after the federal reserve gives them the green life. central bank leaves investors bruised and confused. d.c. gridlock pushes the tax reform story towards 2018. the struggle to secure enough votes to pass the republican health care bill continues. city, this is bloomberg daybreak. i'm jonathan ferro alongside alix steel. we are welcoming and a redwood redwood from- anna london. let's get to the board. .1% on the s&pp 500. euro-dollar prints a new 2017 high. we have a 114 handle. a decade high. alix: taking a look at the

central bank caucus trade. selling continues in 10-year german bunds. .3% isg dollar, cable up now on track for the seven day winning streak. of by over 100 basis points. the one that's not participating in the central bank trade you have dollar higher, yen lower. because kuroda is not on board. anna: have we made too much of what carney had to say? time for your morning brief. some u.s. ego up data including the third reading of first quarter gdp and weekly initial jobless claims. fed president james spurlock speaks in london.

we will rate his disapproval of the pace of rates currently priced in by the fed. at 6:00 president trump will meet south korea's new president. house.at the white they will be talking trade, geopolitics. breaking news. have a merger. rite aid eight and walgreens are mutually agreed to terminate that merger. really interesting development for the companies. -- you wind up having walgreens up by over 1% in premarket. right eight seeing a nice pop as the merger is terminated. other mergers not terminated. governmenthe u.k. inclined to refer the fox skype it to the regulator. we were waiting for this one. the u.k. than the government.

referring the sky bid to the regulator. this is karen brady making this decision. she is the culture secretary in the u.k. there had been some expectation that she might look leniently on this deal. this is really a character test for rupert murdoch. jonathan: whether he is a fit and proper owner and whether the deal will hand him too much media clout. ukulele -- the u.k. declining. stocks up .9% on the session. the big story in the united states, financials leading premarket trading this morning after every lender past the stress test for the first time since 2008. the fed told think banks they

have more than enough capital and lenders unveiled how they are trying to generate interest. jpmorgan the nation's largest lender says it is boosting its and mayy dividends 12% increase repurchases to 19 4 billion over the next 12 months. simon, that is quite a big number for some of these banks. were you surprised by the numbers? >> certainly surprised. it has been a pretty tough year with the trump trade being priced out of the united states it's nice to get some positive news. jonathan: people are trying to figure out if this is a sadder story. hurdles to get that overweight financials trade. >> we see another fed rate hike.

the economic outlook for nine/positive. we think the market is underestimating in terms of price action. and value versus growth. year to date has been significant underperformance versus growth. inflation picking up should support value as a style. in europe and the u.s. the: when we were expecting -- curve the curl fed to tighten. what's going to be the next catalyst because fed hikes have not necessarily lead to a steeper yield curve. in the u.s. value versus

growth in a more broad sense for 10 year lows in terms of relative valuation. in europe you've in the got vale versus growth. been lower in 9% of months in the last 20 years. the starting point of valuation is extreme. economic growth picking up. jonathan: breaking story at the top of the hour with sky. the u.k. government declined to refer the bid to the regulators. note broadcasting standard concerns from the deal. seeing no broadcast standard concerns. below theading way price. now up by 3.71%. whether rupert murdoch was a fit and proper owner and whether the deal will

hand him too much media clout in the u.k.. concern fromo that. up by 3.6%. the u.k. says fox and skycam propose remedies to avoid a probe. initial market reaction was negative. now moving skyward. excuse the pun. it has already become a little easier to pass these tests. rebuild their capital ratios so they look stronger. now we talk about regulator a change and whether there's going to be reduced regulation in financials. is that a reason to buy the banks? >> i think i would buy them anyway. that would be an additional share performance in the sector. we still need to get through health care, tax,

infrastructure. purely one trade regulatory changes probably dangerous. anna: expectations for the white house being able to deliver? obviously been difficult and will continue to be difficult. anna: are you pushing expectations out? market really the rates which is missed pricing the outlook rather than other risk assets. benign economic conditions. the first synchronized global growth pick up since 2010. central banks incredibly supportive. we have central bankers coming out and saying the outlook isn't bad. it's just reflecting reality. the economic outlook isn't bad. we've finally got inflation modestly picking up. last year we were concerned about inflation. -- deflation. trading revenues in the next quarter a probably going to

be really off again. loan origination's are an issue. they stumbled a bit because they wind up having a lot of credit card billing quincy. there is a loan component. they're obviously risk cases. it's not a completely clean story. the starting point with respect , at the margins shareholder friendly in dividends alix: we think will support the sector. alix: is it going to be investment banks or wells fargo or bank of america with respects -- relationships to the consumer ? we are just taking a broader financials approach. anna: the fed was worried about those companies.

they were worried more about anything it was those with big consumer credit card businesses. stuff.reat simon of ubs, you are sticking with us. and --ight -- right aid walgreens are calling off their stores. over 2100 stores. what is right aid going to do it -- rite aid going to do with that money? a earlier in premarket. walgreens up by over 1%. the big merger not working out for them. sky, the 21st century fox offer not exactly got the signed sealed delivered green light just yet.

trading 10% below the offer price. the u.k. government are inclined to refer to the regulator, no broadcast standard concerns to the sky fox deal. can proposed they remedies to avoid a probe. 3.2 percent. the 14.9 billion dollars bid from rupert murdoch's 21st century fox. alix: busy thursday morning. has: the u.k. secretary stopped talking. of the.s. secretary interior on the white house's energy week and president trump's agenda. energy dominance. i have no idea what that means. this is bloomberg. ♪

jonathan: rupert murdoch's 21st century fox inches closer to securing sky in the u.k. that 11.7 billion pound bid getting very close to approval. still trading well below the offer price. we are up by 2.8% on the session so far. we learn from the u.k. government they were inclined to refer this fox sky bit to the regulator. the regulator sees no broadcast standard concerns. getting closer towards it. rupert murdoch's 21st century fox getting closer toward securing the rest of sky. he already owns 39% of the company. stocks up by 2.8%. not getting closer to a walgreens right aid merger. walgreens is buying 2100 stores from right aid for over $5

billion in cash. fred's really getting hit. they were going to get assets from rite aid in a walgreen friday combination. having interesting trip on the headline. begreens said they will buying those stores than the stock took a leg lower. walgreens seems to be the only stock unscathed. adjust wind up adding to to earnings in the first full year modestly. really interesting morning for some headlines. anna: m&a a big focus for us. global central bankers are sending the markets a message. the cost of money is headed higher as a hawkish sense emerges. bank of england and bank of canada more likely than not to join the fed in raising rates before the end of the year is out in the possibility of a hike from the ecb is slowly growing. yesterday central bank governors spoke and portugal about the current conditions. >> economic conditions have

improved and have experience record high profits. , they are still cautious inut increasing investment spending including investment. >> some removal of monetary policy stimulus is likely to become necessary if that trade-off continues to lesson. you can plot your view on where it's headed. as it lessens the policy decision becomes more conventional. >> of monetary policy should not be overburdened. that we tend to underestimate the importance of innovation of productivity and growth. they are very important in informing our monetary policy. joining us now, peter

chadwell. still with us, simon smiles of ubs ultrahigh net worth. good morning. we have the boj in there. maybe leave that to one side. do you generally buy this argument that we are seeing from many central banks around the world coalescing around the idea of higher rates? >> really for there to be a concerted move there has to be political involvement. i think what's going on is central banks are talking together about what they would like to happen. anna: you think there's that much political influence on the so-called independent financial banks? >> there would have to be political accord for there to be a concerted move away from accommodating monetary policy. i think what's happening is central bankers are getting together and talking about how they would like to be able to tighten monetary policy and economic conditions to justify it. i don't think these will materialize.

useful to add some uncertainty to the market to remind investors that bull market move down as well as up and get things priced a bit more fairly. the market has certainly taken a position in the last couple of days. >> it's incredible the world we are in that that counts as hawkish. the commented in about economic conditions not being sufficient to allow them to start normalizing monetary policy. what do you need to see? >> the one that surprises me the most is the bank of england given that carney is talking sustainedhere is business investment in the political environment we've got in the u.k. given that we still have businesses planning for hard brexit i don't understand how there is likely to be sustained business investment. that's his get out with

respect to economic conditions and political risk. going forward even in the euro the u.s. we have decent growth. it's not leading to sustained increase in inflation particularly with respect to wages. that's where this is interesting. we will have headline inflation falling for the remainder of the year in the euro area and the ecb just last month forecast was 2018 headline inflation going to be 1.3%. this doesn't add up. you have a central bank mandated to have headline inflation" the low 2%. jonathan: for a lot of people it doesn't add up. why are they setting us up for a taper inyear for communication from the ecb to scale things back from 60 to where? >> it's a starting point.

we still got negative rates in europe. we were at such an extreme level. taking a step back and looking macro, global synchronized economic growth pickup. everyone in the world is growing. and yet central banks in the first four months of the year bought over $1 trillion worth of assets. these are not normal times. >> i would disagree on one point. inflationary fears are down. inflation, there's no risk of inflation running away. will talk more about various central banking stories and geography. jonathan: we can disagree in the commercial break. peterthank you, simon and . both staying with us on the program. coming up, deutsche bank global

head of fx strategy with his call on the euro. what does he make of what mario draghi has said over the last 48 hours? this is bloomberg. ♪

jonathan: breaking news over the last 20 minutes about fox's attempted stake over -- takeover of sky. u.k. culture secretary karen bradley telling lawmakers in parliament there needs to be a deeper review by the competition in markets authority. the stock of why 2%. i wouldn't call that surging. joining us is rebecca penalty. walk us through this. when indicating maybe we are taking a step back. the other indicating maybe we are taking a step forward. is mr. murdoch happy man in the u.k. today? >> it's really interesting to

see the sky shares surge. this is the worst-case scenario for fox. the worst-case scenario would have been an outright rejection. what the government has done planningsaid they are to refer this for an additional regulatory review which could take another six months. it's definitely not the worst-case scenario. jonathan: we have been trading well below the offer price. market is still incredibly skeptical about 21st century fox's ability to seal the deal. proposethey can undertakings to avoid the probe. what can 21st century fox actually due to convince those that remain unconvinced? >> that's right. this morning secretary of state karen bradley said within the last week fox has proposed certain undertaking such as creating a separate editorial for sky news in order to

ensure editorial independence. she said this doesn't go far enough and she wants to refer this to the competition regulator to see whether there is more to be done. conversation goes on. good morning. there were public interest concerns raised by this over the increased influence over the murdoch family over u.k. media. the argument was with the rise of social media that that wasn't the case. did that pass the conversation here? >> that's right. the murdoch family trust would be the third-largest influencer with regards to media after the bbc and itn. the doesn't seem the arguments of social media has played a larger role really influenced the discussion here. this goes chance through? the analysts are saying 50-50. >> in the case of a cma referral rbc came out with a note last night saying it would be about

50-50. the other thing to keep in mind is fox shareholders are not overwhelmingly in favor of this deal. this is an additional hurdle. there's a risk the review extends past the end of the year because the cma has six months. in which case fox would have to make a special dividend payment to sky shareholders. jonathan: thank you for breaking that down. coming up, compass point equity research managing director mr. charles peabody joining us on those stress test results. he thinks it's a new story. from new york city, you are watching bloomberg tv. ♪ . . .

jonathan: from new york city for our viewers worldwide, you are watching "bloomberg daybreak." i am jonathan ferro. let's went through the market action. futures of firm, the ftse gets a

mix, pushingthe high. the story in the fx market fascinating over the last couple of days. handle.lar, the $1.14 remember the euro bears were there at the start of the year. the cable rate positive for a 1/3%.reet session, up by the bank of england needs to look seriously at raising rates. i cannot keep up with members. $2.27 on the 10-year. we say good morning to emma chandra. emma: good morning. president trump's travel ban will take effect tonight. will give the supreme court

enough time to figure out how it will work. be honored,as will but new applicants must prove they have a relationship in the u.s. several senate republicans want to scrap the health bill for the wealthy. susan collins of maine has .riticized it republican leader mitch mcconnell has put the bill on hold while he tries to round up enough votes to pass it. an iraqi army commander says his city has captured a mosque in the city of multiple which was blown up by islamic state last week. the mosque is symbolic. 2014, it is where islamic state declared the south caliphate in countries and iraq and syria. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. anna: thanks very much. today, the u.k. prime minister theresa may faces her hard task

of the administration, ahead of the final vote ahead of the queen's speech. an index made up of employers, inflation, uncertainty, up 14.7, opposition from the labour party. fromus now on the phone westminster is bloomberg news u.k. economic reporter sandra. passed the tests yesterday. what do she faced today? >> she has got a number of amendments to get to before the final vote, which is expected later on this evening. the trickier one for her is a rights for women in northern ireland, which is a cross party movement, which has support from some labour and

some tories. this is tricky for theresa may because she requires them to pass the queen's speech, and they have a very strong antiabortion front. anna: if that is why it is being brought by parties not the conservative party, the u.k. protecting that relationship between the consensus? no, i think that is a cynical view of looking at it. i think many believe that women in northern ireland should enjoy as rights to see abortions the way the women in the rest of the united kingdom do. it is very much an opportunity to put that forward. svenjan: bloomberg's o'donnell, always great to catch up with you. us, peter chatwell of mizuho and simon smiles of ubs.

forle are buying sterling seven straight days, and the bank of england seems to be talking about raising rates. what is going on? guest: interesting. jonathan: it is confusing, right? simon: it is very confusing. are overweight eurozone equities, underweight u.k. equities, i mean, who would have thought even 12 months ago you are talking about political stability in europe, being a driver of eurozone equities, but here we are. conversely, clearly in britain, there is political uncertainty. u.k., asone over the it continues to move higher, the unwind,is starting to and more broadly, the economic eurozone versus the u.k.

u.k. could be underweight, equity overweight. jonathan: you talk about the relative stability of the politics. confusing, if you try to understand where the ecb is going and where the bank of england is going, just a week ago, governor carney said no rate hike, not now. style, now kind of we are looking at the story, governor carney may raise rates. what is your view? peter: he laid out conditions for him to raise rates. it is just unfortunate. the market is very twitchy at the moment. physicians,lot of continuing whether the market is too volatile in giving a copout. i think the picture from

governor carney is relatively premised on the u.k. economy getting relatively stronger rather than falling off a cliff. if you look at consumer sentiment, think about the consumer in the u.k. if he is a worker, then it is real wages reforming. sector, wee service still have the plan for a hard brexit. unlikely to see investment in businesses increasing in the u.k.. and now the manufacturing sector, which has done so well, will have to factor in the slight rise in sterling. the u.k. gdp will be under some pressure. i do not think these are conditions where they will be able to realize higher interest rates. alix: jon, to your point, the market seems to not care about that because this is a rate of increase since december 2016. we are up 45%. this to me as wellesley euro we

saw in the last few days, feels like the market wants to be -- any word, and they will jump to reverse. where is the opportunity for catch-up when we see the opportunities in yields? peter: think about the guilt thee as they price and and potential move you have from the bank of england. let's think about where the pension funds theresa may has to do. will equities, which they do with stronger sterling, then i suspect they will be moving gilt and moving into equities. curve will belt steepening. it is counterintuitive given the macroeconomics in the u.k.. median expectation inflation is lower. we have to factor in the curve. that will steepen them. anna: where does that leave the

u.k. gilt 10-year? we are talking it being 2% in 10 months. simon: 4% by the end of the year. anna: at the moment, we are 1.2%. simon: yes, so it is going the right direction. there are a number of factors of the u.k. gilt market. anna: less confusion? peter: fiscal confusion is a good bearish dynamic. the shift is another reason to be short the gilt market or to be expecting them to underperform. i think the u.k. economy is right for a downgrade from credit rating agencies. i expect gilt to underperform. jonathan: when bond markets underperform across the move, gilt moves, treasuries. euro-dollar at 4u fitness -- $1.14.llar at$

simon: i think it is too early. we have a six have a month target of $1.16. we are surprised at how sharp the moves have been in the last couple of days. a little reaction about mario draghi talking realistically about the outlook. the canadian dollar versus the australian dollar, you also have great expectations in the canadian pace. coming under pressure, particularly as we have a slowing of demand out to china. valuations,terms of our mission is 18% overvalued. the markets are very short the canadian dollar. alix: simon smiles of ubs and peter chatwell of mizuho. a programming note -- what are you doing on tuesday? drinking beer and watching me,

july 4, it :00 p.m. eastern, myself and matt miller cohost a fireworks spectacular live from new york's esplanade. i have got my dress. it will be nice weather. don't miss that. this is bloomberg. ♪

emma: this is "bloomberg daybreak." i am emma chandra. coming up, tom lee, a global advisor. this is bloomberg. ♪ now for your bloomberg business walgreens has scrapped a merger with friday.

instead, it will purchase about 2200 rite aid stores. walgreens will pay right eight $325 million fee. in the u.k., prime minister theresa may is having regulators take a closer look at rupert to purchase the half of sky it does not already own. she told parliament their public interest concerns about the deal. the offer will now be examined. shares began trading on the new york stock exchange -- shares will begin trading on the new york stock exchange for blue apron today. it has been overshadowed by amazon, and halting that takeover sent grocery stocks plummeting. that is your bloomberg business flash. p.m.,at 6:00alix: president moon will be welcomed to the white house for talks. what will they discuss? we will bring in bloomberg's

chief washington correspondent kevin cirilli. it is about north korea but also the docket. topic? the trade and north korea, they hope to discuss those two to put pressure on north korea to discuss the nuclear weapons program third there is no question that president trump and perhaps one of the most polite geopolitical relationships he has had has been with south korea, especially as the country is to host the winter olympics. alix: this comes on medieval evil the travel ban coming into effect today. how is the administration this?ing for kevin: thekevin: department of homeland security will issue new guidelines later today, i am told. the want to enforce predominantly muslim nation ban, six majority muslim nations.it will be honored -- existing visas will be

honored, and new applicants must have "bona fide relationships," so look for everyone to be parsing through the lines of these new guidelines for how they will define the "bona fide relationships." we should note, alix, this comes as the courts are grappling with the legality of all of this. it :00 p.m., the time on the clock, that is when -- 8:00 p.m., that is when officially this will go into effect. anna: kevin cirilli come on the bloomberg, we show the relationship, about the same size as u.s.-u.k., not completely insubstantial. what are the sticking points around trade? substantialevin: in at all. i was speaking with someone the other day about this in terms of how the u.s. might be able to invest in south korea and the defense contracting world.

also on the issue of technology. as these conversations move forward, we will hear a lot about defense spending, defense investment as well as technology. alix: thank you so much to kevin cirilli. trade front and center for president moon as well as president trump. this is energy week. energy dominic, whatever that w te, whatevermina that winds up meaning. the purple line is exports, natural gas, crude exports moving lower sense that march high that we saw. joining us with more is nicholas potter, reckless head of natural gas resource. head of natural gas resource. nicholas: you hit the nail on the head.

everyone is focused on oil, but this started with the shale gas revolution 5, 10 years ago. they found a great way to unlock all the reserves from the u.s., and we have gone from essentially being one of the largest importers of natural gas to the role to now being operably one of the top four to five exporters globally by 2020. we are already exporting a significant amount of gas in a transport to mexico. alix: at the end of the day, this is all about economics, and keeping the arms open and european buyers will want to buy natural gas to what can the administration due to facilitate more exports? nicholas: this is a good question. the reason we are in this position is because of the ingenuity of a lot of the european gas producers that allowed us to get to this point. i think it will be market-driven. if we can continue to export higher volumes going into the future. i think there are policy things

the administration is trying to do. i think we have identified from -- a trade transport, energy is important. if you look at natural gas trade, the deficit is $35 billion just for natural gas imports. that could be a billion dollars surplus in the u.s. that could get as high as $16 billion by 2020. anna: this is a growing story. how much is it help out by infrastructure restraints, if at all? i have been reading about the broker, tricky infrastructure constraints. is this something that holds back exports? nicholas: i think a bigger issue is that these projects take four or five years to build. rush to build these projects, and the first phase of projects are about to come on my next two years. but the u.s. is producing so much gas that infrastructure cannot keep up with production, and we could be back in the

cycle where gases just bottled up in the u.s. that's what you see president trump and his administration out talking to koreans, india, chinese, making sure they know we would like to have an agreement with them as well is investing in new export infrastructure. alix: looking at the heart of it, you will not have companies contributing billions of dollars a month they have a long-term contract guaranteeing that kind of cash. what will be the tie up that will be a game changer? u.s. and china, u.s. and india? india's already a large buyer. korea through coal gas. chinese has been noticeably absent. i think that 100-day plan when energy secretary perry was over in china a few weeks ago, that got people's excited in the west because there was a signal that could potentially allow -- not allow, but there might be a better relationship, that

chinese investors could invest in equity position, or as an offtake of a u.s. project. that would be a big change for these projects trying to go forward. to seeick potter, good you, of barclays. if you have bloomberg terminal, check out tv . check out our charts and graphics, interact with us directly. just go to tv on your terminal. this is bloomberg. ♪

anna: welcome back, everybody. this is "bloomberg daybreak." down with anat exclusive interview with bloomberg's francine lacqua. they talked about climate change, monetary policy risk. mark carney wants to get 100 chief executives to disclose more information about how climate change is a risk for their cities. carney: as we go forward, there will be changes in public policy.

that can have big effects on industry. change in be technology. that will shift the competitive landscape quite quickly. and there will be, potentially, a pull forward in anticipation, because that is what markets do, anticipation of changing. who will win, lose, who will be penalized. in order to have the information or to make those judgments, i also want to have some perspective on who is thinking about this so i can make those qualitative judgments about management and risk management that often unlock bigger values. francine: is there a chance there is no risk. ? longer-term,that if you do not know exactly what the risk is, what is something

is impacted but you cannot actually measure it? a company today could decide on how to disclose it. mr. carney: part of that goes to thinking about a scenario where -- you can think of various degrees scenarios from a carbon price perspective. that is almost as similar as what you are doing now. sophisticatedmore ways of thinking about the energy mix and aspects. if i can play that through my business and look through scopes 1, 2, 3 and look at my exposure and how competitive i will be, what can i adjust? what is easy? what could i do today versus what should i put off? what is the optimal timing? on,hat extent should i rely you know, technological changes?

again,. that is where this goes. the risk is that people are not thinking about this sufficiently, and there is a bigger adjustment that comes. you have a moment where there is much tougher regimes put in place, and you do get things such as we have seen in german utilities, such as we have seen in the soul, other aspects. -- in diesel, other aspects. that is mitigated with other information. --annot stress this enough this is disclosure so it is neutral, and it can be that the adjustment is delayed because, for whatever reason, either technological or global, political, it could take longer to come. but if i him in the market, i

want to be up to make the judgment calls. jonathan: that was bloomberg's francine lacqua in an exclusive interview with bank of america governor mark carney. i should stress the governor and bank of england refused to discuss monetary policy in this program. coming up, charles peabody, come this point equity research managing director. he will be talking about wall street unleashing some big by that's in -- buybacks in dividends. into the market come about one hour and 34 minutes away. city, for our viewers worldwide, you are watching bloomberg tv. ♪

♪ >> the big banks on wall street

unleashing payouts of the federal reserve gives them the green light. walgreens with a deal to purchase rite aid and to the u.k. pushing back against a bid to purchase the rest of sky. central bankers confused. mark carney adjusting risk into the market. from new york city, good morning. you are watching "bloomberg daybreak." we welcome anna with us for the next couple days. jonathan: we have a check of markets. we begin with equities, futures positive by 1%. the euro edit strongest level so far. treasuries going down over the last five days. the big price action over in europe. alix: taking a look at yields. points --p basis eight basis points it with german inflation accelerating to one and a half percent.

is getting a bid on the flipside of that. but for seven straight days. dalai clique to a deeper yield curve in the u.s. asset that is not participating in the hawkish central bank jim is the yen -- jam is the yen. so extended above the moving averages, kind of left out of the mario draghi, mark carney and janet yellen environment as they turned more hawkish. jonathan: 0% on the 10 year. they are not getting hawkish anytime soon. alix: they are in a different hotel. anna: not coalescing with the others. the euro getting a boost from the german inflation number. unexpectedly accelerated. we will keep an eye on that. we have your morning brief. some u.s. data including the third quarter, third reading of the first quarter, i said that

right. , and jobless claims. what it means for the fed. at 1:00, speaking on monetary policy in london. since about p.m., the president welcoming south korea's new leader to the white house for talks, they will be talking about trade, and geopolitics. no doubt. jonathan: and when sector in the spotlight is the financials in the u.s. trading after the stress test for the first time is 2008. the fed told big thinks they have -- banks may have more than enough capital to generate investor interest, unveiling plans the stock buyback more than analysts projected. citigroup planning to double evidence and -- dividends and could purchase up to $6 billion in buybacks. jpmorgan saying they are boosting dividends 12% and could increase shery purchases to

$19.4 billion in the next 12 months. join us, charles peabody compass point research analyst and portfolio manager. you said all week, every time we discussed this this is a new story. this looks like a new story ahead of the open. charles: we are looking at thin holiday trading conditions. we're looking at the window dressings and a fabulous result. today, we will see the stocks rocking and rolling. what happens on the other side of the holiday is interesting. jonathan: what will happen? charles: we're looking at weaker second-quarter earnings, particular in capital markets. we're looking at structures dependent on what the fed does. deregulation into 2018 with tax or point -- reform. alix: we have a move in the bond market, volatilities picking up a touch. you have been skeptical volatilities, saying it will be

bad for trading and for banks. what about this? could it be good? charles: volatility is three characteristics, reduce client engagement, you saw that the second quarter. her trading results. then you have gapping prices. you saw it in the currencies with the central banks flip-flopping back and forth. it is tough to hedge. i do not think we have seen the gapping prices in the capital markets, that will be the backup of the year, along with the widening trade. and the banks are turning huge inventories. they claim they're not doing proprietary trading but the bloomberg story the other day on deutsche bank shows they are. alix: i like the promo. thank you. is there a distinction of the best to capitalize, going into earning season? alix: who is the best and worst off? charles: the brokers will be the weakest. morgan stanley and goldman sachs are cutting estimates. citi will have a weaker

second-quarter. and i think bank of america and jacob -- and jpmorgan will be solid. anna: what about consumer credit cards? if the fed is concerned about anything, that is where they are concerned. looking at the past, give us context. charles: i think we are at an inflection point of credit. we are now looking at the ramp up. credit costs are going higher, will be gradual or robust? with cards, the banks raised assumptions of what loss rates will be this year. there is a seasonality where you get improvement with cards in the second and third before they deteriorate again. the surprise will be on the corporate side. you will see corporate credit costs going low in the first quarter, to more substantial in the second quarter. anna: tc regulars taking action to address -- do you see regulators taking action to address that in credit? charles: they tend to take

surgical strikes where they target a product area. anna: we heard from the bank of england doing something similar this week, going into the monetary -- and producing something else, which was designed to stop so much lending. charles: going to that point, i have been saying that the why behind the action is more important than the action itself. this is not related to economic activity picking up. long growth is at 3%, capital markets are not robust in terms iat -- of activity levels, think they are doing it for asset values. jonathan: i want to bring the bond market into the conversation. you talk about the rate structure into what means for financials. missing the treasury market, substantially higher for the yield. to think it continues? >> we are leaning the other way. the reason, yields, the ultimate

question for yields is whether this global acceleration in growth will be different from the previous one, will actually deliver some acceleration in inflation. we are skeptical of that. we have seen time and time again all these accelerations that never really reach velocity. it is very difficult to see when fiscal policy is not coming, if you are wind if you months -- rewind if you months, the only way to get sustainable growth we said was to have fiscal expansion. we had hoped for that. and sustainable monetary prices. both things. so we are actually beginning to lean toward a scenario where in the second half of the year the growth slows. we already see it in the u.s. europe is still holding up. in emerging markets it is really so globalsus -

synchronize growth is no longer synchronized. so we could see in the second half growth slowing, inflation does not deliver. bulle may go back into flattening environment. the current environment is good for banks, but it is really reflective of what has happened over the last six months. we are beginning to look past that. alix: so when we see the u.s. premiums that have narrowed consistently, that changes? >> you mean the spread between treasuries? ok. alix: the big ones. >> everyone else. that is how we are actually positioned. for long treasuries and basically completely out of european, japanese, u.k. the fixed income universe that we like at this stage is treasuries and local debt. that is basically the spread

that we are betting on. jonathan: we should keep a little bit of perspective. we were talking about the flat issue of curve, we are up about 5-10 basis points at the moment. so we have had a move, but we are still flat. charles: still below where we were a pre-election. alix: if it continues, is that a favor of european banks versus u.s. banks? can we make the comparison? charles: i do not have a formal opinion on the european banks. my feeling is the european banks are starting to run into this problem the u.s. banks did in 2010. we had a massive run in 2009 when we realized they were not all going to fail. then they hit a wall. that is with the european banks have to show us. capability. anna: they are addressing some of the problems make the u.s. addressed at the height of the financial crisis. or just after. some of the weakest banks being there. alix: take a guys long enough. [laughter]

anna: i think so. thank you. alix: thank you for being with us. coming up, energy dominance. i have no idea what it means. i will ask of the u.s. interior secretary. president trump talking about it today. we will get the read through. this is bloomberg.

♪ jonathan: it has been a big week for the bond markets. treasuries and bonds under pressure, falling for the third straight day. led by the u.k. and the eurozone bond markets, where german yields are higher by roughly 20 basis points over the week. what a week. following the market moving words of mario draghi, or not,

we will get into that in a moment. take a listen to what the ecb chief said earlier this week in portugal. >> as the economy continues to recover, the constant policy stance will become more accommodating. the central bank can accompany the recovery by adjusting the perimeters of policy. not in order to tie to the policy stance, but to bring it broadly unchanged. jonathan: did you follow it? still with us, alessio. and now we have the global head of strategy. keep things consistent and accommodative, you move with it and you have to do something with policy, is that dovish? >> is eloquent in terms of trying to say effectively, as economy improves if they leave policy unchanged there are actually easing.

to avoid easing, it leaves policy unchanged. jonathan: the market misjudged the speech, according to people familiar with the ecb. did the market misjudge? alan: i do not think so. i think it was eloquently put as a backslide to explaining how tightening is not really tightening. and i think the hope was, if you explain it that way, financial markets will not get into a tizzy, things will not sharpen tightly. the problem is when they start to tighten and the bond market starts selling off. that is not what the ecb wants. they do not want a much higher euro either. anna: what is the german thinking in this at the moment. we talked about german inflation accelerating 1.5% above estimates. it has been the story that the german economy is stronger than other parts of the eurozone. and others have been perhaps

giving the ecb a hard time for loose monetary policy. what is the role of the german data? alan: i think it is not influence policy that much. one feature of the cycle is where is german inflation? inflation talks on how difficult it is, even in a booming economy, to generate inflation. the germans historically have been on the more hawkish side in terms of the ecb and they are still there. and maybe they are actually getting a little more support from the other side as well now. anna: you see inflation building in the eurozone? it comes from germany? >> the inflation feature remains stable, clearly there is no sign for many reasons. the usual suspects, productivity, demographics, the debt overhang, monetary policy, credit channel improving but not

really doing. all those things are going for inflation to remain. the euro question on german inflation has important implications not just for monetary policy, remember for the long-term purpose of rebalancing the eurozone you need to actually have higher german inflation on a sustained basis. the ecb does not care formally about that from a monetary policy setting standpoint, but it is a necessary condition for actually the eurozone going gradually into the ability long-term. so i think it is important that the germans understand that, at least from the fiscal side. alan: the rate of change relative to what is in the price. jonathan: and across the eurozone bond market, we have the monster price buyers sucking of bonds. now talking eloquently, as you

part it -- put it, about tweaking things. you look at the euro-dollar, i will call you out alan, what does it take to really get the change materially and do think there is more upside as well? alan: i think there is more upside. 1.16 is not far away. the kind of levels we have seen as the 2015 peaks, those areas are the natural points of gravity really in which i think real money is the main force. the reassessment in terms of the euro's direction. in terms of the forces driving this, i big what has been intriguing is that the fed is actually being in play, they have ceded most market expectations. every time the market just wants one rate hike at a time and thanks maybe we'll get -- htinks -- thinks maybe will get one

more, the pricing underscores the dollar story. jonathan: what has cut you off guard -- we have to talk about this. the dollar moves and the weakness he did not anticipate, or was it the big upside for the price of the euro you do not see coming? alan: i think it was more the responsiveness to short-term interest rate spreads. it goes in the direction we expected. the dollar did not really respond. i think there is a little bit of a euro story there. if you want to look back and say the growth was stronger than expected. probably arplus significant factor that was providing underlying support. but keep in mind, if you look at the euro's range, we are trading,, under the trump inflation trade we are trading 1.05 to 1.15. i think it extended the range of. that is what we're talking

about. alix: to wrap it all together, it is going to be the central bank talking over the next two years as they change the tightening cycle. when is tightening actually tightening the market? >> despite what mario draghi says, from a market standpoint tightening is a relative game. nots not a relative, it is an absolute economic story, but for currency in particular it is a relative nominal and relative real tightening story. this actually goes to an important point that mario draghi, the other important sense he highlighted the other day -- sentence he highlighted the other day. he hinted at global coordination business enabling the removal of -- signaling the removal of this system listed it is another way to address the issue of currency wars. if you start singling tightening -- signaling tightening while the others are not, you will get

those tightening conditions because of the reaction in the bond market, without you being able to really tighten the rates. so that is it. anna: the fed has already been doing that. they have company in that sense. had, they want to have a tightening bias but it is not really able in my opinion to live with it. we saw it. alix: i guess i one $1 million, but i cannot quite get it. same thing. thank you so much. both of you are sticking with us. coming up, the most bearish strategist on the street. he will join us. he just released a 2017 forecast. we will ask why. this is bloomberg. ♪

♪ anna: this is "bloomberg daybreak." in the u k, the prime minister's government will have regulators take a closer look at rupert

theoch's bid to purchase part of sky it is not already own. >> karen bradley tote parliament there are public interest concerns on the deal. they were not examine the offer. -- will now examine the offer. scrapping their bid for writing, -- rite aid. eventually the stores will be converted into the walgreens brand, and they will pay right aid a termination fee. anna? anna: thank you. we will take a look at the sky share price right now. it has been on a roller coaster this morning. services, business up by 3.5% right now. you can see the moves we have had as we heard those in the uk's speaking, various statements sending shares in different directions. joining us, ian, thank you for

joining us. let's get your thoughts on what we heard. investors seem confused. as we are listening to the culture secretary speak, on what this means for the deal. how alive or dead is the deal in your view right now? >> i think it is very much alive. this was expected, in terms of a at it from the competition authorities. just the past those banks through. it was clear from the report that they had presented concerns. and i think that you have to look at it from the context of what is happening in the u k fiscal environment at the moment, things like the general election, a minority government. it would be extremely difficult for the government just the way this comes, given political noise made, about the whole

deal. it is no surprise this is going to the compass and authorities. i think why investors, the initial reaction would have been a has gone to the authorities, is it going to be a problem, therefore it is a risk to the deal, so the shares get hit. as investors look to the reasons deal is being given to the companies and authorities, then they become more relaxed. you are looking at what is essentially being looked at, it is media priority, which when you look at it you sort of go back to the last bid that news corp. made with sky several years back. at that point, they own the newspapers. anna: and they do not bid they made that point -- not. they made the point. what does this say for a rupert murdoch and the murdoch family

and how much they are able to own? ian: in terms of the murdoch family, they do not seem to be the -- on the left wing of british politics. anything they do will be controversial. if you look at sky news in the overall environment, they have influence. is it as influential as the bbc? absolutely not. jonathan: we will leave it there. great to have you on the program. thank you. u.s.g up, ryan zinke, interior secretary. life in the white house. this is bloomberg. ♪

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quickly -- the quickly breaking action, the bond selloff continues. treasury up five basis points. and an upside to price because of german inflation. this time 1.14. and here it is, the upside surprise for the third read of u.s. gdp. and the estimate 1.2%. personal conception up by 1.1%, the previous read was 0.6%. so do coming1.1%, in around 1.4%, 1.2% was the estimate. quarter on quarter, the marginal downside, looking for 2.1. initial jobless claims staying down near the multi-decade lows, 244,000, up from 242,000. upside surprise on gdp, personal

consumption and corp. ecb with a marginal risk downside to price. anna: more on that breaking news, we will bring in our guests. it we see of and alan -- alessio and alan. reading ddp, the third a little bit backwards. does it change your view of the usl? essio: this is the third reading of data about six months old. we tend to focus on higher frequency leading indicators of the u.s. economic activity. however, the one piece of good news is personal consumption was revised substantially higher. over most of 2016, the reading was in the 3%-4% area. when we were dropping onto .6%, a represented a very, this is

still a slowdown in little bit, but now a little bit less. anna: as we look toward what the fed will do this year with interest rates, we saw the jobless claims at multi-decade lows. so do you expect the fed to follow through on the monthly expectations? alan: very tight labor market. interesting again. when you put it side-by-side with a gdp numbers, it gets squared with the soft productivity data, not the greatest thing. that said, yes i think they will tighten again this year. it looks like in between the tightening and next tightening, you will have balance sheet reacted tightening, so acting on the balance sheet. maybe in december, that one of five voices points -- basis points. jonathan: what is more important to janet yellen at this point? alan: different things. [laughter] jonathan: that is not how you

get out of it. alan: look, i think, what you see with the central bank worldwide is an inclination to look past smoke the shorter term inflation numbers in the view that they are created the financial cycle much more advanced, and therefore, even if you have these numbers, you have to look past them. anna: thank you. alessio, both staying with us. alix: it is energy week at the white house. front and center is the u.s. energy dominance. the president spoke yesterday at the energy department. president trump: i am confident working together we can usher in a golden age of american energy dominance. and the extraordinary financial secure to benefits it brings to our citizens. us from the white house is ryan zinke, u.s. secretary of the interior. the interior is charge -- is in

charge of everything in the interior, so front and center of the energy dominance theme. thank you for joining us. >> great to be with you. alix: i do not know what energy dominance means, help me out. >> we can move from energy independence to be in a global leader in energy. nobody is better at producing energy as far as of our mental standards than the u.s. -- environmental standards then the u.s. if you look at africa, asia, it is better to bring the energy here man watching it get produced overseas without regulation. national security. as a former seal i do not want to see our kids or your kids go overseas and have to fight for energy that we have here. making sure that we have national security assets here where we are not held hostage by foreign entities. lastly, it drives the economy

and it will lower the fuel prices, make sure our manufacturing base is competitive. there is a social cost to not having a job and there is a great opportunity to be energy dominant and have the ability to put pressure on foreign countries, iran being one of them. we have two options, military or economic. it is better to have the position to plan if we choose. alix: let's start with oil and gas for a second. when is your expectation that we become a net exporter of petroleum? >> infrastructure is a big piece of it. the market signal this year on onshore, i think we are wanted to $46 million in leases, compared to last year under the different administration where we were at $11.5 million. we are looking at enormous advances. but infrastructure is important. that is our pipelines, ability to move efficiently, ability to

export liquid natural gas. a lot of the infrastructure permit process takes a wild. alix: when you have unveiled more leases, we will get to: a second, what has been the demand for leases in oil and natural gas on federal land? >> a huge uptick. first, we had the offshore lease in alaska, that was successful. we will also do it right. i am a boy scout, leave the campground in good or better condition than you found it. we are looking at those natural parks. inut $11.5 billion behind the parks, so we need to make sure that we lease the lands and have revenue to fund the natural park system. alix: how many leases do you expect to issue in the next 12 months? >> if the numbers fall through from 11.5 million, same time last year, to 146 million, we

are looking at an enormous uptick in competitively spitting. -- bidding. when you have 94% of the offshore not available in the natural petroleum reserves, the most productive areas were made not available. you cannot get a permanent to put a road in. we are looking at the structure -- infrastructure. we do not pick oil and gas above any other time of industry. we are optimistic if you are the energy sector to at least having access to a good lease. alix: the problem i have is with coal, the more accessible you make oil and gas, the more they are produced and a nothing kills cold more than -- coal more than natural gas. have you seen any change in coal leases one to have made the more visible? 16%, it isup

competitive if you take away the regulations. alix: competitive with natural gas under three dollars? you cannot make the argument that natural gas is not a steel. >> it is a good bargain. coal, when you talk about base load, it is still competitive. overseas markets in coal are more competitive, we are looking at china still building plans. the demand in the u.s. has been down, but we're not picking and choosing the winners. we are all of the above. coal is up 16% and i imagine it will stabilize. you are right, liquid natural gas, natural gas, just the amount we have in the country's our asset and it is exciting. alix: let's get specific with coal, what will happen to the navajo generating station, the largest plant in the u.s. west. you have a 24% stake in the

plant. it will run through december 2019. then what? do you get buyers, do you expand ownership, do you cover costs? how do you keep it alive to save those jobs, specifically? country, are a navajo the jobs are important. that facility is the maker of the employment of the novel hope they voted -- navajo. they voted to continue it. we're making sure it is economic. as you have pointed out, coal have to be economic on its own. we are not in the business of subsidizing or picking markets. we look at where the energy cost is going. over all we are optimistic the decision to look at long-term,

everything is on the table certainly. and the decision to go forward and keep it operating is huge for the navajo people. alix: is a new buyer realistic? >> it is realistic. there is exciting technologies as well, that are related to coal. everything is on the table. i think it is realistic to have a buyer look at it. but obviously they have an enormous amount of coal, and the navajo to a degree rely on the energy sector for jobs. they are not alone. the crowe in montana had the same reliance on energy. the indian tribes are not monolithic. some are more energy centric than others. my job is the major to provide opportunities for them. alix: thank you so much. we appreciate it. ryan zinke, the u.s. interior secretary. we are looking forward to the speech from president trump today. jonathan: coming up, we bring out the wall street bear. the managing director joining us later today. city, you areork

watching bloomberg tv. ♪

♪ anna: -- >> a special programming note, tune into bloomberg on july 4 for the boston pops fireworks. alix steel will host. anna: welcome back. this is "bloomberg daybreak." we will talk about the news. angela merkel discussing brexit today in a speech to lawmakers, saying the world has become less united and acknowledged that discussions in july will be very

difficult, in reference to the u.k., or perhaps in reference to the transatlantic relationship. among resistance, theresa may faces a further test ahead of the final vote on her queen's speech. the barometer index, made up of inflation growth and uncertainty, dropping to 14.7% as opposition increased from the labour party. the higher november, the healthy and -- the higher the number, the healthier the economy. you, good toto have you on the program, good afternoon where you are. tell us the challenges theresa may faces. she managed to win the vote yesterday on the labour party amendment. will her confidence. her through? >> the expectation is the final

vote on the package will be in her favor. working majority of 13, that is with the support of northern island's party. one of the problematic moments she faces is an amendment put forward by the cross party mp's calling for more equal abortion-rights for the women in northern ireland, specifically allowing, which would allow them to travel to england and have abortion funded by the nhs, which is enjoyed by people in england, wales and it's scholar, but not by the women in northern ireland. the dop is very conservative, and there is a lot of support for that particular motion within the conservative party itself. anna: if she fails on anything today, that could be the thing to trip her up. another labour party mms they want to attach -- amendment they

want to attach to the queen's speech, it concerns keeping benefits of the single market and the customs union i understand, although it stops short of saying we should sta y in. >> one put forward by labor includes putting -- keeping the benefits of the single market, and keeping parts of the manifesto, it will largely get the labour party support. there is onerties, that calls for continued membership of the market. for a softer brexit. jonathan: thank you very much. for more on the status of brexit and what is happening globally, in arrested of deutsche bank -- anna ruskin of deutsche bank.

we of the central bank raising rates, the head of the bank of england governor carney, depending on how you see the speech from yesterday, inferring that could be coming. what did you make of it? is basicallysee it now, they did it on a five basis points emergency cut off at brexit. you have to look back literally one ear and - year and say, maybe it helped. but we really all got it wrong. the private sector forecasting you kgb and europe gdp to have cratered. it did not happen, they actually accelerated. either the at the -- cut was not necessary, or maybe it helped the scenario. they are talking about removing debt, the tweak they did.

on the other side, they are confronting themselves with their traditional -- which is inflation, caused partially by the collapse. so if you take that perspective of looking at that one 25, call it 15k, basis points, i can see the case for what they are talking about. jonathan: it makes sense to a lot of people. reachingre they not for the book this time around? alan: i think this is a global phenomenon. the central banks have come together in terms of saying, we have had these emergency cuts and accommodations, why have we got this asymmetric policy where things are bad we always cut? they are at full employment right now, so they are quite good. and all the equity markets at all-time highs, where we not hiking basically?

in the good times. jonathan: so we have seen a bear flatten or on the treasury curve, selling off, and we have seen it with much of the developed world. what will the curve look like as months progress and what will be the trade? alan: the central banks want flattening to occur, because if the backend is anchored, risk will be ok. equity markets will hang in. low oil prices are creating the anchor for the back end of the curve. there is an irony. lower oil prices means of low inflation, which means they should not be tightening, but it does give them the opportunity to tighten, and they are moving in that direction. jonathan: so rip up the textbook. that is the story. anna: will do. thank you very much alan and a lessio. the republican

congressman kevin brady on tax reform. very much about the tax story in the u.s. this is bloomberg. ♪

♪ >> this is "bloomberg daybreak." in the u.k., the prime minister's government will have regulators take a look at rupert murdoch's bid to purchase the part of sky it is not already own. karen bradley told parliament that are public interest concerns about the deal. the competition and market authority will examine the offer. sky says it welcomes the announcement and will continue to engage with the process. walgreens scrapping their merger agreement with right eight -- rite aid. instead, it will purchase stores at $5.2 billion. eventually they will be converted into the walgreens brand and they will also pay

them $325 million in termination fees. alix: thank you. for more on that scrapped deal, we are joined by editor hammond. what happened? >> this deal has been in trouble for a long time. we have been writing about it for over two years. it has been obvious that the remedies they put in front of the regulators were insufficient and they pushed back of the times of getting it done again and again. and there has been a sense in the market that it was a feeling probability -- failing probability that this would get done. but they came out today and said they would do the deal, but they would do it in different terms, buying up stores instead of purchasing the company. so what happens to the rest of rite aid is the question now. alix: what will happen? >> they could find another buyer. it is not obvious immediately if

maybe cvs would what's a common -- would want to come in. they could sell it and packages, but it would be messy. now you have a much reduced rite aid and a bigger walgreens, and you have redraw the map, but in a way that was not obvious when it started out. alix: is this something that you are hearing, the private equity? >> it is a space they like to play in. it could come into the market. the other thing that was interesting was -- they had already agreed before this happened, if the deal went through they would pick up stores in the merger. that one happen now. and you have seen their shares move this morning because they were going to be bigger, they would get skill to make them relevant, now they are not getting that and they are remaining slightly irrelevant. jonathan: rupert murdoch, he

owns a lot of sky already. >> i feel like i have been writing about this for a long time. jonathan: years and years. >> i think the thing that has happened that is good for the scenario beinge killed by the government, that is now off the table. now they are saying there needs to be a review. risk, but it can go through the right things are done. the market is looking at it as a positive. i think it is a plus for the risk, but it can go through the right things are done. merger. anna: it does not happen quickly. fox saying any review would take at least 24 weeks. so they are waiting another half-year. >> within the context of how long it has taken already, 24 weeks is a small amount of time. it was factored in it would be a slow process. the unknown is, because you have

political instability in the u.k., it is possible you have some kind of change of government in the time before the deal is done and it throws it all into disarray. jonathan: if there is a change of government, there is a chance it could not get done. ed, great to catch up with you. coming up with the market open, 34 minutes away. joining us, the biggest bear on the street, tom lee joining us with his forecast year end, 2275 on the s&p 500. you are watching bloomberg tv. ♪

♪ jonathan: the big banks on wall street are making major payouts

after the federal reserve gets them the green lights. faulkner.ushes about we are on top of the yield flow. central banker spark a selloff. bonds plunge. good morning. this is "bloomberg daybreak." i'm jonathan ferro alongside alix steel. 30 minutes away from the opening bell. up by aare unchanged single point. looking for to a conversation with tom lee. treasuries are up by six basis points. there was the big mover in the bond market. euro-dollar pumping higher. 2/10 of 1%. day, up alix: it is all about the big banks and warren buffett.

the big winner of the morning is citigroup up over 3.5%. jpmorgan and wells fargo looking at $59 billion. $336of america will make million in annual dividends. that out bids warren buffett's preferred stock. big news for those guys. in the credit card world, they will buy back dividends. american express up 1% in premarket. softer and was stumbled a little bit, but was able to deliver it dividend, but it has to fix weakness according to the fed. morgan stanley of over 2%. goldman sachs is also rising.

no specifics for goldman, but they said it is ok to issue its dividend payout plan. morgan stanley and goldman came close to that fail line. nevertheless, all clear. jonathan: thank you. some stocks to watch, the banks look poised to lead the games and a second day -- to leave the lead the gains in the second day. the stock is trading higher. we seem to be inching towards a deal. monster losses for rite aid after walgreens scraps its takeover bid. us to discuss this is tom lee and david kelly.

great to have you, guys. tom, i call you the big, wall street, bear. do you feel like a big, bear on the street? are you vindicated by what you see in the earnings? they look solid. --: bayer is a relative term bear is a relative term. i think it has been difficult for investors to argue that this rise in the markets this year is purely driven by earnings. median earnings are up 8% or 9%, so the index lift is because of his mean reversion and turn in the energy sector, and the banks. though sectors are not outperforming the markets. we have a disconnect were i think multiple separately risen.

it is not necessarily wrong, but now median pe is close to 19 times -- there have been four quarters in the last 40 years were it has been higher could -- been higher. jonathan: looking for the s&p 500 to be where it is right now. 22.75.e a call of david: i hate making short-term goals, but i agree with tom that violations are looking rich. the issue is what are people going to do with their money, and how fast feet through? we are seeing the big news is around global, central banks pushing operates. with the yields so low around the world, expecting five-year returns on high-quality bonds is very low single digits. with so much liquidity still unallocated in the world, that could feed the beast. the right way to think about it

is not how can i time the correction, but what is my long-term return? if p/e ratios are above average levels and then five years you levels, you're only talking about 5% total returns over the next five years. time when people really need to think about, how do i add alpha to a miserable return? -- m&a go. up ma go 53% higher than last year. economy is improving in europe. scene? an m&a it is part of a broader theme reveals looking for cash, and

companies are looking for close of cash. everybody is saying, where is the inflation? the inflation is an asset prices. world, it is clear that central banks can push all of the liquidity without causing raise -- without causing a raise in inflation. >> we will talk more about central banks in a moment. m&a does this wave of damage or bearishness at all? tom: mergers are driven by ceo confidence. business confidence is high. but, let's look at the history of mergers and b allocated by other businesses. a the top, it is always money-losing venture. the question that investors have to ask is a companies going to have a fair return -- issue a

fair return giving current cost of capital? i don't know. it really feeds into the idea that it is not a great risk/return. david: this is a great issue. as a earnings grow because of , the question is, how long will the market continues to go up because cash is still so available. alix: you tend to look at the 30/10 curve. walk us through this chart and how do you square the fundamental view of that chart versus the easing of money? tom: it is an intercepted stock price. the yield curve is saying that real growth is slowing. 30 year money and 10-year money are expected to return of that two.

it says that long-term spending has no incremental benefits. that is why flattening leaves slower gdp growth. when you advanced yield curve 20 months, it leaves gdp. -- that realgrowth growth is slowing, but if there is relative value because bonds are expensive, and there is a money, ith net worth says on the slower growth, i may pay a higher multiple. the problem is when we start to see adjusted profits because if labor, income rises and nesters welead to a squeeze, then have a huge adjustment in the market. david: the trap for investors, when you think about how money is creating inflation, you will get caught at some stage. we are not quite there yet. jonathan: the curve is flatter.

the ecb holds the key to rates. tooyou not think about that kind of put this into the mix, the ecb is damaging u.s. growth? tom: if you look at the last 20 years, europe was not an independent growth variable. it was depending on trends in china or the u.s. but in this cycle, europe is starting to be an independent variable driver. maybe it is because of the flow of migrants. the european deal curve is steep. but china is flat. issome point, china inverted. maybe europe saves the world. [laughter] not looking at the yield curve, just looking at the

supply side of the u.s. economy. if you look at the productivity numbers you saw in this , you lookgdp report at how low the unemployment rate is, we will not be able to grow much faster than 1.5% over the next few years. on the paceat flow of growth, i think europe has a lot more room to grow and a lot more unemployed people. i think europe will outpace the u.s. in growth. alix: great stuff, guys. both of you are sticking with us. if you are around july 4 and tune insee fireworks, to bloomberg television. we will be hosting the boston pops fourth of july spectacular. i have never seen fireworks that check it out. jonathan: i am tuning in. alix: this is bloomberg.

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♪ alix: financial toughening equities in the green after most of the lenders past the stress tests. you have citigroup doubling its dividends and they purchased up to -- in buybacks. bar is the last four quarters. huge difference within the market. joining us is tom lee and david kelly. tom, do you like the financials echo -- financials? tom: we do.

these companies have built serious -- around their businesses. look at how great their balance sheets are. alix: if you are negative on u.s. growth or pessimistic, how do you make the case? buy whereill like to there is authentic, earnings ,rowth, which means, technology energy, materials, and the banks. we want to all the banks here. they are pretty attractive and it is good that they are finally getting to work. is what you are seeing from the big banking sectors? banks thought regulators were asking them to hold way too much capital relative to the real risks.

get a first time they chance to return capital to shareholders, they are going to do it. there is value there. valuations on a particular high and that sector at all. and people assumed much greater risk of another financial crisis, which was the case. place,u put that into central banks and the ecb, the risk of everything crashing his much lower. so you are getting good dividends. janet yellen said she hoped that would not happen in her lifetime. are we seeing more of the deregulation story? ,om: if you are looking at data most of the data has hit three sectors -- banking, industrials, and energy.

the next four years or eight years, if you start to roll it back, there is a huge tailwind for those groups. jonathan: are they declining costs though? one way to think about it, banks have two primary costs -- costa capital, technology, and people. if you look at these earnings calls, the banks know their compliance staff is almost 10% of their total staffing. that is a huge portion of their total cost structure. for companies like jpmorgan and u.s. bank, these numbers may triple over the next four years. if you have a stable regulatory environment, you should get more efficient. you should be able to figure out ways of complying in a way that does not involve quite as much agony as terms -- agony in terms

of personnel costs. are we going to see traders being higher than some of these wall street players? david: maybe. i don't think that is going to be terribly important. ofre has been such a rewrite history in terms of what went wrong in 2009. i don't think there will be a repeat of that, but it wasn't about prop traders. jonathan: are we moving towards a situation where we have blanket repeal of some of these big, military burdens, or are we moving through a situation where things are -- david: no, i think we will have a small, chipping away rheumatoid pressures, and maybe some more sanity -- chipping away of more regulatory pressures and some more sanity. i am not looking for a huge

improvement, but if you can just get used to it, you can work out how to operate more efficiently. meanwhile, i think long-term interest rates will go up. there was a very strong message and what the fed said in june, implies, a steady increase in short-term rates. alix: you distinguish between different banks? tom: yes and no. cap -- as you have seen the sector is high. if you like financials, almost everything works. but it is interesting about the future. remember, the banks are huge spenders of technology. banks will have fewer people running the banks. it is going to be a lot more machines and technology. >> to rewind up seeing that in

the short term though, what is the next catalyst? what have we priced in in terms of that deregulation story? tom: any sector, probably. alix: i'm talking about financials. tom: i don't know, david, do you have any thoughts on that? [laughter] i mean, one of the issues of the total capital requirements and the multiple levels of capital requirements and the stress tests, all result in this pilot of capital. it is hard to get a mortgage. psycho standards are still -- fico standards are still quite high. there will be a fair amount of pressure to get back into some sanity. we cannot say the only way you can get a loan is to prove you don't need it. there has to be a better middle ground here. there will be a lot of push to try to bring more sanity there.

there is some easing off into mortgage areas. >> thank you so much david kelly and tom lee. they will both be staying with us. 9, 19 here in new york at coming up, we will be watching blue apron trading on the nyse. china, it's the company race for howipo, and how -- find out the company reasoned money for its ipo. this is bloomberg. ♪

♪ jonathan: there is a signal coming from central bankers and that is borrowing costs may go up. it is made the bond market a jittery place. 10 year treasuries are higher by 20 basis points since monday's close. treasury yields in the u.s. following suit. the biggest weekly gain in four months in terms of yield.

president mario draghi uttering these words. take a listen. pres. draghi: as the economy continues to recover, a constant policy stance will be more accommodative. the central bank can accompany the recovery by adjusting the policy instruments, not in order to tighten the policy stance, but to keep it unchanged. jonathan: we are with david kelly and tom lee. the words of president draghi, and the last couple of days, we have seen the egg moves on the backs that we have seen big moves on the backs of those words. what is your view? david: it is confusing to be honest. when you look at the easing of money, you look at it in terms of nominal yields. that does not mean monetary ease has gone too far. you are seeing unemployment

coming down very steadily and europe, and you are seeing a pickup in real estate in your, so they need to tighten. the more important thing is -- it has become fashionable to become hawkish again. jonathan: if that is indeed hawkish. david: it starts with the federal reserve in june, which is when they laid down in consider -- to continue their plan. if they stick with that every month, it will be very hard for them to say, this month feels like we should not have sold 60,000 worth of bonds. bringing downwith the balance sheet, they could stick with these three rate hikes per year. the combination could -- down.an: we played that you said it is confusing. everyone is confused as to what this means. central banks

getting concerned about financial stability, asset prices. that it has boosted of asset prices. now they are worried. david: the problem is you need lead time. as you raise rates, you will scare people from the bond market back into those assets. there is a lag here. -- 2000,ened in 20,000 people wanted out of the bonds. they need to get going early. they are late getting going. push -- getting more hawkish, we will see rates move up. we will see that increase. >> tom, does this time into your stock market -- tom, this is tie if your stock market view?

tom: it is hard for central banks to really have an effect on the 10 year. the 10 year is related expected short-term rate 10 years from now, plus term premiums. i do not think short-term tightening means it leaves to the direction of the 10 year. we need to watch that. i think with him bringing that out, you will see long-term lees moped jonathan: david -- david kelly and tom lee sticking with us. you are watching bloomberg. ♪

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looking at the forecast, tom lee around the table, for kissing -- forecasting --on the s&p 500. you are here in the opening bell in new york. off bigssets, bonds are time. yields higher on ten-year treasuries by six basis points. a big reversal in the bond market over the last couple of days. the dollar softer by a 10th of 1%. a 20.17 high. let's get to that cash open and equity markets -- markets could alix: the nasdaq slipping into negative territory. it is the end of the second quarter tomorrow, so expect there to be rebalancing as we head into the third quarter.

what is interesting, as we had that selloff across the bond market in europe and a u.s., those higher yields not having a dramatic impact yet on equities. we thought if we saw that big reversal, you would see a fall out in equities. not high enough to do damage. if you take a look at right it, it is getting creamed, down 22%. up greens -- walgreens up by 5%. walgreens and right it will not be able to merge. -- walgreens and right aid will not be able to merge. walgreens and right it will not be able to merge. a big shakeup in the drug area. quarter,of the second we are a day from that. i will show you the out performers and underperformers. telecom and energy absolutely hammered.

telecom --oil prices fell out of bed. tech up by 7%. this speaks to the struggle between growth and value. you think value, you think energy. financials and energy did not make the cut in the last quarter. indexs the s&p value relative to the growth index. value underperformed, but got a boost a few weeks ago. now, -- now it is flat. people were waiting for when values were going to kick in. that rotation is not really strong. not a lot of conviction in the market. jonathan: let's bring in the team -- david kelly and tom lee. when you see growth going, tom? tom: part of it is inflation,

inflation expectation has we can end.-- has weak intor and value are linked -- linked into. you theit is showing market this year. investors are willing to bite of visible growth. -- investors are willing to buy visible growth. david: i don't look at it in terms of value and growth. we are looking at foreign exposure and sensitivity to interest rates. i think the way the global economy will beat the u.s. and --wth -- and pulled growth will be the u.s. in growth -- it is the triple threat.

other central banks will be tighter. it will push up long rates. if you work off those two factors, foreign exposure and rates, that is the right way to push equities. jonathan: there was a backup and yields over the last week or so, significant backup and yields. the equity market is ok. what is the anchor for global risk right now? tom: the equity market always does pretty well. david: it is really not that threatening. it is the later days when rate hikes really hurt the economy. they do not for the economy at these levels. it is later on you get that affect. the other thing about the global economy, it is awfully steady. very good chance this will turn out to be the longest suspension

ever. it is moving straight down the middle of the road. i think i could do that for some time to come. , anden we think about tech when you look at the percentage of the moves, does that were you? tom: i think tech is in the process of re-rating. something is happening that looks like the 1950's, is that the labor market is growing than the population. the only period was in the 1950's good at that time, wait inflation triggered an automation boom. triggered antion automation boom. in the 1950's, the tech stocks outperformed many years in a row. i think it will get -- i think things will get a lot more

expensive third -- expensive. tech?u buying david: valuations are breathtaking in some individual stocks, but wage costs are going up. we will have the super stretch expansion with a very low unemployment rate. landingn sustain a soft , the longer we can sustain a soft landing -- productivity is a mother word for having no one left to hire. we are at that point where businesses around the world are smartere for hiring robots good -- robots. alix: that is what is happening

r. the energy secto how do you square that? , there you look at tech is a lot of value. they are trading at reasonable multiples. alix: old versus new? tom: like the microsoft, ibm, oracle -- represent huge innovations, but you cannot -- that fang is creating a bubble. apple was not cheap stock 10 years ago. it has risen eight times because sales have grown eight times. growing is not expensive. jonathan: let's think about the big buybacks. you like this, you like this, you like this -- but the bear

market relative to the rest of the calls, where do you see underperformance coming from? if you take tech, financials, energy, and telecom, that is close to put 40% of the market. so 60% of the s&p is probably expensive. you take out amazon, netflix, and priceline, they are pretty an above market multiple. growthan half of the comes from cpi, from pricing. it is not will demand, and now it has credit out a lot of sectors. care's five-year growth outlook is tough. jonathan: if you were to pick theone sector that matches kinds of multiples coming out, and if you were a short seller and you said the most

underpriced stock, what is it? tom: this will not be a popular statement, but biotech is very expensive. not on a pe basis, but a group that maybe over earning. health care maybe over earning. analyst whoo an said that biotech was talking about its own growth momentum. think the failure or the potential failure of the health-care reform bill is proof that there are so many special interest that little will happen to health care. but we are getting to a tipping point. one, health care is a percentage of gdp close to 18%. you think of the 25 largest , so ispend by medicare think there is a pricing issue.

david, does that open up to tax reform? will get very -- it will be very difficult to get health care reform. is theyink will happen will have to shell health-care reform, but that will make the republican party even more anxious to get something done on tax reform. to me, that is a big is wild card out there on the equity market is in the end, could you get cuts and corporate tax rates which would boost operating earnings good -- earnings. jonathan: we are going to talk to representatives kevin brady. what would you ask him? david: i would ask if you are going to move on to tax terraform, and are you willing to put through a tax or form opposable -- a tax reform

proposal? jonathan: david kelly from jpmorgan, thank you. and tom lee, thank you very much, sir. 11 minutes into the session. big selloff in the bond market with equities looking resilient. by .1%.500 down yields higher by six basis points. and the weaker dollar story. higher -- andhing the your row is punching higher. you are watching bloomberg tv. ♪

>> i'm emma chandra. a special programming note, join us for the boston pops on tuesday, july 4 at 8:00 p.m. ♪ competition heating up with blue apron set to go public today. we saw them bringing the bell. hed its ipo.has slas , here is bloomberg reporter. they ran the bow, but they are not trading just yet. this is not going to be as big a alex:s people expected $3 initial evaluation was a

billion market value. with this $10 a share, the low end of a change range lower is $1.9 billion. this is a small cap company for blue apron as they are starting to trade once they get though shares of the ground. >> what is the ball case? it is easy to see the negatives in the amazon deal. company saying to get excited about? alex: that they are different. a prepackaged ingredients for different recipes, saying it is a different lifestyle experiencing going to the grocery store and buying. whether or not investors are buying into that idea, right now, i am leaning no given how the stock price was last night. but that is their pitch right now, and they say they have a lot of growth. jonathan: i do like the pitch. look at this pitch at the moment. amazon-whole foods

story? is there something else here,? : i question if that initial evaluation was too high. a smart investor would say there is a big competitive delivery market for food. does amazon change the game right now? we do not know. on that side of things, it is a bit of a question. the food delivery space, we saw delivery price its ipo in frankfurt at the high end of its range. in the u.s., it seems like folks are buying into the food delivery story. ofhave hello fresh, a lot will need exit, and there has been so much

venture money put into the space. you have to be shaking in your booth if you are one of these willcompanies right now, thinkg about how the exit eventually third -- individually. alix: i don't have time to even pretend to cook even if it was brought to me. [laughter] alix: can we expect more of these ipos that may not be the best ipo in the world? they just need to do it because they need to get their money back from investors. alex: it is that valuation cut that these executives will have to stomach. we have seen that across a lot of industries. last year was such a slow year for ipos. have seen a lot of volume, but the quality of the company, the quality of the earnings are lack of earnings has been telling that we are working through some of that and waiting for some big poster deals that we have not seen many of the with snap earlier in the year,

performance is still questionable. there is a lot out there. right now, it seems that investors are picking their slots a little bit more rather than last year. when bigee a backlog bank start to report and if you -- when big bank start to report. the market really cares about tax reform. the administration is trying to agreement by august. kevin brady from the ways and means committee, joined us and told us his timeline. kevin: a lot more work has to be done. tax reform is the challenge of a generation for any congress. i am confident we can finish it this year. alix: joining us from capitol

hill was congressman kevin brady . that was at the end of may, and a lot has happened. is your timeline at the end of the year? kevin: yes it is. we have to finish the budget resolution because that gives us a vehicle to deliver tax reform to the president's desk. the timetable we had in may is the same one we have now, which is to continue to work with the white house and the senate toward a unified packed to deliver and move that this fall. the time we spend working toward a unified plan now will save us and accelerate the timetable later in the year. alix: would you be open to a tax ?verhaul that includes tax cuts kevin: i am focused on tax reform for families and businesses. the one affordability for families, and also businesses because we want them to alter

their business investments. we think making the fall term decisions requires permanency. alix: so, no, you would not favor temperature a tax cuts for individuals? kevin: right now, i am thinking permanent. jonathan: do you anticipate the situation where health care does not get done, and you decide to move towards tax reform and do what you can? kevin: on the health care side of it? do you anticipate that health get done, and you can move on to tax reform and do something there? kevin: i apologize. sorry about that. i am pretty confident that the senate will deliver on health care reform. they have some work to do, just as the house did. the conversations they are having, i think our positive. and so, i do expect them to

finish that. it removes $1 trillion for back tax out of the economy. and it creates the confidence of moving forward as well. i am confident that they will get that done. but we have been running a fair track on tax reform since nearly the day after the president was elected. and so, we are not getting distracted and staying on our timetable. jonathan: let's talk about your growth assumptions. the imf cannot with damaging views on administration and the view that policy would not come through in the way the anticipated and downgraded their forecast. aey do nothing gdp will have three in front of it, but he two. what is your basis something for growth now? kevin: my biggest worry is that we have a new normal of less than 2% in america. that is a bad impact for everyone, especially

middle-class families, and people who are looking for higher paychecks. tax reform is getting it in that 3% range. i am confident we can do that. tax reform is a process, it is hard. it is the challenge of a lifetime, and so, we have a lot of things to work through, but after 31 years, finishing this in one year is a huge achievement. we are determined to do that. >> congressman, good morning to you. when you look what is going around the health care bill, are you learning things about the way your tax policy needs to be crafted about the extent to which you need to consult within your party in terms of developing policy? is this teaching you things about how you get legislation through more quickly? kevin: absolutely. that is one of the reasons we decided early on, rather than have 2, 3, 4, or five different tax plans working with the president and senate republicans on a single, unified plan, we

believe to accelerate an increase the chance for success the sheer. -- for success this year. our members are fully aware of these policies. we want to have a conversation to make sure we know those priorities and incorporate them. there is a tremendous amount of outreach being done, listening, working through those issues, in addition to the discussions we are having in the white house and the senate. so yes, we are corporate lessons from health care to make sure we succeed in taxi from as well. >> to a lot of investors that doubt you can get down from 35% tax,% with corporation what is the biggest reason that you think that is possible? kevin: the rate does matter. 15%is a very ambitious -- is a very ambitious rate. our goal is to bring it down as low as possible. you have to challenge the status quo. you cannot keep everything in the tax code.

we do have challenges. everyone knew that coming in. i again, i am awfully optimistic. if we get those rates down, for both corporations and small businesses, we want to get that down to significantly lower levels. don't care about the absolutely of the corporate tax, they just want something to get done. a 20% tax rate that you can get down quickly, or a lot of pushing out the timeline, but you get something like a 20% tax cut? which would you prefer? kevin: i think we have one shot a generation to fix the way we tax. we have fallen so far behind our competitors. doing a short-term fix just moves us to the middle of the pack and that is not that satisfactory.

i am convinced that our goal of moving from 31st into the world into the top three, making sure it is not just a rate that are competitive, but we can compete and win anywhere in the world, and bring supply chains back. once in a generation opportunity, so we have to go bold. jonathan: we had a guest earlier talking about possibly the longest recovery on record, 10 straight years. over the next 10 years, it is more than likely be will get a recession. are you going to dismiss that entirely? kevin: from what sense? jonathan: with your tax plan. i am sure there are going to be pretty optimistic plans. are you able to incorporate the prospect that the are quite like you to get a recession over the next five years? kevin: mini challenge that assumption. -- let me challenge that assumption. we will not be making those assumptions.

congress will be making those estimations based on real life economic impacts from tax reform. they will include those, i am sure, and those projections. all we have asked is that we have a realistic, real life analysis of these major tax changes. i am confident -- i am confident we will. jonathan: congressman kevin brady, always glad when you join us. let's wrap up "bloomberg daybreak." unchanged on the s&p 500. yields are higher. treasury yields are much higher by four or five basis points. and a stronger euro. you're watching bloomberg tv. ♪

>> from new york, i'm vonnie quinn. >> welcome to bloomberg markets.

♪ vonnie: here are the top stories we are covering from the bloomberg and around the world. the banquet lindens -- bank of england governor speaks to bloomberg in an exclusive interview. the long-term climate range -- risks of coming change are facing threat to investors. and in u.s. politics, the partial travel ban takes effect later today. and how democrats are responding to this and health care. we will hear from senator ben cardin. a block of money orders will join for an exclusive interview. he brings us his latest chores callsres, and shortselling icky and un-american. let the cover in the next two hours, plus the trading. we are