jonathan: north korea shakes foreign relations, not markets. a response to the latest threat. the $4.5 trillion question for the fed. went to start shrinking its balance sheet. italy's bank model through eu officials approve a plan to salvage of another italian lender. , goodew york city morning. this is bloomberg daybreak. on jonathan ferro alongside david westin. alix steel will be joining us from boston. futures in the united states up by .1%. the dollar showing some strength. the euro weakness for a fourth straight session. treasuries unchanged. 235 is your yield on the 10 year. and thengela merkel chinese president will give statements at the berlin zoo

ahead of friday's g-20 summit. at 10:00 we get factory and goods orders for the of may. this afternoon the fed will reap the fomc minutes of last week's meeting. president trump will be heading to europe for the g-20 summit. the question is of may. this afternoon the fed will reap the fomc whether they are going to spend the time talking about geopolitics or trade. here's kevin cirilli. we thought it was going to be all about trade. it doesn't look so much right now. >> it looks like it's going to be all about north korea. the administration sending clear singles they are hoping to put pressure on north korea. as a result of their testing of an intercontinental ballistic missile on the fourth of july. we should note that secretary of state rex tillerson has echoed u.n. ambassador nikki haley who

has called for there to be a laterl you in meeting this afternoon with the security council. i want to pull up a statement from the secretary of state who said in a statement that global action is required to stop a global threat. any country that hosts north korean guestworkers provides economic or military benefits or fails to fully implement un security council resolutions is aiding and abetting a dangerous regime. all nations should publicly demonstrate to north korea that there are consequences to their pursuit of nuclear weapons. this comes following steve mnuchin's last week announcement that the administration was looking to pressure chinese companies including the bank to cut economic ties with north korea. david: president putin has his own plan which doesn't appear to jive with what rex tillerson said.

things as the u.s. should stop all military exercises south florida. is there going to be a conflict between these countries? yes. policy the u.s. as well as south korea of north this testing korea's intercontinental ballistic missile have also signaled in their own way for military missile test which are a direct result of that testing on yesterday. vladimir putin president trump scheduled to meet later this week at the g-20. they are going to be -- every move these leaders make will be analyzed. terrorism and north korea clearly the backdrop for these meetings. david: no question north korea has gone to the top of the agenda. angela merkel said let's talk about trade. are they going to get to the subject at all? >> yes. in addition to trade chancellor merkel would also want to talk

about president trump's decision to remove the u.s. from the paris agreement. all of that clearly a very backdrop than what we saw for the president's first international trip as he takes off on air force one later this morning on route to:. david: he's also going to have a meeting with angela merkel. how pivotal is angela merkel and the german government right now? >> crucial. backdrop than the president already sending signals that is willing to work with the issue of north korea which would seemingly suggest a new type of geopolitical shift. as these global leaders work together and we have seen the political friction between chancellor merkel and president trump. david: thank you for reporting. jonathan: shifts to haven assets

didn't last very long in the wake of north korea's missile test. trump. david:joining us now for more is carsten nickel. great to have you on the program. let's begin with we are seeing in north korea. we are about to found out that the united states needs global platforms like the g-20 for global solutions to think like north korea. the whole situation reminds us of how difficult it is to find consent is on the global scale in a forum like the g-20. i think we have come a long way from there. global cooperation is not dead. we are seeing piecemeal cooperation between countries. on a global scale it's becoming more and more difficult. jonathan: investors haven't exactly been compensated for

being fearful in 2017. the move in treasuries did not last long. are the red wines for the markets when they look at a situation like north korea? the real challenge is you have to look at many different players with fundamentally different agendas. the russians and chinese are totally opposed to isolate north korea. even in the western alliance if you compare the stands taken by japan and the u.s. and south korea and many europeans on the there's a huge question over how forceful do you want to position yourself. to me it's this uncertainty that in the domestic politics of these rich western democracies. the president of the united states blurred the lines between foreign policy and economic policy towards china. they did not call china a currency manipulator because they thought china would help

them with the issue that is north korea. are we going to see some economic implications, foreign policy fallout? >> i think we are seeing here is forumsese international work by package deals. if you want to rish agreement on something like north korea you need to make sure you are in a cooperative state of mind. when comes to issues such as climate change trade and so on. what we have seen so far on these other topics wasn't very constructive from the perspective of many other g-20 members. difficultmake it very to achieve consensus on other issues as well. david: is if the g-20 that may have an effect or is it an occasion for them to have a series of why lateral discussions? we have had a lot of bilateral discussions. >> that's the point i was referring to earlier.

the corporation is not that. it's happening on a bilateral or regional stage. europeans are arriving very coordinated when it comes to climate change. seems to be happening on the bilateral stage. a great photo opportunity. carsten nickel, you will be sticking with us. tacklingister may prime minister questions. wednesday the same time every week. the leader of the opposition, jeremy corbyn. you can watch that live on your bloomberg tournament. david: we will be turning to italian banks. the ceo of monte dei paschi will talk about restructuring his bank. why he thinks this plan will work. , this is new york bloomberg. ♪

jonathan: monte dei paschi laid out a five-year restructuring plan that includes cutting thousands of jobs and selling assets as part of an agreement with the european union that lets the bank received $6.1 billion in state aid. following the say result of many late nights is marco morelli. great to have you on the program. investors have seen this movie a couple of times before. the bank tapping investors for 8 billion euros requesting it twice in the park as well. why is this restructuring land so different? long-awaited day.

long-awaited plan. we have been negotiating with a number of european regulators since the beginning of january. i think it is the first time the precautionary recap model is actually applied to european i do believe a lot of attention has been paid to structure the plan. to have something which would votinghe bank to start again in a sort of stable and normal commercial framework. i think we did get there. many investors in europe at the moment are confused by eu regulation and the spirit of the rules. we talked about this

precautionary recapitalization plan. what have you said to people in the last 24 hours when they have asked you about whether europe is cheating their own rulebook to help banks like monte dei paschi. i talked for monte dei paschi and i can only opine on what we experienced in the last six months. i think there are rules which we were bound to comply with. precautionary cap scheme, we did play by the rule. this is the reason why the negotiation actually took so long. lots of different responsibilities. i think at the end of the day we are going to be under scrutiny on a permanent basis. there is going to be monetary interest fee appointed to check is to what extent the plan

complying with commitments agreed upon with the european commission. we are concerned we did apply all existing rules. some people say the eu is being a little bit more flexible with its own rules. from your standpoint is that a good thing that the european regulator is maybe being a little bit more flexible? in general terms rules need to be crafted and then implemented. we must have a sort of check point to see whether rules do actually function properly and whether rules need adjustments going forward. i think it is going to be a good case to sort of see to what

scheme of therall precautionary cap actually works. far as the bank is concerned i think for my management team, for all of the employees this is clearly a turning point. the dust has settled. there is clarity and transparency. on what the structure of the bank is and will be going forward. what is the impact of the final ofposal of 26.1 billion gross npl's? and the line and come up the rules asher far as the overall european scheme do work. jonathan: before we get into the

target of your bank i just want to reflect on the following. it looks like the institutional investments got burned and return investments got protected. what do you say to people who say with this kind of situation the domestic investor is protected the institution investor is open to being bailed in. what do you say to those people that there is a hierarchy within the capital structure that the retail investor will be protected before the institutional investor? as i said we are applying a low bills approved by the italian congress. not in a position to come up with a on the treatment of different bondholders. the reason we need to stick to the law and we need to behave accordingly.

the plan and i'm referring to your question as far as bondholders institution of bondholders are concerned. i think the plan is such that the projections on the revenue side are quite conservative. there is once and for all solution which is going to be sale of a stock of npl. the cost of discipline which is going to be imposed to the management team is quite severe. to be a veryg strict monitoring. i would guess that bondholders which are going to be converted into ordinary shares might get .ome satisfaction david: we talked about cost discipline. what about lending discipline?

the problem is in making loans that should not have been made. you have a clean start which is terrific for your bank. are you changing the way you do business to make sure you don't make more nonperforming loans? it wasink we did change one of the key features in the plan we presented in october. we did change substantially responsibilities of the new credits throughout the network. creditactually have people who are going to be in charge throughout the italian territory for new lending. for new approvals. in the commercial people will actually work along with them without any real responsibilities in terms of deciding and put the seal on a given file.

int is a radical change and we arenitoring already seeing returns in terms of the new flows of deterioration in the credit book in recent weeks. jonathan: when do you expect the bank to return to profit? you have a 1.2 billion euro profit for 2021. when do you anticipate getting back into profit? the process of getting back to a sustainable topline trajectory and operating profit line and internal sustainable net profit, bottom line is something will require time. this is not an easy exercise. billionhe bank lost 26

euros of commercial deposits. this is pretty much a bank in itself. getting back to a stable commercial position requires a lot of effort throughout the chain from myself to the very colleague in a given brand. it will take time. i don't think none of us is a .izard we are storytellers. we need realism, transparency. everybody ought to know where the starting point is. in our business should the year where we start seeing real sustainable numbers. jonathan: 2019 to get things back on track. you mention the deposit outflows. you have lost clients. you have lost deposits. is there anything recently to suggest that trend is starting to stabilize or maybe reverse?

there has been a very clear sign in terms of direction which is q1 17. in q1 17 in spite of the environment, in spite of the fact that it's clarity was not there in terms of the final outcome of the negotiation with the commission and the ecb, we did recover 5.5 billion in a matter of three months of commercial deposits. a very clear message to the market in my opinion. these are facts. these are numbers. sign that theear network of monte dei paschi is in a position to recover and get back to normal. even more so. i saw these people in action. i have been ceo for nine months.

experiencet we all in the end of september isn't heard of. i'll think any given financial institutions. managedany in general to fill this kind of pressure. regulatory pressure. media pressure. commercial pressure. in spite of all of that in a matter of three months bank recovered 5.5 billion of commercial deposits. this bodes very well for the direction we need to take from now on. jonathan: you mentioned your own tenure. the state will enter in july. what do you expect in terms of changes to governance. if you had any indications from the state that they would like you to remain as the ceo and would like to remain as the chief executive officer for the time being and the entirety of this plan? as a general statement i

repeat what i have said already enough you given occasions. the ceo is decided by the board of directors and shareholders. put forward your name yourself. as a general rule. i said to the italian minister in december that you are feel free to decide whatever. it is been useful to do. it would have liked to have myself serving as the eeo. i'm very committed to this plan. i'm very committed to monte dei paschi. if the board of directors think

differently they should feel free to do so. time committed and i repeatedly mentioned already the fact that i want to make this plan to fruition with my managing team. jonathan: thank you for joining us, marco morelli. the monte dei paschi join us from milan. london, head of equity derivative strategy and he joins us from london. latest moves to stabilize the italian banking system. another pile of state aid going into another italian bank. is that a good thing from the investment standpoint from where you're sitting and anyone who wants to get low european risk? >> i think so. if you look at the eurozone banking sector stories both in sector but banking also the bank have been looming large in the headlines. what we have seen is that

despite the strict banking rules put in place by the european union that we have seen some rescue plans and that allows us to focus on what is really the important point for the eurozone banking which is can we see continued credit growth and can we therefore see continued profit growth? i think that is crucial for a sector that has rebounded really quite strongly since late last year. we do need to see a return of .onfidence balance sheets. more importantly the potential for earning the momentum to resume. we still have carsten nickel's. it may be a good thing for italian banks. is it a good thing for the eu? is the eu really loosening up its rules? is this eroding the authority of the eu to regulate banks? there's a technical

perspective on this question in brussels and probably the answer would be no. it's a pragmatic approach from the european side. of course there's a political interpretation that runs along those lines especially in these bailout skeptic northwest european states. finland, the netherlands and so on. goingsk is if there is a impression of europe losing its rule that it will make it even more complicated to build out banking union. that's the effect we are having on the european conversation. .onathan: carsten nickel over in london right now is prime minister question times with theresa may taking questions from the opposition leader. jeremy corbyn over in westminster in the house of commons. situationan political involves brexit negotiations as well. what have we learned about how they are going to go? learnednk what we have

is the uncertainty remains huge and it is very difficult for the europeans to figure out what's actually going on in london. the very latest on the back of this election results that even before that polarization in u.k. politics is so massive that the large parties are split over the question of hard versus soft brexit. you have some cabinet members now suggesting there could be continued membership in some new institutions. that in itself is positive news from the european perspective. the downside that the price to pay for this is massive uncertainty and division polarization in the u.k. and that makes it very difficult to move forward in the conversation. one thing that has not been uncertain is the weakness of the pound. what kind of pain does that conflict -- inflict?

this is for edmund. sterling itook at clearly has been weakened. that is provoking higher inflation which clearly impacts on household spending. when you look at the household savings rate that are the lowest in the u.k. in 50 years you know dippingage household is into savings to make ends meet. that tells you consumption is in a bit of an ice age. the u.k.ds on household on imports. i think the impulse we have seen week sterling and energy prices will calm down. this uncertainty is not helping consumers and we do need to see a stronger sterling. athink over time we will see stronger sterling. if not straight away than maybe

over the next six months to a year. they will remember july 5 two thousand seven. it was 10 years ago when we got the following statement from the bank of england. the governor invited the committee to vote on the proposition. last time the bank of england raised rates. 10 years ago today. when are we going to see that again and coded the sooner than some people think? could have been relatively soon. we know the bank of england monetary policy committee is already split on this issue. mark carney is also now leaning toward the let's get interest rates up sooner rather than later. the extreme indebtedness of the average u.k. household is even a strong interest rate rise will a big impact on slowing down the economy and slowing down demand for debt.

jonathan: i encourage you to read the minutes. for anyone familiar with our guest, guess who voted against? a special thank you. let's get you up to speed on the market action through the asset classes. teachers unchanged on the dutch futures unchanged on the d -- futures unchanged on the dow and s&p. bond market, treasuries unchanged. north korea, as we said, shaking up international relations but investors naturally shaken at all. the dollar short in little bit of strength against the euro and pound, four straight days of declines, can we snap that? .hat is your story

let's get you up to speed on the headlines outside of the business world with emma chandra. emma: kim jong-un launched his -- kim's intellective jong on called his country's launch of an intercontinental ballistic missile a gift to the u.s. the leaders are signing off on the exercise. russia wants to stick to the current opec deal and would oppose any further cuts according to government officials. they said it would send the wrong message. they meet later this month. and the u.k., prime minister may's disaster worse results and last month's election may call

for softer brexit. they are asking business for ideas concerning the split. global news 24 hours a day, powered by more than journalists 2600 and analysts in over 120 countries, i am angela -- emma chandra. this is bloomberg. sit down leaders will and i wrote one month after they cut talks links with qatar. the isolation is hurting qatar and cut his credit outlook to negative on tuesday. we heard from the foreign minister earlier today. is an important state of matter for us. as for the security of the rest of the region, it should not be raised amidst a blockade of qatar. while taking illegal measures, all under the banner of fighting terrorism, when there are measures because they think that will be met with international sympathy because it they are

antiterrorist measures. jonathan: joining us our guest. if one store captures how obsolete it -- how isolated qatar is it is the laptop income the only major carrier affected by the ban. not just the middle east, are they? they are mainly isolated. there mainly isolated from the immediate neighbors. qatar continuously find dust flying all over destinations and they have figured out the shipping routes to circumvent and having said that as you say, they are on the negative watch and we have the facts of study change has been down 10% since all of this started. it is not great for them. the sooner it is overcome the better for damper jonathan: what

-- better for them. -- jonathan: what does it look like for them? and carrying on their own internal affairs without being put under pressure by their neighbors? how do they get the ultimate resolution from all of this? monte paschi -- riad hamade fact that is theamade: big question. qatar is making it an issue of sovereignty. some the accusations thrown to qatar with there's a art of terrorism and certain groups the neighbors do not like is qatar is saying they are willing to do things about so. balancing those 2 things and acting on some of the things and maintaining your independence is at the crux of this right now. we will see what the foreign ministers decided given the qatars, the letter from since -- sent, whether that

manages to walk that tightrope. dave: thank you for riad hamade for reporting. we are joined by steven a. cook. you are out there all false d -- you are the author of "false don." let's pick up on the question of sovereignty. trying to stop terrorism is that what this is all about or is this a challenge to the sovereignty of qatar by the kingdom. -- kingdom? steven cook: there has long been a problem over qatar's more independent foreign policy. their obvious areas where these countries disagree. one of them, the saudi's claim is qatar support for extremism. ania resume does not have

incredible trek -- of course, saudi arabia does not have a incredible track record. david: that is what i was about to ask for there is a history of saudi arabia, through various means, given funding to extremist groups? steven cook: that has certainly been the case and there has been all kinds of analyses done about saudi funding for extremist groups. years, the saudi arabian a group has done a better job of tightening of the financial controls. qatar needs to do the same. as you said, it is somewhat a case of the pot calling the kettle black here. see a path toward resolution of this conflict? four -- thusthe far, what size have been preparing for is this conflict to continue for quite some time. the tar we are willing to negotiate but we will not

compromise our sovereignty. others have said these are our demands, meet them or we will turn our backs and you will be added the gulf cooperation. there may be some area over the insence of hamas leaders qatar, members of the muslim brotherhood who reside for some of the the asked shutting down al jazeera, forcing companies to pay compensation, forcing closure of the turkish-based, those things are nonstarters for the qataris. is there a risk of saudi arabia pushing qatar to far? if they really drive them out of the gcc, might qatar not only turn to iran and form ties and what would it do to the balance of power? relationsk: qatar's is a delicate balance. they shared this user dome of

natural gas. they are on different sides of the syrian conflict. there is no indication it does far qatar -- thus far qatar is thinking about tightening with the iranians, but they are tightening ties with the terms .ut no evidence they are calling for negotiations, lifting sanctions and then negotiations defined sustainable solution. regardless of how it comes out, qatar will continue to be isolated and it will be continued or missed trust between qatar and its partners. david: rex tillerson said he would like to play productive role in brokering a constructive role. is there a productive role for the united states? steven cook: tillerson has been deeply involved in the diplomacy . president trump called on the parties over last weekend to

and the qatari response to the demands. what they are allowing the foreign ministers of egypt, saudi arabia, the emirates and bar room to meet and card ready bahrain ino form -- cairo. to meet jonathan: we saw an interview of the united states, there just it -- is thatand why there objective as well and why? steven cook: it makes of this soort to sanction qatar poorly timed. the president of the united states had just been in saudi arabia trying to bring together all of the states to isolate the iranians and tough fight extremism.

wo weeks later, the partners took this action that we can see united front against the iranians. dave: turkey, what is the role of the turks in all of this? they announced they will have a new base in qatar. is that constructive or making it worse? steven cook: the turks and qataris have a tight, strategic relationship over the last six years going back to the arab authorizing. -- authorizing. -- uprising. from the turks, they are taking a role. they have given the qataris options. qatari supermarkets, after the crisis began, filled with products.iry the turks want to have good relations with all of the countries in the gulf, so that

the turks will continue the relationship with the qataris. deskkind awful throated full throated support is likely to does -- full throated support is likely to dissipate. thank yousteven cook, for joining us. world leaders gather in this week's g-20 summit. you are watching bloomberg tv. ♪

emma: this is "bloomberg daybreak." i am emma chandra. a former u.s. ambassador to germany and this is bloomberg. ♪

emma: this is daybreak with your business lash. we may be getting an early look at how president trump's justice department will look at the global banks. the two sides have said to be far apart but so far trump administration appointees have yet to weigh in. all of all those new cars will have an electric motor -- all of volvo's new cars will have an electric motor which is a set the wishes of customers. airbus saturday will sign a deal with a chinese company -- airbus said they will sign a deal with a chinese company. that is your bloomberg business flash. afternoon, we will focus on the fed as the minutes

of the fomc june meeting will be released. one thing they had to say about recent weak inflation readings was dropped below the 2% goal. the u.s. department of commerce slowed as the chart shows. with us now is max. welcome. we talk about what the fed will be talking about inflation, they keep saying they are looking through the numbers, how far can they look through? at what point are they so comfortable, they say we cannot look through them? max: that is the key question. the previous meeting in may, they got 2 months of weak inflation and according to most of the participants were looking through it but some participants were expressing greater concern and now we have a three -- third straight month awful week data on the morning on the june

meeting. janet yellen tame out and was pretty dismissive of the week numbers. it will be interesting to see if it is shifting to broader concern and we might find out more about that today with a minute. ifid: do we have a sense janet yellen is dismissive of the numbers because she is seeing other data that contradicts or really was to sell the normalization path? that issler: i think the other key thing looking at the labor market. a big debate on the committee on the last several months as the unemployment rate has dropped in inflation has not started to rise about how sustainable that really is. that is going to be the other parameter on which we are able to going information. we aren: the shift seeing from the federal reserve over the last couple of years, take note of any variation in the data and towards being dovish to seemingly carry on

heightening. matt boesler: first of all, the unemployment rate dropping so much like we talked about. the global economy is really picking up and we are seeing better data out of china and europe. they think it is a better backdrop for normalization. the third thing is financial conditions have been extremely easy. to the extent you're worried tightening, ity does not seem to be a concern at all. they are feeling confident about continuation. jonathan: we are seeing the conditions as a bit of a problem. matt boesler: i am not quite sure if we are there yet but with no key people, the new york fed president bob dudley, half that framework in mind. that has to that framework in mind. if we have strong data especially a pickup and no tightening vendettas something that might come into play.

david: another thing is what they say about the balance sheets and we have indication they are thinking about a plan, putting up a graphic that shows the yellow line is the sides of the s&pand the white is and they seem to go together. what to do we expect to hear? matt boesler: the interesting thing about the balance sheet, it was presumed they would want to get at least two more rate after thatis year march rate hike and they did earlier in the year before they started the balance sheet process. ,ince they did the january hike it seems like there has been a shift toward maybe we do not need that the second one in and maybe we are well underway with a rate of normalization and we felt comfortable with the balance sheet. you have heard the fed officials talk about how it looks like there will not be much of a market reaction to the balance allt because they discuss

of these plans and laid them out and there's not been much market turmoil. i think they are looking at that and saying if we do not get a tightening, maybe it does not matter and we can do it sooner. we could see some indication in the minutes, a broader comfort with that and that could be a reason why we are looking at doing something with the balance sheet in september as opposed to later in the year. jonathan: i wonder how many red president draghi's speech and maybe that is a reasonable. matt boesler: the draghi speech sent interest rates around the world up. to the extent you will worried about financial situations being too easy, some of that been taken off and mario draghi has done some work for them. jonathan: has he does some of the work for them? has the door close if he backs away? matt boesler: one of the things

we have seen with all of the central banks turning a bit hot dish like me ecb and bank of england is weakness in the u.s. dollar because all of the curses are going up -- all of their currencies are going up and the u.s. dollar is going down. date: matt boesler. if you have a bloomberg, check out tv a you can check us out and click on our charts and graphics. go to tv on your terminal. this is bloomberg. ♪

david: last night, the united states celebrated his birthday on the fourth of july. -- it's birth and the fourth of july. bloomberg brought of the festivities on tv, online and radio. alix steel was front and center.

she joins us now from boston to recap some of the headlines. it was a spreading that it was a pretty special night for you. out its ring amazing. being on site you guys is great but it was amazing. -- alix: it was amazing. we had a malaise average, -- we theridge.d melissa e buton is a financial help also bloomberg the company is about the exchange of ideas and taught and when it happens, real change can come and that is what the boston pops is all about. david: i am surprised not to see you in red. tell us about the fireworks. how close were you? lead us through -- we had our own security guard, we were on the water. it was a tremendous night for

the fireworks. 80,000 pounds off fireworks went on the barges the day before. guys areorks responsible and they spent a lot of time working and there were 10,000 fireworks. it was pretty incredible. i have not seen live fireworks since i was 12. it was truly an amazing experience. a really good, happy, loving five. david: with all the complexity am a it seems like not a single hitch -- complexity, it seems like not a single hitch. alix: they went really smoothly. going smoothly for this concert with the fireworks and 5.5 inch heels is no small feat. it was a really good feel and great for bloomberg to be here on a great partnership and we will do it for two more years.

david: tell us about one of your favorite things. alix: there were a lot. i got to introduce melissa etheridge and looking to her across the screen and i set welcome melissa etheridge was the highlight of my day. special.ally, really i never thought i would be doing that. david: many thanks to her. jonathan: i love that she pretends like she is having on with us on that. i know she does not. [laughter] in the next hour, weighing in on the g-20 evidence this week. weighing in on the markets, north korea, that did not last long. the market action how we look. features unchanged. of six points after a long weekend for some and a shortened day on monday and close on tuesday and we are back open today.

95 minutes away from the cash open. the dax is up by 0.1%. relatively muted. if you go to the second board, here is the story. treasury are lower by a single bases unit. market, we saw broader dollar strength earlier in the morning and giving him of it up -- giving some of it up. cable rate unchanged. area you'ret 141335 watching bloomberg tv. ♪

it, they are behind the curve. jonathan: north korea shakes

relations. meeting --y you in an emergency un meeting will try to get an answer. -- theessments will be fed's minutes will be scrutinized. from new york city, good morning, you are watching "bloomberg daybreak." alongsidehan ferro, david gura. the market action. wall street gets back to work, futures up about 0.1%. u.s. 10 year. the euro is weak or for a fourth straight session. 113 .34 is how we trended does the dollar. david: time for your morning briefs. i can i-45, german chancellor and xi jinping will give statements at the berlin zoo

ahead of the g-20 summit. at 10:00, factory and durable goods owners for the -- orders for the month of may. the fomc will release minutes a last months meetings. and g-20 summit leaders are making their way to hamburg. at first, they thought they would be talking to trade but the leader of north korea did have a different plan. our chief washington correspondent kevin cirilli. start with the north korean issue, what exactly is a united states response kevin: yesterday, north korea testing a intercontinental ballistic possiblyhat could have reached alaska as a result of this, it is perceived as a diplomatic redline that has been crossed. the president echoed by rex tillerson and the nikki haley

issuing a swift response as additional a missile test of their own in conjunction with south korea. that, the united nations led by nikki haley is saying they are want to be having a closed-door security council meeting later this afternoon. secretary of state tillerson saying that he thinks all pressure and options should be on the table with the economic ties in terms of how international countries dealing with north korea. just within the last hour, president trump tweeted that "trade between china and north korea grew almost 40% in the first quarter, so much for china working with us. we had to give it a try." the white house city the link they will try to use -- signaling they will try to use china to deal with north korea. david: is that what the tweet said or we tried it and we have to go at it alone now? kevin: you have to remember that north korea's top exporter and

importer is china. we have the charts that 83% of all north korean exports go to china. the next one is india at only 12%. this is a country that has deep ties in the coal industry and industry.e men's suit if you look at importing, 85% from china. the relationship between china and north korea very much on full display. just last week, treasury secretary steve mnuchin announcing they were going to put economic sanctions on the chinese financial institution, a bank. while the administration has thought at the time to suggest it is only isolated section on a chinese bank, there is no question that at the tweaks we saw this morning as well as the actions from the treasury secretary clearly sending a signal they want to pressure

china to do more on this front. and we all know, china's president xi jinping and president trump will be intended at the g-20 summit. not the only phil president trump's mind and he tweeted the u.s. made some of , whyorst trade deals should we continue with countries that do not help us. he looks like he was g-20 to get to the basic trade that he brought up? canada bank he does. when he beats with angela merkel, he will look to talk about that specifically. kevin: he does. -- when he meets with angela merkel, he will look to talk about that specifically. a lot of geopolitical ships this morning, david, and in the past 24 hours ahead of the president's second international trip abroad. marine one out as we speak where towill head on air force one

poland. david: thank you. jonathan: ranking. i want to bring in our guests, greg peters. they had of fx trade from toronto, great to have you with us. in the asian sanction -- section when it comes through the yen and rolledd guess it over. that is not the story right now. the fx market continuing a shakeup of what's going on, why? greg peters: i think geopolitical issues always tough for the fx market to digest. we get knee-jerk responses but unless there's a change of the valuation structure, market positioning or a longer impact on risk aversion, market sentiment, it is hard for the fx market to internalize because the outcome seems to be nonlinear and we tend to shift

after a knee-jerk reaction to s valuation as banks talk about normalization. what is the redline for financial markets and investors? greg peters: geopolitical risks is hard to tell guard against. at the same time, you see an escalation in that risk and at the same time markets are highly rich and central banks globally look like they are pulling back and you are setting up for this event, potentially, but hard to guard against. david: let's to about the kerry issue. let's talk about where rates are in the difference between rates, is that what is driving markets? mark: i think the way we want to think about it is we have seen cyclical highs in geopolitical

indices to trap a lot of the uncertainty. we have seen risk appetite at elevated levels. the issue is that the economic policy and certain indicators have not been good predictors of growth. as of the same time, it seems to be risk appetite is much better at predicting where the economy is going to go or better predicting where markets should be on the next couple of months. the way the markets are really kind of focusing is you do have a lot of tell risk and the geopolitical environment but unless it shakes of the economic outlook for major economies, we are in a reflationary environment and we see global growth move relatively ahead of cyclical levels over the past couple of years. we are still in an environment where central banks are responding to an impulse where they want to reduce stimulus. fx markete focus for is carry a strong story because you have so much more higher yields and evaluation.

at the same time, the evaluation is the euro, the yen and those currencies are undervalued. as central banks talk about valuation, a mix of carrie and value at the same time because we are not seeing a bit impulse which would derail the carry trades. david: how do you see the economic outlook right now and as important, isn't really growth that is driving riskier assets or the liquidity injected? think it's hard to disentangle the two. central bank activity has forced investors and to these types and that is clear. i am somewhat surprised around this anti-qe we are certain to embark upon that we have taken to. you have seen this reflation trade happen starting august of last year. , itl the winds are helpful

is a mixed picture. it will continue to be mixed. jonathan: to the story overnight, that shook markets in about two seconds, are we set to sit change and economic tolls from the united states? when we came in to the year, we expected something quite significant, are we expecting something quite significant? greg peters: i think the markets have priced that out in a meaningful way. markets continue to move higher. but, the last kind of vestige of the bullish rally is that earnings are still pretty good in the u.s. i think we of heightened sensitivity to any weakness around earnings. david: mark mccormick and greg peters will both stay with us. we will be talking to john emerson, a former ambassador to germany as well as mr. jacob kirkegaard about geopolitics. this is bloomberg.

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emma: this is bloomberg daybreak with your business flash. u.s. payment processing unit has agreed to buy a british financial firm. world pay want public in london two years ago. the company said it received from jpmorgan. deutsche bank ceo expects to post a profit this year. in an interview with a german newspaper, he said the bank .ould be in much better shape he also rejected rumors he might to leave the bank saying he is not going anywhere. we may be getting better look at how president trump's justice

department will deal with global banks. you as bc is in talks to work out a deal with the u.s. according to people familiar with the matter. the two sides are said to be fair -- far apart but trouble pointing have yet to weigh in. david: we got the minutes from the fed's fomc meetings that had them cyclic link and attention to keep rising rates. to give us a preview are mark and greg in toronto peters. greg, let me start with you and inflation question. we will bring up a chart. we heard for the longest time, wassaid was dead -- fed data dependent. what has happened? has he decided to lead the market instead of following? maybe not as data

dependent as they suggested. it is starting to confound the fed. there is one day a really that is going to limit their ability to do what they want to do is raise rates is the inflation a piece. in my view, and inflation peaked like last february so i think they are fighting back to battle thisantly throughout tightening regime. i think it will be something really, really difficult. david: mark mccormick, as you look at the weakness of the dollar, what is racist by the fed? going -- what are you talking about raises in the fed? : they only have about 40 basis points for the dot plot and the bulk of economists half. when you think about in the context of deflation is that inflation would know where the core inflation, we are mixing

those numbers from the top side. there are factors impacting and an interesting framework about how they'll be i.s. and other think tanks look at this. if you have a level of a global output gap, whether regional or from emerging markets, you have pressure pushing in and out of flattening the phillips curve because you do have access capacity -- excess capacity. there is marginal slack available which is probably keeping global headline inflation lower than it should be. as the economy starts normalizing and central banks have to respond, we will see inflation move higher. jonathan: we are seeing an of lotion -- we are seeing an explosion and bond purchases. they ecb and boj contributing. it seems to be a global effort and some might say orchestrated tightendinated to

things up just a little bit. what you make of the hawkish record we have heard over the last couple of we? mark mccormick: a lot of it seems coordinated and i see central banks reacting to idiosyncratic factors. the bank of canada talking about normalizing the shock from oil prices. brexit shock.he they ecb, there talking about more balanced picture and producing an orthodox monetary policy and not to the scope for them to hike rates. was a they are starting to see as we spoke about inflation, central banks are not responding to what we call normal inflation but asset prices. are focused on conditions and we do see inflation and equity prices and housing prices, particularly smaller companies like new zealand and canada. there is inflation but not in

the way they normally measure it. central banks are really focused on what we are seeing in terms of asset bubbles and how they want to pull the punch bowl way before it starts to get greater stability risk. regionn: you mentioned -- sweden for the bank as another central bank that a lot of people take a look at for the following reasons, gdp is decent. inflation is pretty much on target, but of the central bank is still executing qe and rates in negative territory's. talk to me about sweden and what of the case study could be for elsewhere. mark mccormick: how does a small economy around a bigger whale? .he same thing to canada you are seeing the same thing in the risk bank has to

respond to the ecb. they ecb is continuing to do rate hikes and is changing the composition of how much they purchase over the next year. what you are seeing is the central bank's stances accommodative and the balance sheet is what drive monetary policy. the bank is in the context of being a price taker around a much wider, bigger economy is trying to have reaction where they do not have to much awkward pressure on the currency and on exchange rate. they seleka stronger exchange rate will pass through two weaker inflation prices, generally. -- whatthey are doing do they are doing is as the ecb holds away and reduces the flow of the balance sheet, the riksbank will do the same, policy. if you look at the euro is probably 10%, 50% overvalued, these stocks is probably more arguably undervalued.

those occurrences we are looking at that we think is a lot off of i. it will lead to the riksbank tough a more comfortable in their stance. discussion andis plug it into growth as opposed to inflation. what are the central banks seeing in fundamental underlying growth? mark mccormick: i think they are still -- still struggling and less to do with the growth. if you think about it very simply, central banks, the fed, trying to normalize policy, raise rates, reducing balance sheets and get inflation higher and get growth higher. that goes against what they are supposed to be doing around the cycle. there is somewhat and intractable situation here and i think that growth, they're hoping for the best that if you global forces take place. their policy goes against

anything they have done before. jonathan: a special thanks to mark mccormick and greg peters. breaking news. the darling of the ftse 100 through 2017, world pay is up by over 11% in the year so far. and the session, it was down and here is the why. v has agreed to pay with cash stock. it'll help jpmorgan would put a bid in for the global payments service. jpmorgan it does not intended to make an offer for worldpay. is aove in the share price move toward the offer price and below from vantiv. vantiv to buy worldpay. jpmorgan confirming they do not intended to make an offer from company. the stock is down over in

london. coming up, chief strategist will be joining us from new york. you are watching bloomberg tv. ♪

chris there are rules which we were found to comply with. scheme, we did play but the role and that is why the negotiation actually took so long. in a lot of different responsibilities and i think at the end of the day, we will be under scrutiny. jonathan: a decade after the financial crisis, many european -- banks have propped up wobbly banks. a restructuring deal is still with us to discuss is mark mccormick and greg peters.

greg, a question with you. where would you be comfortable with an italian bank? greg peters: the senior part. so part -- the part is that spent the past eight years working around this resolution of a failed bank. the way they are meting out justice is different. it difficult for a bondholder, particularly a subfolder to get comfortable with the risk. quite frankly, you do not know what is going to happen a full top he seeing your piece -- or piecepen, but the senior where there was talk about being billed in which it never made sense to me, but that seems to be not going to happen. jonathan: do you anticipate a major back up for some of the peripheral banks? we have not seen that in a material way despite the

resolution we've seen for a spanish bank, several italian leaders now. no, it is a hot part where investors are reaching for guilt. what do saw wesbanco popular was traded -- with banco popular was trading at the. that seems like a lot of risk not priced in. what you'll see is more discernment around these capital thectures, these banks and reach for yield is not going to be like that was before. jonathan: it is funny how different asset classes look at it. based on euro a buy what somebody called a searching all of the rolls around italian lenders? what weormick: i think are seeing is a structural change in the way you want to think about it is what is the european sovereign test to the euro? during the height of the

sovereign debt crisis wider germanbcb relative to bonds saw that euro weaker and we move into this year and we spread whichd translate into a weaker euro. what i think will will see is available flip. what we saw after the draghi speeches markets looked at the fragmentation and said they ecb is going to do whatever it can to salvage the monetary unit. it was capital inflows toward a higher yield. i think we'll see the eurozone beta wolf look and more people focus on the carry. -- and we will have more people focus on the carry area jonathan this is bloomberg. ♪

jonathan: from new york to our viewers worldwide, this is "bloomberg daybreak." let's work through the market action for you and get you set up for the session this wednesday as wall street expect work.

the dow up 11 points. we kind of go nowhere, pretty much dead flat. the ftse 100 in the dax underwhelming as well in terms of price action. treasuries have stability after the route last week. yields are lower by single basis point. the fx markets shows dollar strength against the euro and the pound on the margin. we pull lower for a fourth straight day, the longest losing streak since may 11. it has been a couple of months since we have seen that at the moment. let's get you some headlines now with emma chandra. leader kim korea's jong called his country's first ever launch of an intercontinental ballistic missile fourth of july gift to america. unsurprisingly the trump administration sees it differently, calling it a new escalation of a threat to the u.s. the un security council meets on the issue today.

the u.s. and south korean troops held missile-defense drills. the leaders of both countries signed off on both. russia wants to stick to the current opec deal and would -- opposey proposal any proposal for further production cuts. more cutbacks so soon after the existing deal was extended would send the wrong message to the oil market. opec ministers meet later this month. in the malaysian an airline downing will be in court. the malaysian flight m 817 was en route to kuala lumpur from amsterdam when it was shot down back in 2014. there are no suspects so far. global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries, i'm emma chandra. this is bloomberg. jonathan: north korea's launch of an icbm missile will dominate the agenda. pingmir putin and using

already waite weight in. >> we agreed to develop our initiative based on russia's step-by-step plan for a settlement in korea as well as ideas from china. at the same time, freezing the nuclear capabilities of north korea and the military exercises by the united states and south korea. jonathan: with us now from berlin is tonnage is captured -- tony. g-20, we thought it was trade and now geopolitics is taking the lead once again. if you have to get certain leaders in a room to sort out the issue that is north korea, who are those leaders and are we likely to see any kind of resolution this week? tony: one of the leaders or the main leader surely is xi

jingping who is meeting with angela merkel in berlin. germanyin a broad sense , as one of the world big exporters, has a vested interest if you like in global stability in a broader sense. this andhave a role in she is the host of the summit. how much can be done at this summit is an open question. merkel will also be meeting with south korea's prime minister in the run-up to the g-20. jonathan: seemingly everyone has their own way of trying to do with north korea. china has one way and the united states has another. is it clear from you and the people that you have been speaking to that there is a clear path to a peaceful resolution anytime soon? i will go out on a limb here and say i would not expect that necessarily to come out of

the summit. although you do have the format that all the leaders, including president trump, are here. what can be done about such an unpredictable regime? it's an open question. on the other hand, of course north korea has challenged the rest of the world by firing this -- by testing this icbm literally days before they all meet in hamburg at the g-20. jonathan: tony, thank you very much. david: here with his perspective on what's at stake at the g-20 meetings and what we can expect this jacob, a senior fellow at the peterson institute. welcome back to the program. of the g-20 summit is to get to some agreement on something, but as we go into this, all we hear about his disagreements whether it's north korea, syria, climate, trade,

and protectionism. is there anything that you think these 20 leaders can get together and agree on? jacob: i think very little quite frankly. i think we need to recognize that the g-20 now is what i would call a latent organization. leaders get together and they meet. you have a forum to discuss things, but if there is a really big crisis like when the g-20 was founded in 2009, they can decide. when there is not a big crisis setting the agenda, each and every one of them have their own agenda and it will not be able to agree on much. that will certainly be the case this time as well. david: we have talked earlier that with all the geopolitical risk that the markets are hoping to quickly move on. something the markets worry about is protectionism and the extent that we will have free international trade. angela merkel was trying to use this occasion to persuade trump

to come her way a little bit. do you see any movement fro by the trump administration from what woul some would call a protectionist point of view? fundamentally no. certainly the united states seems to be heading in a protectionist direction. i think quite frankly that angela merkel, given where she is domestically with the german election campaign, she is not going to shy away from having what i would call a 19-1 summit, mainly by trying to isolate the trump administration on things like climate and trade agreements. david: talk about the steel, the 232 preceding about national security. that has been delayed it appears. as far as you can tell, is that because they are having second lots within the administration or to get past the g-20 before they throw that out there?

jacob: i think there are really deep-seated differences within the trump administration on this. we know there are people who do not favor this nationalist america first trade policy and there are others that do. in the end, the headset ok, we will not throw this red piece of cloth in front of the g-20 bowl by doing it before the summit. in the see anything administration that says that they have fundamentally changed their ways on this. i think we should expect something on the 232 in the coming weeks. jonathan: do you see it as a negotiation tactic more than anything that they come for the table and make out that they are willing to bring protectionist measures with them? we not see much in terms of policy. are we expecting them to really deliver this protectionist theme in the way that some people feared at the start of the year? so. -- i'm afraidk.jacob:, fred

so. i think a lot of people thought donald trump was negotiating on but hee change, decided that his base needed him to pull out of the climate accord. the economic nationalists in the in ministration will say mr. president, all you have is your base and you need the steel tariffs and damn the broader and economic consequences. jonathan: how are you thinking about it at the moment come a jacob? jacob: steele has been brought up. it's obviously an area where the united states relatively recently in the w bush era imposed steel tariffs as well. it is likely to be first and then probably gaging on the reaction, which i would expect to be very hostile but the broad but quite frankly also the mess

to clean here in the united states, where there's a lot of sectors hurt by this, auto and the like, we will see whether they proceed. at the same time, i view this mostly as a base play. it is something they do to cater to their political base and they may need more than steel. there's a degree of politics of symbolism as well. david: you talked about a possible 19-1 summit. in fairness, it is not just the united states that has protectionist arguments. if you look globally at worldwide trade, is the rate of increase keeping up with gdp growth? jacob: no. one of the characteristics that we have seen beginning with the great recession and afterwards is that the rate of growth of trade has slowed down. people have talked about the stalling of globalization and certainly the end of offshore, etc. from that perspective, yes,

trade plays perhaps less of a role in global gdp growth than it did, but at the same time, it looks likely that the eu and japan is going to strike at least a preliminary free trade agreement in the coming days just ahead of the g-20 summit. there's a lot of other trade agreements going on, maybe the tpp 11, leaving out the united states, will proceed. and tradet trade liberalization has stalled globally i think is wrong. the united states has set itself apart, but i think the very large part of the rest of the world is actually moving on. david: jacob kierkegaard will be staying with us. coming up next hour, john emerson will be joining us to talk about u.s.-german relations. live from new york for all our viewers worldwide, this is bloomberg. ♪

emma: "bloomberg daybreak." business "bloomberg daybreak." -- this is "bloomberg daybreak." i'm emma chandra. coming up, tony dwyer. this is bloomberg. ♪ now to your bloomberg business flash. signing deals with the chinese airline valued at $22 billion 20 single aisle planes and wide bodies. he company is in talks to sell more of its superjumbo's. all of all those new cars will have electric motors. the swedish automaker will offer both hybrid vehicles and those that are fully electric. they say the policy reflects the wishes of its customers.

two more airlines say they have now been exempted from a u.s. ban on laptops in airplane captains. --captains. laptops, the u.s. band on flights coming from 10 airports because of fears that devices could contain bombs. that is your bloomberg business flash. jonathan: foreign ministers from saudi arabia, uae, bahrain, egypt will sit down in cairo after the government saw diplomatic controlling's with qatar. the gulf country foreign minister continues to emphasize the hopefulness in finding a solution to the crisis. speaking moments ago, at chatham house in london. >> we must lay out any concerns and discuss the allegations before presenting evidence and engaging in a constructive dialogue. qatar stands ready to the gauge -- engage in negotiations with a

clear framework and a set of principles that guarantee our sovereignty is not infringed. jonathan: still with us this jacob kierkegaard. and itlook at the story seems to have come down to a question of sovereignty. how do they come to an agreement with the middle east neighbors and protect their sovereignty at the same time? jacob: if you look at the list of demands from the saudi led group of neighbors, they don't. that list of demands is very expose it about the have to shut --n al jazeera and a half to they have to stop a list of government actions. anyone would say that's a direct infringement of qatari sovereignty. they won't reach an agreement unless the qatari government decides absolutely at the end of the day that this is not about national sovereignty, it's about something else. then they can.

it would require a climbdown by someone for sure. jonathan: looking at the tensions between the countries, is it clear to you what the position of the united states of america is? jacob: no, it seems to be there much depending on which agency you talk to. donald trump on his twitter account has seemingly clearly sided with the 70's and their allies. if you talk to the state department, they seem to be much more conciliatory with the qatari government. you would imagine to the extent that the pentagon has of you on this given that they have major military facilities in qatar, they would also believe in that direction. the u.s. position is extremely unclear. david: does qatar have any leverage in this negotiation at all? jacob: quite frankly i don't think so. at the end of the day, everyone involved here has very large economic reserves and the

position to which they are willing to spend them on this issue. it seems both sides are and as long as the saudi's and the others will shut the border, no more trade, there really is not much qatar can do about it. david: is qatar were to go along with these demands, which they say were designed not to be agreed to in qatar's view, with this go a lot -- would this open the door for saudi arabia going forward to second-guess everything t qatar does? jacob: certainly. if the qataris agree to this list of demands, then yeah. they would not be much sovereignty left for the qatari government. it would certainly have to have a much lower profile also regionally, which in my opinion seems to be why the saudi's have gotten involved in this. is a reflection on the intensity

of the regional rivalry between saudi arabia and iran. in the eyes of the saudi's, qatar is to some extent siding with iran. jonathan: is this the beginning of something a little bit more, jacob? once they have solved this issue and they get past this, if they do, going through the rest of the year and beyond, are we set to see the situation in the least escalate more -- the middle east escalate more? jacob: that risk is there. by the end of the year, you have to expect the sort of territorial integrity or possessions of ois to be reconquered. the question is what happens after that in syria? are you going to have a proxy fight between u.s. led rebels, the assad government, and what about the turks and the kurds? the iranians just fired ballistic missiles and to i.s.

held territory. there's a lot of things that could go wrong. this is just another dose of fuel on that particular fire. jonathan: after the visit from the president of the united states, do you think saudi arabia feels somewhat embolden in the region? jacob: i don't think there's any doubt about that. the timing of this power play vis-a-vis qatar was very clearly linked to the president. they felt that they had the trump administration on their side. they probably also felt that the trump administration was going to go ahead and potentially take a much tougher stance on iran with the nuclear deal. absolutely they feel emboldened by this. in some way so far, there have been sadly in my opinion vindicated. immenselyar is an wealthy nation because of natural gas. can't pay its way out of the problem?

jacob: i think it could. as i said, it really depends on how many of those resources are they willing to spend on this issue. they've arguably on a per capita basis far larger resources than saudi arabia. global gas prices are relatively less volatile than oil prices. if oil prices stay low, them i think they can wait them out. at the same time, there are other things looming. can they successfully prepare for the world cup in 2022 if this continues? i think that has to be a question that the international soccer authorities will have to address at some point if the stalemate seems to have no end. david: i almost forgot about the world cup. think, jacob kierkegaard. -- thanks very much, jacob kierkegaard. check out tv to watch us online, clicked on charts and graphics, interact with us.

klingon tv on your terminal. ck on tv on your terminal. live from new york, this is bloomberg. ♪

david: this is bloomberg. i'm david westin. the fourth of july is the birthday of the united states and last night the united states celebrated with one of the most honored traditions, fireworks on the charles river accompanied by the boston pops orchestra. for the first time, bloomberg but the festivities on air and online. alix steel was front and stage with carol massar and matt miller. she joins us now to take us through some of the highlights. quite a night you had up there. alix: it was an unbelievable night. at the esplanade at the charles river, behind me is the hatch shell where all the action took place last night. we had stars and music. carol and matt and i were there.

behind me were tens of thousands of people who had lined up to watch this. there were some people who watched the show monday night and stayed overnight to get that front row seat. it was very special. with the partnering boston pops was also a pretty special moment as well. bloomberg the company is all about new ideas, innovation, working together, and that's what the boston pops did too. they are music for the people and by the people. it was a great team effort and a lot of fun. david: you made the connection actually about bloomberg and boston, which is a deep-seated relationship. at the same time, it is something new for bloomberg. we are never done anything like this before, have we? alix: know i have not. i did not talk oil once in three hours. jonathan ferro would be super surprised and impressed. the boston pops is a local tradition here. the conductor is also pretty amazing. he had the audience like putty in his hand. to have been doing this concert here since 1929.

he has been doing it for 23 years now and they have music, fireworks, cannons, church bells. it was quite a production and a real staple here in boston. we will be speaking with keith lockhart later to give a feel on a how it went and how you could took fresh after 23 years and still gets into it. david: watching him last night, he is a showman in his own right. he really took over the stage. that was the high point for you? this is the peak of my career no doubt. i got a trailer with my name on it. aside from that, being with the performance was a special moment. brian stokes mitchell forgot to hold the mike gupta, so i helped him. lesley odom, junior talked about his career. he has had an amazing career as well. it was pretty awesome. and i do not break my leg, so that was super excited. david: you have not yet.

i'm sure of it. yet more stuff -- you have more stuff ahead of the. alix: i'm excited to be back with you guys tomorrow. david: i really believe that. jonathan: coming up on the program, tony dwyer. from new york city county down to the market open, here's across assets for you. wall street gets back to work. attempt of 1% up on the dow. across assets, here's the picture for you in the bond market. yields go nowhere. to 35 on the 10 year. this is bloomberg. ♪

♪ jonathan: north korea shakes foreign relations.

trying to formulate a response to the latest threat. went to start tracking the balance sheet? today's minutes will be scrutinized for clues. with warning signs emerging markets across the globe, we debate whether they have it right for q3. good morning. this is "bloomberg daybreak." i'm jonathan ferro alongside david westin. let's begin by county down to the open. futures are up firmer and treasuries are they with yields lower by single basis point . down aroundrket, 2/10 of 1%. let's hit across the abigail doolittle first movers -- for some movers. abigail: a volatile session for and sharesrld pay

her lower after van to agree to abide the company. jpmorgan had agreed to be in the mix. bitter ino be another the process. david ridder says it makes a good deal of sense. the stock is up 42% year to date. it went public back in 2015, 1 of the largest yo u.k.-based ipo's. isning now to van to and it unchanged right now. we have jpmorgan up half a percent even as yields are down. turning now to some of the energy names. oil is down 1% on the session. it is the first down day in my sessions -- nine sessions.

there near-term indicators that oil is heading up again. exxon and conoco down half a percent. the will look at more the emp-based names like chesapeake down far more sensitive to this. this is after a monday when energy was the best sector for the s&p 500. finally we have some weakness for two of the drugmakers. over down over a downgrade at credit suisse to underperform. 1% as anut by analyst has a new price target lower than before. a little bit of weakness here for both oil and some of the drugmakers. weid: earlier this week, thought that the g-20 leaders would mainly be talking about trade when they meet in hamburg later in the week. now geopolitical issues like north korea and qatar have come to the fore. what will they spend their time talking about and what will

anything are they likely to get done? here to take us through president trump's agenda is our chief washington correspondent, kevin cirilli. agenda on the president as he heads over to hamburg? kevin: the president and the first lady boarding air force one, taking off to warsaw, poland, where they will have a series of meetings before eventually heading to hamburg for the g-20 meetings. is thekdrop to all this intercontinental ballistic missile that was tested by north korea on the fourth of july. ambassador, nikki haley, has called for a special counsel security meeting at the united nations they did this afternoon. that will be a closed meeting. president trump will be accompanied by steven mnuchin and wilbur ross on this trip as well as other top aides and advisers. they are without question going to try to continue to press her -- pressure china and the

chinese president xi jingping to put more economic pressure on north korea to deal with the growing threat of their nuclear program. before president trump took off on air force one, he tweeted, "trade between china and north korea grew almost 40% in the first quarter. so much for china working with us, but we have to give it a try." as president trump takes off of the g-20 meeting, of a different second international trip that his first one. david: with respect to trade, the president thinks there's a lot of leverage from china on north korea. is he right? kevin: when you think back to last week, secretary mnuchin announcing new sanctions against a chinese financial institution. this is not sanctions against china, but it is what is being perceived here in washington as the first of a series of steps that the in ministration could take against the chinese to pressure them with north korea. if you look at the numbers, you

have to remember that north korea -- china is north korea's largest exporter and importer. 83% of north korea exports go to china. that dwarfs any of the closest countries by comparison. when you take a look at north korea's and ports, 85% of all north korea imports heading from china. their financial ties are very much on display here and the administration carefully taking a look at it. david: kevin, thank you so much. jonathan: despite rising risks in the market, the vix has remained subdued and yet strategist are becoming prudent. their forecasts are the least bullish since 1999. bank of america are calling for a near-term pullback, saying the recent inflation from skepticism to optimism could be the first step for the market euphoria that we typically see at the end of bull markets. joining me now to discuss his

outlook is tony dwyer. so much is talked about whether in the late stages of a bull market, what are the conditions and signals for that? where you sit on that particular debate right now? tony: good morning, guys. we are at least years away, probably two to three years away from a recession. the bull market peaks eight months prior to a recession. making the case that the bull market is near an end, it has nothing to do with what causes an actual peak. you can easily have a correction. the vix is low. it's all the same stuff in the last seven years. at the end of the day, the most important factor that creates a in a recessionk is the inversion of the yield curve, which is fed driven. fed policy dictates what an economic cycle does not time. jonathan: when you look at the situation with north korea and the market is still just ok and

you don't get that big risk off move, is that just a prudent response from investors? they look at that situation and don't know how to price this and do not expect it to escalate in a serious way. why should they react in a fundamental way? is that complacency or prudent response from investors? tony: i do not know how you're supposed to trade a nuclear war. i'm not sure i would know how to do that. that's the case in the bull market call is wrong. think about this cycle. this is the most interesting thing about this cycle. go ahead and think of anything that could of happened this cycle short of an all out global war, outside of the war on terror. think of anything that could of happened the cycle that didn't and we have still not gone into an economic recession not just globally but in the u.s. that is the most important point. we have kept it up the last seven years.

i've heard people call for bull market peak or a recession or it's different this time. it's not different this time. it is fed driven and credit driven. credit remains sound and the fed remains accommodative even with recent hikes. this will end badly sometime no question about it. that phrase has killed more portfolio managers performance than any other phrase because by definition, you consider it far too early. david: you are clear that you're not ready to call the end of the bull market, but does that mean you buy? been mind the possibility of some tightening of the monetary policy around the world. we have heard a lot of central banks saying it is time to start tightening up a bit. tony: we think that the market is going to be the last piece that we wrote was choppy but good. you will have a flattish performance like we have had the last few weeks or less couple of months. that's as you get this rotation. are major market call over the near-term is when the citigroup

economic surprise index tanks like it did since december where you went to a -77 from above 50, and for those of you that have a bloomberg terminal, you can kind of pull that up. typically expectations have become far too low relative to economic activity. look at the isn number that was reported earlier in the week. that number beat expectations. that means you are going to bottom out economic assumption. what has worked so far this year has been the "no growth trade." you buy tech because it has growth in a no growth environment or you buy bond surrogates because you're competing with yield and at least you have possible upside utilities like staples and telecoms. see the you will continuation over what you have seen the last few weeks, which is a move into the more cyclical areas. growth expectations have become too low. -- then lies near the

near-term opportunity. i think really you can be aggressive knowing that you can correct at any moment. growth expectations, you believe, are too low. are their bargains out there this point because of those low expectations? tony: i would not suggest with the medium pe being at a near historic high that valuations are too low. when he correlated back to interest rates, what most people don't realize is that they look at a medium pe and that somewhere around 14 or 15, but that includes periods of double-digit inflation. that's totally inappropriate to compare the current environment double-digit inflation environment. that we have looked at with the help of matt davis, who provides the chart for us, what we look for is when you have periods of core inflation between 1% and 3%, the average market multiple is 19 times. you are around fair to answer the question directly.

i do not think you are under valued significantly, but you're not significantly overvalued. jonathan: you mentioned the citigroup surprise index. i took a quick look at it. i wonder if it really tells you about the performance of risk. it doesn't. should we ignore the surprise index altogether? tony: know, like every other indicator that we track and have to report on every day, most of them absolutely useless. at extremes, they are important. when that surprise index gets above 50, it typically is a peak in rates throughout the cycle since 2011. when it gets below 50, in turn it has been a bottom in rates. i hear all the time that "the bond market is telling us something." look at the most recent data point. when the rates were at two point 2.62%, everyone was worried that it was "telling you growth is too strong."

the opposite happened. be careful to interpret what the bond market is telling you because at extremes for this indicator it has done the reverse. david: tony dwyer is going to be staying with us. coming up, on the eve of president's meeting with angela merkel, we will talk with the immediate past u.s. ambassador to germany, john emerson. live from new york, this is bloomberg. ♪

david: this is bloomberg. get theernoon, we will minutes from fomc meeting held last month and we hope we will get some guidance of the direction of rates and what the plans are for the fed to start

reducing the balance sheet. here for his views on both his tony dwyer and gina smile. tony, let me start with you. one of the big questions is what they are doing with the inflation data. disappointing from their point of view is far led by the chair janet yellen. they say they will look past all that. at one point to you have to pay attention to it? tony: when inflation breakevens get out of whack. they are more in the neutral zone and had a good spike after the election and has since backed off. low end of neutral of market expectations and i think that is a little bit more f a guide and that is subject to revision and that's a good point as to why they may not look at it minutes a minute. justifying raising the rates? we heard that it is

justified because we know monetary policy is along the variable lag. going and yout want to make sure you do not let inflation get out of hand. i think their idea is that they are doing this as a cautionary measure to make sure that they are ahead of the curve. was the risk that inflation will get ahead of the federal reserve a tim anytime soon? tony: it's going to pick i do . i do not think investors realize how significantly data revised they are. they found that nominal disclose has 8.4%onal income per year since 1965. they know the data will see

upward revision in income, which is a major component of the inflation data that they are worried about. the odds are again that they are .eady behind the curve unfortunately they have to use what they can and that is the current data. i will put a chart appear and you cannot see it but i will describe it and it shows how dramatically the balance sheet has risen and how the s&p has tracked right up with it. what are the possible consequences starting to come off the balance sheet? tony: i think their dream is that as they come off the balance sheet that it will put upward pressure on the long end, which will keep the yield curve .rom inverting we will see if that works out. realize -- i have to realize and remember is that the major buyer of treasuries has not been china. it has not been japan. it has not been the fed.

they are just reinvesting what is coming to it. they have not had an expanded balance sheet since 2013. it is the banking system. commercial banks have overwhelmingly bought the u.s. treasuries and offset both chinese and japanese selling since 2013. the whole point being that you need to keep the yield curve from inverting to have that happen. i think that is the goal winding down the balance sheet. jonathan: is a great bloomberg view column out today and the story is as follows in one line -- risk-free assets are the new tail risks. do you agree with that? tony: i do ultimately agree with that, but that goes back to my last statement in the earlier segment that this will end badly. a lot of times you interpret that to early and that's a similar case. you cannot fix debt with exponentially more debt. it works great when it's going with you, but when it goes against you, gets

extraordinarily bad and we saw that during the financial crisis , especially because the shadow banking community uses so much leverage on that that. the whole point is what i try to do is guide are investors -- our institutional investors thinking this way that while it will end badly, while it's working it will work well. history has pointed to not wanted to sell equities until well after the yield curve inverts, the shutting down the credit trade. -- a couplepital days ago, we caught up with mohamed el-erian and where he thinks risk actually lies, like the german bond market or somewhere like u.s. high-yield. traditionally you would have expected the latter to maybe be the riskier asset class. building on that tail risk story, do you see more risk than something like bunds or something like high-yield? tony: when they go sideways, the whole thing go sideways.

all the leverage throughout the , globalarket system central bank using until we started to raise rates here. they are all going to go bad as rates go up. the key question is what causes that? what causes that for any of the industrialized nations is when the long end of the market trades through the short end of the market and takes away the ability for banks to lend to make money. when you have a negative return between short and intermediate to long rates. jonathan: tony dwyer, great to have you with us. gina smiley of bloomberg as well. a free trade deal -- an agreement in principle between the european union and japan. the eu and japan on a free trade deal have reached an agreement in principle. that is just coming through. coming up, pimco's global credit cio. that is coming up at 10:00 a.m. eastern time.

do not miss that conversation. the cash open is 10 minutes away. futures are positive on the dow and s&p 500. this is bloomberg. ♪

jonathan: tech is the year's top performing sector. getting some resistance. the nasdaq has fallen five of the past exceptions, underperforming the rest of the market. tony dwyer is still with us. you sounded the alarm on tech a month ago. the call has turned out nicely, looking at the performance since you mentioned that. the question is as follows -- is this you questioning the secular growth story that supported this particular sector or we saying that the price that was paying for it was too extensive? tony: i would say neither. i do not think there is any secular change. thank you for mentioning it, but in that note, we mentioned that

when you have such broad participation of the s&p 500 index information technology sector index, making a 52 week high, pulling 44% of info tech components a month ago, when that happened in the past, you saw a 20% correction before new major move higher, like a double move higher. we do not think the secular story has changed. we just make it got to ahead of itself tactically. in other words, everybody got on that side of the ship. they did it because, going back to the earlier segment, growth expectations for the economy got to love. o low. you want to buy what you can show is growing in the no growth environment. we believe that's an appropriate and that's what is the catalyst for this pullback, where maybe some of the value stocks like , the and even energy names industrial materials, those kind of names start to pick up performance. kind of a nasty correction.

we have a little further to go, but one heck of an upside move. jonathan: this is a growth versus value story as opposed to a tetris is financial story? tony: the next few weeks/months, it is. if you look at the relative performance chart on your bloomberg terminal between rld rlg, you just barely take higher. you are beginning to get that kind of transition again just for the near-term. david: the last time we talked it was time to take money off the table in tech. when will we know when to get back in? tony: when you get oversold. because it's a technical correction, you have to look at sentiment gauges within tech. if you get a 10% drop in the next couple of weeks, that will be enough for me. the one thing i do want to convey to the viewers and listeners is that you don't want to get overly negative on

weakness in the context of an ongoing bull market. the market peaks about eight months prior to recession. that recession happens way after an inversion. we have not come close to inverting the yield curve yet, the spread between these short-term interest rates and long-term interest rates. far too early to get negative so we would look to buy meaningful weakness in tech. jonathan: great to have you with us. tony dwyer. let's look at the scores for you. futures up attempt of 1%. wall street gets back to work. the opening bell just around the corner. this is bloomberg. ♪

♪ jonathan: this is "bloomberg daybreak." to our viewers worldwide, i'm jonathan ferro. let's whip through the asset classes for you and get you set up for trading as wall street gets back to work. futures are stable on the dow.

the s&p 500 is up a 10th of 1%. for 10th on the tech heavy nasdaq. here's the story for the bond market. last week yields priced aggressively hire. 2.35 is your yield today. the dollar is weak for the first half of 2017. a give some damage to the greenback. the dollar showing some strength, of a quarter of 1%. that is your cross asset story. let's go to abigail doolittle for the cash open. abigail: looking at a mildly bullish open for the major averages. the dow and s&p 500 up 1/10 of 1%. the nasdaq up 2/10 of 1%. we saw a big divergence monday with the dow hitting a new all-time high. the nasdaq finished down half a percent.

and will be interesting to see whether tech sellings continues today. coming to what is trading lower on the open, we have to of the auto part makers taking lower. this is after the second quarter cost rose versus the previous guidance of three to 5%. and bit of a miss. the ceo said april started off strong, but the rest of the quarterly environment was challenging. autozone trading down in sympathy. oil is down more than 1% on the session, the first down session. some of the near-term technicals may be bearish. exxon mobil,, consulates, and chesapeake all trading lower. forgy is the worst sector the year and i could help to explain why the s&p 500 is underperforming the stoxx 600. 7350.s g #btv the s&p 500 is up 8% on the year, but the stocks is up

closer to 14%. it probably reflects more of a political situation. the stoxx 600 took off after the first round of the french elections. political jitters out of the way, we have european stocks outperforming at least the s&p 500. closer to the nasdaq on the year. jonathan: with us now for more is oliver renick let's get to the news of the last month. some of these banks are getting their act together. if you are a debt holder, you will not have a good time. europeand that the regulator is getting more flexible with its own rules? mike: absolutely. if you look back at the store the past few years, as abigail said, we had the french election. every near-term future event has

a risk off potential event in the markets run the gauntlet of all these potential risks out of europe. frenchgot through the elections and they looked at the profit forecast for this year. pretty good with 12% growth for the second quarter coming up. they look at the banking system getting a little bit better. they are still looking at the ecb, although maybe not being as accommodating as they used to be. still on a relative basis more accommodating than the federal reserve. you look at this huge rally in the euro. not making much of a dent in the stock reaction. all in all, if you were a u.s. investor and had converted euros , you're having an incredible year. 12% to 15% in the first half in terms of dollars. jonathan: the italian banks and the news in europe and the last one of four hours, the data is better as well. does it have to be a buy europe

and sell the u.s.? does it have to be one or the other? oliver: thinking about it in terms of the risk play out, i don't think so. he generally still have seen a draw to equity markets in general. when you look at the u.s. versus europe, there's a lot of good things to like about europe, but there's also with that maybe not room for disappointment, but a lot of things that are expected. one of the big ones is with earnings. michael was talking about the earnings expectations. i want to look at this chart that was interesting. this is basically a chart that is normalized as the start of this year. this is showing expected earnings growth. the white line is the stoxx 600. they are expecting about 12% earnings growth in the short-term. and at that for the s&p 500 those expectations are little bit less than that. i really do think you need to see a lot of growth. if you look at earnings per

share and how it relates to the valuations for the stoxx 600, there is a big move that is supposed to happen in terms of valuation. it's supposed to go from a mid-20's valuation to a 16 over the next year if that earnings growth gets to the double-digit big earnings growth that folks are expecting. that's a lot to ask. david: a fair amount of this might be compared to what was. it's a lot better than it was, therefore pretty good. looking forward, we just had an announcement that the eu has come to a trade agreement with japan coincidently before they meet with donald trump. that is sort of positive. on the other hand, they have demographic problems. as you look forward, what kind of growth can you anticipate? michael: factoring in those earnings estimates, if they stay where they are, and that's always a big if that there will, the earning estimates have held in pretty more remarkably steady.

excited to seeen them come down as the year progressed. still beingurope cheap relative to the s&p 500, and on a dividend yield basis, the stoxx 600 is at 3.3%, a pretty decent dividend yield. oliver: that speaks to jonathan's point. if you're looking for that type of yield or that type of fundamental growth over the next year, they do fit the same profile just with a little different contour. toathan: it's very confusing understand with the regulatory environment in europe looks like now. we are told there is a set of rules to resolve failing banks, but it seems to apply differently to each family bank. michael: a little bit of improv going on for sure. if you are a junior bondholder, you want to stay away, maybe even senior bondholders. that iamazing to me is would not call it consensus trade, but it was a very popular

trader earlier this year to be a europe bull. anything that is becoming a popular is going to turn south on you, but so far, so good. jonathan: europe was popular and year was popular -- e.m. was popular. long anything feels like a consensus trade. oliver: one of the core differences as you're talking about is that waiting. if you want to get long path and path in theus long europe stocks, you're getting different sector exposure and making a different that. its 23% roughly of the stoxx 600 as opposed to 15% here. if you're getting along s&p, you're getting those info tech stocks. they rallied for so long that waiting went up. that's one of the big core differences. do you want to bet on banks on tech? david: have their really been

structural changes that make it more tractive? it is over banked in particular countries. is that really a good long-term bet? they have not changed the structure. oliver: good question. when you think about the relative opportunity, the long bet on european banks, is it riskier than long bet on multi national couplers? -- multinational tech companies? that are still questions surrounding the structuring of banks and what's going to happen. we saw news today with monte paschi. there are things that need to be ironed out and made clear with regulations. , there'sd to tech obviously questions, but a different set of questions. is a question about mean reversion and how high is soaring too high. can it continue once there is a setback? there for the mentally a lot of questions on what will happen with the european financial

system. jonathan: thank you for joining the program. let's get you up to speed on the scores quickly. the equity market in the united states as wall street gets back to work, down attempt of 1% on the dow. treading water on the s&p 500. is the story in the bond market. unchanged we go nowhere. the dollar showing some strength in the g10 space. the cable rate almost that flat. the euro-dollar comes back by 2/10. for our audience worldwide, this is bloomberg. ♪

emma: this is "bloomberg daybreak." i'm emma chandra in the hewlett-packard and it price -- enterprise greenroom.

k kiesel., marquic david: angela merkel meeting with president trump on the heels of her meeting with president xi jingping. here with us this john emerson. he served as u.s. ambassador to germany until earlier this year when he left. welcome back to the program. good to have you here. john: good to be with you. david: as we look at this right now, we have angela merkel as the chair of the g-20 meetings. she has just been meeting with president xi jingping of china. in thee a transition leadership of the west from the united states over to the chancellor? john: i would not put it that strongly. i would say that one of the risks of a more isolationist approach to the world or a more

withdrawn approach to the world is a vacuum gets created. if a vacuum gets created, there are only others too eager to fill. i would put president xi jingping at the top of that list. there is obviously been a difference of opinion between the chancellor and president trump on climate change. andent xi jingping president obama negotiated a breakthrough agreement on climate change. my guess is that they have probably spent some time talking about how in the context of this g-20 meeting where you will have 20 world leaders or national leaders sitting around the table together they are going to approach the issue of climate change. my guess is that it's also on an issue that xi jingping and president trump agree on which ged dumpingalledg steel will be a topic of conversation. david: you mentioned the america first attitude that this

administration has come in with. i wonder if that is likely to lead to us getting our way, which is what president trump is wanting. we talked with jacob kierkegaard about the 232 preceding on the steel imports. this is what he had to say about whether the administration remains committed to that course. jacob: i think they deep-seated differences within the trump administration on this. we know there are people who do not favor this america first trade policy and they're obviously others that do. in the end, they have said, ok, we will not throw this red piece of cloth in front of the g-20 bull by doing it before the summit, but i don't see anything in the administration that said they have fundamentally changed their ways on this. i think we should expect something on the 232 in the coming weeks. david: do you agree with that that basically the united states

and particularly the trump administration remains on this path toward america first? what is the likely reaction from chancellor merkel and others at g-20? john: you have two issues when it relates to steal. what is the conversation on the by lapse that happened on the margins of the g-20? providing the opportunity, what is said publicly? they do not want this to be the big issue that comes out of the g-20. my sense and watching the trump administration is that hitting hard on china was a part of his campaign. it was a popular part of his campaign and i cannot imagine them completely walking away from that. on the other hand, you have the andation in north korea that we fundamentally me china to take a strong, strong role as it relates to north korea.

85% of north korea's trade is with china. china has a lot of leverage there. announcement confirmed by united states intelligence that north koreans have now launched an icbm. i think that complicates this discussion on steel and the discussion on trade and that will be an important part of what is discussed at the g-20. ofathan: is is another case blending the foreign policy with economic policy want again in a carrot and stick approach from the nine states and the president -- the united states and the present? john: you had hillary clinton and john kerry who constantly made the comment that economic policy is foreign policy. i do not think we should see that as being surprising. that is something that is a very consistent with our bipartisan foreign-policy approach.

condoleezza rice, when she was secretary of state, and colin powell to the same approach. department is as engaged if not more so in the g-20 than the treasury department and the commerce department. jonathan: looking at the situation with north korea, he mentioned china could have a strong role to play. what does a strong role look like? what can actually do and what you anticipate they will do? john: here is the challenge that china has. 85% of north korea's trade is with china. they depend upon china for many of the goods and services that allow the country to keep running. obviously of china -- if china tamps down on that, that could have a huge impact. there are two things that china does not want. they do not want a mass of refugees into china.

they certainly do not want to see a reunification of the cree employment to -- korean peninsula, which would put the united states right on china's border. that is something that makes them uncomfortable to say the least. they have some conflicting challenges here as well. when you have got 85% of your goods that you used to run your society coming from one place and that place that is providing those, they have a whole lot of leverage every. -- leverage over you. david: before he met with angela merkel, we had present xi jingping meeting with vladimir putin in moscow. putin said they had a plan, china and russia, with the u.s. stopping its military activity south of the border. is there the germ of a possible deal there? john: i'm not familiar enough

with that to be able to comment one way or the other. that in dealing with north korea sort of a whole lot of -- i mean, i read this weekend multiple analyses of different experts about approaches you could take on north korea. one thing that is clear is that there's a whole lot of roads to dealing with that. and so, sure, i suppose it's possible, but again what this does is it gets to what i said earlier, which is when you withdraw from international engagement and international organizations, or at least withdraw from taking a leadership role, it creates a vacuum that others might want to fill. david: think you very much, ambassador john emerson. if you have a bloomberg terminal, you want to check out tv . and interacte, with us directly.

go to tv on your terminal. this is bloomberg. ♪

david: this is bloomberg. last night, americans celebrated the 241st birthday of the united states of america. a lot of the celebration was up in boston with fireworks on the charles river company by the boston pops orchestra. bloombergrst time, brought the festivities on tv, radio, and online. are very own alix steel was front and center. alex steele johnson is now with a special guest -- alix steel joins us now with a special guest. alix:. mode right here on the charles river. last night was totally jammed because of keith lockhart, the conductor of the boston pops, the man behind this event. the crowd loves you. they like melissa and leslie,

but they loved you. you perform everywhere like the super bowl and radio city. what is so special about this event? keith: because of its meaning to the entire country. it has a sense of place and how people view independence day. we do concerts for thousands of people. the simple volume of this concert though is half a million people down here let alone the millions watching on tv. it makes it an extraordinary chance to make an impact. we are honored to have that position. alix: some people can the night before on a dress rehearsal and stay the night to get that front row seat. was a tradition for their family. this really means a lot to boston. is not just a july 4 concert. keith: it means a lot to people beyond boston's borders. i talked to people who come by earlier in the day and meet with a few of the crazy fans who stayed all night and come up front. there were four people -- an

older woman and some of for family -- who had taken the train from seattle. they took the train from seattle. this morning they are getting back on a train to seattle. they said we would not want to be anywhere else. alix: bloomberg as a company is all about creative thinking, new ideas, and how that incentivizes change in the environment. boston pops does that with music by the people, for the people. through that you get that sense of community. keith: is an orchestra dedicated to raking down the perceived barriers of what orchestras do in the rest of the and a timid and musical world. we do not have those barriers and we do not believe in them. we do not believe in them 75 years ago. we work with people like duke ellington for the first time. for us, there's andy grammer on one side and melissa etheridge. is great classical music.

it gives us the widest angle lens possible view of what great music is. alix: kids were excited about andy grammer and also excited for you. what is next for you? keith: well, i get a whole day and a half of no concerts to do. then i'm going up to tanglewood this weekend, the summer home of the boston 70. amazingerforming an project called sondheim on sondheim. that will be saturday night. from there, i travel down to north carolina to my summer music festival. i have a wonderful educational festival at the brevard music center with 412 five students of high school and college-age. we will be doing a little seven deadly sins. it just goes on. alix: to you ever get nervous anymore? keith: i get anticipatory. obviously something big like this, you get up for it. you are tense, i suppose.

nervous? no, i would realize i would be in the wrong business. alix: you were great on stage. keith: thanks for the opportunity to see the astronaut on the fifth. i've never been here on the fifth. [laughter] alix: keith lockhart, conductor of the boston pops. it was a great evening yesterday. i'm excited to see you back tomorrow. jonathan: thank you very much. that does it for us. let's get a check on the markets for you. equities opening lower. down by 2/10 on the dow. from the team here at bloomberg, thank you very much. the coverage continues. "bloomberg markets" is up next. for viewers worldwide, this is bloomberg. ♪

vonnie: it is 10:00 a.m. in new york, 3:00 p.m. in london and 10:00 p.m. in china. from new york, i am vonnie quinn. mark: i am mark barton.

welcome to bloomberg markets. ♪ fomc minutes, north korea and more coming up but breaking economic data in the united states. two piecess, we have of economic data. durable goods orders for the month of may, the final reading coming in as the serving called for, a decline of .8. factory orders now, they had called a decline of .5, but down .8. bloomberg intelligence strategists have been writing that the manufacturing segment is on hold in weight, basically in line, slightly weaker readings for both factories in durable goods. this is what we were looking at