mark: a trend or temporary? will today's numbers give yellen and investors any more clarity on the u.s. inflation situation? those figures at 1:30 u.k. time. climate accord. did donald trump suggest his opposition to the paris agreement isn't set in stone? >> something could happen with respect to the paris accord. we will see what happens. we will talk about that over the coming period of time. mark: after boris johnson tells brussels to go whistle, the u.k.

admits it will have to pay a brexit bill. is the government taking a more risk with -- more realistic look at the cost? this is "surveillance." we are set for a second weekly gain on the stoxx 600. best run since may. biggest weekly gain since may as well. euro against the dollar, 1.1416. here's a great start. the currency has alternated between weekly gains and losses. we love our stats. on tuesday, it reached its highest level since may last year. german yield down by three basis points. little changed. draghi will attend this year's ago jackson hole symposium. will he send a message on the qe program? today, little changed near that four-month low reached on monday over concern on u.s.

interest rates. let's get the bloomberg first word news. nejra: president trump has appeared to suggest his opposition to the paris climate n't set in stone. that came as he met emmanuel macron yesterday. >> something could happen with respect to the paris accord. we will talk about that over the coming period of time. if it happens, that will be wonderful. if it doesn't, that will be ok too. we will see what happens. nejra: president trump has defended his son's meeting with a russian lawyer before the u.s. election last year saying zero happened and most people in politics would have done it. he also suggested he might have learned of the meeting earlier than the white house previously said. u.k. prime minister theresa may's draft law to take britain out of the e.u. has sparked

furious backlash from scotland and wales. the two governments have attacked the plan for failing to give them sufficient powers and threatened to block the bill. the u.k. has acknowledged for the first time on paper that it will have to pay the e.u. as it withdraws from the bloc. brexit minister joyce and lay said britain has obligations which need to be resolved. this comes just days after boris johnson said brussels could go whistle over demand for what he called extortionate amounts of money. the leader of the labour party has hailed a meeting with the e.u.'s chief negotiator a success. he said labour extended the hand of partnership for a new relationship with europe and outlined a goal of a jobs first brexit deal. >> we had a frank discussion about the process and the situation. we've come out of the meeting very well informed of his methods and process and we've

been able to inform him of our respect for the results of the referendum, our wish to defend jobs in britain, and to have an economic relationship in europe in the future. nejra: global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. mark: just getting some breaking news from easyjet. it is to establish a new airline called easyjet europe. it hopes to get a license in the near future. it wants to establish this new airline with headquarters in vienna. easyjet europe established after the u.k. has left the e.u. little reaction in the share price to that news. trend or temporary, that is the question investors are asking about the slowdown in u.s. inflation.

cpi could provide us with some clues. the figures which are due at 1:30 london time may either round out progress or suggest the slowdown is transitory. yesterday, janet yellen once again acknowledged the situation. >> we are very aware of the fact that inflation has been running below our 2% objective now for many years and we are very focused on trying to bring inflation up to our 2% objective. mark: let's bring in julian chillingworth, chief investment officer at rathbones. are you in the transitory camp or is it something more sinister? julian: morning. i would say to you that i think the fed and probably other central banks have underestimated the slackness within the wage negotiations for

perhaps the older workforce. we haven't seen that push through in wage inflation they were expecting. traditionally congress will look at the phillips curve and say you should have had that kick out. that is why i think we saw the comment from janet yellen. it is not going to the economic plan. my suspicion is this has to do with demographics, with gig economy, all those things changing our world. i think inflation could remain lower for longer. mark: which has an impact on policy, as some in the fed are suggesting. julian: i think the fed has to probably divorce the normalization of the balance sheet from raising rates. consequently, i would expect some normalization in september, but rate rise in december is open to question. i think the market is going for

1.7%. trendit is a four-month and it starts to get sticky and worrying. look at my chart just to the right. it is a great chart, core pce, the preferred gauge, down to 1.4%. it is tracking the core cpi figure as well. well below 2%. julian: that is not going to help them either. mark: does that mean that three rate hikes, the median projection for next year, is that right now too hawkish? julian: i think it's going to be hard to achieve unless something dramatic happens on the wage front. so far the evidence has been scant that we're going to see that much pressure coming through. mark: yellen herself might not even be at the fed. r you looking at that, the changing dynamics?

julian: yes indeed. banker mayoldman's be in the hot seat. whennk that janet yellen, -- is taken of her time, will be viewed to have done a competent job in uncertain times. she may well decide she's had enough. mark: is the bernanke-greenspan-yellen put done and dusted as some suggest? julian: we shall have to wait and see. i think that we are in new territory. i think that you are right to highlight that a new incumbent would be naive to come in with a similar policy as the ones the predecessors followed. we will look for new policy initiatives. mark: stay there, julian. julian chillingworth from rathbones. stay with "surveillance."

climate accord climbdown. his president trump's opposition really set in stone? we are live to paris. plus, as the u.s. earnings season gets underway, we look to the trading challenges facing some of wall street's biggest banks. this is bloomberg. ♪

mark: live pictures from paris where president trump is taking part in bastille day commemorations. troops from both countries will march today to commemorate the anniversary of the u.s.'s entry

into world war i. trump and macron met yesterday. trump famously said back in february that paris is no longer paris. emmanuel macron did show him the town. consequently, the president of the united states ladled praise on paris and the country's new 39-year-old leader. he also suggested that its opposition to the paris climate accord isn't set in stone. it is the fourth meeting with trump since his election in may. the two have acrimoniously clashed over climate change. macron has made not so hidden allusions to his opposition to building walls. they stressed their common positions from trade to terrorism. we will continue to monitor the bastille day celebrations.

shortly, macron and trump will be attending the celebrations. bloomberg's washington correspondent joins us now from paris. take us through the talks yesterday. it seems as if the two sides were wanting to stress their common positions rather than their differences. >> that's exactly right. there are a number of differences between the u.s. and france. it seemed like they wanted to put a lot of those differences to the side and focus on areas of common interest. we did hear trump talk about the climate deal has something that is negotiable, something that he may be will try to renegotiate. even disagreements over whether the climate deal can be renegotiated were left to the side during the joint press conference they had yesterday.

they tried to talk about areas where there is common interest. they talked about syria, national security, partnering on a number of different war fronts. it does seem this relationship was put on a reset as they had a number of different challenges but it does seem like they are trying to move forward in a cordial manner. mark: the russian scandal won't go away. donald trump was asked about it in that joint press conference. the meeting with the russian lawyer was uneventful and most people in politics would have -- is he going to be able to shake it off or not? toluse: exactly right. the president tried to downgrade the importance of this meeting but that is not how it is being received back in washington. republicans and democrats have been focusing intensely on this

meeting and what came out of this meeting, whether or not the president's son met with someone he believed was a russian government operative with purposes of colluding to harm hillary clinton. it is something that multiple congressional committees are investigating. it is something a special counsel is investigating. it could come back to undermine president trump's administration if this leads to some kind of lack of confidence among members of his own party, or accusations of wrongdoing by the fbi or the special counsel. this is going to the following the president wherever he goes, even if he goes back to washington later today. mark: thanks. toluse joining us from paris. julian chillingworth from rathbones. it is all pump and ceremony for trump. he is made to feel special.

dig beneath it. for macron, he will be judged on his ability to push through much-needed structural reforms. and soon. julian: yes. i think in all honesty, as you said to me, the first 100 days is crucial. i think he will be pushing hard. he knows that he was elected to make change, and change in the labor market in particular. he's got to tackle the large public sector where you've got over 50% of the population employed. probably look at the working practices, retirement. if he can achieve just some of it, he will have done well. others have tried and failed. mark: donald trump was elected for change as well. he's finding it difficult because of his troubles when it comes to russia and the supposed

link between it and trump's campaign. can trump push his agenda? we are seeing the difficulties of pushing through health care reform. yesterday, the senate released another health care draft bill. do you see a stalling of the president's agenda because of these russia-related issues? julian: we were always concerned , obviously as much as he was critical in the campaign of washington insiders, he was not a career politician or a washington insider, and the way that american politics works, you need to get deals done. you need to do deals in smoke-filled rooms and know who to do those deals with. he's found that difficult. he's also realized he doesn't have as much power as he thought the president did have and he's

discovered that to get things done, he needs the support of both houses. mark: investors are shrugging it off. record highs on the msci all country. record highs for the dow jones yesterday. julian: i think that we were talking earlier about janet yellen's comments and her slightly dovish stance has helped push on markets. we've been concerned about valuation in the states for a little while. i think it's impossible to call when you have a major setback. the earnings season upcoming is going to be important. mark: which we will talk about in a minute. julian: you've got to have delivery on the earnings front. you've got to have continued help from central banks. if we move towards mobilization, that could be a catalyst for

people to rein back. mark: stay there. we will continue to monitor events in paris. julian chillingworth from rathbones. still to come, find out which ranks -- banks expect trading revenues to drop. that is next. this is bloomberg. ♪

mark: you are watching "bloomberg surveillance." wall street banks taking center stage today. second-quarter numbers from

jpmorgan, citigroup, and wells fargo. signaling trading revenue could drop. investors will try to look beyond the quarter. bloomberg intelligence analyst arjun bowry joins us. julian chillingworth from rathbones is still here. we've had four quarters of rising income from trading. it seems that is going to come to a close. arjun: that's right. the most important thing to bear in mind is the strength of the second quarter last year where we had the brexit vote increase trading. that was a time when the u.s. election really started to heat up. i think what's going to be seen is really the tough comparison to last year. most of the weakness is on the fixed income side. equity volumes have been subdued but they are going to be a bit stronger. mark: is a lack of market moving news?

we did a wonderful story about how traders are sitting back, playing golf. the phrase was, they are back in the doldrums. is that a seasonal thing or something deeper? arjun: i think it is mostly seasonal. we've seen very low volatility in the second quarter on the equity and fixed income side. i don't think it is something to be overly concerned about. we know that these businesses are volatile by nature. the big u.s. banks are quite diverse. there got large banking operations. mark: what is the take away on loan growth? what is the take away on credit quality? there's a chance that net interest margins could expand, which could help the bottom line. what is the take away on those things beyond trading revenue? arjun: on the net interest margin side, analysts are expecting some increase in

margins. short rates have risen in the order. that is going to the important for the banks to deliver. loan growth has been slowing. we are starting to see credit losses start to rise as well. that is related to interest rate going up. in the credit cards and auto finance segment, we've seen some banks guide to hire credit losses. certainly delivery on margins will be crucial. mark: bringing up this s&p 500 financials index, essentially, which peaked in march, up from a big increase through the end of last year. came down and is coming back to those levels. are u.s. banks a buy or not? arjun: for me, not particularly. will be interesting if you can overlay the 10-year treasury there. yield wise, wouldn't look

similar. what i would say to you is that l, as we moveow vo towards normalization of central bank balance sheets, it will be interesting to see have that plays out. a lot has been blamed on qe. the rise of passive funds. a lot of excuses. that is going to be crucial. mark: thanks a lot. arjun bowry, bloomberg intelligence analyst. julian does stay with us. jeremy corbyn tries to score points with the e.u. brexit negotiator, getting him an arsenal football shirt. what a great tease. this is bloomberg. ♪

mark: welcome to our weekly brexit show. i'm mark barton. let's get a roundup of all the week sick a big brexit stories. nejra: theresa may unveiled the landmark law that will remove

britain from the european union. the bill is aimed at transferring e.u. laws onto the british statute book or when brexit takes place in march 2019. the draft would hand the government two years to alter u.k. laws to a fast-track process. the bill sparked a backlash from scotland and wales. the two governments attacked the plan for failing to give them sufficient powers and threatened to block the bill. the u.k. acknowledged for the first time on paper that it will have to pay money to the e.u. as it withdraws from the bloc. the brexit minister said that britain has obligations to the bloc which need to be resolved. that came just days after boris johnson said brussels could go whistle over demands for what he called extortionate amounts of money. e.u.y corbyn met with the chief negotiator in brussels yesterday. handing michelle bonnier an arsenal football shirt, corbyn

said labour extended the hand of partnership and outlined the goal of a jobs first brexit deal. >> we had a frank discussion about the process and the situation. we've come out of the meeting very well informed of his methods and process and we've been able to inform him of our respect for the results of the referendum, our wish to maintain and defend jobs in britain, and to have an economic relationship with europe in the future. nejra: global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. mark: thanks a lot. still with us, julian chillingworth from rathbones. hard to know where to start. should we start with the macro side? interesting week on data. unemployment down to a 42-year low. real wages squeezed the most for

two or three years. is the brexit bite really kicking in now? i'll bring this chart in. thate below zero, showing the data is missing analyst expectations. julian: i think what we're seeing now is not obviously -- that obviously the overall shock to the economy of the brexit vote, which is in our view often delayed by six to nine months, is beginning to kick in. the other point i would make is that we've been talking a lot about wages, and for the u.k., workforce wages are a key factor in driving consumer confidence. with rising prices due to depreciation of sterling, i think that people are feeling less confident and feeling they've got less disposable income. mark: if i put you on the mp's

seat, make you a bank of england policymaker, are you a hawk, a dove, somewhere in between? julian: i suppose i'm somewhere in between. i do not think a rate rise anytime soon in the u.k. would be helpful despite the inflation numbers. i also think that this whole operation of normalizing policy, the central banks need to be correlated as opposed to coordinated. they all need to be moving in the right direction. mark: which they are, given carney's comments, even if it is conditional long wages. julian: that is the key word, correlation. mark: i made this chart yesterday for my european close show. it is a simple chart, but very effective given that may has spent a year as prime minister. it has been normalized from a year ago. clearly, the ftse all share is up 12%.

the pound index which measures sterling, against some of its major peers, down 2.8%. u.k. gilts are down 3%. a year from now, if we were to do another chart, how do you think that chart would look? julian: a year from now, sterling will continue to be volatile. go through the brexit negotiations, good and bad news will come out. consequently you will see volatility in the currency. my suspicion is the currency won't be hugely changed. as far as that index is concerned, you had a big currency help to the ftse 100 and that is reflected in that. i think the domestic economy and stocks will continue to be under pressure. mark: and gilts? julian: when you talk about

normalization, i suspect gilt yields will be higher. mark: will there be a concerted grind higher now in core sovereign yields? is that this correlated, coordinated message? julian: i think yields will be trending higher. mark: the rising tide lifts all boats. yes. is the boj in that thinking as well. even though we've got a great piece showing you how no economist believes that boj will hit its suppose it are get by next year, will boj yields grind higher? will the boj have to spend more keeping yields near -- julian: i think that is highly likely. it is difficult to know if they will grind higher. they, along with the ecb, will be behind the other central banks, but i think the boj

probably will be the laggard. mark: how long does may last? one year anniversary. will that chart in a year say two-year anniversary or not? julian: she needs some positives and if you things to go our way. mark: what sort of things? julian: the brexit negotiations are the key. if she can make good headway, there's a good chance she can stay in power. if she doesn't, -- mark: not exactly going swimmingly when the e u negotiator says there's a lack of trust and he doesn't think the u.k. government has its house in order. the sounds out of brussels aren't encouraging. is that part of the game? julian: i think it is part of the game and it was always likely the negotiators in brussels would come out very strongly. from the u.k.'s stance, not helped by general election as

negotiations started, i think the u.k. was a bit slow. mark: are we heading for another election? julian: not as far as i'm concerned. mark: good stuff. julian chillingworth from rathbones, thanks for joining us. theresa may hells yesterday as the biggest brexit day yet. we are joined by charles falconer. this is bloomberg. ♪

mark: you are watching the brexit show. i'm mark barton in london. let's look at the markets. bank earnings season kicks off today. nejra: i'm starting with european equities. we are pretty flat on the stoxx 600 but it has gained almost every day this week. we are heading for a weekly gain

of about 1.6%. the best week since early may, best week in two months for european stocks. the comments from janet yellen have been supportive of equities. global stocks actually continuing to diverge with treasury yields. that is something to keep an eye on. speaking of equities, it has been supportive for e.m. stocks. we're looking at a golden cross for the msci emerging markets index. it is the first time this has happened on the technical front in seven years. the last time this happened, in 2010, you saw the index rally some 30% over the next 11 months. a vote of confidence from yellen for those e.m. stocks. the bloomberg dollar index heading for a weekly loss, from a golden cross to a death cross, one that is looming for dollar-yen. what could put a floor under this, as we got the boj next

week, hasn't really shown much signal of moving to a hawkish tilt. a lot of people watching this trade. 113.30. the last time we saw dollar-yen get into this death cross was 2013. we saw the downside for this trade of an 18% drop over the next seven months. keep an eye over this next week. another technical chart here on gold. gold heading for its first weekly gain in three. this is a little bit of a bearish signal. we're looking at the moving average, convergence, divergence. what this line at the bottom has shown is that that has stayed where it has since june. a little bit of bearish momentum. mark: thank you. our next guest, one of labour prime minister tony blair's closest friends, served as

justice lord chancellor, joined others in the mass resignation from jeremy corbyn's shadow cabinet last year. the post-referendum labor meltdown. thank you, lord falconer, for joining us. let's start with the repeal bill. how would you amended? mr. falconer: i would reduce the powers the government has to amend acts of parliament whenever they want to. this bill is both in technical and in big political trouble. by not just agrab tory government but by the executive to be able to change the law without going through the -- mark: the ability to change laws without parliament. david davis says the changes are holy massive and mp's would have a chance to have a say. mr. falconer: one shot. not a second, a third reading of a bill. you can't amend these things.

it is take it or leave it. it is too much power. i think more than that, which is a technical issue, which can be dealt with by parliament, is the political trouble it shows the government is in. contrary to the position of the european union, we don't appear to have a detailed negotiating strategy. mark: barnier said as much yesterday. mr. falconer: we've got a government that hasn't got a command over parliament. the great repeal bill will be the means by which the commons indicate what is the negotiating strategy they want. mark: does the end result of the process mean a softer form of brexit? mr. falconer: it depends what the commons wants. depends on thes opposition. if there's a united opposition

in favor of a particular form of brexit, for example a brexit that was a transition, staying in the single market, and after that, a free-trade agreement that looked like the single market, but enforcing the existing freedom of movement rules, suppose that is what the opposition unified around, the government is so fractured that there is bound to the elements in the government -- mark: you are saying it is the opposition as well as a few tory rebels. sayingconer: i'm something slightly different. the government itself -- for example, the chancellor of the exchequer and secretary are keen on a softer brexit than the foreign secretary and the international trade secretary. if the opposition unifies around a position where a faction in the government favors where brexit should end up, that is where the commons will end up.

we saw this in the commons just at the queen's speech. northern irish abortions. in effect, the government backed down on whether the british health service would pay. they couldn't resist a united opposition. wherever there is a faction in the government that supports what the opposition months. what we're going to see in the autumn when parliament comes back around the great repeal bill is, where do the commons end up on brexit? until that happens, the negotiations won't make progress. it is difficult to identify what the british position is until the commons makes up its mind. mark: negotiations aren't making progress. the clock is ticking. is a trade deal by march 2019 looking less likely? i'm talking about getting over -- mr. falconer: it's impossible. rnier is saying is we

will negotiate the architecture, and what we aim to negotiate, is it staying in the single market, is it a trade deal -- we will agree the architecture in the autumn and early spring of next year but we are not going to negotiate a free-trade agreement by march 2019. the idea of there being a free-trade agreement by march, 2019 is wrong. mark: it seems we need a transition period. but there's clearly disagreement in the top echelons of government about the length of it. we spoke to liam fox yesterday. he said a few months -- he said four months. ants a few months and hammond wants as long as four years. that is a huge divide. mr. falconer: and they are part

of the same government. what is mr. barnier thinking? i'm not quite sure who i'm talking to here. fox and hammond are quite far apart in their approach. who decides it? normally it would be the prime minister. mark: but she is weakened. mr. falconer: so who decides it? the commons. if the opposition unites, that dems, s&p,r, lib greens, if they unite, because the government is so divided -- mark: are they going to have a majority? mr. falconer: the opposition doesn't have a majority, but what happens when the opposition unites around philip hammond's position? the reality is, once hammond is able to say to the prime minister in the commons, the position is this, i support this position, you've got to agree to

it, she will have to agree to it. the alternative is the government falls. mark: lord falconer, stay with us. this is bloomberg. ♪

mark: by mark barton in london. still with us, charles falconer, former chancellor and justice secretary. the brexit bill, the minister acknowledging a need for a financial settlement. no figures, no numbers, but and acknowledgment. this is a huge hurdle, the first big hurdle. boris johnson talking about whistling this week. mr. falconer: it is an argument about money. we've been making contributions to the european union over a long time. we've got benefits from that and we're going to get benefits going forward. for example, the pension bills. if they contributed during the time we were in the union, we should contribute to their pensions. if there are programs going forward which bring benefits to britain, we should continue to

pay for them. what we should not be paying for is programs going forward where there is no continuing benefit to britain. mark: got a figure in your head? 100 billion? mr. falconer: i haven't got a figure in my head but there will be a figure that can be reached. we've got to sit down and work it out. the parties will haggle to some extent. it is right that we take a robust line. we should be sensible. , johnsonfor too long and the foreign secretary posing as a tough brexiteer indicates the difficulties the tories have got. let's talk about the tory leadership. one year anniversary yesterday. will she last another year? mr. falconer: no idea. she's got no political authority. it will depend on the extent to which the tories believe it is their interest. mark: they want to avoid another

election soon. mr. falconer: another general election. they feel at the moment that a party election could trigger a general election. if you ended up with a leader of the country didn't like, the country would become very pressing. why should the prime minister be selected by a small group when the country hasn't approved that person? they can only have a leadership election when they think they've got somebody the country would regard as popular. mark: what did you think of her interview? more humane? mr. falconer: she was much more human. it felt for the first time that she was willing to engage in a conversation. part of her problem was she told us, the country, we had to have an election, and she wouldn't talk to us. she just went around aircraft hangers with cameras and said strong and stable when she was weaken wobbly. mark: how does she come back from this? zero chance? mr. falconer: zero chance

because the public -- she's been tested and failed the test, and she's been humiliated before the electorate in a way that the result for our has to be that she's got to go. that is the consequence of the election. mark: you walked away from jeremy corbyn. is he a leader in waiting? mr. falconer: he's obviously the prime minister in waiting. the way politics normally goes is, unless the governing party can get its act together, they've got no chance of surviving. see what happened between black wednesday in 1992 and 1997. this government is, as far as i can see, we've had the austerity dispute, the brexit dispute -- they are not a united government. mark: is labour united? i spoke to vince cable. mr. falconer: he's the leader in waiting -- mark: the sole candidate. mr. falconer: would you want to

be the leader of the liberal democrats? mark: i can't begin to comment on matters like this. he did say though that it was a bubble, jeremy corbyn, and he did say that soon, the divisions within the labour party on a number of issues will come to the fore. mr. falconer: the divisions in the labour party always disappear in the face of an election. the labour party was quite united in the general election campaign in 2017. now, the position is that we are in a state where we don't know when the next election is going to be. it could happen at any time. i think you won't hear very much. mark: has your impression of him changed since you walked out? mr. falconer: it has changed in one significant respect. i thought he would have great difficulty making progress with the electorate and i was wrong. he made enormous progress.

mrs. may stumbled so badly, the public gave jeremy a second look and liked what they saw in his manifesto and they did not like what they saw in her manifesto. it looked like it was mrs. thatcher resurgent. mark: vince cable also said to me brexit might not happen. mr. falconer: i think brexit will happen but i think it's very uncertain as to the form of it. will we stay in the single market? mark: charles falconer, former lord chancellor and justice secretary. "bloomberg surveillance" continues in the next hour. guy johnson is with tom keene. don't miss our interview with robert kaplan. this is bloomberg. ♪

tom: this friday, the check will be in the mail.

the united kingdom will write the check to the european union. some look for a financial settlement. others call it extortionate. it is friday. about investing in this most unloved bull market. and handshakes had by all. the president storms paris amid bastille day pomp and circumstance as we look live at elysee.mps e yearsyed a bastille day ago in paris. it is just extraordinary. guy johnson, it is quite something. guy: absolutely. an impressive display. the french's early know how to put on a show. let's face it, inside the periphery, paris is quite something. tom: i would suggest the president of the united states applauding is having a very good weekend in paris before he comes back. to challenges in the united

states. with your briefing, here is taylor riggs with the first word news. taylor: starting in the u.s., president donald trump and the first lady are attending bastille day celebrations in paris. last night they ate dinner at the eiffel tower. during a news conference, trump address the issue with his sons meeting with the russian lawyer. president trump: a fine person. took a meeting with a lawyer from russia. it lasted for a short and period and nothing came of the meeting. i think it is a meeting that most people in politics probably would have taken. taylor: the president will fight the united bbacack to states today. two republican senators rejected the latest health care bill. in the new version, majority leader mitch mcconnell added $70 billion to save insurance exchanges.

has made knowledge for the first time on paper it will have to pay money to the european union as it withdraws from the bloc. s prepare for a round of talks, the brexit bill has proved to be one of the biggest issues. $114 billion. the number of italians living below the level of poverty almost tripled in th last decade. 4.7 million last year. global news 24 hours a day powered by 2700 journalists and analysts in 120 countries. this is bloomberg. tom: thank you so much. let's look at some of the celebrations in paris on this j 14th, directly linked to the french revolution of a few years ago i read in my charles dickens. is johnson, a france that

resurgent. what has been your biggest macron surprise? guy: i think the biggest macron surprise is kind of his ability to continue to march forward, to excuse the pun. at a good pace. he has stepped up. he played a very clear that he has an agenda, and he seems to be bending the rest of europe and the united states to that agenda. it's impressive. tom: there it is. we will have coverage. the president and the first lady attending in paris this friday. right now let me go to the data check. equities, bonds, currencies, commodities. futures, negative 3. a macron lift to it. the vix showing the bull market. take more on equities joining us in the next hour. the dow nudging on intraday

record as well. guy: let's give you an idea of what is going on. europeanhe picture of stocks. nothing is happening at a headline level. there are a few interesting names but we are waiting for the cpi data. the italian story is fascinating. keep an eye and peripheral yields. there is now confirmation that mr. draghi is going to jacksonh hole. he's expected to make a big announcement. the aussie-dollar continues to move higher. i really think this draghi story is going to be one-way really start to pay attention to as a worker way towards jackson hole. it will not be the fed. it will be the ecb and focus. tom: towards the end of august. michael mckee will lead our coverage. as mr. draghi i would hope would give the speech at lunch on saturday.

that is the tradition. we have a tradition on friday to give you a bloomberg that affects every american. frankly, this is a story in europe, too. disinflation,of many saying it is transitory. here's the cleveland cpi, my favorite. here is service sector cpi in white. and down here is goods producing sector migrating down. mail from allthe of our viewers is their focus on this 3% inflation rate up top, the service sector cpi. guy: tom, can the fed have it all? tenet managed the front end of the curve and not generate a stronger dollar? -- can it manage the front end of the current? and provide lower borrowing costs acute the u.s. economy running above potential? that is the big question many in the market are grappling with. the dollar stories interesting.

there are plenty of great shots of the dollar but here is one. take a look at dollar-yen. the 200 and 100 day moving averages. there is some evidence. 100 may bethe crosses below the 200. pay attention, dollar-yen. let's talk more about what we're going to see in that inflation story. it is a key piece of data. maybe cpi is not the piece of data. maybe core pce is what we need to focus on. traders questioning the fed's resolve to keep tightening if inflation remains below 2%. treasuries are up today. they are lower on the week. on balance, we had a more dovish tone from janet yellen and her two days of testimony. she had this to say on the

possible market impact of balance sheet tapering. yellen: we want to make sure we manage this in a way that is not disruptive to financial markets and in part for that reason, we have tried to set out increasingly clearly and in great detail how we intend to proceed. guy: fed chair janet yellen. at chief asset manager morgan stanley joins us in london. is low u.s. inflation transitory? >> we think it is. we think we are going to a period where you have several one-off factors as well as the year-over-year affects. i think the potential benefits for a weaker dollar have not yet hit the data. we think the u.s. inflation will trough in september and start to rise again. we don't expected to come roaring back. and that is giving the fed a window to move slowly before it faces a more typical picture

next year. guy: can the fed ethanol -- have it all? not raise rates and keep the dollar down and use the balance sheet to sort of depressed yields on the back end, flatten the curve out to provide long-term, the credit conditions that are nice and easy but in the short term keep the dollar down as well? >> so, i think that is going to be very tough conditions to manage. the easiest parts they are going to have is to flatten the curve. there is strong international demand for u.s. based income. as low as treasury yields are there are near historic ties. when it comes -- historic highs. as the fed raises rates, the dollar will strengthen. that will help it may be go slower than it would otherwise. but i do think that is apart they will have a difficult time avoiding. tom: we go into friday, we try to figure out over the weekend what we believe in for july, in the clear message is it is a

narrow market. there is a lack of leadership. translate that for our audience. what do pros like you mean when you talk about narrow markets? >> so, actually, i would say a strong view that we have at morgan stanley in this is one very close to the heart of michael wilson, is that the market is not is narrow. tive advance decline lines for the u.s. market continue to make new highs. thinkscenario where i 9-11 of u.s. equity sectors have seen multiple expansion. we've seen strong performance across equities, credit, emerging markets. so, i realize that is a criticism of this market, just stocks.d by a few one of the reasons why we are positive still is the view that it is a little bit broader than maybe it is being given credit for. tom: give us the transatlantic dynamic. europe has value. is it true value or is europe a value trap? >> i think that value is

concentrated pretty narrowly. if we think about what sectors in europe are really cheap relative to the rest of the world, it is just financials and energy. if you take those out and maybe telecom, outside of that, the market does not look cheap to the u.s. so, we're actually expecting u.s. stocks to be better than europe for the second half of the year on an outright risk-adjusted basis. i think that is partially based on the fact that while we think the european market will still be up, it will be led more narrowly by the financial sector. guy: comedy companies on the public markets are in a position where they are matching -- how many companies on public markets are in a position where they are matching the cost of capital? as one goes up, they will struggle with the other. >> i think this is a really interesting dynamic. there is a lot of focus on the idea that as rates rise, that will directly create cost for companies. they benefited from low debt levels. i think the surprise, as

exciting as anything in accounting can ever be, will be the interest expense will continue to fall for several years, because, as companies are issuing new debt today, even though it is higher than the interest rates of a year ago, it is still lower than the interest rates of five or 10 years ago of the bonds it's replacing. i think you have a dynamic and the u.s. where this affected ecb policy will have a lingering benefit to the earnings for longer, because company still have higher coupon debt that was issued in 2010 or prior to the crisis. as it rolled up will be replaced by cheaper debt. tom: great briefing. we'll continue with him through at the hour. later today on radio and television, my conversation with robert kaplan of the dallas f ed. he is in mexico city. robert kaplan on the future of the fed. this is bloomberg. ♪

taylor: the changing of the guard in vanguard. the chief executive officer william mcnabb will step down at the end of the year and cede to tim buckely. under mcnabb, vanguard tripled in size. european car demand was at a slower pace in june. related concerns and the u.k. weighed on the market. industrywide registrations rose from a year earlier. 7.7%s behind may's jump. he gave us such great

assistance during the french elections with bloomberg news in paris. you can find them on bastille day smoking a cigarette over by the sorbonne reading leftist literature. right now he is with us as we look at the pump, the circumstance of bastille day. -- the pom, the circumstance. what is the significance of the president of the united states descending upon paris? >> i think macron's been very careful and very clever in frankness about french-america relations not macron-trump relations. trump is no popular in france after pulling out of the paris accords, but macron has been very focused on the fact this is about the 100th anniversary for the americans of the first world war. this is about lafayette and the relationship that goes much beyond who is sitting right now

in the white house. so, it's gone over very well. there have been no protests. few people have complained about trump being here. but there has not been the opposition you might expect. tom: if we assume that the fifth republic is a function of charles de gaulle. is this the first bastille day of the sixth republic. >> that is another discussion. macron no, in a way, was up with the clock back. he was to go back to a more regal, sort of haughty, distant present a seat which is what de -- distant presidency which is what de gaulle envisioned from the start. where they tried to be nitty-gritty, normal presidents who got involved in everyday management. he tries to stay above it, which

is the original vision of charles de gaulle. not the hyper presidency that sarkozy try to invent. guy: do you think the french president has managed to change the u.s. president's mind on any of the critical issues? the environment, trading, etc.? to environment and a second, but i did get a sense yesterday that trump may be does understand a little bit that you do need allies, that they do work together. west africa,e in it was the french do in the fighting, but it is the americans providing logistics. the americans doing the bombing but the french are there ,too. i think he gets there are alliances that work. on climate, i am not a shrink. i can't interpret what he meant

by something could happen with the paris accords. i'm not sure he understands it is not something that is up for renegotiation. i really am not able to interpret that statement about the paris climate accords. you will have to find someone else to fill you in on that. guy: i am not a shrink. the best line of the day. thank you very much. still whether this is the strategist at morgan stanley. the pictures are fantastic. the president is there. it has been photo op after photo op. but when he gets home, there is a lot to do. and there's so much to do, you barely know where he is going to start. mitch mcconnell is trying to figure out what he was going to do with health care. short?oo swo or three then we have the russian story. washingtonaking in ground to a halt regardless of where the president is? >> i think there are two questions.

there is a question of has a ground to a halt and what it means for markets. i think it has grounds to a halt. i think we see health care still stalled. the new health care bills by mcconnell do not seem to have moved the opposition of moderates to the original bill or the opposition of people like rand bill to thpaul. i think there is still a lack of detail. on other legislative issues, very little progress. however, from a market standpoint, it may be that lack of progress is actually a good thing, right? because it is not injecting a huge round of change or fiscal stimulus into a market that is arguably close to full employment. that's allowing the fed room to move quite slowly. i think that is a backdrop the markets are comfortable with. we should consider yes, legislatively very little progress but from a market standpoint over the next couple months, that could be an ok backdrop. tom: thank you so much.

two benefits to bloomberg businessweek this week. two wonderful cover articles. one on brussels and the european union. we saw the idea that the united kingdom will write a check to the blue and the yellow stars of europe. for all of global wall street, an important update on the new goldman sachs with a very healthy lord wi-fi. -- lloyd blankfein. this is bloomberg. ♪ lord wi-fi

guy: you are watching "surveillance." tjhhe uk's knowledge for the first time on guy: paper it will have to pay money when it withdraws from the e.u. joining us now is tim ross. tim, everybody else knew this was the reality of the situation but the brits are now same we now meshave to pay for somethin. why now? we might be getting close to some sort of number. tim: i think we are a long way away from an actual number from whatever the u.k. decides to pay as it leaves the european union, but next week is the next round of negotiations. and i think this can be seen in that light, as a kind of, it seems to me a preparation, they

want to play nice and they want to show that they are serious and interested in getting some kind of accommodation. nier willink michel bar be wearing his arsenal shirt to that meeting. it seems that every time the u.k. plays nice, though, adn we goes, this is the reality. he is not taking any of this on board, not inviting any of this good well that the u.k. -- good will the u.k. is inviting. >> he's playing hardball. you can see in the citizen's u.k. mader where the a generous offer to guarantee the rights of europeans living in britain after brexit. barnier said that is not good enough. guy: where do we stand on the great repeal bill? how can he get through in its current form? how much is it going to be changed? the scots and welsh are up in

arms about it. >> it is a huge headache for theresa may and it is incredibly important. if this bill does not get through, there will be a legal vacuum at the point at which bring lisae.u. -- which britain leaves the e.u. tom: tim, thanks for the update as well. thank you. morgansheets with us at stanley. we will continue. later today, jon ferro. telling you the price goes up, you'll goes down. bloomberg real yield. this is bloomberg. ♪

tom: that is not the white house press corps helicoptering into paris or questions with the

president of the u.s. paris withrump is in mr. macron. i recommend an adult read of the tale of two cities, i did that two years ago. dickens in your elder years is different than the forcefed dickens of your high school years. guy: we are watching french helicopters coming towards us. this is as we watch some of the jets flying down the sean's police a -- champs elysee. triomphearc de harkening back to any number of notions over the last 100 or so years. we go to your first word news. taylor: a federal judge in

hawaii has weakened donald trump's temporary muslim ban. grandparents in the u.s. can enter the country. gulfillerson's trip to the is over. the dispute between qatar and saudi arabia may last a while. ending the closer to disruption. britain'soups fear couldrts are of the eu set worker protections back many years. prime minister theresa may has promised to maintain women's rights. 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. guy: i apologize. yellen said in testimony to congress that said 3% economic growth in the u.s. would be admirable but difficult to achieve. em index edging higher. scandals have weighed on returns over the last few months. juan sartori, chairman and founder of union group. good morning. thate actually delighted janet yellen is talking the way she is right now. the dollar is going to stay down. this sounds like a good environment for your business.

juan: great environment for emerging markets and latin america in general. these countries are doing relatively well. the macro environment was what we were worried about. if there was going to be a retrieval of funds out of the emerging markets, that looks like that would continue for a while. we have good growth in these countries, which should make for good growth for equities and fixed income. guy: is this almost too good to be true? juan: our problem is not at all in the macro or interest rate differentials. you look at latin america in the last month, venezuela about to explode. it is a matter of when it is going to happen. argentina, a very tricky election coming in october were the current pro-business government could lose. brazil, the former president and

candidateesidential in jail. i focus more on the political side. the economic side is going to be ok. tom: there has been for decades, really back to my childhood, and east-west dialectic in the hemisphere, how do we get to a coulter and thought between north america and south america? juan: you look at numbers and risk premiums that have been shrinking. spanish-speaking latin evencan pushes north, south of america is becoming latin america. the political instability in the u.s. today is comparable.

you uruguay is the switzerland of south america, what is needed for the rule of law to make it the switzerland of south america? juan: i think rule of law is quite good. we have been relatively stable over the last 100 years. when you list problems in south america, that really concerns -- rarely concerns uruguay. social reforms were quite aggressive. monday we will start sales of recreational cannabis for example. uruguay keeps pushing its own agenda. it is not a world player in terms of size. things are going well. tom: one of the messages i get at davos every year is the idea of being supple and little

within private equity is an advantage. do you have an advantage in peru over the big boys because you can move quicker? juan: for sure. focusrategy has been to on the smaller countries of south america. this has proven right. argentina,d brazil, venezuela have their problems. uruguay and peru have been doing well of the last two years. they have not suffered much over the left right crisis. they have saved money in good times. to be a big player in a small country has advantages in terms of higher returns and controlling more of your capacity of execution. guy: are you still comfortable putting money into local debt? >> we are. one of our major pieces of

advice is to rotate out of u.s. lds andels and -- yie replace that with emerging market fixed income. i think there is a fundamental argument where we agree that the growth across the emerging markets should continue to pick up this year. think same time, we credit quality in u.s. corporate credit is getting worse. guy: that sounds great. em ex-china. emerging markets looks different in different places. the chart is a most vertical in terms of the money was going in. arere hearing that there big political risks. how selective do i need to be? >> we expect the markets to do well overall. differentiation will be the case and has been the case. we are more cautious on south african local rates. in latin america, where more

positive on mexico then brazil. there is held the opportunity to see within a market that we think will reduce overall returns with differentiation. tom: on private equity, have you had to ratchet down your hopes on internal rate of return over the last four or five years? is your new hope a lower number than it used to be? juan: depends on where. we mentioned china. china is a big driver of returns. the money coming from there almost disappeared three years ago. that has caused commodities to go down. in emerging markets, the expectations for returns are relatively high, 3% or 5% growth in many markets. growth is pushing up returns. the possibilities of finding specific opportunities that have

not been as appearing because of investor growth is still very high. we focus on special opportunities fund high return. the return on emerging markets will be really good. let me tell you about an enbridge review -- an interview that will occur at 8:00. he was absolutely brilliant on his wheelhouse of leadership and management. questions tolicate present cap went about the future of the bad in washington. this is bloomberg. ♪

>> the tanks are rolling down

the champs elysee as they celebrate with the french president and the u.s. president both in attendance, 100 years on from the first world war. some mighty military parades taking place in france and around the world. let's talk about what is happening -- i'm not sure how i didpivot. i am just going to go straight to it. brazil is great and ongoing -- gripped in an ongoing corruption scandal. temer on trial. let's get to our cross asset strategist at morgan stanley.

let's talk about brazil, what is going on. is the politics and the concern surrounding the political environment dissuading you from investing? >> absolutely. the existing president pushed out the former president on corruption charges is investigated for taking bribes. he was also the leading presidential candidate for the next election. .he whole political class however you going to have some sort of vision for that country until we see what happens in the 2018 elections, and all scenarios are open. guy: what would it take to change that in your mind? gone, we have is somebody else who is replacing him. is that this scenario where you think maybe the car wash cycle

is coming to an, and i see the end of the tunnel. outsider, somebody who is out of roselle in the last 20 years, not part of a completely corrupt system. there are a few candidates who good make that, who good bring institutional credibility to the country and reforms of what they could do. nothing on the current line is really a solution. we are looking for something unexpected to put brazil back into the map. it is a complicated situation. i would not touch brazil right now. tom: that is an important statement. mr. sartori, as we look at a

generational shift with capitalism in south america, what does south america need to do to have a broader spectrum of capitalism, to have a more inclusive capitalism that has eluded them for 250 years? how do you get to the next good stage of capitalism? juan: it is more integration. we have had a right-wing, pro-business peru and latin america, and a completely different latin america with brazil and venezuela. it is converging into more of a common policy, common consonant that is open to foreign investment. integrationthat latin america, integrated with north america like you were mentioning, i think that is the vision for latin america. be efficient and low

cost commodities and adds value to production on-site with a to protectay investor flows. tom: how do you get there? >> i think that is a good point. it is easy to get distracted by political volatility. that is definitely a rest. below the surface, you are emerging numbers. we have done a lot of work trying to step back and think about the next five to 10 years. opportunityordinary in terms of what could be opportunity in terms of growth. i think it is a region where we see a lot of structural potential. it is about getting there. guy: let's talk about argentina. you are spending money in

argentina. you're looking at argentina. ig're going to get the re u.s. and a the couple minutes. how many rigs could you take from the u.s.? >> there are a lot of idle rigs. we need them. the problem is argentina still has a lot of his old protectionist measures and strong power from the unions. local manufacturers are not allowing the import of these rigs. i think that is what is happening in argentina and why there was this possibility of argentina switching to emerging markets. a lot of numbers indicated that would happen. the political overlay made the rating agencies not do that. that is the problem. there is still some blockage to

bring capital to argentina. guy: is there in a virginity to invest in art -- is there an opportunity to invest in argentina? upn: equity markets were and theyds repriced, were asking for a huge amount of capital for their companies. that has come down. there is a lot of fear that this coming election, the opposition could take over part of the parliament. even thatthat has come down. opposition is going to be mild. maybe they are happy to be the bad cop and still push some of these reforms. if we were more trading, we would be buying some of the bonds on some of the argentina companies. guy: what are you buying? juan: all properties in argentina. the rigs are there.

the shell gas is there. at some point the border situation is going to be sorted out. we are buying ahead of some of the components being lifted. guy: thank you for spending some time with us. union group chairman. andrew sheets is sticking around. we are not done with him yet. let me highlight a great function on your bloomberg this morning. ou can use your video screen to watch some great news on sky. you can highlight the charts and functionality we're using here. we were doing this earlier, we're getting questions, we would like more of them. let us know what you think. this is bloomberg. ♪

♪ exceptional pride for the french, the republican guard, the first cavalry regiment, one of the high points of the best deal day -- bastille day parade.

the entire place just stops to see them. you rarely see them up close. huge moment there. the music and fanfare there. bastille day with president trump in attendance. guy: i am going to have to pivot from horses to u.s. banks. tom: no doubt easy to do. guy: wells fargo is the selection there. citigroup releasing second quarter earnings today. jpmorgan and citigroup and wells fargo all positive. comps from this time last year is tough. still with us is andrew sheets

at morgan stanley. we know the comps is tough. let's put that to one side. where are these banks going to shine? >> where they will shine is not necessarily where they report on the second quarter. comps are difficult. we know trading was probably down. around theine is outlook for the second half of the year and around capital release and regulation. our analyst has been adamant that there is quite a bit we can see that does not have to go through congress, banks could be able to release more capital. we are positive banks will be able to return more capital to shareholders. this is an industry where regulation has been on a tightening track since the financial crisis. even if it flat, that could be a

positive. flatlines, that could be a positive. guy: it is possible that mr. kohn becomes the new fed chair. he could take a different view. is that something i need to think about? >> that is going to be very important. regulation has been a huge part of the story. it is a huge part of how banks have traded. whether you think it is the right policy or not, the administration in the u.s. believes less regulation is a industryack for the and is more likely to appoint people who have a different approach to regulation. that raises other risks that may have marched the line, but for here and now, it could allow banks to release more capital to shareholders. tom: thank you very much. great friday breathing. mr. sheets is with morgan

stanley. we need to get a linkage of all of this news on the equity markets. do you have the courage to get through until monday? does the president have the courage to come back to challenges in washington? i do not believe the president tol be jetting from paris new jersey, i'm not sure, but i believe he is heading out for our and our over the weekend. thank you for being with us this week. francine will return, rumor has it. stay with us. this is bloomberg. ♪

♪ tom: this friday, the check will be in the mail. the united kingdom will write

said jack to the eu. it is friday. it is another week of being in cash. in this hour, kate moore of blackrock. amid bastille had day. this is "bloomberg surveillance." we are live from our world headquarters in new york. i am tom keene with jonathan ferro. he has been begging to do this. i said no. we said finally. we have never done this. vonnie: he made that up -- jonathan: he made that up. tom: we did this in davos, late in the morning. jonathan: that is how it works. tom: jonathan ferro with us

today. here is taylor riggs. taylor: president donald trump and the first lady are attending bastille day celebrations in paris. yesterday, donald trump addressed the situation of his son meeting with the russian lawyer. >> he is a great man. he is a fine person. he took a meeting with a lawyer from russia. it lasted for a very short period. nothing came of the meeting. i think it is a meeting most people in politics would have taken. taylor: the president will fly back to the u.s. today. no margin for error as to republican senators immediately rejected the parties health care bill. majority leader mitch mcconnell added $70 billion to stabilize insurance exchanges. over in the ok, it has

acknowledged for the first time on paper it will have to pay money to the european union as negotiators prepare for a round of talks. previous media speculation is putting the fee as i has $114 as $114 -- as high billion. italy went through a double-dip, decade-long recession. 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: thank you so much. let's do a data check. churn for the market on friday. mr. macron and bastille day lifting the euro. the vix on the edge of a nine

handle. that gets my attention. i don't remember where we were, the day of that strong swiss franc. today swiss franc weakness. jonathan: let's get to the other board quickly. the cable rate 1.2964. three weeks away from the inflation report, sterling strength. theide of the peso, this is best-performing emerging-market currency of the year. the european proxy is the story. at twoelds coming in basis points. that spread is going to be interesting. citigroup expected to narrow to 50 basis points over the coming month. this is a good time to speak to kate moore. we have hit the midyear mark.

we have had the all-star game. we are having the second part of the baseball season. trade bigger out how to the equity markets. can you add cash and invest in this market? kate: absolutely. we don't feel that we are at the end of the economic cycle. synchronized recovery in 2017, which is a matter of multiple orders, not just one. we have a good macro backdrop. you know this as well as i do, people are not excited about this bull market. it has been one complaint and concern after another. tom: the issue is dampened volatility across asset classes. what does your research say about how viewers and listeners should link low volatility with

trying to be in the market? >> think about this 12 months ago. last august we hit that 30 day low number on the s&p. was a signal that of something very wrong. everyone said this is a signal of complacency. people have not known how to read fall. the work we have done suggest the majority of the time, we are in a low volatility regime 80% of the time. unless we have a big macro shock or something that really hits the financial markets, we don't see us leaving the low volatility regime. jonathan: the conclusion you seem to have is people are under allocated and under risked. tell me where they should be in terms of risk? kate: we don't think valuations anywhere are cheap. evaluations on the equity

markets don't look as extended as they could be. there is a way to add in a smart way sectors and factors across the world. we are looking much more selectively in fixed income where we are less constructive about the opportunities. jonathan: you say that smiling. thinking on the other side of the table, around the table? kate: they agreed. we are on the same page on this, the return options are much lower. banks,re is the exceptionally low -- the vix, exceptionally low volatility. fromea would be a path nine volatility to 17 volatility and on 220 and the 30's, can you see that coming?

kate: we have to ask ourselves, is it 15 or 17 or 20 for a short period of time or do we enter a high volatility regime? this is possible and it might be comfortable. i don't think it will be a sustained multi-month event. tom: this is important for people's 401(k). you think you will see a 10% 18% bearn often, and market rarely, but you will see it. have we forgotten that? kate: there is such reluctance to take risk. there is a lot of cash people are not deploying that dampens the levels of these pullbacks. an investor might say if i had a 10% pullback, then it was 7%, now does 5% and 3%.

perhaps that is the level i will examine adding to risk. it is much shallower on the downside and much less dramatic on the upside. that is the environment we will be in. jonathan: just to wrap things up, tom keene joking about being in cash for another week. if you want to de-risk how do you do that? i think a more defensive place to be within equities is to consider equity income. a lot of companies are increasing cash return to shareholders. we will probably talk about the banks later. this is a place where you can dampen a little rest and still get a better return. jonathan: i will track the latest moves in the bond market on bloomberg real yield "bloomberg surveillance." -- bloomberg real yield. tom: self-promotion.

come on. later today, you'll learn price goes up and yield goes down. robert kaplan knows that, he is in expert on leadership changes. it is bastille day. a somber moment for the french republic. visiting today the president of the u.s. this is bloomberg. ♪

taylor: let's get to the

bloomberg business flash. changing of the guard at vanguard. will step downer at the end of the year. vanguard more than tripled in size under mcnabb. at&t is sizing up organizational changes after it's acquisition by time warner. become executive chairman, overseeing a pair of independentlyl manage the companies. at aean car demand rose slower pace in june. industrywide registrations grew 2.1% from a year earlier. that was behind may's 7.7% jump. trumpan: president donald

and the first lady have been attending celebrations in paris. they are set to head back to the u.s. this hour where they faced political battles on several fronts. kevin cirilli is our chief washington correspondent, joining us from the capital. let's talk about the individual leaders and the official the promising. have they ironed out their differences? >> it appears they have decided to put their differences aside for this initial meeting in paris and focus on areas of common concern, areas of national security. that is something the u.s. and france have partnered on for a long time. part of the reason president trump is here is this is the 100 year anniversary of the u.s.

entering into world war i. since then, the u.s. and france have bought together on a number of battlefields. there are a number of points of contention, climate change is one of the big ones. they will not focus as much on that and focus on where they can move forward together. jonathan: the present of the united states had a friend called jim who do not like paris very much. does he have his own ideas about the french capital and has he changed his mind? >> all of those negative adjectives we heard about paris during the campaign have turned around with the president saying paris is a beautiful place and the present is a strong leader who will protect the country. positively yesterday. now it seems the present has a different view of paris and france. he was definitely playing to the

audience here. tom: thank you so much. last night was one of those nights you don't really want to tell your children, whatever their age. kevin cirilli was no doubt as over thes i was language, threats, and profanity of the president's personal attorney. justin elliott faced the ball out of the park with reporting last night. how can this attorney be representing the present of the u.s.? theou are referring to civilian emailing him, and the attorney responding with some profanities. you cannot make it up anymore. i have nothing for you on that particular n.l. exchange. tom: what would be the response? >> i don't think that there will

be a response. i think they will keep this attorney. when the president returns, he has a health care bill that cannot afford to lose one more republican vote. senator rand paul -- tom: they have to respond to the set of events, including the time magazine cover of his son. what will that response be? changing of personnel at the white house? >> on that front, no doubt. you are seeing increasing pressure from outside post that work with this white house for there to be some turnover and increasing pressure from congressional republicans and frustration intensifying after the developments of this week. i think the attorney and legal team surrounding the president are not going anywhere. tom: jonathan ferro, let me bring this in. this is david brooks in the new york times with a scathing essay

this morning. this is on the presidents father. he was also remorseless, donald trump described his father as tough and difficult and someone who would never let anything go. it took a few generations of the house of john, in other words, to reduce donald jr.. their scandals may not build up to anything impeachable, but the scandals will never end. this was fighting last night heightened last night. jonathan: it is not mattered to markets at all. i have followed this situation for the last couple of weeks. dowrd high on the despite the drama in d.c. it does not matter, will it? kate: one thing that has brought out of everyone's expectations

major change in legislation. it is business as usual until we get something that could be constructive or destructive. i think everyone is doing the same, ignoring the noise. tom: health care, maybe it will not happen, but what is the uptake into the weekend on tax reform, which does affect kate moore's life? in the next couple days, they are not going to address factor form until they can get through health care. the talking points i am hearing from republicans on capitol hill are we do not support this president personally, but we support his policies. beis an interesting time to in washington. tom: what are you going to be watching as he tried to get to monday morning? >> a couple of things, what is the president doing overseas,, what other developments are we

going to see. we are waiting for the next twist and turn of these scandals. it has not affected markets, but we did see a slight dip that recovered after the donald jr. emails. tom: this has been wonderful. i give for the briefing this morning. kevin cirilli is our chief washington correspondent. let me tell you about tv . kate moore has this. she has this at home. at blackrock. you bring it up at your trading desk, the bloomberg terminal, you can look back at a gorgeous chart that only jonathan ferro would love. jonathan: i love anything guy johnson did. ♪

♪ jonathan: from new york city, for our viewers worldwide, i don't know whose idea this was, but here we are, jonathan ferro alongside time king. was this all you? is francine coming back? tom: the rumor has it she is coming back. it is a british thing. jonathan: the u.k. has a knowledge for the first time on paper -- acknowledged for the first time on paper that it will have to pay obligations to the eu.

joining us now is tim ross in london. i guess this shows how far we have come, which is not far, that the u.k. has just admitted there might be a bill to pay. >> for the first time in writing, we have got this statement saying there will need to be a financial settlement. it is not say the u.k. is going to have to pay a lot of money or what that will be for or how much. jonathan: the u.k. and the eu will need a fair settlement of obligations according to the u.k. spokesperson. what kind of settlement are we talking? >> all kinds of rumors, no official number has been put on the size of the eu's demand. there has been suggestion of up to 100 billion euros. boris johnson clearly would consider that utterly acceptable. he has said the eu can go whistle.

jonathan: what is the so-called brexit bill, that is maybe misnamed, because there are some obligations in there, and then there is the one to settle the rights of eu citizens. have we done anything on the latter? >> on the eu citizens rights issue, the u.k. government published a paper a few weeks ago setting out in detail what they wanted to guarantee as to the ongoing rights of european citizens. british ministers thought that would be a very generous offer. the eu says this is not good enough. tom: as we go into the weekend, we get to monday and the next event. what is the next big event for the prime minister and her party? >> at the end of next week, the u.k. parliament after what has been a tumultuous few months will go on vacation for the rest

of the summer. theresa may will turn her attention to the autumn conservative party conference, potentially to the first boat on the brexit law she is going to be bringing. those will be her preoccupations. tom: thank you so much. we will continue with kate moore of blackrock. lots to talk about with equities, markets, the courage to be in stocks, which is the way people feel right now. 8:00,ial treat, at television and radio worldwide, robert kaplan. i want to talk to robert kaplan about leadership and transition. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg surveillance" with a mix of "today break?" no? i'm going to get in trouble for

this, aren't i? let's get to the markets for you. the cable rate 129.69, up a quarter of 1%. three weeks away from the inflation report, a week away, just under from an e.c.b. decision as well. a nice, nice bid for government bonds. should be up two basis points. tom: let's do a coventry data check for the commonwealth. we'll do it for john farrell. sterling cad and aussie and sterling hong kong dollar and sterling south africa. jonathan: that's about it. when i was growing up in coventry, we were looking at he south african rand. om: quite a childhood. jonathan: let's get you updated. taylor: president donald trump is attending festivities in paris.

after the festivities conclude they'll return to the united states and expected to land in new jersey today. hawaii has expanded the travel ban to six muslim nations and is including grandparents with u.s. citizens that visa applicants can use to get into the united states. the supreme court hears the case in october. tillerson's four-day trip to the gulf is over. the u.s. secretary of state a the blockade may last while. they're not even close to solving the issues. women groups fear brexit's planned departure from the e.u. could roll back decade of meaningful advances for working women. after brexit they won't have to adhere to minimum standards for worker protections, then of which are stronger than member countries might enact on their own. prime minister teresa may has promised to maintain women's

rights. global news 24 hours a day powered by more than 2,700 journalists and analysts in more than 120 countries. i'm taylor rigs. this is bloomberg. john and tom? tom: thank so you much. john nichols with an important essay on the european union with a needed focus on brussels. this is a great primer on maybe the back story of all that's going on within the battle of united kingdom in the e.u. then there's your weekend must-read if you're on global wall street. here it is, folks. i thought this cover was great. t's a healthy buoyant mr. fein after his battle with cancer. lloyd blankfein with a wonderful cover and megan murphy joins us this morning. what's the lead here? he's back. is it a different gobin or the one we've always mone? >> the same goldman sachs talks about lloyd. we can't understate how improbable it is that lloyd is

still the c.e.o. of this bank when you look what's gone on since the crisis, almost personally blamed, a bank that was symbolic of the excesses of the entire industry and personally blamed for shorting the housing market and his own personal battles against lymphoma these come back from and what's interesting is he's a rejuvenated presence in the bank but tied the bank to much of the same business mod tell has in the past. we have earnings starting today obviously with jp morgan coming out and a quarter that's with a lot of volatility. tom: does he miss mr. cone? megan: i don't think there is any missingness between either of them. tom: what about the battle in washington? we talked with kevin surly about this attorney memo.

what i want to know is ohio and portman, in the health care debate you've done reporting on heroin, opiods in rob portman, does the president understand there's no debate on this among these senators? megan: the president largely left the entire health care process to other people in his administration. he's not playing an active role. i think we're exactly right to look at rob portman. he's going to be the one to watch. obviously they've already lost two senators in susanne collins and rand paul who are definite noes on the rewrite of the bill. we've got west virginia and ohio and dean heller in nevada. that is about portman so interesting, when we look at the cut and what moderates are concerned about, things like opiods and how elderly and poor will fare under this bill, mitch mcconnell is telling those not to worry about the ultimate impact on some of the most disenfranchised in your state. i'm not sure it is enough to

sway over portman who puts his personal stake in his job and will be difficult to swallow and difficult to swallow in virginia. jonathan: the republicans are finding out their views are divorced from the base and energized by the president of the united states? megan: it's difficult to say repeal and replace but harder to say to people struggling in so many ways, whether it's stagnant wage growth and working morpe one job, your health care will get more expensive. look at the tradeoffs, they've gone with ted cruz and allow these people to buy these skimpy plans and may push up the cost of health care for the rest of the people dramatically under this bill. the p.r. effect on this push from democrats and from people who are against this bill has been surprisingly effective and that people are really looking at this now and saying how much is this going to help me make health care more affordable and how will it help my family. it's got a 20% approval rate. even if you're a republican and you've said this is your

long-term goal you won't go up on 80/20 and he doesn't have the credibility to push it through. jonathan: we care about the d.c. balance and it's a lot more health care and a lot more health care and you hope you get tax reform. are you hopeful you get to the tax reform? >> i'll take the first word and add on and say tax cut instead of tax reform because it's much more likely. i don't think we'll get a big reform package. many of us, including myself, were quite hopeful the beginning of this year we'd talk about an overhaul and republicans promised it and had been working on it for many years and we've taken it off the table at this point and don't think it's baked into analysts across any sector. any tax cut would be a nice boost to earnings i think and we have to see how we street small businesses versus the c-corps. tom: buried in bloomberg business week, your worst nightmare which is a recess free summer. tell me about the republicans in midsummer, what do you do in washington if you've never been

there for a midsummer before? megan: if they walk away from the table without a big legislative compliment, tax reform looks ike a distant dream and there's one thing more complicated than health care reform and rewriting our entire taxes. tom: is rosenberger or someone figured out housm you take off g.d.p.? >> if there is no tax policy reform. i don't think it's baked into g.d.p. estimates and everyone is taking down their expectations. the question is whether or not if we got a tax cut it would be a significant boost to growth, not as convinced, frankly but certainly would help certain sectors and as i said, it would be something we're watching for small and medium sized businesses. tom: it was put out on twitter what is your first read on the weekend? this weekend it's easy. lloyd blankfein in celebration of his good health, whatever you think of goldman sachs, a great cover for bloomberg, business week. thank so you much.

i believe you're darkening the radio door as well. megan murphy with bloomberg business week. we'll come back, kate moore with us as well. we'll move on to a further discussion of economics, finance, investment and how i can get bloomberg business week on my mobile app. this is bloomberg.

taylor: this is bloomberg surveillance. easy jet is creating a new airline to operate flights after the u.k. leaves and will be called easy jet europe and headquartered in europe. and will let easy jet operate flights across europe and domestically within european countries after brexit. assets at pimco climbed to $1.6

trillion as of june 30. it's the biggest quarterly increase since the 2014 ouster of the co-founder and prompted a flood of withdraws. pimco is the largest fixed income manager in the u.s. call it the amazon effect. the online retailer wasn't the only winner in the prime day sale. a person familiar with the matter said ebay had the two best sales day ever in july during amazon's event. in anticipation of prime day the competing marketplace launched a advertising blitz using the slogan did you check ebay. that's your business flash. tom: john farrell and i at times on saturday had a beverage of our choice, maybe a glass of champagne and within it we go through the gloom articles of friday and into the weekend. the world's coming to an end, you really shouldn't be in the stock market. jonathan: you make it sound so sad. tom: there is a lot of gloom

out there. how about a chart, the trend is your friend. i rarely use them but if i was teaching at a college course on kisses and moving averages. this is a great start. kate moore, this is as elegant as it gets. the 50 comes down and touches the 200 day and the trend keeps oing up. the big key is when we get in second quarter earnings and first measure, do we get continued support of guidance from companies that indicate the earnings power they've had in the first half that's sustainable. if that's the case the chart ends up looking great for the balance of the year. tom: and john will throw it out on radio as well but shows the combrd a trend is always tested. you're supposed to be tested within a trend up or trend down.

john: i want to get into how people have been conditioned by the financial crisis and they talk about the unloved bull market and in many ways people are conditioned by the crisis that was about a decade ago. why? and do you see it in clients still in quite a pervasive way. kate: we get questions about how worried are you about the volatility and how worried are you about valuations and are you worried the market is vulnerable particularly there's not enough depth to the leadership. we talk through this but i think a lot of this is stemming through the length of this bull market. everybody expects because we're eight years in we're definitely going to end some time soon. i think it's totally inconsistent with the story we're seeing on earnings as i was saying before, our view we're not near the end in terms f macro economic expansions. tom: the lehman low as it's called the moving averages are delayed so within these moving

averages, this kiss is picked up about in this range here and up we go. and john, this is a log chart so these straight lines show you the persist answer of -- persistencey. jonathan: how important are the technicals to you kate: i watch tech knicks and positioning and has to be a big part where you determine your entry and exit points. it can't be just about growth and valuations but who owns what and how concentrated are those positions and how is that playing out in the overall market movement. jonathan: let's talk about a hated sector for a long time until we came to financials. what are you guys at black rock expecting from jp morgan and the guidance we had from most of these guys on wall street wasn't good, is that expectations management or something in it? kate: financials are my highest conviction call right now and that's because even if we have a slight weakness in terms of trading activity and if there's a little bit of a pain from a

flattening yield curve in the second quarter we're talking about a sector that should do very well in expanding macroeconomic environment and less regulatory pressure and the awesome cash return and how do you fend yourself in a market you're fearful of? think of the stocks that continue to give you income and i think the big bangs are right up there. tom: which big banks? bring up the chart. we'll use this with ken and others on radio and charles that will join us as well. jp morgan in blue, these are the bank-banks, not the black rocks and yellow is wells fargo and down here citigroup. are stocks like citigroup -- i don't need buy-hold from you but do you buy this beleaguered into a bull market or stay with the momentum builders? and i'll pick on mr. diamond that led the way. which category do you go to? kate: there are different dynamic with each bank and the business models are modestly different. on balance we think all the

large banks and indeed the mid cap banks look like they're well positioned to perform the next couple areas. tom: e.t.f. is appropriate? kate: for some people but there's an opportunity to choose specific banks. you know i can't talk about the names. jonathan: what's more important the buyback plans, the capital distribution or the earnings or yield curve? so far the last month it's been about a buyback. kate: its i think it's your time horizon. jonathan: are we done? tom: continue, kate. kate: it depends on your time horizon. the recent past, buybacks and that sort of thing has been very important but in the longer term, the cash return and dividend payouts are incredibly important as well as the earnings. we'll say we look for fluctuations in the market and any small pullback as a result of disappointing trading numbers and say this is a sector that really has opportunities and has legs, underowned i would say going back to the sentiment and people have liked it but lower

ase l and haven't added. tom: kate moore is a value. we're so done with john farrell and he'll migrate over. jonathan: get him on "daybreak." tom: we'll have more of him later. this is three hours of fixed income squeezed into 24 minutes. real yield where you will learn that price goes up and yield goes down. he will use the bloomberg duration look at and connection, real yield today. this is bloomberg. ♪

tom: it's that time again and we begin with a look at the major banks of the united states of america. wells fargo and citigroup later. jp morgan, one eye at the bloomberg terminal to see if we have jp morgan earnings out early. we may see them with "daybreak" in a bit. ken leon with us. it's wonderful to have him on

with us with the acclaimed s&p star outlook system. he's with cfra this morning. ken, are they all five-star banks? ken: so we have four-star buy recommendations on most of the largest banks and that's on the positive fundamental trends we see ahead. tom: within that is the dynamics of the yield curve, the ability to make money on the income statement as well. what are those dynamics right now? is the yield curve helping mr. diamond and company? ken: it is but it's going to be even more powerful as we get into 2018 as the spreads widen and the ability really to put available capital into the market for lending. lending, investing and trading. tom: within that lending, investing and trading is about management. there are huge distinctions between our financial centers, which is not so much a single best buy but which is the bank that seems to be doing best

right now? ken: for the second quarter story it's not going to be about the capital markets or trading compared to a year ago with the spike from brexit, so the goldman sachs and morgan stanleys likely are going to be not in the spotlight for that big improvement. it could be those with traditional banking so it may be bank of america or citi. you know, i think there will be a rotation of focus back to traditional banking for the second quarter but a lot of questions related to the capital markets for the second half of this year. tom: we've got those earnings out right now. of course i'm taking a look at them off bloomberg as everyone else is and ken leon, cfra looking at this in real time. $1.82 is the headline but there's so much more on that. what i would notice on first blush is average loans up 8%. can jp morgan outdo the u.s. economy? can they do better at the top

line than the given nominal g.d.p. of 4% to 5%? ken: it's a great metric as we watch, the loans and deposit ratio, the l.d.r. and has been low historically the last two or three years and banks are sitting on the capital and now beginning to lend. when we get the ratios, probably will pick it up on bloomberg as it begins to move from 80% to 65% to 75% for some of the large banks and that's positive and positive for the top line. tom: within the power point, they put out three or four presentation, folks, and can be 30 to 40 pages long. mr. diamond has taken a squeegee mark and put it on the basil ratio of 12.5%. this is a fully funded bank. does that mean they're going to return more cash like $2.7 billion in share repurchases? ken: yeah, and the key is to shareholders, not return on

capital and that's a big theme for the banks, especially with successful stress tests from the federal reserve. there's the ability now to increase dividends and buybacks. on dividend, you have to remember, these are not yield stocks trading at or above the market for the s&p, so dividend growth and high payout ratios will be positive for total return. tom: i want to get out in wells fargo and beleaguer the transmission. but let's go to citibank right now. can they catch up, can mr. corbett put it on fire and in high gear to begin to do better for the laggered of laggered citigroup? ken: i think he can and was more visible of the story back in june and talked about the success they're having in the consumer bank and they're the leader in credit card. so again, back to your point about rising rates, the loan spreads and also interest rates

coming off their card hold members. that means they'll have higher net interest income as well. so i think citi will be more about improving fundamentals and probably a higher delta than maybe some of the other large banks. tom: great to have you with us. you're a trooper to be with us. with jp morgan, cfra, and look to his expertise this weekend. kate moore is with us of blackrock and she loves the banks. let's review that again. i know you don't pick individual stocks, and why do you like the banks, the big or smaller regionals? kate: we have a good macroenvironment and let's look at loan growth across the spectrum. tom: as ken leon mentioned. kate: it's a great point and see how they can grow their loan book relative to the economy. looks like there's room for that to happen. the second par is on the earnings and there's a good breadth of earnings and we look at the details of these banks

as they report we'll have a better story to tell. i think we have valuations that are not demanding relative to the rest of the market. we were talking about sentiment and positioning before, i think it's key. people sort of got in the banks a little bit after the election and then dropped off on that trade and are really looking at it as a place they need to close their underweights that they don't necessarily lag the market and there's room for repositioning. tom: thanks for putting up with john farrell and kate will continue on radio through the morning. on radio and television, this is a huge moment, robert kaplan, yeah, all the fed stuff and that, i want to talk to robert kaplan about leadership selection. this is bloomberg. ♪ whoooo.

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president trump is at abroad. republicans are putting together a half -- health care bill. the u.k. admits it will have to pay an exit bill. from your city, good morning. a well work -- warm welcome to bloomberg daybreak. i am jonathan ferro. flat on the dead s&p 500. are up by a single basis point. front and center, wall street. david: let's go through these earnings. we're joined by charles peabody. analyzed morgan stanley. let's start with you.