>> eyes on the prize. what yellen calls a somewhat rich asset valuations. another relevant in the rate hike calculus. are companies doing enough to protect against the increasingly routine risk of france of ransomware? theresa may's government faces its first parliamentary test. this is "bloomberg surveillance

." i'm mark barton in london. we have stocks falling for a fifth day. it was a central bank heavy day yesterday with yellen, carney, and draghi speaking. against theup dollar, rising to a one-year high, 1.1381. the yield rose the most sense january yesterday after fed chair janet yellen spoke. the u.s. can withstand higher rates. 0.1%,mex crude is down by falling for the first day in five u.s. days. crude stockpiles rose, exacerbating this government data.

inventories extended declines from that record reached at the end of march. let's get the bloomberg first word news with sebastian salek. reporter: a new cyber where attack has reached asia after spreading from europe to the u.s. overnight. with being carried out users told to+++

bitcoin. ransomeware is becoming a routine risk of doing business around the world. senate republicans have postponed the vote on a new health care bill after at least five gop members said they would not vote for the bill. the delay is another setback on the republican's campaign to repeal and replace obamacare. >> we are going to talk and we are going to see what we can do. but for the country, we have to have health care and it can't be obamacare, which is melting down. the other side is saying all sorts of things before they knew what the bill was. this will be great if we get it done and if we don't, it will be something that we are not going to like, and that is ok. reporter: the u.k. prime minister's office has tried to downplay a row over whether britain should have a transition period. this is after david davis accused philip hammond of taking inconsistent positions on whether the u.k. should seek a remain deal. all of this comes ahead of may's first prime minister's questions session after her disastrous elections result. warren buffett said he would never take credit for anything the market does and he was president. warren buffett, who backed

hillary clinton during the election, said stocks have been rising since the financial crisis. >> results have been going up, basically since march of 2009, very early in march, going up almost every since then. president,et elected i will not take credit for what the market does because i don't want to be blamed when it goes the other direction. reporter: global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this isstian salek and bloomberg. mark: u.s. stocks fell the most in six swsweeks yesterday. janet yellen technology equity valuations, and other markets have climbed noticeably in recent weeks. she spoke here in london on the same day similar comments were made elsewhere by vice chair stanley fischer and john williams. somewhatvaluations are

rich. we could use some traditional metrics. but i would not try to comment on appropriate valuations. those ratios depend on long-term interest rates and you know, of course there is uncertainty about that. yes, by standard metrics, some asset valuations were high, but there is no certainty about that. mark: meanwhile, the international monetary fund removes assumptions of president trump's plans to cut taxes and boost infrastructure spending. the imf reducing its forecast for the u.s. growth to 2.1%, down from 2.3%. bilal hafeezn and james pomeray.

three fed officials were talking about rising asset prices, a new metric we need to throw into the equation. >> i think from our side, central bankers are going to have to think about this because if you think inflation is more and more so structurally lower, the wage growth is lower in a world of automation, you have digitalization, then maybe inflation is a little bit lower. may be the labor market does not tell you everything you wanted to. maybe central bankers need to look at a broader sweep of data, and one of those things could be asset data. central banks more globally have to start thinking about a broader set of adata. mark: does this strengthened the umbrella of tightening policy? the bond market does not

believe it. >> the fed is aware that a large reason for asset price performance has been low interest rates. but they need to do on a sustainable basis is remove that support, hopefully without an accident on the way. but the longer they don't do that, the more risk there is that asset prices become too expensive. mark: the imf yesterday, cutting the forecast for the economy, removing assumptions for donald trump's plan to cut taxes and boost infrastructure spending. growth is what trump hoped for, pledged, whatever word you want to use. easable?oking unfesabl >> i think so. youif you are the u.s., and

have an economy with reasonably high levels of debt, and a demographic challenges -- yes, the u.s. has better demographics than the rest of the world, but you have a flowing population. your structural growth rate is 2%, if not lower. mark: do we now believe the inability of a vote to take place on health care -- is there a possibility for donald trump to push through his agenda? >> that is the risk. if this is taking so long, maybe future reforms take a bit longer. we originally made these were forecasts on the assumption of some fiscal stimulus. a bit morebecomes reduced and then we have to be more pessimistic. mark: let's talk about the

dollar, around the lowest level since october. what is going on? >> piece is a story that has been going on since the beginning of this year. the last three or four years we have had a story where the fed has been tightening policy. usingb has been quantitative easing, but the rest of the world is now catching up to the u.s. this weakness is an ongoing story. this low in the dollar will continue to head down, and we saw that yesterday. as soon as the ecb talked slightly hawkish, the euro surged. mark: give me some pairs. >> i think right now the european crosses are the best, the euro-dollar, the scandinavian currencies. looking ahead, the yen could start to participate as well, especially if this selloff in equity markets continues. mark: do you think it will

continue? >> i think so, yeah. i think some of the moments last -- nowhe weakness in yen the central bank says, we are going to hike rates. mark: how close are you looking at the weakness in the oil price, james? when do we start waving the red flag? when we get to $30? >> it depends on who you are. european consumers will level at $30. although today, there could be at any point in the path. it is more of a supply issue than a demand issue. $30 is great news for the european consumer and the u.s. consumer, people who have seen consumption slowdown from higher inflation. that could help consumption.

there are certain winners and losers. mark: james pomeray joining us. getting more news on that cyber attack. another company that has been affected, bnp paribnas. the cyber attack has affected the real estate unit. bnp paribas says measures have been taken to limit the impact of the cyberattacks, which is andcting the u.s., asia, france. includinging up, theresa may preparing for her first prime minister's questions since her disastrous election results. what could be a testing day for the u.k. premier. as the latest cyber attack goes global, we look at who has been hit, and who might be behind it. this is bloomberg. ♪ mark: let's get the bloomberg

business flash. reporter: nestle announced a $21 billion buyback, looking for a position just days after a shakeup was called for. the company has not had a repurchase program since 2014. they also called on nestle to sell its stake in l'oreal and take on more debt. toshiba has assumed western digital four $1 billion in damages and is looking to stop the u.s. company from interfering with the sale of its chip unit. toshiba said it needs more time to reach a final agreement on the sale of the business, but reassured it is on track to

complete the deal by next march. deutsche bank made a u.s. inflation bet, and could lose as much as $60 million. the german lender has been examining whether traders breached risk limits on the deal and such a loss would be a loss fforts. cryan's e an official declined to comment from new york. mark: prime minister theresa may's new minority government will face its first test later following a wave of terrorist attacks. the opposition labor party will demand a vote, demanding more money for public services. meanwhile, may will address lawmakers this lunchtime in her first prime minister's questions session since her failed election. andl with us, bilal hafeez james pomeray. james, yesterday boe, fpc,

semiannual fo financial stability report -- the take they are taking away some of what they gave last their, essentially post-brexit. some saying, does it lessen the need of the npc to tighten policy? >> to an extent. we are of the view that the bank of england will not been moving anytime sinful step that is -- will not be moving anytime soon. that is because uncertainty around brexit trumps anything. there is not a case to keep rates that loose because inflation is high and credit growth is strong. it means we don't expect the bank of england to be doing anything on rates. mark: so, we should not be too distracted by the fact that the vote at the last meeting was 5-3?

well, actually, we do expect the bank of england to hike rates. mark: good. >> our view is last year they did have an emergency cut, and this year they will reverse that emergency cut and do one hike. fpc they did the yesterday, the announcement changing the capital buffer, they also did that last year. soon after that, they cut rates, and i think it is part of the same sort of package. the economy is not in emergency mode, so they have to reverse some of that. mark: isn't this a case of rebirthing, james? we have brexit to consider. we had another 25 basis point hike, new record levels. >> the u.k. consumer is probably

in worse shape now than they were last year. are they placed well to deal with another rate rise? mark: are they, bilal? >> the way central bankers deal with high inflation is to raise rates. you can argue it both ways. mark: are you not troubled by the inflation overshoot, as some are? >> actually, most of this is transitory. the currency weakness will eventually wash out of the data. there are very few signs of domestic driven inflation. if you are looking over the medium-term, i think you have to think high inflation washes that reasonably quickly and that is why we are putting a big focus on the weakness of the consumer. which has been referred to

as well. in the last 24 hours, the deputy governor, the policymakers do have time before the need to hike because there is not much domestic driven inflation. sterling-dollar, 1.2811. we could not hold above 1.30. where is sterling heading from here? >> given where we think the euro-dollar could go, cable could go higher. it is more a reflection of the dollar weakness than it is sterling strength. i would also add on the sterling side, so much bad news has been priced in. we had this election result, the hung parliament, talks about the brexit negotiations going nowhere. how much more bad news can you get for the u.k.? to that extent, there is a limitation to how much weakness you see in the pound in the

short-term. mark: thank you for joining us today james pomeray. bilal hafeez will be staying with us. up next, ransomeware return. how big an impact is it having? we will bring you the latest. this is bloomberg. ♪ mark: you are watching

"bloomberg surveillance." i'm mark barton in london. bnp paribas is taking measures

to limit the impact from the cyberattacks, which affected the real estate unit. this is the major ransomeware attacked that has affected businesses and governments across the globe. give us a feeling of the extent of this attack, charles. quickly.ead very yesterday it was contained within the ukraine. it spread westward. a shipping company has been hit. wpp has also been had. what is interesting is these companies have not solve their problems overnight. down.website is still merck had to shut down some of its systems. these issues are not going away. mark: seemingly, it is multiplying. because, we had the wannacry attack. why is there a proliferation in these attacks?

>> there is a huge database of these attacks. essentially, people are offering these attacks for the highest bidder, essentially. it is important to note that wit h this latest one -- with this one, even though it went through the same type of format, paying 300 bitcoins, the email you use to pay, it has been taken down. they are not interested in giving you your systems back. your computer system has been knocked out. mark: what happens now? does this kind of attack evil overtime? -- does this kind of attack evolve overtime? >> remember, this is something that is hitting systems that

companies don't want to take offline. fors taking systems offline shipping systems. you risk updating them. are solving the problem and you end up creating two or three new ones. if things are working, don't fix it. that is the attitude the companies are taking. unfortunately, they are now paying the price. mark: still to come, the ten-year anniversary as the beginning of the global crisis continues. gandy.k to bridget this is bloomberg. ♪

mark: you are watching bloomberg "surveillance/." as hasian: bnp parib

become the latest business that is confirmed it has been impacted by a cyber attack. it's under control. spread around the world hitting businesses and government systems. u.s. stocks fell the most in six weeks after a trio of federal reserve officials address the issue of rising asset prices. janet yellen acknowledge that equity valuations declined noticeably in recent weeks. >> asset valuations are somewhat rich if you use price-to-earnings ratios. on i wouldn't try to comment appropriate valuations, wh dependat to on long-term interest rates. of course, there is uncertainty about that. so, yes by standard metrics, some asset valuations look high , but there's no certainty about

that. sebastian's: republicans have postponed a vote on the health-care bill after five members said they would block debate on the bill drafted by mitch mcconnell. the delay is a setback on the republican's seven-year campaign to repeal and replace obamacare. k. prime minister's office has tried to downplay a row. after the brexit secretary david taking ansed them of inconsistent position on whether the u.k. -- on remaining in the customs union. all this comes ahead of may's first prime minister question sessions since the disastrous election results. global news powered by 2700 journalists and analysts in 120 countries. this bloomberg. mark: thank you very much.

just putting a wonderful chart together while i listen to you. let's get on with currencies. the big week for central banks continues. bank of canada governor on a panel at the ecb annual forum. gou can watch that on live > from 2:30 p.m. london time. was is a chart i desperately trying to put up. and i managed it. this is euro-dollar. we're obviously today at roughly 1.13. let's stick a q in there. 1.13 was key because it was the u.s. election level. 1.1428 was the psoost brexit

high. 1.17 was the high from august, 2015. those are all those levels. how swiftly to a breakthrough them now that we have broken that key post trump election-? high? >> i think we broke to the very levels in the next few months. over the last two years we had a tell you range. it's unusual to have a choppy range. the last time we had something like that was in the early 2000's. it does not last. the big difference right now is that there is a very powerful european story we are seeing. european growth is very strong with the politics is all turned out advantageous towards europe with macron's victory. we are having flexibility, allowing the italian banks -- this is real, what we are seeing. and i think we could see in the next few months a move up towards 1.15.

mark: did draghi take us by surprise by his more hawkish stance? ove move in the euro, big m upwards in bond yields. bilal: it certainly did take us all by surprise given how big the move was. the message from the last ecb meeting was wait-and-see. this was much more bold. what he said yesterday, in essence, saying the weakest inflation is temporary, the oil shock is a supply shock rather than a demand shock. and he talked about how the broader european recovery that is going on. it took everybody by surprise. it is in line with many other people's view that there is a european recovery going on. tighten doesn't have to policy but he can tweet the accommodative side. bilal: emergency measures

they put in place during the height of the european crisis in 2012, and unwinding that. the reality for markets is the same thing. mark: calendar watching, the next key date to watch is the september meeting? they update their forecast around that time, and that will be, in our estimation, that is when they will announce the tapering program, which will be of limited at the end of the yea. r. in september, they will say at the end of the are we will start to taper. mark: and they won' raise wrates before the end of the program? bilal: if they reduce the purchases -- by the second half of next year, they have finished tapering. mark: is it going to be a smooth process?

we know what ben bernanke he said the tapering comments did all those years ago. mere threat ofhe tapering. bilal: these things never go smoothly, no matter how much -- they want them to go smoothly. if you look at the fed's taper -- there were other instances were central banks have unwound with low interest rates. it is always a bumpy ride. the advantage that the ecb does have is its q.e. program is complex. they already have tapered bunds already. to some extent, that does muddy the water. on balance, whatever a central bank unwinds, it is a rocky ride. mark: where is the inflation? we will know more on friday. the inflation on

side, there is based effect and oil affects that have led to inflation falling. the next print is likely to be on the low side as well. the july numbers onwards, we'll start to see inflation tick up. what central banks are saying that inflation is temporarily low is a fair point. affects, we'll start to see a rise in inflation the second half of the year. mark: that goes for all major central banks. not worried about inflation -- if you look at the break even, forward expectations. bilal: yeah. the story was the market got way that has been completely reversed. the risk return is to play the reversal. everyone has essentially written off inflation, talking about structural reform. this is the time -- no, there is

some. inflationary pressures and that will start to build. mark: thanks for joining us. crisis in the cabinet. we will speak to former shadow minister. this is bloomberg. ♪

mark: you are watching bloomberg "surveillance." let's check the markets. sebastian: a weakness in equities today, but let me take you out. here is a chart. we're set for history to repeat itself. we're headed through a june

slump. we have seen that for nine out of the 10 previous years. this time it is different. we break that four month streak. we have not seen that since 2014. a bit of weakness in equities. euro against sterling, hitting its highest level in 2017 after those unexpectedly hawkish comments from mario draghi talking about deflationary forces and how the ecb can look past lower oil price. it raises the question, will we get tapering from ecb? the move playing out in euro -dollar. 3482, your hash tag. yellen talking about the rich asset prices. itsing for a strong period, highest performance and seven years, since 2010. not what analysts were expecting.

a survey expecting weakening and the second quarter. deutsche bank raising their forecast. previously at 103. let's check in on bunds, following the comment yesterday from mario draghi. your yield spiking up yesterday. the worst day since 2015, rising 11 basis points. haven't seen that since december 2015. mark: big themes. what are the big seems right now on the euro? >> there is the euro thereme, dollar weakness. the other theme is on carry. we think it will be the summer of pain. is, typically the summer is a very bad period over risk rates. everyone is on holiday, the juniors are on the desk. they tend to panic a lot more.

also, most people are expecting central banks to announce some type of tightening. g peoplele, lullin into a false is a security. the summer is fine. markets anticipate. if everyone thinks september is a problem, it will be pulled forward to now. mark: who's betting on what when it comes to carray trades? bilal: all investors are betting and some sort of carry trade, equityrry trade, markets, everyone is invested in that one way or the other. it's manifesting itself is more in emerging markets. the, and currencies like resilience rea -- the brazilian real and the turkish lira. and moving into italian and spanish bonds. mark: it is a good function,

just showing dollar six-month carriage rates. short dollar. you mentioned the rand. some interesting -- bilal: i use this function a lot. it tells you if people probably have been all investing -- all of these will be -- poland and czech. that will benefit from the boost in the euro. ll be and so on witl bundledable. if you like euro, that will naturally drag poland up as we ll. mark: what about yen-dollar? bilal: we do think the dollar is in a weak environment. we do expect that the bank of japan is not in a tightening mode, but if we are in the summer of pain, so to speak, the yen will benefit.

the yen does well. that dollar-yen lower would be the most likely path in the next few months. 2%k: the past two weeks, the inflation goal, is a painful one is a market watcher. thene next big event might be kuroda's departure or non- departure. could he stay? bilal: it's important to some extent in terms of the type of policy they could pursue. the one policy tool they have -- they have tried everything. negative rates, buying equities and bonds. the one thing they have not done is due helicopter money. print money and use that money to just fuel growth. they have not gone down that road. so, the issue with that is there

is no one within the bank of japan that wants to cross that line. nor is there anyone in the ministry of finance to cross the line as well. on,n if kuroda was to move until you get this consensus that they are willing to do helicopter money, there is not much they can do. mark: great to have you on. right. still to come, almost a decade since the global financial crisis. we will focus on the future of europe's banks. we will join by the co-head financial institutions teams and rages the agency -- and ratings agency fitch. this is bloomberg. ♪

mark: you are watching bloomberg "surveillance." let's get the bloomberg business flash. le announced at share buyback and says it is looking for acquisitions. the company has not had a repurchase program since 2014 and the new ceo said in february the buyback was a lower priority. itsalled on nestle to sell

stake in loreal. toshiba has sue western digital for $1 billion and damages. afterve came hours toshiba says it needs more time to reach final agreement on the sale of the business, but we are sure it is on track to complete the deal by next march. deutsche bank is set to have made a u.s. inflation bet that puts him on course to loose $60 million. the lender has been examining whether trade has reached its limit. the loss would be a setback to john cryan. and officials for deutsche bank in.new york declined to comment . and facebook said it topped 2 billion regular monthly users. the site was founded in 2004 and reached one billion in october, 2012. facebook says it is concentrating on creating virtual communities and is

working harder to reduce misleading content. and that's the bloomberg business flash. mark: let's talk about the future of europe's banking sector. in spain, bank -- agreed to acquire bmn. following spain's property bust. there is a global banking conference 2017 that is getting underway in london. we'll speak to the co-head of e mea. thank you very much for joining us today. i spoke to the italian finance minister a couple of days ago. we had a great conversation and a lot of it was about semantics but he said he was not a bailout - it was not bailout. what do you call it?

what happened at the weekend? bridget: we call it bank failure. a classic case. the next question is, how do you deal with a bank failure? and bmne several banks has just been acquired, was another case in point. if you take their nonperforming loans and the cash reserves and compare that with their capital, they don't have any left, then they look like they are in trouble. it's reall up to -- really up to the regulators to call a failure. then what do you do? will you sell the bank? mark: as in popular. bridget: the same thing as happened with bmn. it's happening quite a lot at the moment. the rules are the difficulty. mark: why isn't there one rule? banking union new

rules meant to make everything easier to understand? is this to the detriment of banking unions? bridget: the banking union is still being put in place. it's in the legislation. that you have to apply certain rules. that exactly the intricacies of how you do that -- is still getting into play. actually, there is another part of the banking union which the draft legislation came out this morning. and that is actually looking to deal with, it's actually getting senioril in of creditors. the italian legislation wasn't quite in place to allow more bail in. mark: if you are senior bondholder and you are looking around -- there are different rules. bridget: currently what we have seen in both spain and italy is that senior debt is not getting

touched. and the reason it is not getting touched is because the implementation of the directive isn't quite ready yet. you need to find a way to bail in senior, unsecured creditors without bringing in depositors and derivatives into the mix. mark: is it a level playing field? bridget: it is getting very close to a level playing field. if you ask me next year, i will say yes, it definitely is. mark: with the resolution of popular, everyone was clapping. they have done a great job. no cost to taxpayers. then a a few weeks later the state essentially helping resolve to the cost of the taxpayer. bridget: the italian state has given 5 billion cash to intesa

to help them take the banks off their hands. and they have also given a 12 billion guarantee. 5 billion of cash behind that. to equalize the benefits of this support for these problem banks to intesa shareholders. mark: are there more state -- more zombie banks? bridget: they are still working out the precautionary capitalization -- and there, we're waiting for the securitization that goes hand-in-hand with that, which is getting those out into the market to finalize. if that doesn't cmoome to affect -- mark: are we closer to dealing with the nonperforming loans? bridget: we are much closer and the legislation by next year will be in place. mark: when you come back, you're going to say --

bridget: i'm going to say that nrel.s now implementing the credit rating analysts, is negative to the bond ratings and we have already factored that in. what we're actually seeing now it is like getting out to the senior debt holders. mark: thanks for coming in on this pivotal month. bridget gandy there. the managing director of ratings agency fitch. "surveillance" continues. guy and tom are here, talking to the university of oxford's george maintenance. this is bloomberg. ♪

tom: when the facts change and

deutsche bank changes. carney and draghi consider better politics in europe. again, austerity. the chancellor battles over brexit. and a senator mcconnell does not have the votes and delays until after the fourth of july, when the colonies celebrate leaving heathrow, and the other things we do in america. i'm tom keene. the fourth of july is upon us, guy. there is massive turmoil in the markets. am i right? it was within the conservatives in london as well. the marketsthink if don't like things to be out of kilter, they will not like what is in front of them now, both in terms of the changing narrative with the central bank, but politics in the u.k.

it is european politics that seems to be providing stability. tom: doing better with this major call from deutsche bank. let's get to that first word news from new york. reporter: prime minister theresa may faces the first test of her minority government's powerful stuff jeremy corbyn will challenge the conservatives on austerity. jeremy corbyn will put forth a motion in parliament, demanding an end to cuts in public services. on capitol hill, the stage is set for lobbying on the senate's plan to replace obamacare. mitch mcconnell decided to delay a vote on health care legislation after it be came clear he did not have enough support to pass it. uperal reserve is ramping attention over what janet yellen calls the somewhat risky asset prices. valuations in equity and other

markets have risen noticeably recently. fed'ss have worried the easy money policy could lead to money problem. that cyberattack has now reached asia, affecting port operators and government computer systems. the attack has been carried out by the petya virus. users are being told to pay $300 unlock in currency to said computers. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. tom: thank you. let's get to the data right now. equities, bonds, currencies, commodities -- a lot is moving to change the markets. a significant curve steepening in the last 48 hours or so. a stronger euro. oil cannot get out of its way after inventory news yesterday. the vix, showing the elevation

to 9.27.ing from 9.810 you can really see the euro move in a weaker swiss franc. that's a big deal. guy: yeah, many of the similar assets are on my board. look at what is happening with the german yields. the front end, there is a different narrative at the front end than at the 10 year point. the 10 year point, nevertheless, still important. the year end call is for a .6 yield on the german 10 year. that still feels like a long way away, but if we get there, think about the losses we could see. it does not sound like a big move and it would not be a big move in treasuries, but for bunds, it would be massive. tom: they were higher by two basis points. down.oves bond prices

that is one indication of that mix of the stronger euro. let's go to the bloomberg. we capitulate on a weak euro cal l. this is the synthetic euro back to the 1970's. we have a strong euro; we then rollover and die. here was the parity call of long ago, the year and a half ago. the euro is going to die. it didn't happen. this.ings up like this goes to the relative politics, the better politics of a merkel europe. guy: who has the biggest bark when it comes to central banking? it appears to be draghi like this. let's take a look at the effect

draghi has on europe, where we have seen curves steepen, but also in the u.s. u.s. 10 year in the white, and the german one. throw something else in there. the chinese are having an affect on this. the chinese premier talked about a positive story in china, moving commodities up. that then affected the bund market, which rippled into the treasury market. there are a bunch of factors coming through in terms of the story we are watching. but draghi comments also affected german bunds, their worst day in two years. remember, we also had janet yellen saying yesterday that asset valuations are "somewhat rich," speaking in london. these were her comments on the

chances of another financial crisis. >> there will never, ever be another financial crisis. probably that would be going too far. but i do think we are much safer. i don't believe it will happen in our lifetimes. guy: that is a very big chair, isn't it? joining us now is george magnus from the university of oxford and also with us, mark cudmore. mark, have we witnessed in the last week four hours, a correlated thinking between central banks that we are shifting gears, changing the narrative? >> i think that is a narrative the market is focusing on. i don't think the shift happened in the last 24 hours. in the last month, central banks

have turned more hawkish. we need to keep in mind there is a genuine shift, but we should not overstate it. i don't think we are suddenly going into rate hikes. i don't think we are suddenly turning very aggressively hawkish, but it is a slight shift. guy: in its interesting people made a lot of what yellen said yesterday, but in some ways -- >> i think her comments were largely irrelevant. the move in equities started before then. the taxes were driven by the google fine. yellen said stocks were looking slightly overvalued, but those were inane comments, because you are using the same metrics that many people used. there was nothing stunning. idle think yellen -- i don't think yellen was behind this move. tom: george, good morning.

i want to talk about zombie banks. words.does not mince is the euro appreciation a restrictive impulse to president draghi? >> i don't think so. certainly not yet. tom: i agree with that. >> we are still really, possibly in the foothills of what might turn out to be a sort of euro appreciation surprise. i mean, as your package previously pointed out, a lot of people have been expecting parity. the principal factors that underlay people's expectations about why the dollar bull market was going to run and run have largely been chipped away, one by one. they are not irretrievable, but it is a stretch now to believe

higher interest rates, fiscal stimulus, corporate tax cuts, repatriation of corporate dollars held abroad, all of these things, they will not happen within the next six to nine months. the euro has got it all going. tom: how do you respond to the idea that central bankers are going to raise rates, even witht this news, that news, and the other news? at some point they have to blink, don't they? >> idle think we should get too carried away. -- i don't think we should get too carried away. but of course, in the u.s. it is a different game. it is interesting actually. yellen's comments were rather innocuous, but this follows a week in which the san francisco said president john williams and stan fischer, bill dudley of the

new york fed, and now yellen, four big hitter, have fallen into line over the issue of asset prices and financial instability. the issue for the fed, we think of it as being an inflation driven central bank. not so. they are looking at an agenda, which is what we criticized greens bank for not having many years ago. guy: what is interesting is, in some ways, central bank are doing this for different reasons. carney was out yesterday and we will hear from him later on as well, talking about pockets of concern within the u.k. surrounding credit cards, car finances, etc. it is not clear that there are threads that joined the central banks together. it is an individual their attempt that in aggregate makes sense. >> i think this is coincidental

policy. i agree we have seen a shift, but every central bank is acting for a different reason. the economy in canada has been picking up this year, and the macroeconomy got worried about the home capital problems and possibly, the property market. overall though, the economy is doing well and it makes sense that it turned hawkish. as george said, the ecb is getting closer to tapering more aggressively than we thought, but it is nothing too massive. tom: george, i want to go back to this chart. the basic idea of these trading zones back in the 1970's, of the 1990's, very much stronger euro. do you see the same thing in the last decade? sara bellows is up here with deutsche bank. we need to get to a level where we have a strong euro. where is that? >> just looking at the chart, tom, you would say we have to

get over this 1.15 area to basically say we are up into a new, higher trading range. at the moment, i think this is noisy, but it certainly speaks to opportunities for making money and taking advantage of what is perceived to be the better political and economic circumstances of the euro area. in my judgment, it's still slightly shaky ground. based more on expectations than fact. so, we don't have a growth boom in europe. we have got better economic performance across the eurozone. germany is doing very well, spain is doing very well. we still have a lot of big problems. tom: another important point here, as george mentioned, it is the politics. mark cudmore will continue with mr. magnus of oxford.

coming up later today, it is a trifecta, a hatrick of central bankers. fromwith us from london, new york. this is bloomberg. ♪ guy: 5:15 in new york and 10:15

in london. tom, the brexit secretary, david davis, in london has accused philip hammond of taking an inconsistent position on whether the u.k. should seek a brexit deal, which would prevent the u.k. from doing its own deals.

magnus of us, george the university of oxford. that did not take long, did it, simon? >> davis and hammond have been aligned for the last year or so, but it does demonstrate what theresa may has found itself facing in the wake of that election, big, important ministers willing to talk in public about positions, in some cases undermining her strategy. that will serve a problem in the talks because the europeans will say, the really speaks for britain? so, publications there. -- so, complications there. guy: so, who do we talk to? >> this is a chancellor reborn. a few weeks ago, he was headed and after the

election, theresa may had to keep him on board. he is flexing his muscles. david davis, speaking in london, perhaps reigning it in, talking about leaving the customs union on the day of brexit. it could just be leg which differences. -- it could just be language differences, but mixed messages from the height of british government. tom: i see the word austerity prickling up again. do you forsee we have the budget in the united kingdom as austerity personified? >> we already did see a bit of a pullback in the wake of brexit. philip hammond used his first budget to ease off a little, but there is pressure from the electorate to change the freeze on public service pay.

while philip hammond maintains an austere line in public, the more political figures that have less responsibility will be pushing him to ease off a little further with his next budget. tom: george magnus, how fragile is the u.k. right now? >> it's looking a little bit shaky, in my judgment. i mean, i don't want to sound alarmist about that. the economy is still growing. and we have the prospect of much weaker, incremental expansion going on, compared with last year. so, the year over year growth rate will tumble quite quickly this year. we started the year around 2% and it will be closer to 1% by the end of the year. in that sense, it is looking

fragile. it is fragile because if the ugexit negotiations lead to h problems, or a big fallout, or visit a cliff edge, brexit, because no agreement could be reached, it will be terrible for business confidence, and were consumers, who are the object of warning from the financial policy committee of the bank of england. dreweport yesterday attention to the high levels of consumer debt. guy: right. >> we should not be alarmist about the economy, but we should not be complacent. tom: simon kennedy, congratulations to your team on the national press club award. i don't know why they are giving out an award in washington for your work in london, but it was wonderful to see the national thes club trophy to go on

fireplace overlooking the family, over the brexit coverage. , more up, komal sri-kumar than anyone, he has been dead on on the american economy. from london and a beautiful new york, this is bloomberg. ♪

tom: 23 minutes after the hour.

time for the morning must read. joining us this morning is george magnus. which showsn lower, the economy slowing again after a nearly two year stabilization, the likelihood that brazil can look to the commodities sector for help is pretty low. the than 24 hours ago, chinese premier was talking about the fact that he sees upside for the chinese economy and iron-ore rocketed on the back of it. , he think premier was making a big speech, an acceptance speech. he could not talk the economy down. we are looking at a china in which the financial, or the regulatory windstorm, as they call it, is having a material

effect on the growth of nontraditional forms of funding. there was a report out from the china banking regulatory commission that the volume of wealth products into bank products had the biggest drop 10 in 10 years. it is beginning to have an effect and it will have knock on effects through the second half of this year. tom: the chinese credit impulse is waiting. how will this affect the u.s.? >> i'm not sure it has a huge effect. at this juncture, i think it's plausible that the chinese economy will glide lower into the 19th party congress at the end of the year. a precipitous decline in china would have strong effects on the rest of the world. emerging markets, brazil, the u.s. final think we are looking at that kind of scenario at this point. tom: we will continue to talk to george magnus about the strong

euro call from deutsche bank, as well as what is going on with the central bankers. adidas has really made a lot of headway in the united states of america. juggernautd as a financially. look on bloomberg television for david rubenstein's comments and conversation with philip knight. look for that at 9:00 p.m. tonight in new york. this is bloomberg. ♪ .

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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. tom: when in doubt, delay. that is what they are doing in washington. the canadian embassy is talking steel and lumber.

and there is the capitol. good morning, worldwide. good morning in london. good morning in new york. here is taylor riggs. france,starting in president emmanuel macron takes a major step for boosting the country's labor market. his government wants to make it easier for companies to fire employees and negotiate their deals. in a south africa, the head of the central bank said he will defend any attack on his independence. the prosecutor instructed the centralo remove bank focus on containing inflation. bloomberg's woke with a reserve banker. -- bloomberg spoke with a reserve banker. ,> when i read you must export welcome back, inflation

targeting money to prove the welfare of the south african. when you say improve the welfare of the south african, we are going to have to bring inflation lower to serve the economic well-being. taylor: he said he would not consider resigning. in the u.s., renewed attacks on the effort to repeal obamacare and he calls it the relief for the rich act is that it would've cut his recent bill by $800,000. the senate's version is on hold. formersident trump's campaign manager revealed he was paid for his work with the ukrainian political party. paul manafort's work took place in 2012 and 2013 and he was forced to resign in at the trump campaign. global news 24 hours a day, powered by more than 2700 journalists and analysts in over

120 countries, i am taylor riggs. tom: we go to washington and marty schenker tuned in to what senator mcconnell is doing for it is cynical wednesday. i believe there are a couple hundred billion dollars lying around. does mcconnell just buy votes? that quiteker: possible he will be knocking on the doors of republican senators who have announced their opposition to the bill. he has billions of dollars to play with and he will use them. it remains to be seen if there is enough to get to the 50 votes he needs to pass the bill after the recess. tom: a lot written about this. what about george will? he gives perspective on the scope and scale that marty knows. the beneficiaries equal to the

56,ined population of 26 of there are 50 states. i love this. almost, americans and twice as much on funerals as on a medicine. that is something mars -- marty and i have to watch for. is that what we are doing here? starting toward socialized medicine in a painful way? marty: it is quite possible. the money the government is spending on health care already is a significant part of the economy. it is a fair radical argument -- oretical argument we do not want a one payer system. add up how much health care organizations are spending

and the government, you are almost there already. the philosophical argument against the one payer system is still very much in the front of the republicans. guy: the polling suggests obamacare is getting more popular with the population. how does that story feedback in? emboldening the democrats to say to the republicans, we are not going to help you get out of this mess. as much as republicans like to demonize obamacare, if they fail to repeal and replace him at problems on the health care system will be on their doorstep in the midterms. the republicans have to get their act together and it remains to be seen if they can. tom: you know, i want switching gears. we had an imf report i do not think nearly enough visibility. that sound was me falling off my

chair on 2.1% in them 2018. have you ever seen a global institution and lagarde taking a shot at the president of the united states? marty: i am with you. we wrote a story on it. that theriking to me direct contradiction of the imf, which gets a lot of financial support from the united states and this administration taking direct aim at the rosy economic projections of the donald trump's administration. it was striking. why do you think the institution has the feeling to be able to do this? lagarde is ane very independent-minded person. they are truly a global organization. projection ofrosy

the trump white house, i think they felt an obligation to bring everybody down to reality. that is what they did. they never mentioned donald trump by name and them the report. -- in the report. tom: not only is francine lagarde independent but also is of anlacqua independent mind. marty schenker on christine lagarde. marty: [laughter] with georgeue magnus. i look at the imf as an institution. you have studied this, how does the new imf compared to the imf of 10 or 20 years ago? george magnus: sort of the tenor -- this was the article for report which the imf issued yesterday. this is a report which the imf

does about all of its member states and is a pretty thorough report and you are right, the we.r is much less kowtow the united states is not unique in this. there have the article watch her reports about other major economies like china -- the article watcher reports have been about other major economies like china. you can report that says this is real and this is not real. the idea of the president's so-called budget revealed you would have 3% growth after the next 10 years was fantasyland. and the imf has a right to call him out. it is not always right. guy: they can be quite wrong. do you think the imf have another agenda? is there anything beyond it? george magnus: there may be

something going on with the politics in washington, trade and protectionism. the report called the united states out in a not very direct way. -- in not a very direct way. clearly has something pretty strong to say about it, watch out. tom: george magnus, thank you and we will continue. we will have a chat on central banks. on july 4,'s national :00ramming, look at it and p.m. nearby boston -- 8:00 p.m. nearby boston permit you can see it -- boston. -- you can see it live. this is bloomberg. ♪

guy: 5:48 m in new york. -- in new york. let's talk about what is going on in paris. the president taking a major step forward to boost of france's labor market that is beyond his predecessors. -- since thes recent election gave his party a comfortable majority. caroline joins us. why will mr. macron succeed where others have failed? what are his chances? the first real change is the method he is using. he does not want weeks of debate in parliament debating every detail of the reform. he just wants to use gdp. his is something that

cabinet is currently deciding and they will start discussions with the union and that is when he will get tough because of the unions and france are too powerful. could calllargest for a general track in france on september 12. things on his 2 side. he wants to move fast. he wants to do the reform by the end of the summer and most french people will be on vacation and life -- less likely to strike. and the second is -- is it proving that france can reform? isoline connan: germany important because they have elections in september. if they manage to go the general

track, this is a message to germany to restore trust. and germany, macron has made a promise to angela merkel that he will take care of home. home --o not buy it at buy it at all about the unions. why is it different when they just said no? what is different about the unions in 2017? caroline connan: in france, even though the unions may sound .owerful, not many are members the level of memberships in france has gone down over the past 15 years. it is about the fact you have a very large majority in parliament and he wants to bypass the debate to go faster. this is really the method to allow him to avoid the endless

discussion that we may have seen in the past with the unions. guy: caroline connan and paris. thank you. a bloomberg business flash. taylor: deutsche bank is trying to overhaul how it manages risk and want to start with that couldtraders lose $60 million. people familiar say they want to reach a risk limits on the deal. alibaba's timing control of lozada. it is investing another $1 billion to raise stakes. lozada is headquartered in singapore. alibaba can use it to further its reach and southeastern asia. guy: thank you. over to the decision to include theese sectors by doing

final touches and is campaigning to open up the market. a bond connect program that will allow international investors to buy chinese debt in the stock connect facility with the domestic equity department. still with us is george magnus from the university of oxford. how significant is it? george magnus: a pretty big deal for investors in a much the same way as the msci was. you know, it establishes benchmarks, investors will have to -- but -- >> what are the risks? the concerns that we have talked about as china becomes more it has ad, it means feed back into the rest of the global economy and we have seen the fed react and the chinese economy is slowing down. does that feedback story, back

in a more clear way, is there a greater risk that we should be worried as a result? george magnus: of course. china's size is really what makes a country a kind of important nation. and from the point of view of people who are investors to commit capital to china wetherington chinese equities or -- whether into chinese equities or the bond market begins to that increases for them the significance of what happens in china. for example, the bond market. a couple of big issues and one is china is very keen to attract capital into its own market. he is not very keen for investors, portfolio will corporations to basically export capital -- portfolio or

corporations to basically export capital. we welcome capital coming in but we are not keen on it leaving. tom: i read the volume in hong kong and must have read it a decade ago. we are on the 20th anniversary of the give over of hong kong and that tension between chris patten and the others in hong kong. what have you learned about the chinese timeline that is different now than 20 years ago? my as is china waits and waits out every western institution that comes in and out and in and out. george magnus: you know, what have we learned of the timeline? i would say without being self-deprecating, nothing. i think the timeline was always going to be very long with total control over hong kong when in the end, hong kong becomes another major chinese city.

obviously, as you said, it is 20 years and no great, dramatic change in the kind of governance structure. particularly over the last five years, i think we have seen a speed up and establishment of that. tom: the timeline of china, do they break it to the south china sea and other issues? is it the same timeline we saw in hong kong? george magnus: well, the first five years of xi jinping's leadership has been marked by a number of very different things, including control over the pla, internal security operations and the like. i think what we in the west perceive as a more -- attitude

toward the south china sea, international relations, hong kong and so long all fits in with that kind of picture. where it goes in the next five years, i suspect more of the same, was probably at a slightly faster rate having to establish his control there is very little that will stand in his way. guy: enqueue. george magnus. a fantastic function, not only the video stream but the fantastic sidebar which pretty much has everything in it that you need, although the breaking news, market updates and all the functionality we use here. function if an ib you want to join in the debate. tv . this is bloomberg. ♪

tom: good morning. one final moment with george magnus this morning. we see all kind of turmoil in central banking and central bankers and europe included mr. corona of japan. goingare central bankers

to be with a subdued inflation we have observed? george magnus: $64,000 question, that one. my hunch is that in a years time inflation would have failed to picked up in the way they fear it might. and we will still be talking about when interest rates might have to go up one day. thank you soagnus, much for greatly appreciated. the bloomberg intelligence, one of 2 billion people looking at facebook, addicted to facebook on the floor below us. what is the big deal about 2 billion users? >> they got there pretty quick in five years. they are the largest social media platform. if you are a big brand advertiser, your choices for allocating a big budget to digital media are very small. you are left with google and facebook.

you see the digital dollars going to those companies. guy: i can wait for the european commission to go after them. 4 billion or 5 billion users, is it there? >> on the existing facebook platform, it is not there. it is very large but they have other major platforms like whatsapp, instagram, messenger month all three are as one billion users right now. those are revenue levers that the company can pull over the next five to 10 years. that is what the bulls on facebook are looking at. not necessarily incremental monetization. guy: can i draw a line between users of facebook and people are getting nervous about take valuation? >> as you probably saw goldman sachs highlighted just a handful

of tech names, maybe the names everybody is familiar with accounts for the majority of the run up on tech. it is a concentrated run up and that is concern for people. if you are looking for top line growth, the numbers coming out of google and facebook really jump out at you and amazon full down tom: the facebook chart is incredible. -- jump out a you and amazon. -- tom: the facebook chart is incredible. what is it staying -- what are they saying? do they have confidence? >> absolutely. amazon has a strong revenue growth. if you think they can be successful like with the messenger, they have not begun to monetize those huge billion plus year platforms that they can do that. bulls are like that is the growth. guy: paul sweeney with bloomberg

intelligence on some of the tech. great help yesterday on the google announcement. coming up, lots to talk about. us on slower gdp per in the 9:00 hour, look for pivotal research. he has been wonderful on facebook and at the linkage to add revenue. nobody does ad revenue and tech like brian wieser. we continue with komal, a must watch. this is bloomberg. ♪

tom: it was somewhat rich to

think that mcconnell had the votes but he did not. the vote to delayed until after your fourth of july barbecue. chair yellen considers the stock market somewhat rich. and when the facts change, georgia factor changes. the for a strong euro as economy confront a zombie fed. i am tom keene. guy johnson. looking at "the telegraph" is simon kennedy's work. who runs of the conservative party this morning? guy: hmm -- tom: nobody knows? that is the problem. nobody knows which way it will go. there is clearly a factional debate taking place and i have

no idea how it will unwind. tom: that is a fair answer. with our bloomberg first word news, taylor riggs. taylor: on capitol hill, the stage is set for serious few weeks of lobby and on the bill to replace health care. senator mitch mcconnell decided to delay a vote after it became clear he did not have enough support to pass it. there is opposition from both moderate and conservative republicans. fed officials are ramping up after what chair yellen called somewhat rich asset prices. she said the valuations have risen noticeably. critics have worried the fed easy money policy could lead to a financial bubble. prime minister theresa may gauge is the first test of her minority government power. jeremy corbyn will attest the forth ad will put

motion asking for it and -- for an end to cuts. the ransomware is hitting asia. the attack is being carried out by the petya virus and users are being told to pay $300 in crypto currency to unlock each infected computer. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries, i am taylor riggs. this is bloomberg. guy? tom? guy: they're also real changes. the curve is steepening dramatically. a steeper yield curve with the euro strengthening. it is a combination of a set of things including the important comments that oil cannot find it on to the next screen. goes 9, 10, 11. the euro strength to a 109.

guy was brilliant on germany yields earlier. also higher -- should be green. -- that should also be higher in should be green. guy: absolutely. the real story is what is happening in germany. look at the german yield. a couple of days ago we had a .25 handle. this does not sound like a big move. points moveis higher for the german yield has a much greater portfolio effect in terms of wealth than what basis point move higher in treasuries. these are big moves and should not be ignored. we will see where they take us. germany and the bull market feel like they are on the move. tom: you have the two-year german at a negative, higher yields today. let me go to george of deutsche

bank and this is a really important chart. role back to the net -- euro back to the 1970's and the advent and strong, sustained euro. here are the three outcomes and our guest has been a brilliant on this. the certitude of parity and weaker euros. here where we are now. deutsche bank capitulates this morning to a stronger euro call on eu politics and also on chair yellen in the u.s. central bank. hugea great chart of the attentions as we go to the end of the first half of this year. guy johnson? guy: we have talked on bloomberg about the flattening curve we saw in major bull market around the world and that started to shift yesterday. we've heardo what

from mario draghi and may have been a commodities story out of china. it combined two great a steeper german curve. is a major contributing factor and you can see it on the chart and we started to see the german move and this the white line as the u.s. moves. the german move is driving this story. let me explain this to you. basically a big move higher in reciprocatedat is in the u.s. curve as well. europe having an effect on the u.s. curve. tom: let us begin with one of our most popular guest, komal sri-kumar, he is in touch with see tedin the u.s. to growth. yesterday, christine lagarde caught up with komal sri-kumar. the imf dropped a bomb of not only growth of this year but extended it into 2018, a

stunning statement. do youal sri-kumar, agree with lagarde we could see 2.1% growth out 18 months? komal sri-kumar: i think she is of 2017d downgrading and 28. we have talked in the past how the imf has been optimist did. with her forecast is she is too optimistic for 2017 and 2018. the imf has made a practice of downgrading growth for three a 2017, 2018w and is no exception. i think it will go down further to a one handle. tom: this is important. i want you to explain how a stronger euro in some of these exchange rate dynamics act as rate increases for any given

central-bank. chair yellen once to do this -- wants to do this, that and the other. how does it work? komal sri-kumar: she wants, janet yellen, not christine lagarde, janet yellen would like to keep hiking and adding the balance sheet. that assumes the united states is an island and she can do what she wants without much regard to the rest of the world. what you have is a situation where the central bank and europe are getting -- in the europe are getting more control and the u.s. is lacking. the ability of janet yellen and fischer,iams, stanley the way they want to tighten because of the somewhat rich valuation is all going to be offset by what happens to employment, what happens to the economy and inflation in the

united states even where wages are not picking up. you cannot tighten in a very slow economy. with a they talk about somewhat rich valuation, you and i remember alan greenspan of the 1990's talking about a rational exuberance. to tightenmething it, it was too late, we were getting ready for the recession. i think that's the likely result if the fed continues to hike. guy: the eurozone inflation remains very subdued. if he starts talking up in the eurozone economy, we will see what happened yesterday, just the beginning. the euro will go rocketing higher and will dampen down and the ecb will not fail to deliver this exit from stimulus in think it will be with to show us. komal sri-kumar: absolutely,

guy, that is my view. world, banks all of the ecb, bank of england, bank of japan, they are trying to talk tough but it is not going to work out, especially in the case of the eurozone. he cannot afford to have the 1.4% to 0.5% against the dollar. that is as the ecb is tightening. that is going to be a negative, negative for investment. before too long, the ecb is going to reverse policy. keep in mind in italy, we have banking issues. as have not had elections yet and they will have it in the beginning of 2018. if he does not do something which will boost the chances of the non-euro five star movement picking up and italy, that is

out of concern -- in italy, that is out of concern. guy: you downgraded u.s. growth expectations. would it to be policy mistake, would the fed be making a mistake by raising significantly higher from here? komal sri-kumar: it is a question with two answers. if you think like janet yellen that she looks a seed with the current set of policies, it is not going to work -- if you think like janet yellen things that if she keeps the current set of policies, it is not going to work. if you build a pressures and leading up. been, i havelways said repeatedly in the program that the fed is about three to four years too late and tightening. once you do it, you do not have a good path.

tom: i want to bring it up. the idea of a taylor rule, we have not ever sit it out this far. -- seeing is out this far. are we don't with orthodoxy economics -- done with orthodoxy economics? komal sri-kumar: my only teacher would want the federal reserve to go significantly higher. positive and have somewhat of a neither of hike, which is being done and that's the basic policy. tom: -- guy: stick around. komal sri-kumar joining us. you will stick around. we are not done yet. we will hearer, from a bunch of central bank governors, bank of japan, canada . all of the questions surrounding the central banks and maybe we

will get answers. that is coming up. this is bloomberg. ♪

tom: senator mcconnell's capitol hill. an extraordinary set of events yesterday which means we needed update. guy johnson and myself need an update from kevin cirilli. take us into the hallways of the senate. litesutiful photo of ciril with a statue of benjamin franklin looking to down. what is it like in the hallways? what is the level of sweat among the cementing majority leader's team? with were trying to have a

down to see if mitch mcconnell would be able to have enough of votes. the fact is, he didn't print said -- he did it. he was able to win the conservatives or the moderates. the math wasn't there. what does it mean for future policy debates going forward? guy: -- tom: it is politicians looking around and they have their hands doing the control think and everything is in control. baloney, it is about buying votes. which senator will take the pork from o'connell? mcconnel?connell -- he has about 5 billion dollars. one senator wanted money for opioids. he wanted to yank money from plant parenthood. you will never win over moderate

or democrats with that. , this bill is just none workable for various, different reasons for the two different factions and the republican party. guy: the polling around obamacare suggesting he is the common more popular despite problem -- it is becoming more popular despite problems. does it become harder to change the legislation? kevin: yes. i was speaking in the green room , this obamacare entitlement program, especially the ones the impact senior citizens are incredibly popular. the notion you can get rid of them and not hear about it is a bit shortsighted. i spoke with several republican strategist following the fallout and all of them are saying whether you are a moderate or conservative, you're heading home to a july for the recess,

you will hear from it. particularly for people like dean heller, a republican up for reelection, it matters. as they had into it a it is reshaping the 2018 midterm. chiefevin cirilli is our washington correspondent. komal sri-kumar looking at 17% of the gdp and this massive size of the economy. does this debate death and gdp -- dampen gdp? komal sri-kumar: quite a part from health care accounting for 70% of gdp, the fact that 17% of gdp, the fact they are focusing so much on health care and they cannot get it done, anything with tax reform and the economy is going to get passed palls -- postponed.

we talked about how 3% growth, the trump administration is expecting will not happen in 2017 or 2018. you would have to postpone in expectation beyond 2018 now to have a more and more delays. that is how it plays into the is curve. guy: i thought washington wrapped up its own problems and not really bothering anybody else was great for the u.s. economy? komal sri-kumar: that is generally true when the private economy is going along at home in the long at a good pace -- humming along at a good pace. and you think the only thing the government can do is hurt. right now, we have enough hurdles and we need the government to redo taxes and create more -- in which businesses can drive. you want the government to do iss, not the same as that

the difference between this situation and the one you are courting, guys. it is a crucial difference. math.he difference is the size of the health care economy in the u.s. is hard to believe from people not in the u.s. we will come back to komal sri-kumar. , one of thei experts on our fiscal dynamic, a perfect today to speak to stan collender. ♪

guy: 6:22 a.m. in new york. 12:22 a.m. in paris. the french president emmanuel macron taking a major step towards freeing up france's labor market. a task that has proved beyond his predecessors. the highly anticipated reforms are the first test for macron's government since the recent election gave his party a comfortable majority. intelligence joins us. komal still with us in new york. good morning. expectations are incredibly high for the new president can deliver upon. he has to move fast. how fast can he move?

will union to be able to catch up? >> he wants to move very fast. he is presented the bill today in the cabinet and once to do it it iny -- wants to do july and have it in law in september. he knows them the youth commits -- some of the unions will not agree. he could get some onboard. if he manages to do it he could lessen the chances of striking. guy: not just about france but europe. he is very pro-european but he needs to get this done before he can enact his vision for what europe will look like that. theme sbaihi: he is not first french economy who said we will reform the economy. there have been problems with a sarkozy and at the past. he has to prove he can deliver and not just for france. -- there have been problems with

sarkozy in the past. komal sri-kumar: following up on what maxime said, the best chance he would have on reforms is to make sure he does something to bring down the youth unemployment rate. if he was able to bring it down to single digits, the youth are going to support him and that will be a big positive. tom: maxime sbaihi, thank you for speaking english. do you see an evidence the unions are ready to be broken? maxime sbaihi: yesterday, we have a very strong union, saying they are calling for strike. the others are awaiting. they want to give macron the benefit of the doubt instead of waiting. we had a youth unemployment at 22% in france and it is 7% in germany. you have on the one side, well-paying, independent

contracts protected by a strict labor code. on the other side, new entrants struggling with precarious work. these are young people. what he wants to do is to break it which is the main challenge. tom: maxime sbaihi, great to have you on. we will continue. a lot going on including the strong euro call from deutsche bank. tonight, a conversation with nike cofounder, philip knight and watch for that was a david rubenstein on the sneaker wars -- watch for that with david rubenstein on the sneaker wars. this is bloomberg. ♪

>> it is raining in london. , i have toetty gray say, after what appears to have been the british summer, we are

back to normal business and the british pound is trailing 1.2826. get a first word news update with taylor. >> moving to south africa and of the central banks, just ahead of the central banks -- the head of the central banks will defend the constitution to remove the central banks focused on containing inflation. bloomberg spoke with reserve bank governor. proposed read what was for the well-being of south africans, welcome back. inflation targeting mandate has managed to improve the welfare of the south africans. so if this improves the welfare of south africans, i am saying we are going to have to bring inflation lower in order to

preserve the economic well-being of south africans. >> he also said he wouldn't consider resigning. in the u.s., president trump's former campaign manager has revealed he was paid $17 million for his work with a ukrainian political party. took placert's work in 2012 and 2013. he was forced to resign over his work in ukraine. billionaire warren buffett has renewed his attack on the republican effort to repeal obamacare. he calls the bill the relief for the rich act and says it would have cut his tax bill by $680,000. the senate version is on hold because of opposition from both moderate and conservative republicans. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: if you care about the american health care system, this is the most important interview of the day. stanley colander has spent decades looking at the dynamics and the sausage making of the federal budget and he joins us now from washington with msl group.

i guess the cbo is going to restore. for our global audience and our american audience, do you trust the math? can they restore over the fourth of july weekend? >> yes, they can and i do trust them more than any other organization that does budget scoring in washington or anywhere else. the only job of the nonpartisan organization, working with the democrats and republicans all at the same time, their only job is to get the numbers right. is it going to be precisely correct? no but they will be almost as close as anyone else. tom: we talked about the support, we spoke to the head of new york presbyterian hospital yesterday and i asked about six or $5,000 adoptable. making about people $38,000 a year and what do they do? will this reset a republican health care, will it affect

those premiums? mr. collender: if they do what they want to do which is to cut the taxes that were included in the formal care act there is almost no choice but to do those types of things. that is to eliminate or reduce subsidies or to come up with the savings in a variety of other places. that is what makes this bill so difficult. as kevin mentioned, we were talking before we went on air, medicaid is an enormously popular program, not just with the poor but with senior citizens. and with their children, they will end up paying for their parents, so to make it unaffordable for a variety of people to get health care, to cut medicaid is almost a political nonstarter. tom: within the zeitgeist, i think of all the rest, this idea of republicans as conservatives. are they acting in a conservative or libertarian way, whatever you want to flavor it?

or is this something original from republican leadership? mr. collender: there is nothing original about it. they have been talking about eliminating or repealing or replacing obamacare for seven years so there is nothing new or creative about it but this is a decision to try and tear down what the previous president did because of the basest feelings about him. there is very little here having to do with health care reform or actually making health care more available or affordable. if they did, they would be talking about a single-payer system and that is just not in the cards at the moment. >> if the republican party gets this one wrong, how long will the legacy of that mistake last? mr. collender: let's remember, they were talking about -- president trump was saying, we are going to do this on the first day. i actually thought they would get this done as quickly as possible so the president could sign the legislation and repeal

it on inauguration day back in january. so the fact that it is now almost july and they haven't gotten that much closer to getting it done, it says a great deal about the lack of ability to legislate. what you are getting here is legislating by accident or by default. the same thing is true with fiscal policy. we are talking about deficit increases or decreases happening by accident resident planned. this has got to be the kind of thing where something goes in the markets mind and says, we are not sure they are going to get anything done. this will have enormous that implications for tax reform. gray: and will people around the country blame the republican party if they end up not being medical facility they were expecting? how does this ripple through into voting in the midterms and then the next presidential election and on after that? obamacare is popular. is collender: taking it away

unpopular is what it comes down to. i am not sure how popular obamacare is. there are problems with it but it is more popular than the alternative of getting rid of it . here is the thing to keep in mind, the republicans are going to take it on the chin regardless of what happens. if they get it done, they are blamed by the people who can't afford health care and if they don't get it done they will be blamed by their base for promising something and not being able to achieve it. the president has already to throw congressional republicans under the political bus so there could easily be a war about to break out between the house republicans republicans and the senate republicans and the white house. gray: let me ask you a question about the world, which is the idea of damping gdp. tom: from where you sit within the sausage making, you assume that what you are observing on the hill will dampen economic growth in the united states. mr. collender: i don't see how it can possibly not do that. anybody who thinks that congress

is going to be able to get a lot be able toing to respond to the economic needs of the country, are now seeing that thatajorities are narrow, they are hopelessly divided even within each party, so you are going to see fiscal and economic policymaking by accident and default rather than intentionally so that is factoring into economic activity and what corporations think they should be planning for. tom: valuable briefing, thank you so much. on the radio, with our 91 fm studios this morning. here on health care, it comes down to 2.1%. where is gdp right now? we have atlanta gdp rolling over with 3%, but what is your call? >> 12 months for work, we are going to be at 1.5%. tom: that is way too gloomy. how do you get there from 2.2?

>> well, you look at the wages. real wages are not increasing significantly and inflation remains low. if you have policy uncertainty continuing then you are going to have investment spending which is a secondary component not dead either. consumption is going to slow and together, that might sound optimistic if we are not careful in terms of what is being done. as he just said, you have a situation where nothing good comes of the postponement of the health care bill. the government comes to a stop. tom: how can they raise rates once, twice and eight times with some 4% nominal gdp? that is not in my history books. mr. sri-kumar: you are spot on. they can keep increasing because nobody can stop them from increasing. they can do whatever they want and they can cause a hard landing in the recession. or they back off as they have done in the past, in 2008, and they don't do it.

in other words, from the fed, you don't have a good outcome, a positive outcome either way. of: we have the language deutsche bank, saying with great havect to chair yellen, we great respect to tradition. it goes back to arthur fiedler. in july 4, on bloomberg, the esplanade, on the look for that worldwide at 8:00 p.m. july 4. this is bloomberg. ♪

>> this is bloomberg surveillance. i am taylor riggs. let's get the business flash. deutsche bank is trying to overhaul the way it manages risk.

it may want to start with its derivatives traders, who made a bet on inflation that could lose $16 million. people familiar say deutsche bank wants to see traders reach risk limits on the deal. alibaba is tightening control of thene shopping mall, largest e-commerce company investing another billion dollars to raise its stake to 83%. they are headquartered in singapore. alibaba is using it a further extension in southeast asia. that is your business flash. tom: coming up shortly, bloomberg daybreak with jon ferro, riveted by the deutsche bank call. what say you about a 116 euro? >> what same he is just how bad everybody got the dollar call this year? that call from deutsche bank is the revision against my attention, not the absolute course. the revision is from one spot 03. how people captures called the dollar strength core

in 2017. the price action of the back of the words from ecb, president mario draghi calling the key to global rates and maybe a new point to a steeper treasury curve as well. in the market, is one thing but what we hear from the central bank will be the real story. we will catch up and hear from the likes of president draghi, the likes of mr. corona -- mr. kuroda on one panel. we will bring you that on bloomberg daybreak. tom: thank you so much. she is usually at the cinnamon club after parliament, taking a lunch with various mps. ,nna edwards slides in wonderful to see you. your work at parliament has absolutely been astounding to me. we have the questions today where they go back and forth, we have the voting on the queen's speech and the government and all of that, but what is the power of mr. corgan? what is the power of the

minority? ms. edwards: he will put his case today for an end to austerity policy. later on, we are going to see the queen's speech and he will put a case that says he wants to see an end to austerity. he will probably not win. theresa may has the numbers, she's got more than half of the house of commons. but it is the narrative. tom: but where is the austerity? i identified it as a big deal for george osborne coming out of the crisis to do an i was like austerity. is the u.k. still doing george osborne economics? ms. edwards: then we did turn a page with the brexit vote, and we got a new chancellor who stepped away from george osborne's target of balancing the books. he moved that back to the middle of the next decade so things have changed but in the popular perception, there does seem to be some sort of transition.

the social attitudes survey finds that for the first time since 2006, the potential for people calling for higher taxes and spending on public services is bigger than those who want things to say the same. tom: i don't know what i am talking about. gray: i'm going to struggle with you, probably, but what are hearing stateside? what are they saying about what is happening in the u.k.? ms. edwards: there is a lot of confusion, when you've got three numbers of the cabinet in the united kingdom giving different versions of what brexit is going to look like, that confuses people in america and the eu 27. it is knows a prize that the eu 27 said we don't really understand what the u.k. wants to get here. we have the brexit secretary theng at the time we leave eu in march of 2019, we will leave the customs. at the same time, you have hammond in germany talking about how we need to see this transition that involves staying in the union for a period.

if the cabinet is confused and the eu 27 is confused many in the new york will be confused. gray: i wonder if people in washington are confused as well. you wonder whether or not that trip theresa may made as the first foreign leader to the white house feels like a distant memory to u.s. politicians now. ms. edwards: that transatlantic relationship, the stress of it is being tested. we heard mention of the u.k. wanting to stay in the paris climate agreement, theresa may saying earlier this week that she is putting pressure on the trump administration or expressing their discontent that the u.s. pulled out. just one of the areas they fell out. tom: how low is the united states? there was pulling out showing the answers is very low but the president is not invited to the united kingdom except maybe to heay golf in scotland and has a backdoor invitation to bastille day in paris.

what sort of aloneness of the list of the world given trump's policy? mr. sri-kumar: that is a great question. even as he goes into isolation mode with respect to the climate treaty and the trade treaty, europe seems to be finally coming together. , theave germans possibility of germany and france working together, and in europe, you probably have two europe's with u.k. on the one side struggling with low retail sales and continental europe .uddenly picking up economic signs are more vibrant than they have been for years. haveuestion has been, you two isolated economies, the u.s. and the u.k. and you are conscious of them. tom: this goes to the way a triangle plays out which is euro-sterling. then we get the deutsche bank, stronger euro, is the zeitgeist for weaker sterling?

ms. edwards: we've talked to a lot of people who say they are still very vulnerable. for a long time, the pound moved around on a soft or hard brexit but that isn't necessarily the case, it is about certainty and uncertainty. depending on how you view the world and how you view the brexit negotiations, it is incredibly uncertain. shadesou are saying all look pretty hard compared to what we saw previously with the pound. ms. edwards: and you start with the pound at 1.27 to the dollar and you have two more years of uncertainty on brexit possible. mr. sri-kumar: perhaps even fresh elections. you're talking about a much weaker euro than the current situation. tom: i'm a have to spin here on different dynamics of foreign change. anna edwards, don't be a stranger. thank you so much. we will continue with komal sri-kumar. how about tv ?

this is a way to see what is going on on bloomberg at 1:00 a.m. wall street time. you can come over here and click on this and bring up a taylor riggs camera roll and up comes the chart here and the chart is better than good. how good is that? tv , don't leave home without it. ♪

tom: a rare treat for all, bloomberg surveillance on radio, on television with guy johnson. two charts in one? mar.o that with sri-ku look at that chart, and approximation of economic growth of here and economic growth is now down here, so you've got this economic growthiness and the ed hyman said unemployment rate is going to migrate down and we are going to burst through here to 3.5%. how can you have weak economic growth and an unemployment rate that close -- that goes lower and lower? mr. sri-kumar: the answer is ratethe u-3 unemployment

is an imperfect measure of the state of the labor market and it has increasingly come that way since the 2008 financial crisis. 6 includes those that left the workforce because they can't find jobs. -crisis still at pre levels. this is probably most important. the participation rate overall for the labor force as well as for the more important 25-54 year road is now dropping and continuing to remain low compared with before. one way to lower unemployment rates is to throw people out of the workforce. tom: this is like a flashback 2.5 years. is there still slack in the economy even though the fed wants to raise rates? is the word slack still there?

mr. sri-kumar: absolutely. i believe it is a lot of slack. it is particularly on the low income, low skill level of employers, a shortage of high skill employees which is why you .ind the so-called quick trade it is very high and people are leaving their jobs at high income because they can find other jobs in the shortage. terms of thely, in overall number of workers in the united states, those low income workers dominate and that is still the crux of the issue that janet yellen has to face. she cannot worry about protecting industry in silicon valley which is short of labor. she has to worry about low-wage numbers which are much bigger than the cause of the crisis. gray: regardless of how low unemployment goes and our theories surrounding neru, do we have any idea when low levels of

unemployment start to become inflationary at this point? mr. sri-kumar: if you have a good measure, in other words, i would say if the participation and below, not falls the 2008 levels, with the overall participation rate for the 25 and 54-year-olds, and when you see the wages increasing, the people working the number of hours worked at 34.4he week is stuck hours over the last year, no change, no growth. if that rises and you are looking at 36-30 seven hours, then i would say you are going to have more inflation. tom: thank you so much. a huge response from our global audience. guy johnson, we see the headlines. trying to be presidential and migrate labor laws forward. guy: i think this is used for

europe if he can achieve this. if he gets anywhere down this road, he will get an awful lot of slack by berlin, and implications are back for pan-european reform. they are quite cigna began. -- quite significant. >> you and i were sitting on the shores of the river and the guy giving us the coffee was part of the union, it is a different labor economy. very important conversation. this is really timely. michael leavitt, one hhs secretary, the gentleman from utah has this really timely conversation on television, on radio as well. gorgeous new york, hotter this weekend, this is bloomberg. ♪

jonathan: federal reserve

official draw attention to asset prices. the fed chair describes valuation as somewhat rich. republicans delay a vote on a contentious health care bill. senator majority leader mitch mcconnell faces a difficult task to repeal obamacare and a global cyber attack reaches asia after hitting businesses and government systems in europe, the u.s. and south america. that morning, good morning, you are watching bloomberg daybreak. i am jonathan ferro alongside david westin and alix steel. to get you set up, it is the shakeup. a new 2017 hi, 1.1358. by four basis points, 2.25 on the usn year. alix: in other areas you are seeing that draghi excitement a little bit. you have the euro-yen slack. yesterday we hit the highest level in over a year. euro stocks down 3/10 of 1% and look at the bond yields, up by one basis point. we