francine: today, prime minister theresa may travels to brussels, where she could face her first brexit row with the leaders. she will outline how she plans -- salman'shammad bin anointment. he answers questions about the country's direction. too much oil. crude holds it slide. good morning, everyone.

this is bloomberg surveillance. francine lacqua in london. they are leaving their key rate unchanged at 0.5%. this is also interesting because they believe the forecast is little changed since march. we are keeping an eye on this. we were expecting a little bit of news. nina region -- the more krone lower. we will ask him about veterinary chart. it is currently at 9404. you can see yen climbing once again. goal climbing because we are seeing oil. it is the second day that oil is languishing in the bear market.

gene keady can see the stoxx 600 down 0.4%. now, the chief investment officer and partner at london capital group. theme kick off with the on -- norwegian krone >> there was some concern >> that the precipitous drop in oil prices, the fact that norwegian inflation is well below their target, could potentially make some more cautious in their outlook. the headlines are suggesting they can't their outlook little changed. there were some in the market betting on more dovish outcomes. these are being unwound. biggest picture here is oil, oil, and again, oil. it is the case for the fx traders.

out imagine the correlation that would matter is oil. will likely bely sold. we will maintain a cautious outlook for oil in the near term. i am trying to dig deeper to get through all the results to see exactly what that means. how do you view this inflation and? -- inflation? >> the main problem is the implication of what it really says. the norwegian central bank is tentative as attentively, rather than on the caution. pau: very much, oil will tends to this on the way down. it is not about opec anymore, rgisbout how many shale are functioning -- rigs are functioning in the u.s..

only now, we see what has been happening over the last six months. francine: thank you so much. they are staying with us. we heard from the bank governor, mr. olson, saying that the key policy rate will remain at today's level in the period ahead. maybe that is one of the impacts we are seeing on the currency. that is get straight to the bloomberg first word news. here at sebastian salek. sebastian: the first european union it summit -- union summit could mark the scene of the first big row of the brexit negotiation to her theresa may will outline how britain proposes to treat e.u. citizens after it leaves. this week's opening round of negotiations was seen by both sides to be generally constructive, though diplomats said her plan for asked that could be a sticking point. in the u.s., donald trump has said he will propose legislation that would ban immigrants from receiving any welfare benefits for five years. he was addressing a rally in cedar rapids, iowa. he campaigned on promises of a

crackdown. executive order that according to the immigrants advocates has led to increases in deportations across the country. euros banking regulators are sprinting to ease the volcker rule, stress tests and other constraints on wall street. currencyroller of the plans to tell lawmakers today that they support rebalancing key scriptures. they issued a long list of proposals last week from rolling back postcrisis financial rules. leaders will today released a discussion draft of health care legislation meant to repeal and replace obamacare. a republican of north carolina said the draft bill would effectively delay the real appeal -- the repeal obamacare. the white house has created a website urging repeal and replace ahead of a possible site vote next week. finance minister

said the central bank is probably near the end of the tightening cycle and may be able to tighten rates before next year. speaking exclusively to bloomberg, he said inflation is likely to fall below 4% by then. however, he sees more rate hikes before borrowing cost start to come down. >> monetary policy wise, inflation expectations have -- the markets are seeing potentially another couple of increases this year. they are setting to predict the interest rate could start going down as early as the end of this year, 2017. i think they are right. sebastian: global is, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am sebastian salek. this is bloomberg. francine: thank you so much through theresa may is heading to brussels today for her first sincean union summit se her urges asterisk apple. she is excited to outline how the country proposes to treat

e.u. citizens living in the u k after brexit. talks wereweek's considered constructive by both sides, -- they will lay there divisions r divisionslay bea between them. what does theresa may have to sell to the other 27 leaders at the summit? them,she has to convince francine, that she is going to take care of the people who are from the e.u. living in the u k, posts march 2019, and give them all the rights they are used to having now. the problem is, that includes things like the ability to take any concerns to the european court, which is something that she has said is a redline that she will not allow. so she has got to somehow convince the e.u. that she is going to allow the continued free movement of people, for those people who are in the u

.k. before an absolute brexit in order to have any hope of gaining entry -- gaining continued access, i should say -- to the single market. francine: what are the difficul ties both sides face? she: for the u.k., if allows those rights to people from europe, who are in britain before brexit, they are going to have more rights and protections than british citizens, and that will not go well, especially with hard-liners in her party. for the e.u., one of the difficulties that they face is that they do not want to cut off single market,he especially for things like financial services, because that rocks the boat for the economy as well. they have got to try to come to an agreement without letting tempers flare, and cutting things off prematurely. it is a very difficult balance

to strike. francine: thanks so much, matt miller in brussels. morilla-gineru and valentin marinov. do you follow the media to see what they said or is it a simple sterling or gilt chart? >> you do not follow the media. the media will be interesting, but it will follow -- francine: speculation, yeah. guest: >> it >> used to be cable. that is no longer the metric. you look at euro sterling. that is where we will see the relative portions of each. pau: clearly, time is of the essence, and it is on the side of the european union. if in two years, we do not have any need for resolution, we will be in a political limbo. tos country's room at used meddling things through. it does not really have a constitution. we will go from a country that does not have a constitution to a country that has to import a huge amount of regulations, create a regulatory board.

about theam skeptical end return, and investors need to be aware that we are entering a time of real wages becoming negative again. caught between a hard place and a rock. an leadership that does not have much support. francine: the point with the leadership, i guess is that we do not know what cut of brexit they want. going to negotiations, the clock is ticking. what would be the best possible outcome of this? valentin: if you talk to clients, they with a soft brexit. i would say axis to the single market. offer, any of those models, that would entail free movement. the swiss did try to restrict that. it is still not accepting the outcome of that 2014 referendum. i guess soft brexit may be

wishful thinking. if you look at the queen's speech yesterday, the bill proposed, it is outlining the new regulatory framework for britain outside of the single market. you have the immigration bill. from that point of view, i guess we will be aiming for something. maybe the best outcome would be a customs union, where we at least get those -- that trade going with the e.u. at least that could be seen as somewhat more positive compared to the heart alternative of wto brexit.ff edge i suspect may be, it is aiming for that. francine: what i thought was interesting was when we heard yesterday, he was not calling for a hike. yesterday, he came with a big speech saying "actually, we may hike." this is the probability of a rate increase by the boe by 2017. a wonderful chart, g #btv --

what will this tell us about mark carney? valentin: a civil war inside the npc. we are seeing in the volatility it could turn out to be fairly interesting. ndyn if you assume anti- will be joining the defenders later in the month, even in that case, you could have 5-3 in favor of civil rates. i would not make too much out of it just yet. quite important, if you read the speech, a couple of arguments he is using to support , potential removal of accommodation since the e.u. referendum. one is the global economy. it is not even the u.k. economy. there is a big caveat for any call for removal of accommodation. assuming the data is coming in line with expectations. weaker --ation is for

on the whole, relatively bearish outlook for the pound. political concerns are still likely to dominate. francine: do you agree with that or has it awoke an animal spirits? that could suggest a hike sooner than markets priced in. i would be absolutely shocked if there was a rate hike. there is no way this economy can sustain that. there is no way that in an environment where you have got political uncertainty, real wages begin to show some problems, and the unnecessary inflation affects of even more of more weaker sterling come of this stance is giving us more of an opportunity to trade against sterling than an expectation of things to come. francine: thank you so much, how moreligion or --

realogy nair -- thank you so much to our guests. i am looking forward to understanding what labor will negotiate with the e.u. that is that chemical and 30 u.k. time. they with "surveillance." could a more assertive policy prove a threat to regional stability? we will focus on middle eastern politics and the labor market, next. senate republicans revealed a plan to place obamacare. we will look at the battle for the future of america's health care system. this is bloomberg. ♪

francine: welcome back to "bloomberg surveillance." and francine lacqua in london. here is sebastian salek. sebastian: a chairman has vowed off with the semiconductor business. it could cost $27 billion. he has said he will decide by next month on which u.s. state will be the location for a $7 billion display making plant. s venture into cloud computing has made revenue gains for the software maker. they set their record closing high yesterday and reported total sales that easily topped analyst estimates. it's cloud businesses grew 58% in the fourth quarter. new software licenses declined 5%. in thehas plummeted first trading on the stock this week. the shares have not treated during sessions amid a glut of sell orders.

it was planning to file bankruptcy as soon as this week. the move would pave the way for a sale of the airbag maker behind the biggest safety recall in automotive history. takata says no decision has been made on the bankruptcy buy. boeing has secured twice as much as rival airbus. boeing won orders and expressions of interest for 420 planes, worth as much as $58 billion. airbus posted a tally of 229 airlines, valued at $25 billion. it marks the u.s. plane maker' biggest victory. sthat is the bloomberg business flash. francine. francine: thank you so much. let us focus on the middle east politics. mohammad bin salman's appointment as crown prince mean energy markets need to brace for an even more assertive policy from saudi arabia and could that prove a threat to stability? a man says the changes in saudi are positive.

>> i am so happy of the changes, because, since king salman came into the position, there is a lot of of positive -- a lot of positive changes. stability for the saudi people and the neighboring countries. fighting terrorism all over the world. francine: still with us, pau and b valentin. i don't know if this is more of a regional story or whether this will usually impact what saudi arabia will go through in implementing his vision for 2030. >> i guess from the fx point of view is that what is important for the markets is it will reform the economy.

he is not someone who wants to leave things as they are. the overreliance on oil exports is something of the past. the bit, however, which is interesting at the moment, is saudi arabia is seen as the key driver of opec's decision-making process. ook for oil -- the opec producers are willing to respond to the latest drop in oil prices, and i mean, coupled with the observations of the past, went the crown prince has been insisting that part of that will improve that growth outlook in saudi arabia, to learn to thatwith lower oil prices, may be actually a negative outcome for oil in the near term. what is also interesting is i thought earlier today, is that on the day after that decision, apparently, the saudi government decided to roll back some of the

fiscal austerity measures that to kind ofented improve the sustainability of their fiscal imbalances. at a time when revenues are falling, and also trying to actually push up their expenses, that could mean it has to again burned through their ethics reserves -- fx reserves. stock markets underperform and unwind their holdings. oft increases the risk persistent oil price weakness, but it also, the risk of a risk-off on the back of a we are seeing at the moment. francine: the softer side or terms of what the new crown prince will do. the initiatives he has put in place so far have been so ambitious on almost every front, that -- is there more of a risk that he does not deliver on them? would it have an impact on the economy of the region? valentin: a massive impact. saudi arabia, opec, the

amount do not matter that much as far as oil. actually seeing that oil has moved more of the result of what u.s. production has done in the last few quarters. agreements.n reach one, the agreements are difficult to reach in an environment when major oil producers are in the middle of a geopolitical crisis, russia, saudi arabia, iran. even if you really assume that these countries are going to be having -- they only represent 10%, 11% of total production. i think oil does not matter anymore. pau: because of that, the ability to execute reforms that will allow the economy to diversify away from oil is crucial. the risk is there. from an asset allocation perspective, we would not

advocate that at the moment. francine: i want to talk about the link between oil and inflation. he says markets should not worry about fighting oil prices as the volume of china's imports continue to increase. valentin: it looks like china is reducing imports of iron ore, reducing imports of oil, but people forget, that is based on the value. the price has gone down. >> if you look at the volumes, they continue to go up in a study way. iron ore imports, ok. 1% a year. orbe half a percent a year, something. it is no question. these countries are increasing their consumption of commodities. francine: pau, how difficult is it to forecast the price of oil? we were talking yesterday to an oil expert. she says there is negative sentiment and a couple of technical levels which we are not showing. this is a chart looking at wti

and blue, brenton purple, and the u.s. rig count. there are technical levels, which means it could go all the way down to 30. what do you base your portfolios on? >> if you look at the chart, you see that the oil rig count is a little bit of a lagging indicator of what oil will do. at the moment, we have seen the going past the previous maximums. that does not spell positive expectations. orc is no longer the margin al -- the marginal cetera prices. you will see it down until areas that are close to the marginal oilation, where a shale producer begins to be nonprofitable. the beauty was shale gas and shale oil production is the

average cost of extraction is going lower and lower over time. as of that, you will probably see oil at a slightly lower valuation than the previous ones. i am particularly bearish oils. you will not only see oil going down from current levels, but even flirting with lower values than the last time it happened, which was the beginning of 2016. francine: do you agree with that, valentin? basically, we think we have a support system at 462. how significant is this? valentin: pretty significant. on the whole, i would agree with the bearish outlook for the moment. maybe a reference to previous charts, which i think -- if you 2104, yulia lot oilo 2014, you realize

producers are able to produce the same amount of oil, including shale oil, with 1000 they did before, which is a testament to the improved efficiency of those rigs. they are reopening new rigs. the concern is the total oil production out of the u.s. could actually increase further from here, which is a very strong message to the opec guys and other oil producers that there is another big producer emerging, and that is negative for the oil price. francine: thank you, valentin and pau. up next, we speak to senate republican leaders about obamacare. this is bloomberg. ♪

francine: you are watching bloomberg surveillance, i am francine lacqua in london. let's get to the first word news. u.k. primea

minister's first u.k. summit since the election could mark the scene of the first big row of the brexit negotiation. theresa may will outline how she plans to treat e.u. citizens after they leave with a detailed plan on monday. negotiations were seen to be generally constructive although ex-pats could be a sticking point. in the u.s., donald trump he would propose legislation to ban immigrants from receiving welfare benefits for five years. he was addressing a rally in iowa and spoke about the crackdown on illegal immigrants. led to increased and deportations across the country. top u.s. banking regulators are sprees -- sprinting to the volcker rule and others. they plan to tell lawmakers today that they support revamping key strictures.

the trump administration listed -- the mexican finance minister says the central bank is probably near the end of its tightening cycle and may be able to cut rates next year. they said inflation is likely to fall below 4% by then however they see more rate hikes before borrowing costs come back. wide,ti-policy white, -- what the markets are seeing is potentially another couple of increases this year. they're starting to predict that the interest rates will start going down as early as the end of this year or the beginning of next. sebastian: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. francine: thank you so much. senate republican leaders will

unveil their closely held plans to replace obamacare. it will differ from legislation passed by the house in may and the key difference is that three-year phaseout of obamacare's medicaid extension beginning in 2020. that is according to a source atiliar with the plan here moderates and conservatives in the parties say they are not sure if they can support the legislation because they do not know what is in it. let's bring in bloomberg's congressional reporter, kathleen hunter. welcome to the program. can you try and explain for a global audience how this proposal is different from the previous ones? kathleen: the last proposal was the one the house passed a few ,onths ago, and from the get-go nobody really even liked what was in that proposal but the house had to pass something so they cobbled together the best they could do to get the number of votes they needed. passed, allafter it right conceded it was basically

going to the senate and the senate would start from scratch on rewriting its own bill. today is the big unveiling of that proposal. francine: when can we expect a floor vote and what are the prospects of it being pushed through? kathleen: they are shooting for next week, a fairly ambitious timeframe considering they have been drafting the bill almost entirely in secret. working groupe from utah went to facebook and started complaining that he did not know what was in the bill. there is a lot of concern that senators feel like this is being anded down their throats they find out thursday what is in the bill potentially. it will not be formally unveiled until today and they are talking about a vote next week. as seems pretty quick, particularly from republicans when back in 2010 they complain about democrats crafting a deal in secret. francine: who are the senators to watch? kathleen: it is similar to the

dynamic in 2012. we will see senators on both sides of the spectrum. in the democratic party it was the most liberal in the most moderate, and for the republican party is those like rand paul. on the other side of the coin it is moderates like susan collins remain who are from states that elected to do the medicaid expansion that was included under obamacare, so they might be concerned about how their .tate is actually going to fare francine: on china and north korea, it would have been unusual in the past to have certain people in the administration contradict what the president said but we are seeing that from time to time and it feels like more often than not. kathleen: what is highly unusual about this administration is that we are seeing that new dynamic where basically you are having members of trump's team

basically going out and essentially having to unravel what the president has said publicly on twitter. you have the president tweeting one thing and members of his cabinet saying, wait, that is not what he meant. that is very uncommon. butcine: it certainly is, something i think we have to get used to. kathleen hunter, who follows everything with congress. staying with the you guess, pimco says the fed is running a substantial risk of making a mistake in its tightening campaign. with core inflation at 1.5% year on year and an almost fully economy we are one adverse shock away from a serious deflationary scare. morilla-giner pau and valentin marinov. we just need to take a bet on whether we believe janet yellen when she says inflation will be pushed through because of the

strong unemployment market will sometimes filter. is that right? pau: i think janet yellen cannot we, but she is thinking really need to raise rates very quickly so that we have some dry powder in case there is a shock, at best, or there is reflation, too many wages, on performing loans in 2019 and then we have a textbook case. the fed has to look at the economic environment which is -- with its hawkish tone because it is not even about inflation, it is about having some ammunition before they have to embark upon a rate easing cycle again. because of that, the main problem is that the market still is sort of being held this fiscal carot in front of them

and the bond market has decided, we do not want anything to do with them and the equity market has said we will give the trump administration the benefit of the doubt. that which has been a market feature up until now, threatens to become a market catalyst very soon, either because we are getting dangerously close to the november 2018 elections in the u.s. and republicans obviously have to manage being stuck between a still popular in their base president but becoming more and more unpopular, and their likelihood of being elected. the market, the turmoil, we will is howeverthe fed people are focused on rates, has been tightening for some time. the balance sheet of the fed has already shrunk and threatens to shrink a lot more quickly and that is the main problem. francine: when did the markets believe the fed that they will tighten three times this year?

valentin: it is difficult. historically, the fed converging back to the market's view. the fed has no other incentive as many hikes as possible until the next downturn . real rates in the u.s. will be picking up. fed to that point, as the starts unwinding the balance sheet from here, this should mean that measures of the relative buyer of treasuries like term premia should turn more positive, as was the case in the last 30 years or so. treasury yields could be above 70 to 100 basis points below where they should be just because the markets will start normalizing to a new environment with less fed buying and potentially more debt issuance by the government which will have to step up fiscal stimulus. for the fed, given that

prospect, it is how the economy will take it. they have no incentive but to continue to move forward to further policy normalization. how will markets take it -- francine: how will markets take it? this is the difference between the 10-year gilt market and the 10 year treasuries, it is the spread. valentin: treasury yields could rise from here. in terms of just a rule of thumb, if the increase in treasury yields is based on the normalization of term premia we could be facing a move of 70 to 100 basis points. .hat is a real yield adjustment inflation has little or no role to play just because the term premium is reflecting something about supply and demand of treasuries down the road. we get less buying from the fed and potentially less issuance from the treasury. and it couldutlook

be one of higher real yields for the u.s. which is why it is more or less constructive on the dollar. the dollar could reemerge as an attractive investment currency once again. francine: valentin marinov and pau morilla-giner, both stay with us. interest rates, u.s.-mexico relations, and the future of nafta, three subjects we covered with mexico's finance minister. as we go to break you can see theresa may is in parliament. today we had the resignation from the person in charge of some of the estate in kensington , so we leave you with the prime minister talking to the house of commons. >> payment from the emergency funds so they can buy food, clothing, and other essentials. outreach work is making sure they can get the money they are entitled to and also paying additional adults -- ♪

francine: this is bloomberg, i am francine lacqua in london. let's get straight to your markets. nejra: we are still keeping a close eye on oil with brent in a bear market along with wti. u.s. oil production reaching its highest since 2016. data was a little soft but not enough to lift the oil price. barrel. at 44.56 a we did see this bearish formation on monday in brent crude with the 50 day moving average dropping below the 200 day moving average, signaling some loss of momentum. something to keep an eye on in terms of the technicals. how this is impacting equity markets, we saw the energy

stocks underperformed in the u.s. yesterday but we did not see that in asia. we saw asian stocks rally overall. a third day of losses for the 1% and00, down 4/10 of it is the energy stocks providing the biggest downward drag, down 1.3%. in terms of how this is impacting other parts of the market, fixed income for example , i want to show you inflation expectations coming down. the 10 year breakeven getting an eight-month low, the lowest since october. we saw that really ramp up and this point which was election day in the u.s. and in yellow is post-fomc and where we had the miss on the cpi data. today, theyields treasury yield is down around two basis points. we are seeing yields come down in the core in europe as well after the gilt yield moved higher yesterday following hawkish comments from the boe.

how this is feeding into the dollar, this chart shows a tale of three currencies because if you look at the bloomberg dollar index it has underperformed the yen, dollar-yen in blue, and it has also underperformed the euro. there is a lot of questions about the euro as to whether we will see a rally like we did for the dollar in 2014. what has been fueling the dollar underperformance has been the lack of progress on u.s. stimulus, and prospects in europe and japan boosting those currencies. the euro the strongest performer against the greenback this year and it means that analysts have been changing their forecasts. strategists surveyed now see the dollar climbing to ¥114 by year by rather than 115 estimated the end of 2016, and it has seen weakening against the euro, the

dollar, to 1.12. francine: thank you so much. let's cross to mexico and mexico's finance minister has been speaking exclusively to bloomberg. in an interview with matt they discussed u.s.-mexico relations and the future of nafta. donald trump as a candidate said he would rip up the free trade agreement. is the worst actually over? >> we are in the process of modernizing because he actually said he was going to renegotiate it. if one looks at the north american region, if one looks at the airports, railroads, highways, electricity with the oil and gas pipelines, this north american region to which you look at the infrastructure, it is difficult to identify the boulders. one can argue whether that came about because of nafta or whether nafta came about because

there were real dynamics that made the north american region something that made sense in and of itself. mexico has a lot of free trade agreements but none of them have resulted and the level that the north american trade association has created. nafta brought it to life. it is difficult to argue that it was just nafta contingent and there is some core dynamic between our economies that make it reasonable for us to trade, to integrate, to have regionalized markets, and to participate in the global economy as a bloc. the largest bloc will continue to be for the foreseeable future, the north american economy bloc. we think the space to modernize nafta so we can do better, then

a things are happening today that would be natural to include in an integration program. i think this opportunity is for canada, the u.s., and mexico to come out with a better integration process. after the dialogue happens, that would -- with nafta as it was. it makes sense for us to find agreement on the basis of what has already happened and what we want to continue to see in terms of maintaining competitiveness. >> wendy you expect agreement? >> i think from the perspective of uncertainty, which again, many of the indicators show that the uncertainty and the anxiety around the mexican economy have been reduced dramatically.

i think that has already happened in the scope of possible outcomes has been bounded by the economic reality behind the integration process, and the decider for the parties to reach a constructive and positive agreement. francine: that was mexico's finance minister with matt winkler. as we go to break we bring you a live shot of cape town and this is what we are waiting for. there is a ruling deciding whether there can be secret ballots as a vote of confidence for president jacob zuma, and they have been reading the statement. it is unclear to me and the markets what has been decided so far. weakeningafrican rand a touch after the court reads out a ballot really dutch ruling but we didn't -- ruling, but we do not know the result yet here it we have been told it is right for parliament to determine the

vote but i do not think we have the ruling. you can see it moving up and down. this is bloomberg. ♪

francine: this is bloomberg surveillance, i am francine lacqua in london. let's get straight to the bloomberg business flash. chairman hasx's vowed to press on with the toshiba semiconductor business. largest launch the iphone chipmaker into the cell phone business. cloud is picking up momentum, sparking a fourth straight quarter for the software maker. shares were set a record closing high yesterday and reported totals that easily beat analyst estimates. declinedare licenses 5% compared with a drop of 16% in the previous period. that is the bloomberg business flash. francine: we are awaiting south

africa's top court's decision to hold a secret vote of no-confidence on president jacob zuma. the rand's zigzagging a little bit as they decide what the reading means. we have been hearing about the ruling for quite some time and -- southt headline is african court says some motions may warrant a secret ballot. this is as much a political domestic story as a wide emerging-market story. pau: the good thing for south argentina,h like markets are still extremely yield thirsty. these are two countries that do not have a good track record of delivering and political instability at the moment in south africa would suggest investors would be turned off by the investors and yet they were not. they were not because the rest

of the world's offering pretty low expected yields and in an environment where from a demographic perspective, the baby boom generation is still very much in need of that yield, i think any sort of temporary weakness will be an opportunity for people to pile up, which maybe is not the right thing. obviously on the day domestic politics maybe determining the price action. if we get a secret ballot it may be easier to replace jacob zuma at some point in the future and that may play out as a positive, but the outlook for the next weeks and months depends on the investors' appetites. high emerging-market currencies were at the mercy of market sentiment. they had a great run so far this year. the first half of this year was all about investors that were hungry for yield however that environment is turning much less

supportive. weaker oil prices could come with weaker investor sentiment and a time the fed is heading steadfastly toward the exit so that is not the best time to belong on currencies. francine: the south african court saying the speaker will hold the secret vote. thank you very much for being with us, pau morilla-giner and valentin marinov. bloomberg surveillance continues in the next hour. tom keene joins us out of new york and we will bring you an exclusive interview with the u.k. shadow brexit representative. this is bloomberg. ♪

francine: dinner in brussels. theresa may's first european

summit will focus on -- as emmanuel macron makes his debut. lawmakers battle over single market access. rise astreasury yields industry data crushes oil. this is "bloomberg urveillance." we are looking at the health care bill. is a lot of secrecy around it. they are expecting a vote in a couple of days. we are looking at oil and brexit. may be the secrecy of theresa may makes it back in brussels. in your side of the pond, politics are fluid. francine: the rumor is she is not allowed to have deserved this evening, that she will leave before that.

let's get to first word news. taylor: there could be the first big battle of brexit negotiations at the european summit. howesa may will outline they plan to treat u.k. citizens after the breakup. in brussels, police have detained people in relation to the bombing in a train station. on capitol hill, senate republican leaders were pleased -- release their plan to replace obamacare. over a decade, it would cut hundreds of billions of dollars from medicaid. the congressional budget office have not reviewed the bill yet. they say it would cause 23 million mark americans by 2026.

immigrants should have to wait five years before getting welfare benefits. he will be introducing legislation shortly. fromimmigrants are barred receiving most benefits for five years or longer. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. tom: the euro is unchanged. look at oil. next screen. brent comes that at 4475. the commodity index is good mass . all you need to know is it cannot find a bid. it is a big deal on that

proprietary index of bloomberg. francine: this is what we are seeing in climbing. gold climbing. the second day where oil languished. we need to look at the individual news. the yen is heading for its longest winning streak because it is a hazing. something we need to keep in mind. this chart is complicated. it is ugly for radio and tv. this is oil. this is an elegant chart. these are kisses were the price of oil comes up and hits a moving average in an elegant way. that chart is technically gorgeous and south right now. $39 a barrel is not unsinkable in this move. francine: i like the chart.

i almost did oil, but i knew you had it covered. i am focusing on the chief economist of the boe. he has turned from dove to hawk. he gave a speech yesterday and said we may have to hike. simple.very we will push it out on social media for our radio listeners. it is a probability of a rate increase. he goes a little higher. investors think it would be impossible to do that given the uncertainties of brexit. holding into the bear market. speculation that u.s. output will bend to opec efforts to -- and oil glut. a move gave treasuries and underlying bid. , state street

global advisor's cio. great to have you on the program. when you look at the price of oil, it is moving almost every asset class. how low can the price of oil go? >> it is soggy. it is not a lack of demand. it is supply increasing. there are more winners than losers from this slide in oil. it is wrong-footing people. we have energy stocks, it is worrisome. this is the great unknown of what happens in europe for five years ago. you had soggy prices around $40. it did not mean people went out and shot more. people can rebuild balance sheets. there is talk about people not maxing out on credit cards. there is cushion for the consumer.

recovery,synchronized u.s., europe, asia, china. the reaction function could be different. less rebuilding a balance sheet, perhaps more consumption. it is early to speculate how that will be true. it is a compelling chart that shows the slide in oil. correlation,dea of when i look at commodity currencies, they have not moved that much. do you look at oil as discrete the fixedlinked to income market and the curve flattening? how you depends on interpret it. you might link it to deflation or a lowflation story and that will feed through to fixing markets. supply indicates a different story. takeover ofat the

whole foods by amazon, it may have supply side impact that keeps prices low. it may keep the yield curve and shape. -- yield curve in shape. thanks to business insider for publishing this yesterday. did 68 charts and they were kind enough to include this chart. here is the election, the day after the election. we are at a critical junction. you look at the fixed income flatness is aurve tendency towards a recession or is there enough noise you are not worried about that? richard: we are over interpreting things. we have the tale of the trump policy knocked off. reform or tax cutting. that will come back.

back in 2017,e but partially maybe in 2017. that has driven the yield car -- the yield curve, this expectation of continuation of business as usual. we will see curves steepening again. it means the market may be more negative than people think. they think nothing will change, they supposed inflation is nowhere to be seen five years from now. is not muchre inflation to be seen. you can see rates coming up as things change in the policy mix in the u.s. not an isolated economy. look at what is happening in europe, a cyclical recovery is improving. if you look at the big picture, economic growth is close to its long-term trends.

a yield curve tells you the party is almost over. tom: that was gloomy. we will come back -- i am kidding here. a lot of different trends in the market. will kennedy joining us later. in our next hour, too many things to speak of with robert, -- reveal vl university and how you missed the bull market.

taylor: this is "bloomberg surveillance.". plunged today.a investors are expecting bankruptcy for the company.

people familiar with the matter say they plan to file for bankruptcy as soon as this month. of the fourth largest cable provider begin trading today. a-shares sold near the top end of the market range. there is a report a company is buy staples according to reuters. it could be announced next week. the price may be more than $6 million. people in sycamore are not commenting. that is your bloomberg business flash. it will be dinner to remember for theresa may this evening, or not. she attends her first meeting in brussels. she will run her leaders through eu approach towards nationals before publishing a

detailed plan on monday. matt miller is in the belgian cup -- the belgian capital. they will talk about nationals and the fact she lost the election quite badly. a dinner to remember, talking about an election to remember. they will want to know why she is the right person, why this is the right administration they should negotiate. they want assurances her government can stay in power to see it through to march 2019. that will be difficult to deliver. that is before she has to deliver what is difficult to toe -- some kind of solution a free movement of people that the e.u. is demanding before it allows them access or full access to the single market. trouble pleasing the people home, proving that it is a brexit.

she will have trouble proving to she will be able to deal with their citizens. she deal withwill eu nationals living in this country? matt: i have no idea. i am waiting with bated breath to see. there are so many problems with this proposal. the fullo guarantee rights they need now. she gives them more protection than she would give her own citizens, assuming she doesn't allow them to travel back-and-forth to the eu. she will have to allow them access to the european court, which she has said that is a redline to her. it will be interesting to hear the solution she comes up with.

tom: you are ensconced in berlin. what do the germans want out of the brussels meetings? they want full and toplete movement of people be allowed before they allow total access to the single market. when i spoke to the german finance minister, he seemed convinced the financial market needs to keep their headquarters in london. they don't want to rock that vote. otherwise, everybody gets seasick. francine: thank you. back to richard. see thisnow how you brexit. are we less likely to have a difficult brexit or no deal? we have to bear in mind

the political context and make sure we are not guilty of a wishful thinking. they are picking at every possible straw. there is a mistake. we should plan for a hard brexit in terms of our investment inking. equally, things turn out softer. that is a boost. francine: what does that look like? richard: sterling where it is or weaker. of inflation, counteracted by week fiscal policy in the u.k.. costs rising. at the margin, lower, long-term growth in the u.k. is the spiritis of the united kingdom economy. i cannot get a handle on how the united kingdom economy is now. seems to have momentum.

political pressure mounting for loose fiscal policy toward off -- to ward off in public services not where they should be. if you see weakness in sterling, counteracted by wage demands, you could be faced with stagfl ation. francine: thank you. coming up later today, we speak with the shadow brexit secretary. i am looking forward to that interview. we want to figure out how he would negotiate with the eu . this is bloomberg. ♪

"bloomberg surveillance," with francine and tom. discussing the u.k. economy. this is what is written. this configuration puts the bank of england in a difficult situation. is above its target and will deviate in the coming months. an interest rate hike to counter consumptionndermine , investment, and growth. if you are a currency trader,

there is good cop, bad cop when it comes to inflation. at this point, it could be harmful. used to central bank is this. look at brazil. the day, imported inflation. the brazilian central bank, well-organized and has done a great job, made the tough job to tougholicy -- may the decision to key policy rates where they were. true.me will be the dilemma is not an unfamiliar 12 central bankers. inflation brings me to my charts. u.k. inflation. this is cpi and we are comparing it for wage growth. we will push that out on social media. you can see it charting differently. for your it mean

investment and consumer stocks in the u.k.? so far, you have seen real wages declining. we think that will reverse it self and that will be a reason policy rates will have to take account of that permanent element -- permanent element of inflation. is the idea of good and bad -- gary shilling talks about good and bad inflation. is the united kingdom having good or bad inflation? of good an element inflation, looseness propping up uncertainty that comes from brexit. there is goodness they are -- goodness there. tight labor market, we are foreign on the cycle. andre between the u.s.

continental europe in the length of cycle recovery. when does the good become the bad? want to go. where i are we near that point? francine, do you have that chart up? rise, rise, rise. up it goes. a lot will depend on how companies react to the uncertainty of brexit. they will hold the line on pay and the private sector. in the public sector, there is political pressure to ease off on fiscal policy. frankly, to look after public-sector workers who have been frozen for a long time. there are a lot of things bubbling up that lead you to the bad story. francine: if you are a retailer, you will struggle. you have to put prices up, or squeeze the middle. are we underestimating a significant pound slide will have an impact on everything we do?

appear toargins don't have suffered in the way you might have expected. one way or another, by leading on suppliers, they keep margins well behaved. besterling is stable, may they will be ok from an earnings perspective. the man in the streets are not ok -- is not ok. a is not as if you have in norm us amount of slack in the labor market. the how does this link to equity markets? what does it mean for exuberant markets? richard: markets are in euphoria and that is a puzzle because the uncertainty index looks like it is at an all-time high. we are in euphoria territory from a volatility spread perspective. people have learned many of these geopolitical -- have not said through two bad news in

terms of earnings or other financial impacts. because they have learned they are buying on the dips, that remains the case. we are actually overweight in risky assets, in equities. thee will be some bumps in u.k., but overall, we think it will be close to trend. a really smart discussion here, synthesizing so much of what we are seeing. is the cool guy. he will tell you where to live to be cool. all you need to know, tyler thinks matt miller is a genius in berlin. ♪

♪ tom: we are watching oil. francine lacqua in london. i am tom keene in new york. matt miller is in brussels with

the prime minister. here is taylor riggs. taylor: two of president trump's cabinet secretary's are ignoring his recent tweet. they say china still has a crucial role in pressuring kim jong-un to give up the nuclear program. some administration advisers want to replace janet yellin when her term expires in february. that is according to two administration officials that say the trump administration want their own person. one official says president trump likes janet yellin and feels no sense of urgency in the matter. lowest -- lower interest rates as early as next year. , thenetary policy wise seeing potentially

another couple of increases this year, but they are starting to predict the interest rates are going down. inflation rates is expected to slow to less than 4% in two dozen 18. parliament can hold a no-confidence vote on jacob zuma in secret. the speaker of parliament had said she did not have the power. the opposition filed a no-confidence motion -- after he fired the finance minister. that led firms to downgrade south african rand to junk. global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. there is a great injustice in this world. tom is about to speak to tyler about why we should all moved to tokyo.

we are looking at south african rand after we had that ruling from the top court in south africa and we see it actually moving out quite a lot. it has been a little bit of a zigzag because this was a very nuanced verdict. basically the top court ruled the speaker of the parliament, which is the top measured -- member of zuma's party, she can allow whether to approve a secret vote, but is not required to do so. they thickly they are saying it could happen. if you have a secret ballot, it is more likely there is a no-confidence vote. it is up to one of the people it is own party to sign that. >> a pretty big conflict, potentially. south africa was not one of the sheep ins to what is the emerging-market currencies. coupled with local currency anernment bonds are actually

interesting investment opportunity. this is exactly the political risk you are bearing -- if you want to be rifle shooting, pick countries that have a lot of risk and this is the risk you want to avoid by being divorced -- diversified. this is maybe the most important interview for your life today. there is not an american city to be found and paris and london as well that think tokyo, vienna madrid, it is a monocle livability index joining us from out -- from tokyo is tyler. wonderful to speak to you from tokyo. most of these livability's are smaller cities any talk about knowing each other, being with each other, and tokyo sits atop. what is special about tokyo? thingsthere are so many right now. i was talking to one of your bitnalist here a little

reminiscing about this city. the bounceback is extraordinary. if you look at 2011, a city that was on its knees and people always talking and reminiscing about what the boom years look like. you see this amazing bounceback in energy in tokyo right now and not just -- of course 2020 coming up. this is a city that has its act together when it comes to connectivity with the world and the region and firmly has a grip on safety, cleanliness, a lot of things that are important for the metric. also you have a government semiprivate who really want to make this of the singular base. they want to see people forget about hong kong and singapore. this is the place you want to raise a family, have four seasons and not sweat it out all the time. love the four seasons in tokyo. i have experienced that. the articleght to

on daddy cool. the couple of these cities is technology. 100 years ago you had to be in london and new york. technology is the great divide, isn't it? tyler: it is absolutely. it has- that is where been difficult. you guys are covering it where we have seen some of the great countrynts of this stumble and fall away from the headlines and on one side where they are mobilizing. still we see, if you look at the tokyo area, this is a place that files more patents than any other place in the world. it is there, but there needs to be mobilization on the entrepreneurship front. francine: mobilization. ist number, 16, there barcelona at number 17. we have a graphic looking at brexit and some of the jobs the bankers want -- where they want to move to. what surprised you the most about europe?

not surprised london is here. is it because it is also an expensive city? tyler: that is part of it. infrastructure continues to be a problem. the whole issue of disparity and any value for money. any of us who live in london know that it is not great value for money and the city is a lot of work. it is wonderful on so many levels, but there is a reason why both new york does not make our top 25 and why london doesn't as well. i thought you were going to talk , but we can-- milan talk about that. francine: where would you move? do you care about this livability stuff? do.: i the intensity of places like london and new york as part of the appeal and the diverse city. they are strikingly different from tokyo in terms of the diversity metric i think is interesting. to: tyler, i want to stick

-- switch to journalism. all of your in business acumen. how long can monocle went -- print last? coffeee has it on their table and the joke is that not that many people read it because it is so dense. how long can it last? tyler: we are in it for the long game. if you look at what is happening right now, lots of magazines are going by the wayside, but i also means it -- i think it also means there will be a consolidation and people will gravitate to those who want to be there. people still see their ads in great format surrounded by journalism. we have been playing with a bigger format. we are looking at a guerrilla -- gorilla newspaper concept as well. tom: vanessa friedman in the new york times on the future of product and the rest -- prada

and the rest, you have all of those advertisers in your magazine. in this partally of the world you look at these massive luxury stores, 40,000, 50,000 square feet for one mono grand and that suggests there is an issue. they areat what sitting on in some of these big cities and you see the gravitation, the pull to multibrand, the small, the interesting. that is why i think tokyo is resilient. people ask me if i can go to one city to look at international city and where it is happening, it is still japan. this is the city to look at. francine: tyler, thank you so much. tyler brule there. it just can't go out of style and it smells good. we speak with the

brexit secretary. oil speculation -- in the last couple of minutes, i think it picked up higher a touch. gaining 0.5%. this is bloomberg worried -- this is bloomberg. ♪

♪ francine: "bloomberg andeillance" with tom francine from london and new york. let's talk about brexit on the day formal brexit negotiations began this week and 10 days after tories suffered a defeat at the ballot box. there was an op ed calling on theresa may to drop the belligerence for a better brexit deal. he wrote we need a brexit

approach that has jobs and the economy at heart and faces greater -- places greater emphasis on the in a fit of the single market. from brussels, we are delighted to welcome keir starmer. thank you so much for giving us a little bit of your time. what do you make of the single market? is single market membership completely off the table and can we only have access at this point? [no audio] francine: i think we have had a little bit of technical difficulties. we were trying to understand, tom, after that opinion piece which was one of the main focal point of this tension between the labour party and the conservative party is exactly what they would do if they were in charge. we will get back to keir starmer in brussels. i want to get back to something me. really struck you were talking about the fact there is wishful thinking about how we deal with brexit. what role does the labour party

half? ,hey don't have the majority but they did much better than expected. is it kind of checks and balances on the conservatives or at some point can they come into power? richard: if there is any kind of sharing it has to be a check and balance. the conservative party approach believes in free markets and a liberal environment and yet they are trying to satisfy a base that doesn't really want immigration. i think the full print -- four principles and freedoms the e.u. will adhere to still allow a little bit of room for wiggle and maybe the labour party can help point out where that might be. there is not a free moving population, maybe a free move-in labour is different entirely. tom: what i see right now in my reading from a distance of the united kingdom -- you wonder of the prime minister's future and the idea of the place of the house of lords. there is a convention which goes

back half a century even farther back, with but -- but with the tightness within politics in a hung parliament, is the house of lords critical to all the different united kingdom debates? richard: i think the commons would not want that to be the deciding factor for such a kind of its apple -- epochal. -- the house of commons want to get this done in the house and i don't want the lords to make a decision that would be of such great significance in the long turn week is that would turn its head. let's go back to brussels and keir starmer for the opposition labor party. you believe the election was a rejection of the prime minister and that labour can change the course on brexit. how would you change course? keir: it is clear the prime minister took an extreme version of brexit to the electorate and came back with a minority

government. what we would do straight away is to change the tone and approach. i think there has been far too much belligerence -- a sort of message from the u.k. that it does not need the e.u.. we would change that approach and emphasize we have had a shared issue -- shared history and values and we need a shared future and therefore we need to move from formal membership, which is what was rejected last a partnership based on collaboration and cooperation. it will be that reset. i think what comes with that is a much higher and this is on the benefits of the single market and the customs union. many of these options were swept off the table by the prime minister in her lancaster house speech. different set of priorities, but most importantly putting jobs and the economy first. francine: you seem to be talking a lot about the tone and the language. do you believe single market membership would be completely

off the table, even if you are in charge? keir: i think we have got to distinguish between a discussion about models and a discussion about outcomes. for me, models are secondary. what needs to happen at the beginning of negotiations is each side needs to say this is what we want to achieve after the negotiations and the u.k. sets out its position with labour being very clear about this with no tariffs, red tape, customs, and something that works with services and the e.u. has concerns about how to make sure the u.k. doesn't drop out of the regulatory zone altogether and therefore somehow undercut the e.u. and have great anxiety about free trade agreements. that is the discussion that needs to be had. frankly, the model comes second. i think the mistake many people are making his thinking you go into negotiations with a set model and you put her model on the table and that is the end of negotiations. we have been clear we are

talking about outcomes. francine: but if you want access to the single market you have to have a list of priorities and you have to have a list of what you would be prepared to give up to achieve this. what would be the priorities and what would you be willing to give up? keir: i am only hearing you slightly and i think you said what priorities we would happen what we would give up? francine: yes, correct. i think, unfortunately, we are having a little bit of technical difficulties. conversations i was looking forward to. when you look at the political nuances and you look at the power that the labour party have more and more not only in terms of evidence, but how the labour party could possibly form an alliance within -- with thedems. it seems fluid because of this election a few days ago where the tories did not manage to get

a majority election. tom: let me go to you and maybe rick can jump in here as well. ,he question i had for sir keir does labour need the labour party of tony blair or is that agent -- ancient history? rick: i think that is ancient history and falls into the category of wishful thinking in some people in financial markets. needs tohat keir maybe set out is how does he feel about issues like sovereignty and immigration. i think labour party may be more relaxed about sovereignty, but are prettyvoters wound up about immigration. i think they are wrong, but i think they are pretty wound up about it. the younger vote is maybe not so much and i think that is a fluid area maybe even in the labour party, but i think that is a critical area to form a viewpoint on as you think about these four freedoms. francine: thank you so much. if you are a bloomberg customer, you can watch us using tv

and you can ask precise and typical questions to rick using -- it will be his pleasure to answer them. we are back in a couple of minutes. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. airbnb is on the -- is about to launch a premium service. according to people familiar with the product, it will send inspectors into host homes to make sure they meet a set of quality standards. the new program could launch by the end of the year. for the first time in five years, boeing beat out airbus at the paris air show. a -- worth up to $52 billion. that is twice as much in dollar terms as airbus. boeing got a boost from the max 10, the new version of a 737. berkshire hathaway is investing in home capital. the struggling canadian alternative lender, they are trying to rebound from near collapse. acquire a 30%

stake and is providing a one and a half billion dollar credit facility. -- $1.5 billion credit facility. next hour, mr. schiller of yale university will join us for it there is lots to talk about. let's get a head start on that on the exuberance of the stock market. withloki --rick lacaille francine in london. shared lastchart we week. on radio, it is simple. the line moves from the lower left to the upper right. it is the religion of the use of cash. you happens to be -- thank for that. the idea here on use of cash, do you just assume that is a permanent extra in the equity markets? >> i did not catch the question about the use of cash.

-- with dividend growth, do you assume corporations have a new religion where it is about dividend growth and share buyback forever? think it is and there are cross currents with the equity markets. think about investors -- investors think about their role as stewards. we need growth in the long-term and we know that will not necessarily provide it ties insisting -- by insisting on buybacks. as confidence grows, these long-term investment plans, you will be able to see a pickup in capex and it will be a depressing story of returning money to shareholders because there is nothing to invest in. francine: what is the biggest risk you see out there? we talked a bit about the trump administration and we don't have reforms made to bring this money

back instead of infesting it and really getting -- investing it and getting animal spirits back in the u.s. rick: we could be wrong about investing rates in the sense that may be real rights and breakevens begin to accelerate much more rapidly than people think. we are not expecting that, but that would really wrong foot markets because you have simultaneously discount rates going up and a challenge to topline growth and earnings and that is where you enter crash territory. i think that is the real risk. the other stores -- the other stuff, the noise and the geopolitical risk is not so important in terms of long-term valuation. so much. thank you tom: we need to give an eye on crude oil because we see it going down and down and down. in the last money minutes or so it has gone up. i don't know whether this is a technical rebound. we will see whether it is technical or maybe there is a

new data point we need to look at. tom: 20 minutes of noise will not get us to the end of the day. oil.theless, a lift in , thank you so much. much more to talk about moving forward. robert shiller of yield university will join us. as always, a set of topics with the polarized and original washington, robert shiller on our two america's and the need for a good society. it is a beautiful new york as summer beckons. new york city. stay with us from london and new york. this is bloomberg. ♪

♪ tom: is it obama lite for trump

heavy? the senate will deliver mcconnellcare behind closed doors. what will the health care pack -- cost to the rich and the poor. ? $39 a barrel beckons in crude oil. polarizedas, our society. this is "bloomberg surveillance ." from our world headquarters in new york. i am tom keene and with me, francine lacqua. the prime minister is in brussels. will she come home as prime minister? francine: she will come home as prime minister because the e.u. does not really decide her fate although maybe her brexit negotiation style will weaken her at home. she is safer in brussels than she is safe in the house of commons. taylor: in brussels today there could be the first big battle of brexit negotiations.

summit,opean union theresa may will outline how the u.k. plans to treat e.u. citizens after the breakup -- in brussels, police have detained four people in raids linked to bombings at the central trade station. authorities have released few other details. on tuesday, a man blew up a device that failed to fully explode and was shot dead by officers. on capitol hill, senate republican leaders release their plan to replace obamacare including a longer transition a decade would cut hundreds of billions of dollars from medicaid. the congressional budget office have not -- has not reviewed the bill, but says the measure would cost 23 million more americans to be without health care by 2026. president trump says immigrants should have to wait five years

before getting welfare benefits. he said he will introduce legislation shortly. are legal immigrants already barred from receiving most federal welfare benefits for five years or longer. global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you so much. the rest of the data track before we get to -- data check before we get to robert shiller. oil with a little bit of a bid. still really soggy on oil. onto the next screen. futures negative three. brent 45.17 and sterling still can't find a bid. francine: sterling will depend on what we hear from labour party and how the brexit negotiations or at least the proposal theresa may will put in brussels go. weakness persisting in european stocks. we are in the third day of losses and we see a slump in oil prices recouping some of the losses.

42.78. not sure if this is on technical. and then there is a clear demand for havens with yen gaining and gold gaining as well. tom: thank you so much. joining us is robert shiller, the laureate of yale university. there are always too many things to talk about. we will get to the market and exuberance here in a bit. we will get to mr. schiller interpretation of our two's americas. -- two americas. are we going to speak to chairman schiller? wife says i should do it. who knows. tom: i doubt it will happen. you are from that liberally those. there is a great write up today off of treasury secretary mnuchin conversation about the future of chair yellen. is it always a requirement that the fed chairman is politicized

and either left or right? robert: i think the whole idea -- the chairman is 14 years. i think we have gotten away from that. people are not fully -- serving the full term. it's supposed to be a political -- a[papolitical. tom: there are a couple different names being tossed about. these are economists of -- please explain the common ground of john taylor of stanford with robert schiller of yell. there is a lot of the ground there. robert: the public to the -- the public debate tends to emphasize the differences. i think we would do fine under john taylor. of ans have more

efficient market tinge to his thinking and is more likely to problems.fed for past there are differences. francine: can we take it a step back. is the, rightly so, this premise of our democracy that the federal bank should not be politicized. abstraction. what would the president one from a fed chair? he would not want higher rates because that is a concern for the company. robert: you want me to pretend i am donald trump. francine: there you go. in 30 seconds please. tom: for those of you on radio, this is painful to see. robert: if i were donald trump i would want low interest rates. i cannot imagine living -- they are giving him a rough time. i would not want to be donald trump, actually. i think i would worry about where the economy is going right now.

hims making a triumph of that the economy is doing well. he does not want to be -- see a reaction to a sudden tightening. francine: what i'm trying to understand and i don't want this to make it painful, but we understand the president wants political loyalty. what would political loyalty look like from a fed government? tom: great question. not going to want me, i think. i am not loyal. is: francine's question brilliant and comes down to rules and discretion. john taylor owns the taylor rule and i would suggest he could join you as a nobel laureate over that work. what have you learned over the years and through the crisis through the discretion of alan greenspan to the proposed rules of new zealand or john taylor? isert: i think discretion extremely important. the taylor rule as you say -- i suppose it is nobel prize potential.

it is a description of what the fed has been doing. as to what it should do, i think that requires sensible human judgment and a study of history. ben bernanke was a great chairman because he was a student of the exact phenomenon threatening to repeat itself, namely the great depression and i think he understood some of he may not be big on this in the way he talks, but he understood the importance of the narrative -- and the importance of not letting a bank run go -- not letting people think there isn't decisive action being it fromen to prevent sinking into a depression. that depression narrative was on its way back. that is not something the taylor rule can deal with. it is something that requires presumably,nt and

and taylor is a smart guy act sensibly. we cannot just rely on rules for monetary policy. especiallyight, given all the uncertainty is on how you measure inflation and whether it will start feeding through. the judgment of janet yellen is that inflation will pick up because the strength in the labor market will eventually feed through. is she right? robert: i think probably. are allings theoretical. we are talking about the so-called celebs curve that says when the economy strengthens, inflation picks up. there is something to that. if we look at the data, it is not highly predictable. we have to step back from theoretical models and look at what is happening. the would say, what narrative is and what people are

worrying about -- right now the 2007 -- 2008sis of it's still very much on our mind. francine: you hint --tom: you hint toward your new book. we will be back with robert shiller of the narratives we seen. mr. shiller is with yale university. coming up, he believes in liberty, i know he does not believe in obamacare, but i know i don't think he believes in as well.care we have a ton of mail on michael cannon of the cato institute. we have health care this morning. michael cannon coming up. this is bloomberg. ♪

♪ "om: "bloomberg surveillance

from london and new york. right now to washington and a really interesting political battles. kevin cirilli joins us, our chief washington correspondent. there was a great chart yesterday which showed how well the democrats are doing relative to where they were a few years ago against republicans and yet nancy pelosi is being highly criticized. explain. kevin: i think nancy pelosi is receiving criticism. democrats who are looking to take over for the house minority leader after she decides to no longer be in that positions. they are bouncing. they are trying to blame her for faced4 loss immigrants the other day -- democrats faced the other day with the door to district -- georgia district 6. i don't see how that falls on nancy pelosi. if you look into the politics, the different fashions within the democratic party, nancy

pelosi leads a faction and you have the more progressive wing in the house. this is just a lot of chatter. tom: just because of time. where is the faction that will separate democrats from the past of secretary clinton? is that faction developing day today as you move a beverage of your choice at the trump bar? kevin: i can tell you people like debbie wasserman schultz, the congresswoman from florida, once perceived to be someone to take over for democrats and now is not so much going to be able to be in that role. as for secretary clinton's faction of the democratic party, i don't think there is one at this point, especially in the house of representatives. i think really folks are looking at the more elizabeth warren wing in the democratic party and that is where all of this will be headed in 2018 and ultimately 2020. francine: if the 2020 election were to be held today --

kevin: trump would win. francine: who would challenge him? kevin: there is a host of folks. there is senator cory booker. there is people like senator chris murphy, a democrat from connecticut. sanders,arren, senator and vice president joe biden. there will be a crowded democratic field into 2020. the jockeying is already going on in the political consultant world. tom: we look forward to your interview with former speaker pelosi here in a matter of hours. thank you so much for the political update. michael cannon has been a frequent guest with the cato institute. a lot of people disagree with mr. cannon over obamacare, obama lite, we don't know what we have got. bring up the morning must read. this is from michael cannon. five ideas come here are two of them. what would make health care more

affordable or throw subsidies at unaffordable care? the third idea, would it actually sunsets and medicated engine of lbj or keep the is --sion alive long enough for expansion alive for a future democratic congress to rescue it? the ultimate fear of republicans is democrats come right back and put in place obamacare. michael: that is why so many cuts in the senate bill are the spendingcause would stay in place for three more congresses before cuts would take effect. expansione medicaid -- it would allow three congresses to take their seats before it would take full effect. those cuts are not going to stay. this was a bill that was designed to keep the medicaid expansion in place. after seven years of promising we will repeal obamacare in full, or publicans got control

of all branches of government and as quickly as they could they said forget it, we are not going to appeal. we are going to expand obamacare in some ways. tom: are we moving deck chairs on the cato titanic? than movingis worse the deck chairs because we have ship saying they like that the ship is going down. they are actively trying to keep in place the provisions of obamacare and medicated that are making health care worse for americans. they are making access to care less secure for americans. francine: do you really believe by thed get a floor vote early next week and what would be the prospects for this bill? i know we haven't seen it yet, but four days seems like a short amount of time. pretty punchy. michael: i think it would be extremely difficult for the senate to pull off. if i were betting i would say they are not going to have a

vote. mitch mcconnell is talented -- a talented majority leader so we will see if he is able to bring that -- pull that off. it appears they have already lost rand paul, libertarian conservative from kentucky and susan conlon's, a moderate from maine. that is all they can afford to lose. you want to look at the other moderates and conservatives, moderates like rob lee and see, are they going to bolt from the pack? if they do, this will does not go anywhere and the senate maybe moves on to other things. tom: what are the ramifications if mr. mcconnell loses this vote? what happens in health care legislation in the senate and the house? michael: perhaps nothing. i have heard reports that house will try to take up obamacare more likely they will realize they are not going to get something immediately and they will move on to other

things. they can try to ignore health care, but health care is not going to ignore them. obamacare is causing markets to collapse and leaving people without health insurance. evil who had health insurance before obamacare. -- people who had insurance before obamacare. , we haveessor shiller been arguing about health care through the span of years of my life. is this just an argument to get us to what every other nation has, which is some form of a socialized medicine? robert: it seems health care, partis really unique and -- it is part of our national identity. it is self-reliance i guess although insurance is a whole other economic concept that ought to be respected. tom: we should make clear that professor shiller is an expert in insurance and society. do we have flawed insurance? robert: i think insurance is a

concept that has been developed over centuries and it is flawed everywhere. it has to continually grow. as we move toward a more sophisticated economy, a big data economy, a lot of adjustments have to be made. for example, one thing obamacare did is it helped prevent the problem of pre-existing conditions, which would limit your ability to ensure major risk. we have to deal with that problem which is growing and will gain as big data becomes more and more important. tom: robert shiller with us. we will have health care coverage looking for the mcconnell bill to come to light in the senate. we continue with robert shiller. we must do housing with peter wallace. wallace and shiller together is really special and then robert shiller on your exuberant stock market. stay with us. this is bloomberg. ♪

♪ francine: "bloomberg surveillance" with tom and francine from london and new york. tom was looking at a great oil chart. oil now up a touch. downward trend. verychart was actually nicely put what we have seen over the last couple of weeks. you can see the downward trend. however, the last hour or so it has been pushing back up after falling into a bear market and the speculation that rising u.s. output will -- opec levels for a cut.

greatl also push for that chart -- we are with will kennedy, formberg's managing editor u.s. and economies and we still set withshiller on tom. i don't know if these are technical levels being supported and then it goes back up, but i am also seeing a headline saying maybe china crude imports will grow. how much of this is a demand problem where we also see a downward slide and how much of this is technical? the real problem is there is simply too much oil. the physical market is showing fullcers have oil tankers of crude which is relatively hard to sell. we had a great story last week about an oil tanker off africa looking for a buyer in china and could not find it. we are beginning to see the way the market is structured, the cost of oil right now compared to the cost -- it is going to be

possible per visa -- possible for people to start storing oil again. francine: if we look at technical levels, i know we looked at research saying it could go back to $30 or do you look at a new flow? will: i think there are technical things going on as well. we took that low from earlier in the year earlier this week that clearly gave us some real bearish momentum technically, but i get -- i believe there -- it is really a physical story right now. it is a physical story right now and i guess there is a lot in the tankers. is it a mystery how much supply is out there? is supplied accountable by the barrels? will: it depends on where you are doing it. it clearly in places you can count it, more is coming. supply is growing from the u.s. u.s. production gained by another 20,000 barrels a day.

so far, this bear market has not taken the wind out of the sails of u.s. shale and that will be something we have to watch. at one point do these lower prices -- at what point do these lower prices have an impact in texas? francine: will kennedy and robert shiller of yale university stays with us. we will have more on the oil market. we have charts that enable us to possibly look at this bearish trend. later on we also talk about mexico. bloomberg's editor in chief americas, that miller -- matt miller. he spoke to the finance minister and we have a mexico update. this is bloomberg. ♪

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♪ near, the silver building is the citigroup building the --

correction, yesterday i said it red sox were in first place and i am wrong, yankees win and red sox lose, yankees and first voice. more on this through the summer. in london, they do not care about the yankees or red sox, i am not sure what they care about, maybe government. francine lacqua is in london. francine: i care about my government and the future of the u.k.. in brussels, that is where it is happening, the first down -- first time macron shows up and theresa may. tom: maybe she will go to stonehenge. let's get to the first word news. the president's cabinet secretaries are ignoring his recent tweet on china and north korea. the defense secretary and secretary of state say china

still has a crucial role in pressuring kim jong-un to give up its nuclear weapons program. the president tweeted that china's attempt to help with north korea have not worked. some top administration advisers wants to replace janet yellen when her term expires in february according to administration officials who say the trump administration want their own person with one official saying president trump likes janet yellen and feels no sense of urgency in the matter. mexico may lower interest rates as the end of the year -- the finance minister spoke to bloomberg tv. >> monetary policy wise, the markets are seeing potentially a couple of increases this year interesting to predict rates could go down as the early as this year. >> mexico's inflation rate expected to slow to 4% by early

2018. in south africa, the nation's highest court ruled element can hold a no caps on's boat -- no confidence about on the president. on the president after he fired their finance minister which led ratings firms to downgrade south african debt to junk. global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries.

norway has been hurt by the shaky oil market. that is your bloomberg business flash. tom: thank you so much. this is a wonderful moment for "bloomberg surveillance." , the former white house counsel to president reagan. "iley describes this book, hidden in plain sight." let's get to this discussion and

then i want to broaden out to you two. dodd-frank is a thing. >> in getting rid of it or do a better good of finally codifying it and amending it around the corners. >> we do a lot of good to get rid of dodd-frank entirely. tom: not going to happen? >> i do not think it will have an entirely but i think the business community is very happy with the idea that it will not be enforced the way it was enforced under the obama administration. you can stop making new regulations and to the extent you do that, the business community will be happier and that is white -- tom: what is the outcome of republicans when republicans win, democrats went come in these the swing within our dodd-frank interpretations. over the next 20 years.

>> that is troublesome and preferable for the republicans if they could reveal good parts -- large part of dodd-frank through the choice act. until the democrats come around to what caused the financial crisis, i think we will have difficulty getting it repealed. francine: what caused the financial crisis? looking back at what caused it, we regulated that to death, do we relate it to the next crisis -- regulate the next crisis which we do not know what will be? crisishows the financial was caused by government housing policy in the united states. the result of that was the adoption of the dodd frank act because congress misdiagnosed the financial crisis by saying that it was caused by a lack of regulation in the united states. not true, it was the housing policies of the country.

if we can revise the housing policies, we will not have another financial crisis. unfortunately, we have not done that and are headed towards what could possibly be another financial crisis in the future, unless we stop it. francine: what that be something imported from china? is next financial crisis more likely, i am asking you, more likely to come from china than something domestic? >> i do not think they crisis that will come through the markets, crisis caused by government policies. china is a competitor. china will always be a competitor, that is good for our economy. when theem is, government intercedes as it did in the house with policy area, we get something close to a crisis. tom: why aren't you in the trump administration? are you not loyal? approached but am

not interested in going into the government, like what i am doing. tom: he answered that graciously. treat, peterl andace and -- wallison robert shiller on the state of american housing. here andnd, come over go to a past segment like on oil and bring up the chart, and you can steal that for. tv , better than good. ♪

♪ obamane: i am praising with the francine lacqua with tom keene. talk to us about the oil markets. you had a great conversation with goldman sachs's jeff curry. >> oil front and center over the the leverageurs, finance and energy, very tightly linked. i talked to the cohead of america's credit finance, we

will hear that today, they talk about leverage loan issuance and what it means for the health care and energy sector. they say there is so much cash in the system, investors are continually willing to take on risk and they do not see that ending soon. tom: looking forward to your take on oil on daybreak. storytime, here is peter wallison's great book "hidden in plain sight." liberals hate it, they have to read it. page 125, our homeownership strategy will not cost the taxpayers one extra set, it will not require legislation, it will not add more federal programs or grow the federal bureaucracy, that was from hillary clinton and that worked out. are we doing it again? forget about 1995, are we going

back to 2005? >> yes, the same housing policies, the government controls housing policy and offering all kinds of concessionary lending. tom: i see it. >> this causes housing prices to rise and you can see it in the charts. tom: a guide to your right wrote a wonderful book about america and our good society. everybody wants to own a home, that is the zeitgeist of this nation. is that really what everybody is babbling about, we have to have a home? >> that is the idea of people have but to own a home you have to have the resources to sustain the ownership. that is what we fail to do and are failing to do right now. we are offering 3% down payment mortgages. when you have that, you will have housing prices rise. tom: a societal pressure. this is case-shiller, the

existing home medium price adjusted for inflation. we are doing it again, up we go, is this because of a housing shortage or the exuberance you have written about? >> production is not back to 2004 levels, and sunset, a shortage but i emphasize more the psychology of homeowners rather than -- i think that people are optimistic -- not as optimistic as they were in 2004- 2005. there was extreme optimism. 12% a year, for the next 10 years, that was crazy but it is down to 4% per year, not as optimistic but they seem to want homes more and i think it is substantially psychological. tom: it is the time of free money, is chair yellen our housings are -- czar?

>> the fed is now the major owner of mortgage backed securities. they have been doing under this -- doing this under quantitative easing without actual effect on the economy. the result is that it has been easy for fannie mae and freddie mac to make these loans and make concession or loans and sell these bonds, which are backed by the government to the fed. francine: if the housing bubble bursts, is the u.s. ready? >> i would say we are never ready for a housing bubble to burst. we are not in a position yet where the burst of the housing bubble would cause any problem. we are where we were in the late 1990's. if things continue as they are, once you get a bubble going, as i think the professor will affirm, once you will get it

going, it is hard to stop. >> it stops on its own accord. stop with the television but you will continue on bloomberg radio, which is special. peter wallison and robert shiller with us on american housing. let me do a forex report, sterling at 126, stable, i would look at dollar-yen, 111.26. some yen strength. look for the health care bill from the senate later this morning across bloomberg. ♪

jon: prime minister may heads to

brussels to face eu 27. d.c. gets ready for a big health care reveal good the obamacare replacement will be unveiled today. after crude dropped into a bear market, a wave of energy analysts downgrade stocks. good morning. this is "bloomberg daybreak." up for theset session this thursday, let's get you up to speed on the market action. features are stable, marginally negative. down a single point on the s&p 500. a classic summer's morning in new york for you. treasuries up by a single basis point. crude ate side after $42.70. alix: now getting a bit of a bid. the energy stocks still getting hit.