tom: the future of the fed is awaiting janet yellen's testimony. regulator. theresa may marks one year as tory party leader, but is forced to suspend an m.p. from racist language, reducing already slim numbers in the commons. the u.s. secretary of state rex tillerson of the qatar crisis. this dialogue is the way forward, we are told. this is "bloomberg surveillance

." london. barton in we are one hour into the tuesday session and docs arising for the second day. they were rising and now it is dipping with the second day of gains. this is the first time this has happened since mid-june, but we are down by 1/5 of 1%. the german 10 year yield is rising, it fell by three basis points yesterday because of a more hawkish president draghi. down for the third and itinst the dollar, is the best performing g-10 currency against the dollar so far in 2017. big stockpile data expected from the eia tomorrow. we should continue to see a drawdown. 1/5x-crude, lower, down by of 1%. let's get the bloomberg first word news. reporter: president donald trump

has nominated quarles to be the federal reserve's top banking regulator. he was a senior official in the george w. bush ministration. quarles, who will be the first person to solve than the -- to serve and the role of the vice-chairman, will be a pivotal part in easing after the financial crisis. donald trump junior's lawyer has ignored his client did receive an email last year offering a meeting with someone who would potentially damaging information on hillary clinton. this is after a report that the under trump had been told it was part of a russian effort to help his father's election campaign. the meeting could draw trump junior into special counsel robert mueller's russian probe. u.s. secretary of state rex tillerson is in the gulf, trying to resolve the saudi led crisis in qatar, which is put washington in a difficult

position. saudi arabia is the top buyer of american weapons. state department officials are skeptical that this will be sorted immediately, but are looking for ways to ease tensions between the countries. the confederation of british industry's says u.k. banks and life insurers are getting less optimistic because of uncertainty over brexit. sentiment fell in the three months after june for the fifth time in the last three quarters. meanwhile, theresa may has been forced to suspend one of her own lawmakers from the conservative party after she used racist language to use the possibility -- to describe the possibility of leaving the european union without a trade deal. this reduces theresa may's numbers that she struggles to win votes in the house of commons, when she lost her majority after last month's election. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. mark: thank you very much,

indeed. investors are looking ahead to two potential market movers this week. the start of the earnings season, janet yellen's semiannual monetary policy report to congress tomorrow. testimony coming after a stronger than expected jobs report on friday gives the central bank on track to raise rates one more time this year and begin unwinding that $4.5 trillion balance sheet. overnight, san francisco fed president spoke about inflation and the rate path ahead. >> i would argue is inflation 1.5%,tuck at roughly which i don't expect, but if it did come i would argue gradually raising interest rates, are holding off on doing that for a while. aboutt overly concerned that because in the u.s. i do see a lot of signs, both in the earlier question of wages, but also in the economy that is doing really well. the economy is strong and

continuing to move ahead with good momentum. u.rk: joining us now, geoff y are you inflation hawk or dove? >> i am leaning more towards conservatives and dovish at this point. if you look at forecasts, another hike this year, another two next year, not really wanting to push the boundaries at this point. even with the labor market tightening, you really have not seen that spending pick up. i do really see things changing in the future. mark: still, comments from various central banks giving a lift to the yield curve. is this the end? we have to keep asking until it does end. is this the end of the great bond rally, or not? >> i we really going to go back to negative rates across the board? no, probably not, right? to put it this way, even if we

get the downturn and some degree of moderation, i don't think the cuts will be as aggressive as we have seen in a post crisis environment. is there a figure. did somebody put a fingegure on it that signals the end of the 30 year bull run in bond? >> i think the numbers matter much more market. 3%, wecan get to thre are at 1.6%, right? about 100 basis points. anit is sudden, prompted by unforeseen inflation surge, then we could have a problem. mark: favorite story on the bloomberg today, geoff, super mario is getting market's respect. we have this chart, whicih sho

,s, treasuries, europ bonds australia, and canada. the blue line is what matters because the yield curve has been steepening. is draghi leading the day when it comes to making the yield curve steeper? >> draghi is letting it happen, which is a step in the right direction for the bond market there. the next question is, how far is he prepared to let this go? mark: and what is the answer to that? >> steeper curves, higher yield, and a stronger currency. he will allow two out of the three to happen. ,he euro, once a gets past 1.15 i think he will talk things down a bit. he has got to watch the divergence. mark: let's look at the euro-dollar. i think 1.17 was roughly in october of 2015.

we have come through the post trump election levels. there was the brexit level as well. those were the three key levels to look out for. you are saying 1.17 is too high? >> again, it is about pace. if we get to 1.17 barely three months after his self projections showed a softer projection, i think he will have to tame expectations somewhat. but if you allow businesses to hedge and use the weakness in the euro to pass on the wage gains, then you will be able to tolerate things. mark: equities? >> global equities are very comfortable in that position, but on the overweight eurozone, on an absolute basis, we are not really overly in any particular market. stays with us.

let's get the bloomberg business flash. reporter: a fresh drop in quarterly clothing revenue and missed estimates for food sales. this deals a blow to the chief executive officer as he seeks to revive the u.k. bellwether. this adds to evidence that consumers are tightening their purse strings. pearson has agreed to sell a 22% stake in random house for about $1 billion to strengthen its balance sheet. pearson is selling the state to its publishing unit partner. this gives penguin, random house and enterprise a value of $3.5 billion. snap shares have fallen below the ip prize for the first time. -- fallen below the ipo price for the first time. analysts say snap needs to prove the advertisements are a must buy, and they need to

keep innovating their product. mark: a new study shows that question surrounding brexit are hurting britain's business optimism. u.k. banks and life insurers are less optimistic because of uncertainty over the eu divorce. one year after theresa may became the conservative leader, she will use a major speech to appeal for cross party support theelp peel britain out of eu. but she was forced to suspend one of her lawmakers over racist language yesterday, reducing her numbers as he struggles to win votes in the house of commons. let's get more. geoff, to you. let's start with this chart, geoff. we are in negative territory, levels we have not seen since the brexit vote one year ago. we are minus 34.

is that everything you need to know right now? shouldature, we start to see a flat line somewhat. yes, consumer spending is slowing and that is why we push back heavily. we should not be in a position to hike anytime soon. that the same time, one thing eating into consumer spending power is higher inflation. mark: if you are a hawk on the an argument to be raising rates up from emergency levels of 25 basis points. >> that is true, but you have to make a determination on whether this inflation will be transitory or not. the slack has been reduced in the u.k. that is a more permanent inflation impulse, the holy grail for policymakers.

how can yo uu say, we have zero slack right now, but with all the uncertainty and brexit looming, you say that slack will tighten? mark: we have got a chart, can i bring it up really quickly? i think it is roughly 47% to 50% in december -- can't see it there, but i'll find it. is that looking too hawkish? >> i think so. people look at inflation and prices are very high. they are noting that we already see a pullback in spending, , putting pricing pressure on them. mark: what about politics? theresa may makes a big speech today, one year on from becoming the leader of the conservative party. she said over the weekend, i will still be leader in 2018. is your money on that?

>> all options are on the table as far as the house of commons is concerned. being this speech pitched towards? we have seen she wants cross party consensus. she'll try to win some of the p ro-remain votes on the labour side. everything is on the table right now. right now she wants to be as excessive all right now. conservative party politics is something you have to consider as well. mark: so, an election within the five-year fixed parliament's period you would say is more likely? client, ince again, a know these are early days. the conversations lean more toward expecting an earlier move. mark: sterling, outlook? >> it's not going to fall much

at this point. cable is heading higher. euro-sterling, slightly harder. softer against the euro, but stronger against the dollar. mark: 1.35, so it is creeping higher. >> it is. they want to keep inflation in check, and the fed does not have additional hawkishness. but we have come a long way from 1.20. say, we get a sudden tumble based on brexit rhetoric or something along those lines, something close to the denver side of 1.25, i think -- close to the dovish side of 1.25 think that is a possibility. mark: is it vulnerable? >> it is honorable to very adverse headlines. mark: thanks, geoff yu. rex tillerson, touring the gulf.

turkey speaks out over the treatment of qatar. we bring you the best of our interview with the deputy prime minister. this is bloomberg. ♪ guy: you are watching "bloomberg

surveillance." let's focus on the middle east now. in an interview with bloomberg, primeuntry's deputy minister mehmet simsek says the country is a force of good in

the region. he also weighed in on the situation in qatar. >> that we agree the situation has been unfair, we advocate dialogue. we continue to call on all of our partners, our brotherly countries, to peaceful dialogue. outwe hope this works sooner rather than later. we also of course, try to prevent such political differences from having big impacts on economic relations, on investments and trade. i think turkey has been successful in that sense. let me give you two examples. we had a big spat with russia. there was a big backlash on turkey haside, but

been cool and avoided a big fallout. finally, we're back on track, back to pre-crisis levels. we had a big fallout with israel. there was a big crisis with israel. what happened is that we avoided a big fallout for investments, and trade. to gccis applies currencies. yes, we have strong ties with all these countries. yes, we think qatar should be treated in a more fair fashion and constructive fashion, but we don't want any fallout when it comes to trade and investment. i'm sure we can manage that. reporter: are you at all concerned that your relationship with qatar will one day have implications on you and sanctions on turkey?

>> i doubt it because first of all, turkey's not alone in thinking qatar should be treated more fairly. secondly, there is absolutely no grounds, no justification ,for why turkey should be treated in any -- i think turkey is a respectable player. peace, stability and prosperity. thkey is by far, doing e biggest combat against isis. countrys the only ground,ts on the effectively combating extremism. we have, in a way, liberated 2000 square kilometers of syria from dash. we work with our international

allies, the night and with our coalition partners in containing daesh.sm and mark: let's get the latest on qatar and rex tillerson's tour of the region. yousef, is the qatar stand up something the u.s. can help resolve? yousef: yeah, they did not have much luck at the very beginning and they are not making a secret out of managing expectations. the state department spokesman said they did not advance the ball, but they look try to do things differently this time around. rex tillerson has relationships with a lot of the key figures in this part of the world from his days at exxon mobil. his tour takes in through kuwait, qatar, and saudi arabia. having said that, the two sides are getting more and more entrenched, makr, and this is

fundamental. on the one hand, we have qatar looking at possible damages and litigation, and then you have the saudi's porting to reports saying, look, that list of demands ins legitimate. as far as w resolutions, americans are pointing to this and saying, we do not expect any quick reconciliation. what is the money telling us in terms of capital flows? looking at qatari stocks that are rebounding as we speak. the interesting part here is the gulf investors have been sellers in terms of institutions and that has been made up by patriotic buyers out of qatar who have stepped in on some valley opportunities, but some of the other gauges are important in this chat, the 12 month forward on the qatar riad.

this gives us an idea of how the traders expect the currency to trade 12 months from now. the record we saw earlier in june was around 700, so very close to this level, but as it given, fairly calm waters the tension. we will have to see what kind of progress rex tillerson can actually make. mark: thank you, yousef gamal el-din. geoff, you are still with us. is this still a regional crisis within the gcc, geoff? do you see spillover if it is not resolved sooner rather than later? >> people are keeping a close eye on the energy markets, of course. $40, ratherng at than $65. comprehensively, there are two strands, the foreign policy, something clients are always interested in. secondly, as you mentioned, it

does point to some wider contagion. it does not seem to be causing this. mark: how effective is u.s. polleicy, given the fact that we have just come back from a g-20 summit? divisions are main on many of the key issues. >> and they will remain. people are accustomed to that. one tweet can push the dollar or the mexican peso up. those days are of the past. i think there is an area within the steel situation and that is linked to the geopolitics of north korea as well. this is a very transactional presidency, but it does not mean that other countries are entities cannot be transactional either. mark: the dollar unlocked in the first half.

traditionally the second half has been better in recent years. would history repeat itself? >> that will rely on the fed, if they push the boundaries. mark: we are not there yet. geoff yu, head of u.k. investment at ubs wealth management. up next, markets might be focused on the fed and yellen's congressional testimony. is draghi the most central of central bankers? we discussed that next. 4:26 in newon and york. stocks are trading mixed on this tuesday. this is bloomberg. ♪ tom: let's get to the first word

news. he was a senior treasury

advisory under the george w. bush ministration and works at a salt lake city private equity fund. he is expected to play a pivotal role in carrying out comes much to ease regulation constraints imposed on banks after the financial crisis. donald trump junior's lawyer says he received email last year with a meeting or someone who had damaging information on hillary clinton. that news came after reports that the younger trump had been told it was part of a russian effort to help his father's election campaign. facing complaints from watchdog groups of violations of election laws. rex tillerson is in the gulf trying to resolve the saudi led crisis. this has put washington in a difficult situation. it they host the regional

headquarters of central command. this can beptical sorted out immediately, but are looking ways to ease tensions between the countries. the confederation of british industry says they are getting less optimistic in their outlook over brexit are in a -- brexit. profitability, you to death retail sales rebounded in the second quarter. 2.1%.ent up the question over whether amounts to expenditures is squeezed by rising inflation and slowing wage growth. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. tom: u.s. inflation is going to

be at 1.7% this year and 1.9% next year. to more ratete hikes between now and next june accompanied by a gradual balance sheet reduction starting in the fourth order this year. the ecb is scaling back its qe from january. let's get more from deutsche bank. thanks for joining us. once the message from janet yellen when she testifies tomorrow and thursday? hawkish given the developments? i don't think that will change course. of i think that is in line with central banks over the last week, to be more hawkish unless accommodative. mark: have we seen the pace of the move upwards?

it's the pace that matters and the speed upwards has been quite swept area -- swift. >> we have seen that movie before. we realize the fundamentals, we would expect the same. we have seen some stabilization of this, which is important to the market. if it's moving a bit higher from here. mark: that's the root. it could be overshooting a little bit. i think it's important. we don't expect the speed to be continuing like this area mark: the speed of rate hikes this year, one more this year and one of the first half next year. are you just below that western mark -- that?

>> i think that is important to be discussed. if they reduce the balance sheet , in taking this into account, don'tnough because we expect inflation to be through the roof in the u.s. mark: this is a great chart on the bloomberg showing you the entirety. , does0-year breakevens that tell us what the expectation is for inflation? >> if you look at the development of the breakeven, it has not made a massive move up there in -- up. you could say that you are buying in here on rake even inflation. we don't expect inflation to move erin -- move.

it we do see some. job game is the best in four months. it's not a massive move. also -- mark: you've seen this movie a lot. >> i think it's moving higher. unstableis in a political situation from a monetary policy. what they see is unemployment is moving slightly higher. you see some wage pressure. this is completely different to the ecb. is why thepic central banks have time to move out. they have interest rate hikes, timing ofve you the

the balance sheets. >> the next rate hike is probably in the fourth order. they will discuss about balance sheet reduction and we will hear some announcement there. from that perspective, another hike in the first half of 2018. mark: this is draghi on inflation. we are coming up to 1.59. confidence,nject does it? >> i think the eurozone the picture is different. if you look at wages in the eurozone, we don't see pressure. the unemployment rate has fallen below 10%. at this stage, you don't see wage pressure or price rusher from rising wages. we don't think the ecb will release of -- an inflation

target. is they have a scarcity on bonds. they run into a little bit of trouble there. they need to discuss tapering and they will announce some starting in 2018. inflation is not the major issue. we don't expect rate hikes until 2019. mark: he is staying with us from deutsche bank to up next, political events. we will walk through the hazards ahead next. this is bloomberg. ♪

mark: let's get to the market action. inequitiesal value has inflicted on the session. we saw some gains on the stoxx 600. we are down .2%. we did see them outperforming defenses. most of these groups are heading lower. the oil price has turned lower. we've got materials outperforming. there is a lot of red on the equity groups. we haven't seen a rare amount of risk. dollar,u look at the it's the most bearish on the dollar since 2015. we are seeing the dollar gained against most currencies. it has gained against the yen for the third day. we are tracking what is happening with the 10 year

treasury yield as well. we are looking ahead to janet yellen speaking this week. the 10 year treasury yield is moving higher. we have seen these steepening. this is my favorite chart of the day, showing it markets bracing for a treasury curve. it you can see the tenure positions. that positioning is the strongest in almost 10 years. of what is interesting is a last time you saw this positioning, the curb steepened. this is something to watch in terms of the treasury curve. in the european bond market, this is up two basis points. this is not really changing. this is forecasting the 10 year german yield at 20 basis points to this is lower than the median forecast. we are basing that on the

stronger euro and oil prices will make the ecb continued to expand its stimulus. great job. there are political developments according to deutsche bank's latest note with president trump under pressure over russian connections and the have these hurdles been overcome? market perspective, this one in the right direction. the political risk in europe has been reduced. valuations look more attractive. some offers we saw from the act beside. it depends on the development. if we stabilization here, it is very attractive. we prefer europe at this stage. from macro respective, it looks

nice. when you look them a political perspective, we have the german elections in set number. i'm talking a little bit about italy. it looks like next year, which is a very important step europe. the political risk in europe has really come down. mark: europe has a tailwind behind it. >> it seems like we're in it i don't think the german elections would be something very orton to the market. i don't see any party winning. at one party, they are 7%. it doesn't look like they will win. if you look at the macro side in europe, this is a tailwind. two years back from here, if you compared u.s. gdp to europe,

everyone knows that. we don't think it will stay like this. europe has been priced to perfection. we need to see how that goes in how the ecb communicates. mark: what about european stocks? >> we like european stocks. at the beginning of the year, we overrated the u.s. we think that was a good call. short-term, markets have been priced for perfection. we have some setback, but we think longer-term there is still room to grow for europe. mark: there is a long way to go for the u.k. >> i think the pinnacle -- political backdrop is important. it would be weakening slightly, not too much.

whenever talking to clients globally, they say we are a little bit uncertain once happening in the u.k. that means the investment side. mark: monetary policy? there has been a lot of hawkish talk lately. summer say in august is on the cards. we would rather go for 2018. we need to watch inflation. there is no hurry to change rates in the u.k. there was discussion about this. this will be important to watch. about u.s. politics and the trump train has come and gone. let's talk about earnings. donald trump has a lot on his plate.

he's got to push health care through congress. he has a tight calendar. what are some of these measures going to be delivered? this was certainly a driver to markets. first, bring home money. we think that will happen. that is good for buybacks. if you create companies that will profit from this, it's not the first thing it happens. money andack the share buybacks. that is 1.5%. we think that will happen because it's a win-win situation. think -- mark: it can happen before health care.

>> we think it is happening in 2018. roughly we think it's earnings. 25%, it'se is cut to an important driver to markets. it is roughly 17.5. at this stage late, we don't there is a new de. that is not happening. earnings, there is a substantial impact on markets. the usuallyt, robust earnings in the stoxx 600. second orderew the earnings season which kicks into gear this week. this is bloomberg area -- bloomberg. ♪

mark: let's get the bloomberg business flash. clothingh drop in revenue and missed estimates for food sales.

the are seeking to revise retail bellwether. there is a squeeze on disposable income. iny are selling a stake penguin random house for $1 billion. they are selling the state to its publishing partner. of value ofenguin $3.5 billion. snap chairs of fallen the flow there ipo price for the first time. in techcent declines stocks worldwide, snap needs to prove it is not just an experiment. facebook is copying its most popular teachers. that is the bloomberg is this flash. mark: let's focus on the second quarter earning seasons.

tim, thanks for joining us. this chart is wonderful. it's wonderful and telling us what is being happening in europe. it's very different from what's going on in previous years. tim: it is. positive expectations for the year had, estimates start high and they get revised down. the environment influences that. this year has been very different in terms of stoxx 600 earnings expectations. that has been quite stable. in prior years, they have been down anywhere roman 6% to 10%. -- from 6% to 10%. economic activity has been robust this year. look at the pmi's locally, but especially in europe and we are

in uncharted territory. we have a currency tailwind. mark: how important is currency? could it affect earnings going forward? >> it's intriguing. if we think that the first half we had aar the pound, tailwind from the standpoint of revenue translation. that disappears if the pound stays at its current level. if it stays at the current level, this removes one positive. if you look at the euro and we are up 4% on a year on year basis, if we extrapolate forward and the euro is the new strongman in town globally, you end up with a translation headwind. there are strategic opportunities. maybe this is enough to in court

-- entice corporate's to do strategic actions overbroad -- a broad. the picture quite drastically. what does this mean for earnings? >> you need to look at exporters. look at germany. if you talk to companies in germany now, you get positive feet deck. i think we have seen the movement in the currency and that has not impacted them. dollar, it at euro should be ok from the company. higher, theseen are two negatives. upwardsa massive move which we don't expect. we should talk to companies now. you do see a massive change. also interesting, the picture for other parts is different. in the past year, this is coming

down. for europe that looks stable. if you look from the macro perspective it european growth, for the first time you see the growth is not only coming from exports, it is coming from production. -- consumption. that is a massive change. large as exports. mark: is it cyclical? tim: the thing that is interesting so far this year, normally you have that. far,we look at sectors so you've got strange bed the lows. -- that fellows. in the positive side, you got materials with a rebound in metals. chemical prices. you've also got that compared with some consumer cyclicals

because china is coming back from its anti-extravagance campaign. on the downside it, you've got things like oil and gas oil is under pressure which is good for everybody else. you've also got who'd and beverage companies where earnings disappointments have been notable. you've got health care with have been some big misses in the pipeline for drug companies. we're going to see you later in the european close. thank you. thank you very much. bloomberg surveillance continues. guy joins tom. we will talk to the london school of economics. ♪

t this morning yieldso grind

ever higher. janet yellen will bring clarity tomorrow. michael mckee will join us in this hour. speaking of the fed, there is a new governor, a new vice-chairman for regulation. quarles gets the nomination. the path from miss universe to trump junior to perhaps the president. this is "bloomberg surveillance" and i'm tom keene in new york. london.son in you really wonder how washington will react this morning. guy: yes, it will be interesting to see how that reaction marks and what the prosecutors ultimately make of the latest story. news cycle,n of the it seems the tension gets lifted a little bit higher. that is the cycle washington will have to live with.

we are awaiting a speech from the u.k. prime minister, talking about cross party cooperation. judging by the reaction from the house of commons yesterday, the opposition is in no mood for cooperation. tom: the guy johnson this summary this morning on prime minister may, we will have that speech during the 6:00 hour. for more on first word news, here is taylor riggs. reporter: theresa may delivers a speech in central london today, coming opposition lawmakers to steer britain out of the european union as she seeks to reset after last month's disastrous general election. men his that up a meeting between donald trump junior and a russian lawyer says time was made for the meeting, which was organized by rob goldstone, hoping to get information about the clinton. the new york times says

goldstone told trump junior before the session that he was behind the information on russia. 15 people died in rural the city. a refueling tanker spiraled into the ground. the marine corps says it operate the plane, but did not say where the plane was going. and the fbi says an active-duty soldier based in hawaii pledged his allegiance to the islamic state group and helped purchase a draghi's against american forces. -- and helpedase a rifle purchase a rifle to use against american forces. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: thank you, taylor. let's look at yields right now. it is the feature after a quiet monday. the futures are flat.

we are almost back to 100 basis points, where we were roughly november 8, the president's election. oil churning lower. morning.yen this the 30 year bond, that should be green on the screen, yielding two basis poitns higher, getting out near 3%. guy: this does show you brought the we have a risk sentiment story that is positive this morning come despite the fact that stocks are a little bit softer. it is interesting to see how this one is working its way through. gold is down 0.3%. i will show you a chart in a minute. we have got mr. broadbent talking at the bank of england, 12:00. he is one of the bank of england doves. if he gives any hint that the

bank is moving into a more hawkish stance, pay attention to sterling assets. they could really move on the back of that. tom: here is an advanced chart from the bloomberg. this is michael mckee's favorite chart. this is jobs plentiful as compared to jobs not plentiful. this is really good. this is the job explosion coming out of the financial crisis. here is the recession along the way here. and what is amazing here is we are back to where we have an only a few times in 40 almost 50 years. here is the job boom of the late 1990's. we are not back to that, but that is an indicator of the two americas, and one of them is a near fully employed america. guy: i am very looking forward to hearing what they have to say wednesday. center is front and

right now. let's look at the gold-silver ratio. silver has come under pressure. the ratio is the most stretched we have seen in 18 months. the ratio between gold and silver, the most stretched it has been in 18 months. is gold about to tumble as a result of that? tom: i would call that an elegant chart. ok, we need to sort out the debris. we have higher yields. stephen macklow-smith and joining us this morning is james hertling. he has decades of experience, watching the game. i would suggest that the dialogue, the debate of washington changed last night, about 7:00 p.m. new york time and this world collusion is

becoming evident. what is collusion? >> good morning, tom. and let me say, you probably don't want my life, first of all. as far as collusion goes, it suggests the trump campaign officials knowingly working with officials of representatives of a foreign government in order to defeat hillary clinton. and i'm not a campaign lawyer or finance expert, but that kind of linkage with a foreign government in an election i don't think is appropriate. tom: an important question for our global audiences can government run normally with these kind of stories. in "the new york times" today we have the bombshell with collusion with donald trump junior and just below that we have an article about mr. been

i and jared kushner -- about mr. bannon and jared kushner. news have this kind of flow,c an normal government happen? >> government's function, th rough thick and thin, through itd news flow and bad, speaks to the basic confidence of people engaged in policymaking. one of the things you have seen with this government is ab, it staffed and the people in these jobs are pretty green. tom: i believe people are innocent until proven guilty, but the talk of collusion is floating out there but we have to make clear, this has to go through robert lawler before we get a resolution. guy: i am trying to understand, as every news cycle goes around,

we ratchet tighter. my question is, is the prosecutor -- are the prosecutors paying attention to that, or are they stepping back and seeing a wider picture? that is what we are trying to figure out at this point. i'm trying to break the link between the daily news cycle and what the prosecutors will be paying attention to in my mind, and that is difficult to do in this current environment. markets price in elections two to three weeks out. i'm wondering how therefore, markets price this kind of political event, which is incremental. every turn we get a little bit tighter, but we don't ultimately nowhere it unspools. i'm trying to understand where markets position themselves and get themselves ready for the event, which may or may not be coming. >> i have to be honest, i think markets are not particularly good at pricing in geopolitical risk. they tend to underestimate

geopolitical risk. it has the scope to create volatility. tom was making this point. i think markets are more focusing on the cost of capital now. we had this genetic change in the shape of the yield curve in the last two weeks. really, if you look at the second half of last year, they were expecting the yield curves to steepen, but they flattened. people were wondering why that was happening, because as far as they could see, gop was good around the world. a lot of it had to do with headline inflation on oil prices. but i think that the change in the shape of the yield curve in weeks is way more important than the oil market. guy: in the u.k. we are waiting for theresa may to deliver a speech, and we have wage data

coming up tomorrow. in some ways, the bank of engladn, probably for a financial markets story, more important than what is happening with theresa may. this doesn't seem to be an affliction at the moment with the anglo-saxon world, where we are assessing about politics, but underneath that, there's into be significant changes taking place. >> the great thing about politics is it seems to be a soap opera, but there is this unfolding of events, which is attention grabbing, but it is having a limited effect. i like to think about the central banks in that they are well aware of tightening policy prematurely. the last thing they want to do is derail the recovery. tom: excuse me, go ahead. >> if central banks tighten policy, it is a vote of

confidence on what is going on in the real economy. we saw that good job start showing the dramatic change in the u.s. we are close to full employment in the u.k. tom: let's come back. we will continue with yields higher and of course, a lot more coming up, including randal quarles with the fed. coming tomorrow, the testimony from chair yellen. randal quarles, the new vice chair, you know that will come pup as well. this is bloomberg. ♪ reporter: this is "bloomberg

surveillance." i'm taylor riggs. pearson is selling its stake in penguin random house to its

partner in the publishing unit. about% stake will go for $1 billion. this follows pearson's sales to the financial times. president trump has named randal quarles to be the federal reserve's taught banking regulator. he is expected to play a pivotal role in carrying out the president's pledge to ease regulatory constraints imposed on banks during the financial crisis. tom: thank you. right now we go to our michael mckee. both he and i have interviewed randal quarles any number of times. this is a new job. explain to our global audience how not only is he a governor, but a vice-chairman. i thought stan fischer was the vice-chairman. >> stan fischer is the vice-chairman of the federal reserve. this is a new position created in the 2008 dodd frank

rule. the job was never filled under president obama, so he is the first to have the formal title. tarullo, leaving the fed in march. tom: we have got a photograph of a younger randal quarles standing with secretary snow, who i believe was u of republican persuasion. will democrats push back? >> there does not seem to be a lot the reason why he would not be like. he is an establishment republican who worked in the administrations of both george bush's. -- at oneat you ar point, he worked as the secretary for finance. he has a broad experience as a republican, but he does believe in a lighter touch on regulation, suggesting he is

from the establishment wing, not going to be a bomb thrower or somebody who wants to tear up dodd frank, but ease the burden on banks. guy: what does that actually mean? we are trying to understand how regulation will be changed. will he simply say enough is enough, or will he roll it back? >> there is not a lot he can do because much of it is written into the legislation, but he can affect the way things are enforced, guy. he can also change some of the fed's regulations, and they regulate the biggest banks in the u.s., such as the stress tests they do every year here. there has been a feeling that maybe that is too much. they might do it every two years, or lighten some of the requirements of the stress test. there is hope he can set a tone for other regulators in the u.s. as well, a lighter hand. guy: how does his role

interactive monetary policy? >> he will be a governor of the fed with a full vote. you might clash -- he might clash with janet yellen or stan fischer. they have all come out in favor of using discretion to make monetary policy, while he has said over the years and in a bloomberg interview last you he believes the fed should follow rules. interesting that the timing of this is the day before janet yellen's testimony because the fed came out with a statement last friday that says rules -based policymaking does not work. guy: michael mckee, joining us on the latest story surrounding the fed and as a indicates, we get testimony tomorrow from the fed chair. stephen macklow-smith, still with us. we are sitting here in europe

and watching a man going into a role that could halt the advance of financial regulation. how do we in europe read that? will the gap widen in how banks are regulated in the u.s. and how they are regulated here? >> it is really difficult to know. that's always been framed from the point of view. what impact it would have over here is limited. in europe, we have a different regulatory track. i think increasing the robustness of the financial sector in the eurozone has been a priority. to be honest, there is every sign that it is working. the flow of credit seems to be improving. the issues with italian banking seem to be on their way to being sorted out. santander was prepared to purchase populare.

guy: we will come back. tom: we have a lot to talk about, particularly about equities. coming up, on bloomberg television and bloomberg radio, he is the u.s. secretary for veterans affairs. that is in the 7:00 hour. with london and new york, it was outstanding. ♪ guy: guy johnson in london, in

for francine lacqua. tom, goldman sachs says oil could slot below $40 a barrel if efforts to rebound in the market do not prove successful. u.s. rate count declines are further evidence. there is shock and aw of opec the required. remember, this is the goldman sachs that is reviewing its commodity business. stephen macklow-smith, still with us. do you expect shock and awe from opec? >> there is a room is amount going on in the oil market. you have had increases in productivity with shale. there is a second factor which people are not talking about. that is how prices are inversely related with the u.s. dollar. so far this year, that has not

proven to be the case. the third factor is demand. demand, as i said earlier, the bemand appears to e fairly robust around the world. if the dollar continues to weaken, most importantly. tom: the note i saw from jeff curry and his team was very subtle. this goes to stephen's idea of demand. moves insk of higher the charter. this could push prices below $40 billion. ongoing search for a new equilibrium. my question to you is, is the same thing happening in the equity markets? i am fascinated by this idea of trying to find a new equilibrium in the valuation of equities.

is it there? >> the valuation of oil equities or the valuation more generally? if you think generally, equities, if you think about it from a discounted cash flow market, you have the push from higher cash flows coming through and accelerating in europe. on the other hand, you have the downward pull from the higher cost of capital. lastu look back over the six or seven years, that cash dicallydel has been rathe affected by the fact that government bonds have traded with such incredibly low yields, and they will be a depressive affect with any kind of normalization. they counterbalance of that is, the terminal value could still be higher from here. tom: that is a discussion we can continue. this is a really important discussion o rising interest ratens and the discounted cash flow and the terminal value.

this is key for everybody's retirement account. coming up, an important speech by the prime minister of the united kingdom. theresa may, expected to speak. we look for that nearish the 6:00 hour. guy johnson and tom keene, stay with us. you see the rising rates. there is no question about that this morning with curves steepening, getting after that benchmark of 100 basis points. we could get back to a steepness dayaw on november 8, the of election in america. there is mr. trump's washington. ♪

♪ guy: "bloomberg surveillance." a global show today. we go to paris with the ceo of

hsbc with the fact that he sees part of his business moving to paris. place in summit taking the french capital. jp dimon will be talking shortly. he sees fragmentation rather than a binary move. this does not have a straightforward sense of direction. ofwill be the coalescence the banking service fragmenting further. tom: i believe the "telegraph" said that london has to respond. this is fascinating video. there we go with the french attraction or attempt, i should say, to attract jobs. right now, we attract the first word news.

taylor: sticking with trade, the trade deal between donald trump be easy to may would promise but hard to deliver -- that is the warning from analysts. may may be forced to compromise. p's nominee to replace james comey will hear questions tomorrow. one is if you could stand up to the white house if the job requires it. day two for hundreds of thousands of commuters in new york city's penn station. repair work out the country's busiest station will last until

august. and aaron judge won the home run derby contest, hitting 47 home runs over three rounds. the all-star game is tonight. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. tom: thanks. late 1950's in the and early 1960's. to our global audience, there are black and white videos of baseball giants of half a century ago doing a home run derby. last night captured what they in theh willie mays 1960's. this was really special. they do it every year. that there was never a year like what we saw last night. t-mobile andns for their sponsorship.

mr. judge is really special. "surveillance" baseball report. guy: it is just not cricket, is all i have to say. talk a little about what is happening in the u.k. is stillacklow-smith with us. is any chanceere the bank of england will raise rates anytime soon? stephen: i would say the likelihood was relatively slim a few months ago, and then we saw the mps become more split. last time, it was nearly 50-50. clearly, there are some inflationary pressures they feel they should respond to. of the argument

is what is happening to real income. despite the fact the wage market is tight, you're not seeing outlandish wage growth. the argument is extremely nuanced. because consumption is one of the main propellants of the uk's economy since the referendum which has coincided with an increase in consumer debt, raising rates in the short term -- either there is massive voter confidence or there is the threat of underlying consumption. starting to be think about selling my ftse index tracker? the pound goes up, the ftse goes down and vice versa. stephen: first of all, take a step that. we do not know whether or not rates will go up or not. we do not know what impact it will have on the currency.

the currency markets view that ofpotentially the danger consumption. since thet few months referendum, there has been the tendency for the 50 to trade -- for the ftse to sell as a trade were strong. tom: let me bring up the classic bloomberg description screen. in the lower left corner is all you need to know, which is an index price-to-earnings ratio of 21. you mentioned earlier we will get a new discount rate, a new terminal value. do we have a taper tantrum in equities to go with our taper tantrum in the fixed income market? stephen: it depends on what is happening to earnings at the same time.

if we think about the european economy, gdp growth looks pretty robust and, therefore, that is translating into higher earnings. i think if you had really volatile moves in the bond market, you could have volatility in the short term. as long as the earnings story holds up, it should be higher. tom: can you combine that with a vision of if casual comes up, do we have a new bout of cap ex? stephen: it depends which countries we are talking about. in the u.k., ceos can take a on whether extent they need to indulge in cap ae -- cap ex. there are countries, italy being one, where there is little

evidence the output gap has closed substantially. i do not think you are going to see a massive ramping up in the next year or two. exitlet's circle back to valuations. speech janet -- en had when it comes to how markets when it was banks, all about liquidity coming out of central banks during the financial crisis. the real value of pretty much any asset became unhinged from what you would normally expect. are now going to discreetly walk back towards a valuation model that is based on fundamentals. how long do think that journey

could be and how difficult a route do you think it would be for investors? stephen: in europe, we are at the start of that journey, because it is early. gone on to bank has think about withdrawing extraordinary stimulus. we will learn more about that at ecb press conferences later this year. of waitinghe luxury to see whether they will respond on where they see the output gap heading. tom: we will come back with mr. macklow-smith in a bit. lots of talk about, including higher yield and the washington news we will get from kevin cirilli. let me tell you about is this week -- "businessweek." re-do, and this time it is on technology. look for a new issue out in

about 48 hours. "bloomberg businessweek." ♪

♪ london, tomnson in keene in new york. this is "surveillance." let's talk about what is happening in the gulf. laterllerson goes to doha today as he looks to end the standoff between qatar and key u.s. allies. atar hosts the regional headquarters of the u.s. central command. yesterday, we spoke to the turkish deputy prime minister. side.'s on the qatari qatar should be

treated in a more fair fashion. any falloutt want when it comes to trade investments. and i am sure we can manage that. guy: joining us now is yousef gamal el-din. what kind of challenge does tillerson face as he goes from kuwait to doha? what kind of question -- message do you think he will take from kuwait, which is eating a broker in this story -- which is a broker in this story. yousef: rex tillerson comes off the back of previous attempts by the u.s. i ministration to broker some sort of agreement. they make no secret about the fact that they were not successful before. what they are saying is why do we not try things differently this time around?

time aterson, from his exxon mobil, will lean on some of those relationships in the rn thingsy can tu around. but these two sides, the saudi bloc and qatar, are getting more entrenched in their respective positions. what kind of face-saving agreement can you really figure out, given how boxed in it has become diplomatically is the question. markets our financial -- how our financial markets -- how are financial markets in the region reacting? we speak, markets across the gulf are trading higher, which is curious, if you bear in mind where oil is trading at at the moment. some positive news there. resilience in the

qatari riyal. let me show you briefly some insight from the qatari stock market. g #btv207. --f institutions have been gulf institutions have been selling qatari stock, but state institutions are buying stocks, which is causing the gains. seen as farve we as the logistics at the borders, what is the pain? beenf: the real pain has negligible. that is the reality on the ground. in terms of access and basic services, it is accessible. some flights might take longer, but there is not that profound

impact that will cause a change in foreign policy on the part of bloc wasich the saudi hoping to achieve. but it will take a more drawn out crisis to really cause further crisis on the ground. guy: let's talk about the oil markets. goldman sachs believes it will take shock and awe from opec to change.significant given what is going on in the gulf, does it make it less likely to reach some sort of conclusion to take it in that direction? yousef: not necessarily. ultimately, tensions are very much in place. there has not been any actual disruption of infrastructure if you look at the geopolitical premiums in oil prices. there are some analysts who would say you are not factoring in possible disruption.

if this situation spirals out of control. but that is not reflected either. everybody is chipping in on the bear side of this equation. thank you. yousef gamal el-din joining us out of dubai and the latest on the story with qatar. stephen macklow-smith is still with us. when you think about how you invest into european energy majors and you think about the instability in this part of the world, do you worry about the latter when investing in the further? stephen: it is definitely something you take into account. people have been concerned about the ability of oil majors to service their dividend, and those concerns have not completely gone away because the

cash flow generation is compromisedcompromised comparedt was two years ago. at the same time, there has been a push to make sure it these oil levels are more robust. some of these oil majors, as long as yields hold up, are starting to look more attractive. it depends on whether the oil price can hold that these levels. tom: we will continue here on "bloomberg surveillance." aret now, visuals everything. i can remember mr. dimon speaking in england before, i believe, the brexit vote. here is mr. dimon speaking in paris, making headlines. being indeterminate, we have not decided on brexit moves. but a picture is worth 1000

kilometers. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance."

that's good the bloomberg business flash. days after a record antitrust fund by the e.u., google will learn tomorrow if it owes back taxes to france. paris judges are set to roll whether google illegally dodged french taxes. the case hinges on whether google's european headquarters in ireland should be taxed, as it also has a permanent base in france. below $17 after questions about the company's the village to grow -- ability to grow quickly for snapchat. -- the company is seeking to reduce administrative costs.

let's focus on brexit. in her first major speech since election, disastrous theresa may is expected to call on her opponents to help steer the u.k. forward. yesterday, we had an interesting session in the house, when the prime minister was reading on the g-20 summit. jeremy corbyn called for an early election, not cooperation. theresa may wants cooperation. what i heard in the house yesterday suggested there is to be no love fest in the house comments, that the labour party an every incentive to get early election. >> this speech today is using

the report on the economy that will always happen. it is using this relatively consensual announcement. it is about whether the conservatee -- conservative and usen sound left-ish the arbitrary to say something that thousands have said, to try to support her, given she has lost her majority in the general election. the difficulty she has is u.k. policy is designed to be adversarial. labour senses if they can just keep conservative government suffering for a year or two, they think they can inevitably win the next general election. guy: the critical red lines on

brexit is being watered down. how many more red lines will be watered down, and where will that leave us, for instance, on issues like immigration? tony: the cause of justice is clearly an integral part of the u.k. being involved with the e.u., it is an integral part of the way the e.u. works. the question is how the ecj rules or does not rule in the u.k. is a big fracture within the conservative party, which likeplay out on scenes immigration. some conservatives want to get control. they are hard line, in that sense. will gore soft line and

towards a long transition. all of that is still up for grabs in the negotiation, which they have only just started. ask you a final question. when we think about the ability of jeremy corbyn to generate a general election, he seems convinced it will happen. what is your expectation of the lifecycle of this government, how long do you think conservatives will hold? tony: they will try to hold on for as long as they can. iny want to keep theresa may place, because they do not want the mess of a leadership competition. the conservatives want to stay in power to try to get the economy looking better in the e.u. negotiations sort of sort it out so we know where we are going. there is much greater chance of the conservatives winning an election. abouthat is interesting

the general election is we have tworise of tea party -- of parties in the u.k. election, but within those parties, there are two parties. tony: the two-party vote grew to 85%. people are using these parties to send other signals. it is not just conservative labor, it is about what i like about brexit and so on. from theessor travers london school of economics. stephen macklow-smith, thank you. coming up, howard ward will. be shopping amazon prime day. -- will be shopping amazon prime day. ♪

♪ this morning, yields grind higher.

chair yellen will provide clarity tomorrow on a fed determined. there is a the fed, new governor, new vice-chairman of regulation. randal quarles gets the trump blessing. and the russians had "clinton dirt." the path from miss universe perhaps to the president. good morning. this is "bloomberg surveillance ." i am tom keene in new york with guy johnson in london. right now, all focus on the prime minister of your disunited kingdom. s-united are your viewers? guy: i expect they are wondering what on earth will politics serve next. but it will be difficult to decipher what is the more important speech. --have theresa may coming up

that is interesting. she will talk about cross party cooperation. we also have bank of england speak, not as well. i wonder whether the bank is a more pressing event, from financial markets' point of view. i expect sterling may move on both of those speeches. tom: very interesting. washington, here is taylor riggs. taylor: the man who set up a meeting between donald trump junior and a lawyer said it of ared at the behest moscow-based singer with family ties to trump. goldstone told trump junior head of the session that the russian government was behind the information on clinton. officials say 16 people died in a marine corps plane crash in mississippi. a refueling tanker spiraled to

the ground. the marine corps has not said wherethe flight began or it was going. the fbi says an active soldier based in hawaii pledged allegiance to the islamic state a drone tourchased use against american forces. he said he wanted to use a rifle to kill a bunch of people. the defense attorney for the geithner carrying says that -- for ikaika kang says it appears his client may suffer from mental issues. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. tom: rates rising is the lead today after the quiet post-jobs monday. 0 with a 1% difference between the two year and the 10 oil. the vix, strengthening. weak.wiss is showing

a big 48 hour move in a weaker swiss franc. every commodity desk around the financial markets are lowering their expectations about what is happening at the moment. gold is interesting. i will show you a chart about how it could go further. whether thendering financial markets are paying attention more to what we get from the bank whether -- rather than from number 10. speech are awaiting a from aberdeen. tom: forgive the gloom. this is a ratio -- the jobs plentiful as compared to the jobs non-plentiful. this is a massive improvement in the american job economy. what is so important about this

ratio is we are back to where we have only been three or four times in 50 years, literally back to early nixon years. the massive job economy of the late 1990's. it is amazing how fully employed america has gone back to a better than good job market. guy: you wonder what we will be hearing from chair yellen on that. gold-silver ratio. gold has been under pressure, but silver has really been under pressure. we have a very stretched gold -silver ratio. the expectation is this will come back down again, and that could be a negative story for gold. tom: guy johnson, thank you. right now, kevin cirilli joins us. what was your response last night when the "new york times" drove the story forward on trump junior?

kevin: i spoke with a source son, to the president's and their senses this will blow over. but it is unlikely to blow over soon. lawyersident's son's putting out a statement last night saying that this was a meeting that had been arranged, that they did not discuss it with then-candidate donald trump. donald trump junior tweeting frequently as well yesterday, saying this is much ado about nothing and that he would work with the congressional committees, should he be called to talk with them about this. of course, it comes one day fbire the president's director nominee has his hearings. tom: let's bring up comments

last night from david ramming. of theget ahead reporting. we live in a moment where the president of the united states is without shame, trying to intimidate the people whose to anss it is to come honest reckoning. how are the reporters doing on this? is it a competitive scramble to develop a story every day? how are you moving forward with the facts? kevin: what is interesting is how all of the washington inside and the culture the beltway, the pressure there is to advance stories, and also how we saw this with james comey firing, and the leaks coming out of the intelligence community, and how it can shape things. what is interesting is how folks on both sides of the aisle are to criticized stories with

anonymous sources, unless those sources benefit their viewpoint. talk about the delta, the rates of change. would you assess that the rates of change surrounding this story is accelerating? -- in terms of the email, according to the "new york times," there are three sources to base the story on, but no one has emails. so until everything, in terms of the investigation, is made public and put forward, i think this will continue to accelerate in terms of speculation. there has to be, at some point, a conclusion to everything we are seeing. tom: kevin cirilli, thank you. flow -- asry news someone who has seen this before

-- howard ward is in the market. he has in and uber -- an uber-bull. you have enjoyed it more in washington before. yet -- howard: it is there. there are periods of time where it pays to pay attention to washington. if you look at the reagan revolution, that was a good time to pay attention to washington. with this administration, we do not know what to expect. tom: donald trump, is he reagan-esque? howard: no. he did raise expectations during the election, but he has not delivered yet. we are months into the administration, and none of the big promises to promote economic growth have been realized, so we are suffering. tom: i want to bring this chart

up here. here is the day of the election, november 8. the day after the election, up we go, with trump enthusiasm. then we, down. -- we come down. we are almost back to where we were, the steepness of the yield curve. guy: what is interesting is that reflation trade started before - up.w that leg of - i wonder that diluted as the trump stored or whether there was a more broad reflation trade and i wonder what we are watching is the u.s. economy as it exits from central bank policy. what are you make of that? when did the reflation trade start? is it trump trade or reflation trade? howard: it is probably a

combination of both, but certainly in the one week after the election, there was trump trade. interestingly, the so-called reflation trade, trump trade, that people talk so much about, the outperformance of those sectors really just happened in the one week immediately following the election. relative to the s&p, those groups have generally underperformed since then. it has been a defensive market. so we did have a reflation trade last year. you have value stocks reflate, which benefits from the more than gross stocks, way of performing the gross -- growth sector. this year, growth has outperformed value. we are seeing growth expectations, and down, we are seeing the citigroup economic surprise index collapsed. comee seeing gdp estimates down. the atlanta fed tractor is

quarter.7 this i think we are now in a place where we need to worry about that policy. the fed is tightening into an economy which i think is starting to slow and, maybe, with the lack of impact from monetary policy, that will ultimately prove not to be the best course. talk about today. i want to touch on amazon with their big sales day, prime day. we are waiting for prime minister may to speak today. she will, through door number three to give the speech. far more important for economics finance investment, janet yellen and her testimony to the house. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. shares of pepsico are rising after their shares -- after a top analysts estimates. second quarter profit was at one dollar 50 -- $1.50 a share. goldman sachs says opec needs shock and all for oil prices to gain. a publicing to shrink glut, but without sustained declines in inventory and u.s. drilling activity, oil could fall below $30 a barrel. randaltrump nominated

quarles to be a top fed administrator. he is expect it to carry out the president's pledged to ease regulatory pressures. tom: he is well trained, well bred, and well experienced, randal quarles. michael mckee here on the new vice-chairman. stanguy is not the same as fischer. same title, different mandate. came from the dodd-frank law. barack obama never filled this position, though dan tarullo sort of acted in this role. there is opening now that is being filled by randy quarles. have interviewed him before. is this guy politically-based or a see more of an operational

guide? michael: he is more of an operational guy, but he worked for both george is -- torch bush bush- torch bush -- george administrations. a longtime player in washington. carlyleto work with the group now runs his own money management term in salt lake. guy: what does this mean for monetary policy? not a lot. he will be a permanent member of the open market committee and will have a vote, but his view is a little outside the mainstream. he has written article suggesting he would like to see rules-based policymaking, such as the taylor rule. all numbers of the fed oppose that. ast friday, the fed put out monetary policy report with a long essay about why rules do not work. so he is not a major player there unless fisher and yellen

are gone next year and the whoident appoint someone would like that idea. guy: is he going to hold -- roll back regulation? has said the government should not be a player in the financial system, the government should be a referee. he opposes breaking up the big rings and is not like the resolution authority that the government has now. he thinks capital standards are too high, because banks have to pay capital standards, which raise interest rates for everyone. he thinks the volcker idea -- volcker rule is a that idea. he could have a major impact, though we would still have to get the rest of the fed to go along with much of it. tom: is he a chairman in waiting?

michael: i doubt it. he is just being nominated for this. he would only take office in the fall once they get through the nomination process. and he is not known for monetary policy, he is known for banking. tom: this is important stuff to marketonfidence as action. are you please that we finally have a governor? >> i am more interested on whether janet yellen will be reappointed or not. i think she has done a solid job . there are many choices which could be far worse. tom: give us an example of who you would think would be appropriate for trump to consider as chairman? howard: i would reappoint janet yellen. tom: is that likely? michael: there is a chance, partly because no one knows what

donald trump thinks. he is also praised her as a low interest rate person. as a real estate deal of oliver -- developer, you would have to think he likes low interest rates. by a lot of republicans have not like her or the fed establishment. they would like a republican stalwart. so he may not get his wish. tom: q&a tomorrow -- fireworks? michael: probably not, but it is interesting they brought up quarles today. tom: michael mckee, thank you. we will continue with mr. ward in a bit. a conversation with a former white house information security officer. look for that at 1:30 new york time. this is bloomberg. stay with us. futures negative two. ♪

>> to put in place the policy -- guy: you are watching "bloomberg surveillance." is beingr review unveiled. prime minister theresa may will address an audience shortly. she will talk about how the changing nature of work in the u.k. needs to be looked at by governments. this is essentially a platform for the prime minister to talk about austerity, public sector wages, talk about a fairer

british economy. in some ways, this comes back to what is happening about the big tech that forms we are used to in our lives. we are talking about uber, talking about other big platforms as well. it relates back to u.s. tech in a big way. tom: it does. changing workplace is maybe the team here. let's get to our single best chart. we go to the website of amazon, where they are doing prime day. rumor has it that howard ward is some -- abelli amazon up to $900 a share. the headline here is you made able to load of money on this, and you are lightning -- light ening up on amazon. isard: amazon's business

doing great. the stock is selling around 20 times forward, but there is a lack of volatility in this market. it has been a complacent market. the has also been in the case of amazon. typically, we have three to 5% pullbacks in the market. off 52is likely to trade 100 points a year. we have not seen that yet this year. i expect to see that this year. so i have lightened up from amazon being 6.2% in my portfolio. when the stock crossed 900 dollars, we are now at the .5% after i lightened up. howard grew eight into 6%, but 3% is due good for a large institution.

howard: and if we were to get any kind of corruption, like i andd expect between now then, i would expect to buy more amazon. tom: bring this up -- this is the bloomberg. for radio, all you need to know is 20% revenue growth. 20%. 27 percent. that is an off year -- 25%. the you just model in 20% in perpetuity? howard: no. that would be hard for amazon to achieve. you need to scale that down over time to be more in tune with what they are actually capable of achieving. guy: what do you make of the platforms? what do you make of, like, uber? it is not on the market, but when you look at ebay and think about what is happening there, look at all of the other platforms, do you think there is value there?

there is a move on both sides of the atlantic to change the business model it is based on, dis-aggregating the risk of company used to hold down to the employee. eachd: you have to look at of these platforms individually. uber is still a private company and loses a fair amount of money every year, actually. the platforms that are the be money winners are the amazon platform, the google platform, the facebook platform. thee are generating, in case of facebook and google, 60% to 70% of all of the advertising that has been transferred from traditional media to new media. it has gone right into their bank account. all of themlook at individually. some will be huge successes. time will tell. i think uber is a fantastic service, but they have to figure out how to make money. guy: they do. the ones that are making money,

there is a view that they are not paying enough tax. you think about what is happening in the world right now, and i come back to theresa may's speech. she is talking about ways to change the debate around public sector wages and how she finds the money to pay some of these people. one of the most easy targets out there is these kinds of businesses that have found ways of reducing their tax bills. they will argue that is not the case, but they will become targets. you wonder, like the telecom sector -- the telecom sector has been under regular scrutiny. that has become tighter and tighter the last new year's day look at what is happening in brussels. i just wonder if you feel tech will go down the same route. howard: it is nothing new in brussels. this goes back to at&t, ibm,

--i am surentel that have been others. now, they are focusing on google and exacting big fines. i guess if you cannot compete with these companies, you find them -- you fine them. am less concerned about the competition issues. i am wondering whether or not whether the tax bill will go up, because that is certainly the case in the telecom industry. howard: if you are talking specifically about the u.k. -- guy: know, globally -- no, globally. howard: great point. in order to re-accelerate growth in the u.s., we have to get that corporate tax cut and tax reform that of top -- that the top

admission has so heavily promised. that is looking further outwe nr be a 2% economy, which is where europe is. europe struggles to grow 2%. the u.s. is in that same boat. tom: this goes to the heart of howard ward's analysis. the purple, green, red, it is about what is itunes worth. have you adjusted that recently? howard: no. as it is still a relatively small part and growing rapidly. it will be more important in five or 10 years. tom: five or 10 years is where the investment thought it should be. is apple a value play because of that service sector growth? howard: this has been a great stock. it is my biggest holding. tom: what percent of your

portfolio? howard: 6.3%. tom: are you going to hold it back like amazon? howard: this is a stock that has gone from the low 100s in the last year. this is because of the excitement surrounding the 10th anniversary phone coming out later this year. that has been the focus of wall street's attention, and perhaps appropriately so. good,rvices business is double-digit grower, but it is less than 20% of the total but it will result in rebating the total. this is a company that is selling at 10 times earnings, up to 15 times earnings now. maybe we can push that higher. tom: absolutely fascinating, this discussion between amazon and apple with howard ward. here is taylor riggs.

taylor: donald trump's nominee to replace james comey as fbi director, christopher wray, will hear two questions repeatedly tomorrow. first, did the present demand loyalty, and can he stand up to the white house when the job demands it? it is day to for hundreds of thousands of commuters for new york city's penn station. the first day was mostly without issue. repair work at the countries is used train station -- busiest train station will last into august. the outfielder for the yankees won the home run derby for the all-star game. the actual all-star game is tonight. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs.

this is bloomberg. tom: just great. i know guy wants to talk cricket, but this was really cool. it was not the normal home run derby. it is not like oil and water. howard ward's idea of small cap is apple. this is way cool. us, and davidth sowerby joining us. do you wish you could be howard ward? do you wish you could be easy and go after the visible names? >> i would rather go after names were there are five or fewer analysts who follow it rather than the 50 plus who follow apple. how much value add can i do following apple? i would rather follow names that are under followed and have spun out from a larger company and

there is value there. tom: i know you have a portfolio and it can do larger companies. you have got to love the idea of an information gap you can take advantage of. howard: no question. that is a more inefficient part of the market where you can make good money with good research. is a legacys career of avoiding the value trap. how do you do that? mid-capant to avoid a stock that looks value like that is on the -- light that is on the way to small-cap. are they good on capital discipline? if that is the case and valuation is compelling and free cash flow is going to improve them then you have value opportunity and not drop. guy: we moved to a world of

increasing passive investment. what does that mean for small company research? >> great. aware of the manager who says this is a great stock pickers market. we have seen active management from now since last july gaining better voting. macro backdrop is a better scale for good active managers, and most important, if you are active,own be active -- be active. don't be a coward. guy: theresa may has started speaking in the u.k., talking about essentially the gig economy, what is happening in terms of the changes that are taking place in the u.k. let's listen to what exactly she has to say. >> the determination to address difficult issues and take big

decisions in the long-term interests of britain so we emerge from this time of national change stronger and better able to seize opportunities ahead as we approached the promises of brexit together. the last month's general election was not i wanted, my commitment to change in britain is undimmed. my belief in the potential of the british people remains steadfast. the determination i have to get to grips with the challenges posed by changing world is never more sure. i'm convinced that the path i set out in the path we are on is a government remains the right one. it will lead to a stronger, fairer britain. it will it sure would make the most of this opportunity to ask

ourselves what kind of country we want to see and to answer that with optimism and hope. i am grateful to matthew for the report is publishing today because the issues it confronts go to the heart of this government's agenda and to our values as a people. the nature of employment is central to our national and economic success and to the lives we all lead. childhood toof our the years of retirement, if we don't win the national lottery jackpot, the vast majority of us will expect to devote at least half of our waking hours on most days of the week to work. a good job can be a genuine vocation providing personal fulfillment as well as economic security. with good work can come dignity and a sense of self work. it can promote physical and emotional health and well-being.

our motivations for going out to work are deeply personal. it is how we provide for ourselves and our family. it is how we pay the mortgage or rent. it is how we provide for food on the table and our old age. as matthew said in his report, work is a pathway out of poverty. think of a household where a mom or dad or brother or sister moves into employment. they can gain the security of a regular wage, the opportunity to plan for the future. see theirn grow up to go to work every day and form the expectation that they will do the same. imagine that child a few years later taking the step from education to employment and starting her working life on the front foot. she is setting herself on the on -- fulfillment.

imagine her father who may have given up on finding a job due to the tailored support of universal credit, he will help himself and his family and the whole country. that is the value of work. we should never lose sight of it. enterprisings back small and medium-sized business owners, to help people take risk with their economic security to start and grow a business and contribute to our national success and provide employment to other people. they don't play it safe. guy: theresa may speaking on the issue of employment in the united kingdom and what her government is going to be doing next. you can continue to follow that. i suggest you do so on live go on your bloomberg. we will take a break. we will carry on the conversation when we continue. this is bloomberg. ♪

>> with almost three quarters of the rise -- guy: the british prime minister speaking on employment and worse once or government to go next. i am guy johnson in london. tom keene in new york. golf tripson's continues. we continue to monitor his progress in terms of the story surrounding the dispute between qatar and many others in the gcc. the issue is becoming increasingly problematic for the white house. hosting regional headquarters for the u.s. central command. our middle east anchor is here.

, kuwait has been trying .o broker an agreement what message do you think he will bring from kuwait? they don't have much opportunity to change the discourse. do you think simply adding the u.s. secretary of state and that or -- -and acid >> depending on what the state department says through their spokeswoman, last time they did not make progress, this time around they will have a creative twist. the united states arguably has assets in most of the gulf cooperation council. they will take some of those some and try to mesh in

foreign-policy from the u.s. and as of the u.s. to get everyone around the table, but it does not look like it will happen anytime soon. if you look at the record from the saudi led block, they are persistent. they are persistent that they want to get money back. guy: what our financial markets signaling? >> the indication is probably positive. it is trading to the upside across the gulf cooperation council with conviction and despite lower oil prices. you take a look at what is happening with interbank rates, they are resilient. tom: thank you so much.

the secretary extends the g-20 mission. this is a special moment. ofhave two different worlds large-cap and mid-cap here today. i want to begin with howard ward. we remember people loved the comfort of owning general dynamics, and then they plunged into his world. people used to love to go out and buy stocks that were not that familiar. where did that go? how did we go away from individual stock enthusiasts in america? howard: that is not completely gone. tom: i agree. howard: the advent of etf's and sector etf's has overwhelmed. this is an important part of the story. momentum fueled by etf sector

investment, that works fine when the market is going up and momentum is positive in the same stocks are all being bought, but that will hurt you when the market goes anyway. tom: are you protected from momentum? are you protected from any potential shock? howard: no. when markets are correct, small-cap and mid-cap stocks will go down more because of their sensitivity. tom: let me show your chart. i use the dow, and this goes 1905, when howard ward started working in the market. these red arrows are there markets -- bear markets. huge bearn 1929, market. here is the latest rollover. market?ou handle a bear

>> ideally i have positioned myself somewhat defensively going into the bear market. while i don't pick a full-blown bear market, i feel we will have a correction. we have not had a 15% correction since 2011. historically we have one every two years. we should be prepared for. market, are in the bear there is not once you can do except fasten your seatbelt and ride it out. i am not a fan of some sacrifices into the heat of a bear market. >> you want the micro to complement the macro. when i have a hard time finding individual securities based on the price i am paying for earnings or cash flow, that tells me something profound. today, companies on a cash flow basis are back to the valuations

we saw when the market corrected in 2011, later 2015. it is telling you we are overdue -- that 5% to 10% pick up. hiccup. when you cannot find good names, you hold more cash or gravitate to overuse terms. are david, let me ask you, management, ceos, binder on stop now. are, but they are buying less than they were a year ago. dividends are still quite healthy. i want to find mid-cap range stocks that are growing dividends. cfo's are still the playing what we call capital discipline in the best interest of the shareholder. that gives you comfort that we can still avoid that perennial 20% bear market.

companies are was in deploying their cash. tom: we're going to continue our discussion on your equity market. bloomberg businessweek, this is interesting. this is on technology this week, a lot of interesting stories on the changes amidst the mysteries of technology. look for the new issue in 48 hours. this is bloomberg. ♪

♪ if it is good for the business -- guy: theresa may, british prime minister, taking questions around the employment story in the u.k., looking at employment rights. addressing the issues of austerity in the economy. you can watch the prime minister on live go. we are just getting commentary now related to the meeting that is taking place. rex tillerson saying hopeful to make progress in the qatar dispute. this is after a meeting with

qatari officials. he is hoping to make progress going from here. let's look at markets now. us at ward is still with gabelli funds. when we look at what is happening in the big caps, the money is being made at the sector rotation level, not the headline level. where do you expect money to be made going forward? strongestally, the two sectors of the markets this year have been technology and health care.i think the technology trade is getting ripe for not old, but profit-taking. i think health care has plenty of room to run. it was the worst performing sector of the market last year. we are playing catch-up. the large-cap names are a safe

place to be an offer much more growth potential than the consumer staples names, which could be seen as defensive. i'm positioned for defense. the last four months we are only up 1% on the s&p 500. that is a market that is laboring. guy: david, if janet yellen continues to raise rates, how does that trickle down to the real economy, the small-cap and mid-cap companies? david: they will naturally be more sensitive to higher interest rates than large-company stocks. if the market goes down 5% to 7%, small caps and mid-caps could go down 10%. i think the treacherous interest rate forecasts are trending higher as they had in the last few weeks. i think the fed should raise

interest rates. their number one priority is price stability. in these last eight or nine years of low interest rates, the fed has to be mindful while inflation is low that they need to start raising interest rates, and a couple more hikes should come in 2017. to: is the present able deliver on a homeland investment act, would that further widen the gap between a cap companies and small-cap companies? beid: i think it could beneficial to small-cap companies. out of the rallying the day after the election in 2016, aps didaps and micro c even better. they were the beneficiaries of sensible regulation, corporate tax reform.

while that is on hold, if we could still get that done that would be beneficial to the cyclicals in the small-cap area. guy: we will have to leave it there. time beats us as always. thank you very much for your time. tom keene has already departed to join the bloomberg radio team that we have. if you want to listen to what he has to say, tv , listen on your bloomberg. you can also click into the interactive tv that we have as well. you can see the most recommended videos we have. theresa may continues to answer questions. this is bloomberg. ♪

♪ alix: you are hired. president trump will nominate

the fed's she banking administrator. theresa may tries to reset the domestic agenda. investors look for clues between the hops and the dose -- hawks and the doves. donald trump juniors russian rendezvous. david: welcome to "bloomberg daybreak." i'm david westin alongside alix steel. jonathan ferro is off today. theresa may is speaking in london. let's go to caroline hyde in london. on, the: the launch is fight back, someone desperate to appeal to the population after losing her majority and her respectability and calling for rival parties to contribute and not just criticized. we have not had much new coming from her. a lot of this was leaked to the pr