k. and u.s.? >> it is extremely important. we will look at all of our records. tom: thank you. we are going to continue with many themes this morning. we are going to look at the systems of the financial . the testimony of james comey with our team in washington, look for that later this morning. ♪ system

tom: we welcome you on a busy day with a number of special broadcast.

we will tell you about those through the next half hour. to bring you up-to-date with the news, here is taylor riggs. >> in the u.k., voting is underway. theresa may and jeremy corbyn are among those who will elect hundred 50 members of parliament. we will have instant announcements of the markets. it is the hearing washington has been waiting for. , he says the president asked -- you loyalty and to can watch comey's testimony. that begins at 9:40 eastern.

the new sanctions would punish russia for meddling in the u.s. election and its actions in ukraine. sanctions are aimed that their ballistic missiles program. global news, 24 hours a day, powered by more than 2700 , i amlists and analysts taylor riggs. this is bloomberg. francine: qatari stocks have bounced back. wants the government to show commitment to stop terrorism. let's get to our markets.

to qatar.on getting it was difficult because the ties have been severed. are we expecting this isolation to continue? is there willtion not be any wick -- any quick fixes. .- is speaking this is part of his tour to patch things up. nothing clear or can creep. the other part is global power starting to align themselves with different sides of this dispute. on one hand, you have turkey backing qatar with the latest bill to add troops. the united states, we saw last week. is whattion remains

will happen with russia and china. bencine: china seems to forced at some point to be tested. they will have to weigh in on the saudi-iran feud. eventually, or maybe not. they will wait and see how this is all this. of key members are not part this broader reference. it is in their interest if they have relations with both qatar and saudi arabia to develop a way to --. is 106 degrees in delhomme -- in doha. ran think about this and how does it respond? attack came in downtown

toronto and the comments escalated things further. this is a big political puzzle, still coming together. iran says this does not benefit anybody. this being drawn closer to is in its interest. might enlighten a new wave of uncertainties. this is a joy. my book of the summer, this previous book, leadership. james is out with a new book "sea power." book, ie get to the want to talk about what i went to, the american fear.

islands.n every american has a fear of that missile that is out there. are those missiles out there as we approach north korea? >> we still have missiles all over the world, but we have to worry about the next generation, hypersonic. past -- fourtimes times faster. they present a challenge to our aircraft carriers. pasttom: i was flabbergasted at the size of the fleet. are our sailors defended? >> they are. put a ring of steel around those carriers. they are well protected. and is becoming a more even match between the chinese fleet in the u.s. fleet. francine: tom amazes me.

the exocet missiles are french built missiles. >> they are made in that style, the cruise missile. they can be fast and low over the water. exocet was the first generation of that. francine: let's go back to the news. without a doubt, qatar and what is happening in the middle east. impact does this have on the stability of geopolitics? >> it is a small hands, but big doors swing on small hinges. when we see the great powers lining up on each side, my mind goes to world war i. second point is this is a

maritime theater. al of this is happening in body of water, the arabian-persian gulf. we cannot even decide what to call it. tom: your book is gorgeous. it you divide it into the know.e no -- the seas we all of the oceans are a big crime scene. dumping, illegal fishing, pirate eight, terrorism. also, in western africa, piracy a 40 billion discontinuity in the international transportation. tom: are we back to the barbary pirates? >> if terrorists go there and a serious way, if they put a in an of mass distraction

container, we are going to operate like we did against the pirates. he holds court and there is all the stereotypes and nostalgia, world war two, everyone smoking cigars in the atlantic. >> it is the most romantic of the seas. it is where exploration began. today, the primary conflict would be between the united states and russia in what is called the greenland-iceland u.k. gap. tom: we have to come back and talk about that. francine: we will be back with james. we will be back with our other rates the global interest strategy head there.

we will have instant analysis as soon as those polls are published.

tom: good morning. lots going on. we are going to continue with james. at tuftsher school university. we have to get back to the bloomberg. how about a look back to 10

years ago. libor or as, a measure of confidence in the short term market. the financial crisis, lehman brothers, the world is coming to an end, only credits tweeze survives. se only credit sius survives. >> before we talk about why we are rolling or why we went up more recently, the rise we saw last year was completely related to regulation. october, that was the peak. then, the fears people had about how much of a shortage there would be have been allayed somewhat.

you have seen borrowers shift their strategies. a bobble now adopted strategy. tom: here is a pro question. the chart again. back here, the world would stop onbloomberg surveillance radio. i would quote this like it was religion. >> the banking system is safer. what you had been was reflecting credit risk. that is not what is happening now. the movement you are seeing now is related to regulatory changes. , it is notrategies freely an indicator of credit

stress. went back to 2011 and 2012, you did see a spike. a move we have seen last year and this year is not related to credit stress. france is what is the indicator of credit stress? >> you look at credit spreads. you see credit spreads which are fairly tight. libor, the reason it is moving is regulatory. francine: where do you see the biggest risks? china, something ugly and credits in europe, how do you

measure it? we are trying to find this canary in the coal mine. factors, those risk factors would not be and the. problem of course is when you have central banks that are you canccommodative, argue it is tightening at a -- pace. -- fromt really being the funding side. ,e have had talks this morning japan talking about upgrading. there be stresses? yes. a long period of stability breeds instability of eventually. for this year?t

maybe not. do you seehere credit going in the u.s.? is there underlying strength or concern you are seeing in the u.s.? some talk youeen have seen some of the said governors of focus on commercial real estate. see stress don't building up to the levels that you would have a crash. in the past, when you have seen it has notmoves, been because the fed was hiking. by definition, those are hard to predict, but you could see one of those shocks. it could be china, it could be something else. you could see one of those cause the market to move.

tom: thank you. we are going to continue with seas, out with his book " power." ofyou are in the library test university, tv . there it is in real time. you can pick up a previous section. tv , check it out. ♪

coming up shortly, daybreak america. >> coming up at 10:00, we have a big line of guests, led by joe, the democratic senator from west virginia. we will talk to him before he goes into the senate hearing. we are also going to talk to a former fbi director and gene sperling. ask what it is

like when you are being capitol hill.p on tom: thank you. joining us now, our senior white house responded. will the president tweet this morning? >> you never know. it is largely hoped he will not, but they have left the possibility that trump has to be trump. the witching hour seems to have passed. there is another time to watch, that is immediately after this hearing begins. trump has been telling us he was of ahe subject counterintelligence investigation.

the gossip between the attorney general and the president. it is a clear and present danger. the white house is circling the idea trump made a decision to stand by his attorney general. sessions'ppy about recusal. impossible to imagine if trump had gone through with setting mr. sessions aside, the scenario we would be looking at this morning. francine: ing -- i encourage everyone to tune in for the testimony. what happens after? things can we expect

after the testimony is over? >> it depends on what happens in the hearing. senate panels are going forward. importantly, there is an fbi investigation into the russian matter. then, there is the special , there are at least four other investigations that will go forward beyond jim comey's testimony today. tom: thank you. it is a wonderful new book, loaded with history, smut -- history, smoke and scale. part about it, i thought sam the ellwood is great in the movie. out like a baldwin, 30 years ago, "the hunt for red october."

you make clear that is east of greenland. submarines can operate in those shallow waters undetected. they can do surveillance in the baltic sea. that is where the hunt for red october unfolded. total u.s. navy ships, 275. total nato ships, 800. this is a big fleet that can be part of u.s. navy our effort tor russia. tom: we were wrong on our on russia.e in 1989 everybody got it wrong. know what the russians have now? are we any smarter?

>> we are smarter. we thought there were wmd in iraq, too. are built inhips shipyards, you can observe them well. we know russia will add 100 ship to its fleet over the next several years. that is a clear and present danger. ofncine: we are a couple weeks away from trump's first foreign trip, what was most significant? was in brussels, a lot of people said you could see it was trump against the nato leaders, but you also saw divisions in the trump administration, for example, his language on using article five. ofthe lack of endorsement article five, the part of the treaty that says an attack on one is an attack on all was

noticed and notable. 90% of life isd showing up. at least he did show up. eight months ago, he said nato elite -- was obsolete and we are going to walk away from it . tom: check out the book. it is a wonderful read. learned a lot from it. we have a foreign exchange report into mario draghi in estonia. matt miller is there. the report -- the foreign exchange report is pretty stable. ♪

♪ jonathan: mario draghi will

deliver his assessment of the euro zone economy. the central bank is said to be ready to cut inflation forecasts. -- not stop lawmakers asking and it is election day in the u.k.. the country heads to the polls for the second time in two years. is gooddon, it afternoon and in new york, it is good morning. a huge thursday coming up. i am jonathan ferro alongside david westin and alix steel. alix: super thursday. the u.k. voting underway, and then at 7:45, we get the ecb rate decision. a cold and 30, the draghi news conference. 10:00 a.m. -- tech :00 a.m., the d.c. soap opera starts. former fbi director james coming will give his testimony in front of a congressional committee. david: live coverage starting at 9:40, includoa