♪ francine: china charges on. the world's second-largest economy grows faster than expected, spurred by global trade and investment demand. the latest cpi reading suggest a downturn could be more than just a glitch. the fed might want to go, but the data says no. david davis is back in brussels for a week of negotiations. we are now getting down to the nitty-gritty. this is "bloomberg surveillance ." i'm nejra cehic in london. let's get a quick check on your markets will step european stocks are trading a little higher, up .2% on the stoxx

600. global stocks, hitting a new record. the dollar-yen, pretty much unchanged. a touch of dollar strength there. the dollar, having its worst week since may last week. the 10 year yield, meanwhile, down two basis points, 2.31%. that dropped from five basis points last weekend we are keeping a close eye on the on short yuan, -- the on shore y uan. let's get the bloomberg first word news. reporter: the second round of brexit negotiations are underway in brussels. avis is looking for progress, trying to resolve objects on both sides. barnier says the talks are now getting into the

nitty-gritty. >> we are getting to the heart of the matter. we need to examine and compare our respective positions in order to make good progress. as you know, our negotiating groups, we work on citizens rights, on the financial situation, and also, separation issues. reporter: president trump was planning to shake up his legal team and evaluating options for his communication set up. according to persons familiar with the president's, longtime attorney is going to be used into a role. this comes as the fbi and congressional investigations into the campaign's possible ties to russia speed up. mitch mcconnell has delayed plans to vote on the health care bill. this is after senator john mccain says he would be at home recovering from surgery, leaving republicans short of the vote they need to advance the legislation.

the "new york times" is reporting that john mccain's condition could be more serious than thought, and could delay has returned to washington by at least a week or two. south korea has proposed resuming military and humanitarian exchanges within the north. the president's olive branch comes as he tries to ease tensions over kim jong un's pursuit of a military methyl missile capable of striking america. will wait until september before revealing any and changes with the unwind probably starting in january and taking nine months. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. nejra? nejra: thank you, taylor. the world's second-biggest economy grew faster than expected last quarter, the gdp

growing 6.9%, faster than the 6.8% target. economic's chief correspondent enda curran is with us. does this give more leeway to the deleveleveraging campaign? enda: they are getting a key ingredient in place, getting the economy on a sustainable, solid footing heading into a big year of political change with the leadership reshuffle of the party at the end of this year. with the economy taking over quite nicely, they cannot perhaps turn their sites to tackling some of the financial systems. we know they are concerned about what is happening with the expansion credit risk. theye same time though,

can't take the type of steps that would hurt the wider economy. they can't jeopardize the economics they have tried to get in place, which is important for the president. they will take baby steps going forward and not dramatic until the get into next year. nejra: and we also have the national financial work conference over the weekend. the emphasis was really on support for the real economy, also on curbing risks, less so on opening up. should we read anything into this sequencing? >> it was very much a domestic focus. fact, the fact that xi jinping was present at the meetings is a sign of how

serious authorities are taking it. while they are focusing on domestic ability, there is no sign of urgency that they want to open up the market. they have taken some steps, allowing more foreign investors into the stock market. but there is no sign that the currency will be freed up anytime since. they still are very strict with moving money into and out of the country and keep a tight grip on the yuan. the internationalization of ch ina's economy might be slowed right now. nejra: enda curren, our chief asian economics correspondent. let's bring in francesco garzarelli, cohead of economic and macro markets at goldman sachs. given what we have just heard about perhaps more leeway for

deleveraging, liquidities have comine back into chinese bonds. shoul investorsd be preparing for a shock? change willhat permeate for the second half of the year and 2018. in that context, i think there i s a different attitude towards fixed income that is developing. specifically on china, i think the authorities have done the right thing so far in trying to open up the market and make it more liquid, more deep, the bond connect initiative is working great. so, all of this, i think, lends itself to a positive narrative on the financial transition of china. nejra: that said, as it were just discussing with enda, the emphasis was on the opening up during this financial work conference. is that a concern to you, in

short-term, at least? >> in the short-term, our policies are geared at maintaining stability during affordable changeover. that is a bit of a market consensus. to answer your question, the definition of short-term is necessary to be clarified if we are talking about the next three months, final think it is a big concern. if we were to see this domestic focus taking over in the next yes,o nine months, then that would change our stance. nejra: we have also been talking about how a lot of this reform is asimeaimed at domestic stability, but sometimes the intent towards stability do not happen when reform is taking place. do you expect more volatility to come in the yuan over the next year? thef you leave things to

market price revealing itself, market prices are generally not the fair value. you could have discontinuities. that is what the authorities are trying to mitigate. they talked about macro potential over the weekend and that is why the market was rattled a bit. they have ways of controlling quality. and so, that is the form in which the policy liberalization will take place. once step ahead, two steps back is something we have been accustomed to, and i think that will continue. nejra: so, in the global market, you see many risks ahead in relation to china? should we continue to keep a close watch on it? >> on the growth perspective, there is the lingering question about the leveraging path and the discontinuities you just post. i think there is a latent problem for china deriving from

the monetary policy stance, particularly in the u.s. heightening from the long end of the curb is this tragedy for 2018. they will do it very prudently. should work, because there is wage pressure or growth is too high, and it moves up rates faster than the market expects, then that could affect china. nejra: we will talk more about the fed, coming up. francesco garzarelli stays with us. and stay with "surveillance." how the latest u.s. inflation data is adding to janet yellen's woes. not yet time to taper. why economists think draghi and the ecb will wait before announcing a timetable to scale back. ♪ nejra: you are watching

"bloomberg surveillance." let's get to the bloomberg business flash the taylor riggs. reporter: easyjet has confirmed the ceo is stepping down from the budgetary forum. carolyn mccall will assume the role from january 8. easyjet says the search for a successor has already started. the barclays case picks up in london today with three former executives charged with fraud. they are the most senior u.k. banking executives to face charges since the financial crisis. this was during the 2008 fundraising. they said they intended to plead not guilty.

and toshiba has agreed to hold off on the disposal of its flash memory chip unit until a court hearing on july 28. the sale is being contested by their partner, seeking an injunction. they had billion-dollar losses during its westinghouse unit. nejra: the inflation situation is causing more headaches for janet yellen as a continues to undermine her plans for gradual interest-rate tightening. june cpi figures came below the estimate for 0.1 and should continued weak pricing power across a range of services. the data suggests the slowdown could be more than transitory and it leaves investors and policy makers scratching their heads. still with us is francesco garzarelli from goldman sachs. so, francesco, we have talked about the fact that this was bond-based, the slowdown. in your view, transitory or

entrenched? >> the miss was pretty sizable. to accumulate those misses, you get 60 basis points of core cpi, which is material, i would say. the other thing to note is most of the turn in the trend in inflation tends to be services, which is consistent. it is hard to say how long exactly, but a period of time when inflation will undershoot expectations. gradually, they are catching up. it does pose problems, at least in the optics of hiking. against that, if you break the numbers apart and you look at what is actually happening, there is nothing to suggest that the softness in inflation is a reflection of weaker demand. it is actually a reflection of the supply side

consideration, particularly in sectors that received a lot of credit in the last couple years, and that is where supply has expanded and that is where you see downward pressures leading inflation. if you are at the fed, the optics are against you, but the optics should lead you to hold the line. nejra: in other words, when that inflation does come, it will be the right kind of inflation. >> yes, i think the right kind of inflation is there. measuredoducte bond inflation is centered around 2%. we don't see outside increases, which is separate from different cycles. i think we have to take a broad approach and look at wages, at the financial conditions in general, and i think the fed is doign that. thatch is doing that. the policy trajectory does seem to be inclined to hike from the long end first, and then eventually go back to the front

end. the question is whether that will be sufficient or not. nejra: what opportunities do you then see in inflation trade? >> there is a correlation between the long term inflation forward and the term premium. we think that is not set by the fed, but imposed by global factors, including central banks. as the ecb unwinds some easing, term premiums should continue to go up. inngside this slowdown inflation in the near term i was speaking about, that should lead to a steepening of the inflation curve in the u.s. that is the biggest trade recommendation we have out there. nejra: so, you do see curb steepening coming then? we sigh flattening today. >> on the inflation side, for sure. on the real curb, that will depend on how much the fed hikes rates, primarily. they have control over the real

front end rate the rate in the u.s. is the place where it should be. nejra: vasileios gkionakis -- francesco garzarelli stays with us. why economists don't see the ecb announcing the stimulus scale back this week. this is bloomberg. ♪ nejra: you are watching

"bloomberg surveillance" and i'm nejra cehic in london, in for francine lacqua. latest policy's

decision on thursday and a bloomberg survey shows most economists think the central bank will announce plans to start unwinding the stimulus program. they see draghi waiting until september before revealing any changes with the plan starting in january, taking nine months. still with us is francesco garzarelli from goldman sachs. francesco, is the ecb going to set the tone for tapering on thursday? >> well, i think they will follow the plan in place already, which is to use the summer to talk about the medium-term objectives, what they are up to. then, have a meeting that probably in september, where they say they are about to change something and they are going to study it. then, a little bit later, maybe october, that is when they announce stuff. by that time, everything is priced and the market did not

react. so, what are they going to do from thursday? i think make the transition from urgency to patience. int's the new word, patience maintaining the monetary policy stimulus. and also, make the transition away from deflation risks to low which will stay fo with us for longer. -- thatwhat take them is what takes them to the start of the end of qe, which will play out as a consensus through the course of 2018. nejra: mizuho had an interesting call last week on the tenur10 year bund yields. they expect the ecb to continue the stimulus. the consensus is 70 basis points for year end.

where do you sit on that spectrum? >> i have been at 70 four a while. we suffered a lot in the second quarter because the market got down to 20 basis points. hit ourn jackpot, we forecasts for the second quarter, which was 55. --t movie was very violent that move was very violent, but it showed the market had a gravitational pull towards a fair value, which was higher than 20 basis points. i expect about 70 basis points. i thinkm the ecb has room to control the bund yield more than any other rate in the european spectrum because the bundesbank owns so much. longd they move in termn the, they should be

able to maintain it within 1%. a bookmarker. nejra: where do you see opportunities than when it comes to inflation in the eurzone? >> we talked about the u.k. european inflation is quite different. 2%is far from the objective. if you look at the service prices, the area that has been underperforming in the u.s., in europe it has been outperforming. that is primarily in the core countries. it has to do with things like brent. there is reason to expect this to continue, to become persistent. from low levels, we should expect inflation in core services to gradually drift higher. llymphasized the graduat part of this process. the market has for the next five years, high conviction that the

inflation will be at best, 1%, which is what we are tracking right now. i think there is scope for inflation to go higher. nejra: thank you, francesco garzarelli, for joining us on the program. up next, the fight over writes is on the agenda as david davies enters round two of the brexit talks in brussels. this is bloomberg. ♪

♪ nejra: you're watching "bloomberg surveillance."

taylor: global trade and domestic demand -- gdp increased for china coming in ahead of forecasts. industrial output was up 7.6%, also beating expectations. fixed asset investment and retail sales beat forecasts. tosident trump is planning shake up his legal team and evaluating his communications set up. -- isme attorney mark likely to less prominent role. it comes of the fbi and congressional investigation heat up. mitch mcconnell has delayed plans to vote on the health care bill this week after senator john mccain said he would be at surgery,vering from leaving republican short of the votes they need to advance legislation. the new york times medical

expert is saying mccain's conditions could be more serious than originally thought. south korea has proposed resuming military and humanitarian exchanges with north korea. the president's all of branch is theng to ease tensions over possibility of a nuclear missile capable of threatening america. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. nejra: thank you. we got some headlines in the past few minutes. uae minister of state speaking it chatham house talking about qatar saying they are undermining the mediation to resolve the crisis. the saudi alliance's carson measures -- harsh measures are a wake-up call to guitar.

-- two qatar. eye on that and bring you more headlines as we get them. let's turn to brexit. the brexit secretary says talks are getting to substance after arriving in brussels for the second round. he is urging both sides to push forwards on the issue. negotiator says it is now time to get -- we now delve into the heart of the matter. oureed to compare respective positions in order to make good progress. as you know, are negotiating groups are working on the financial settlement and separation issues. the coheads bring in

of strategy research at unicredit. great to have you. we are entering the second round of talks. what would you see as progress? you mentioned the eu citizens andts in general that eu you cases since. go other issues is the irish border and the settlement of the brexit deal. i think we need to see progress on that front and i don't mean -- from the u.k.. the u.k. has very little ,everage in this negotiations next to zero incentive from the eu to back down. we need to see clarity on these eunts before the u.k. and will start contemplating discussing what the future of trade relations are likely to

be. these are the things we look at. --ra: we had a bit of a risk david's in terms of the transition period. part,on philip hammond's months on david davis's part. they are playing -- this is happening when not just economics, but politics in the eurozone are strengthening. the european union is strengthening as a whole. there is a big lack of political capital now within the u.k. government. forrecent lack of direction the negotiations to take. this indicates all these differing views and i think from

a market perspective it shows uncertainty. nejra: we saw sterling get a nine-month high. a lot of that has been on the prospect of boe tightening. >> i disagree with that. if you look at the year today returns-- year to date -- cable is not the right currency to look at. i think the right currency to focus on is --. from 89.traced a bit i still remain constructive in eurosterling between the divergence between economics and politics. nejra: when you look at the bond market, where you positioned on guilt --gilt because we are seeing those grind higher. sayt is difficult to

because when you look at longer-term yields, they incorporate monetary policy. spikes, ie further wouldn't expect it to much. that doesn't necessarily going a pricing in of monetary policy. simply the market wants to compensate because of the higher uncertainty because of the deteriorating prospect in the u.k. i don't want to be involved in the market. , it willt goes higher not be helpful for sterling. nejra: you don't want to be involved in the gilt market, what about bunds? ofi think the direction

travel for yields is higher. it is rooted in strong economic fundamentals. plus the fact the market has for so behind the curve quite some time. that is not to say yields will start rising because the market will always remain cautious and would not justle -- not like to see a significant tightening in financials. i think it is quite obvious that bund yields can climb high. nejra: stay with surveillance, plenty coming up including donald trump set to shake things up as he deals with russia troubles. this is bloomberg. ♪

♪ you are watching "bloomberg surveillance." let's get a check on the markets. we are about 1.5 hours into the session. stoxx 600 up 2/10 of 1%. a better and then expected china data. i'm showing eurosterling there. we saw cables a nine-year high. up by one basis point. tracking what is happening with the 10 year treasury yield which is down to basis points. we are keeping an eye on oil. president trump is planning to shake up his legal team and is evaluating options to his communications set up according

to a persian -- person familiar with the president's thinking. u.s. senate majority leader mitch mcconnell has delayed plans to vote on the health care bill this week after senator john mccain said he would be recovering from surgery, leaving republican short of the vote they need to advance the legislation. let's get more to bloomberg's congress reporter. kathleen, a lot happened over the weekend as it always does. kathleen: it was a big weekend in terms of developments for the health care bill. thesem total is we have series of false start when it comes to the legislation both in the house and senate where they basically talked about having a vote and they had to pull back.

we sensible reason is because john mccain has had to have some surgery and will be out recovering. that kind of the lies a broader problem which means -- which is mitch mcconnell doesn't have all the votes locked down that he needs. in some ways it provides mcconnell some cover for extra time to try and rally support for the legislation while mccain recovers and then we will see what happens. nejra: we are expecting to get that congressional budget office estimate. today, that is not going to calm now. kathleen: every time they go back to the drawing board and try to make more revisions which they've done a number of times. congressional budget office has to go back and score and decide what the implications are for folks in terms of insurance.

what we are seeing now as we are waiting for this latest estimate , obvious it is less pressure to get it today because they're not looking to have a vote anymore. ,ne of those things we may see there are some changes the ted cruz has been asking for and it looks like this new one was not going to include those changes. what i've been protecting desperate acting, they may actually by themselves initial time to make sure the changes cruise is pushing for would be there so it wouldn't get an incomplete score. we have a more full picture of what this will mean. most bearishfunds on the dollar since 2017. when you take into account everything kathleen has said, but also the week epi spread on friday, it is a bearish case for the dollar increasing. >> i think it definitely remains firmly in place. what you are showing out there

is the aggregate in the main currencies. if you do that against the euro -- long in the euros have been since 2007. we talking at a 10 year high. in this market where you have not just positioning, it is normal and reasonable to -- from a fundamental perspective i think the dollar goes lower. what you have is a completely completef the -- re-pricing of the trump agenda. before the dollar started pricing the trump agenda. all that needs to be taken out. coincidese time, this where some economic data is -- downside.

downsides --tive we had consecutive downsides. you are selling it as a basket or against certain other currencies? >> i think it will be broad-based. short-term, there is not a lot of risk going into massively loaded euro loans, especially ahead of the ecb meeting. from a short-term perspective there is a lot of value is the downside in dollar-yen. what you have on one hand, the japanese 10 year has been around 68 basis points where the boj would like to get it to. at the same time you of the u.s. 10 years which are likely going to calm under pressure. the recent driver, the downside

pressure on u.s. yields is likely to put pressure on dollar-yen. i think there is room for that. , i wanted to ask you about president trump shaking up his legal team. what implications does this have? kathleen: it shows there is a net appreciation in the white house in the fact they congressional probe and fbi thees are accelerating and needs to be more disciplined response out of the white house in terms of what they are saying about the russian matter. the big question to me is you can do as many staff shakeups as you want, but if the president -- if no one can stop the president from going out and tweeting what he thinks from moment to moment than having more a disciplined staff response doesn't necessarily help. did get more tweets

yesterday from president trump. thank you to kathleen hunter. emerging-market currencies weather the unwinding of qe? ♪

♪ you are watching "bloomberg surveillance." let's get to the bloomberg business flash. easyjet has confirmed its ceo is stepping down. easyjet says the search for her successor has artie started. the barclays case picked up in london with ex ceo john barley and three other executives charged with fraud. they are the most senior u.k. banking executives to face charges since the financial crisis. at a hearing earlier this month, they intend to plead not guilty. the banks may face charges were qatar.o

toshiba has agreed to hold off on the disposal of its memory chip unit until a court hearing on july 28. cash ofneeds to raise losses from its westinghouse nuclear armed. that is your bloomberg business flash. nejra: as global bonds real under major central bankers, will emerging markets weather the storm better than 2015? is still gkionakis with us. i know you have done some work on this. i want to check -- kickoff with a chart. in em currencies continues to be low. volatility jpmorgan mark -- emerging markets volatility index. you have people saying that em currencies will weather the storm.

you think so as well? vasileios: i -- as well? vasileios: i think so. it is all about why yields are going up. if it is for the right reasons than that should in principle be good for em and eem fx. it should be supportive of that. i think based on what we have found, there is definitely an issue that affects from a negative perspective emerging-market currencies when healed go higher. you've got all these other things, you've got commodity prices going higher. you've got sentiment picking up. you've got global trade firming. have anyese shouldn't negative effect. when yields go higher very whateverin which case

other positive factors you may have, they cannot compensate or offset the big negative impact from rapid increases in yield. this has not been the case this time. -- of u.s. real yields rising per week in order to get the same meaningful negative impact and we haven't seen that and we don't expect it. to the extent that yields go up in a relatively smooth manner reflecting expectations, i think em will stand to benefit. nejra: where in the space are you can't -- positive? regionss: in terms of on positive on the india region because it has high -- to the eurozone. theeurozone represents price of the economic and political front.

in this region in general we are quite -- on poland. i think in the short-term, the ruble may look a bit rich relative to oil prices. i think it will remain supportive. other regions will depend largely on what is happening in china. we have seen recently from china is very reassuring, not for the next two or three years, but the next three to six months. reporterwas asking our and guest earlier about china in terms of what we had over the weekend from the financial work conference and i thought perhaps you would see more instability in the short term to have some longer-term stability. do you see the opposite? vasileios: i don't know about , i longer-term instability

think the massive credit issue in china represents a hurdle in the medium to long-term. is we were going into 2017 expecting to see a mild slowdown in the data and get what we were actually seeing , it is a mild improvement. that is definitely good news to my years. nejra: what that might do is give more leeway for that deleveraging and perhaps more financial tightening, is that not a risk? vasileios: it is but it will negatively affect markets to the that won't more than offset the positive impact from the good economic data. you can say a lot of things about china. but a good thing about the centralized economy is that things move quite fast and i think they have proven more often than not they have a good understanding of how the economy

works. i'm quite optimistic. nejra: very briefly, we've talked about the gradual fed. the 10 year yield, do you expect it to go lower? vasileios: on a medium-term perspective i expect higher. gravitationglobal of yields going higher but i would expect them to go up by less. nejra: vasileios gkionakis cohead of strategy research, great to have you on the program . bloomberg surveillance continues in the next hour. this is bloomberg. ♪

♪ tom: brexit is coming. sterling strengthens this

morning. the chancellor of exchequer says the levers to remain and the remainders to leave. inflation is coming. 10 days from a fed meeting. the inflation talkers talk the talk but walked back rate hike. felt like those dragons to just go away. good morning. this is "bloomberg surveillance." i am tom keene in new york. i watched game of thrones. guy johnson does not watch game of thrones. a little lost in translation for this big event for hbo sunday night. brexit talks are fascinating. i'm not sure if we are watching what is happening in brussels or what is happening with the cabinet rows in london.

tom: it is sort of a stew. we will get to that through the morning. taylor: the second round of brexit talks start today in brussels. the u.k. is urging negotiators to make progress on the rights of citizens living in each area. back in the u.s. on capitol hill, mitch mcconnell has put a vote on that controversial health-care reform bill on hold because john mccain is recovering from unexpected surgery. mcconnell is struggling to come up with the votes he needs. the south korean new president tofollowing up on promises pursue dialogue with north korea. that comes after north korea signaled a willingness to receive the overtures.

this year torack produce the least amount of oil from one year ago. they have turned to imports to satisfy the needs of verifying. -- hasas now sound past now surpassed the u.s. is the largest purchaser of oil. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you so much. sterling is really front and center. i will let guy take the glory on that. good futures this morning. the dow in a moment. curve flattening. oil bouncing off the bottom. there is the vix, 9.86 right now. up to that ding

thell let you talk up sterling. guy: i think what is happening with the dollar at the moment slightly muddies the waters. the eurosterling could head through 90 in the near term. european stocks going nowhere at the moment. a canary in the coal mine maybe. dollare dollar -- aussie starting to fade this monday morning. maybe the canary as i say. there is the german 10-year. i'm told we need to pay attention to the next two weeks of german politics because it should determine not if merkel wins but who she ends up in coalition with. tom: down we go.

weak sterling with all of the ramifications of that. this is like an approximation of where everybody was migrating out even a little lower. you could move this down lower. -- move this blue line down lower. we are really getting back into that range after the shock and of june 23. guy: let me have a little look at your currency. i have data surrounding the dollar. this tends to mean reverse. the question is at what point? this is the leverage positioning, net short, the highest level in three years we the seen net short on dollar. you wonder at what point this will start going the other way. could it be this week with the ecb later this week? maybe the markets are

anticipating that could turn the tide with the dollar. let's talk more about the greenback. we will get to the pound in a moment. cio or jpmorgan's international fixed income and vasileios gkianakis. i give you exhibit a. this meanwill reverse on the dollar? >> do you mean in terms of position? the empirical link that we know between reversion and this particular point on the dollar does not necessarily imply we will see reverse in the price actually. look, i think short-term the market may be stretched. i amnk this is the period very much in agreement with the market. i think the dollar will still go

lower from your. -- from here. guy: we are looking at december possibility of a hike. the dots tell me for between now and 2018. are we stretching things a little too far? >> no. the markets will probably need to readjust much closer to the dollar. back,d take a step inflation is too low, but look at the gross numbers. u.s.h is stronger for the for the rest of the year, that gives the fed latitude to hike rates more. tom: this is supposed to be a midyear adjustment. i thought last year was an incredible week of confusion.

what are you actually doing at jpmorgan? strategy is follow the growth. the real theme at the moment around the world is growth is exciting to the upside. a couple beneficiaries, first emerging markets, particularly bonds, you still have double-digit yields in countries such as brazil. the second way to follow growth is corporate bonds. the reality is the risk of recession is low. the risk of default rates themselves go low. corporate spreads and yields don't fully price that yet. tom: what central bank is most important? is janet yellen central banker to the world? >> there is that. think of the bigger shift to turn to the ecb. we know that that is hiking rates. we know they will do something

with their balance sheet. the change delta is from the ecb. guy: we'll talk about the ecb in little more detail later on. i am curious about draghi. let's focus on sterling. we are at 1.30. are you comfortable with that? the politics point me in a lot of different directions. am i comfortable with 1.30 on the cable rate? >> i would not say you are too uncomfortable. let me just go through a number of steps. valuation models have been thrown out of the window because we don't know the extent of the structural damage because of the brexit referendum to the u.k. economy. the other thing is that cable is up 6% this year.

rallyells me the cable that we have seen this year reflects massively the weak do llar factor. i think you need to be looking at eurosterling. the divergence we are having on the economic and political front -- i think the risk is we go to 90, and there is an equal risk we go higher than that. >> that is absolutely right. when you look at it, it comes down to the difference in economic fundamentals. the eurozone is outgoing the u.k. at the moment, and currency will reflect that. guy: you have the spread narrowing as well. >> absolutely. the ecb can start to normalize policy. it is tricky for the bank of england. maybe they remove that one emergency cut post brexit.

that is about it. tom: we will continue with our two gentlemen in london. profound apologies, clarification, not a correction. we understand game of thrones spoilers for our european audience is totally inappropriate. the show came out at 2:00 a.m. london time last night. i will say nothing except kings landing is totally screwed up, which you don't understand. it is worse than london. stay with us. this is bloomberg. ♪

♪ >> this is "bloomberg surveillance."

let's get to the bloomberg business flash. the ceo of easyjet is stepping down. discounteave the airline at the end of the year. he has run easyjet for seven years. the barclays case takes over in london today. senior u.k.the most banking executive to face criminal charges since the financial crisis. with loans to qatar. charges may face related to qatar from the product is. fund its group on overseas instruction. the chinese government will cut off funding for several

approvals. that is your bloomberg business flash. tom: thank you. there are any number of themes to tackle in washington. kathleen hunter does that for bloomberg news in washington. vasileios gkianakis with us. it is like game of thrones. you never know what is going to come out episode to episode. the upset over the weekend was horrific rolling for the present. for theident -- polling president. he says those are not really accurate. how accurate are they? >> when it comes to donald trump, he likes to tout polls that are to his benefit but is dismissive of data that he does not think is with the message is trying to get out there.

it is not surprising that he is discounting the polls over the weekend. talking about his low approval ratings because that goes against the message he is trying to send. the corollary to that is that his argument and why his is that theof polls polls in the primaries turned out not to be that accurate. tom: there were a lot of other polls this week and were not as kind as the bloomberg poll. would you presume you are going to see body changes with the administration this week? >> definitely. it sounds like there is another shakeup coming. this time potentially dealing with his legal team. they have hired+++

for this year, we were largely talking about the potential downside in the dollar. i have to say that we lean towards the cautious sentiment because that correction in the dollar lower manifested much faster than we have seen over the past seven months. i think right now what we are going to see is my hero. what matters for the ecb at the margin -- i think it is the pace of appreciation. definitely the risk is much higher for our forecast. we have euro-dollar at 1.15 later this year. i think we will graduate higher. i think commodities will benefit

as well. the fed wants to keep the dollar down by not raising rates so aggressively. you look at what happened to the 2-year. on the 10-year, you can let the economy run hotter, and that effectively brings down rates. you can end up with the best of both. >> i think you're right. i think the weak dollar brings in just a little inflation. when you think of nominal growth terms, the u.s. economy could be going at roughly 4.5%. half of that is inflation. tom: we will continue in london and new york. the illness of senator mccain important to the health care bill. we speak with zika manual. at 8:30.oin us this is bloomberg. ♪

♪ johnson in london. tom keene in new york. sie's talk about the aus outperforming last week. the aussie is on the front foot right here. you can see that move up. you can definitely see it in what is happening with the data. that is a long-term time series. the market is net long.

can it go further? should it go further? >> i think it can go further, it will go further, and it depends on the time frame you are looking at. it outperformed leslie. -- last week. since the change in the policy has outperformed all other policy affects. atee weeks ago it was back 1.33. i think there is a catch up was the fact that if you look at the -- plus the fact that if you policies,e monetary the best place is australia. >> how much room is there to go? >> in terms of rates? our forecast is it is going to hit 80 because of the weak dollar factors.

>> thrilled you are all with us this morning. it is a monday briefing. you are 10 days from the july 26 fed meeting. david blanchflower of dartmouth college. look forward to that. the path for chair yellen. let me do some data. euro-dollar churning. we will come back with vasileios gkianakis on euro and a little bit. this is bloomberg. ♪

♪ london where the mathematics this morning is 6364 61. at better makes history

wimbledon. a beautiful roger federer of london this morning. let's get to new york city and first word news. islor: president trump looking to shake up his legal team. investigations into his campaign ties with russia heat up. he is likely to put his longtime attorney into a less prominent role. president trump is considering what to do with his communications staff. venezuela, opposition leaders say more than 7 million people maduro'sinst president proposal to redraw the constitution. is european central bank likely to drag out the process of unwinding stimulus.

economists say the ecb will likely allow on any action this week and wait until september. uaee is a report that the was behind the hacking of government websites in qatar last may. that led to the of people between qatar in the saudi led coalition. qatar says the report is not true. 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: thank you very much. talks underwayit in brussels again with the clock ticking down. david davis has promised to make real progress in the future rights of u.k.'s citizens living in britain and britons living in

the eu. more now, we are joined by him which are. they told us this morning at their opening ceremony around to that progress would be made -- two thatof round progress would be made. what progress will be made? >> they did not say much. they just said the clock was ticking away. they really need to focus on this issue of citizens rights. how to protect the rights of citizens in the u k and e u euer brexit -- in the uk and after brexit. until the get progress on those issues, we cannot see vstoxx making any progress at all. understandhard to

what the lie of the land is in london. does that make the talks in brussels less relevant or less important considering we don't know what the future a little direction of london is. >> i don't think you could underestimate the importance at all. i think there are very important. you get the feeling from the eu side and looking at the shenanigans in westminster, why cannot they just get through this. whatever's going on around the prime minister in london, both sides recognize they have to get down to business. tom: the mystery for me is from the european side. john mickelthwait had this earlier this week. what is their incentive to get anything done? just want tou delay until the last moment? >> we cannot say it is not in the eu's side to get a deal as

well. britain wants an easy way out of the eu. wants the u.k. money and to continue to trade with the u.k. saying, look, it is in our interest to get a deal as well. let's get our heads together. guy: something to think about. let's get back to our guests in london. nick, so many moving parts. difficult to get your head around what is happening here in the u.k., who is going to be prime minister after the summer recess, open question. how long are do i price this -- how on earth do i price this at the current time? >> the reality is you don't

price it. we are in a phony war. you only get the results at the 11th hour. that is the roadmap for the next 20 months. we will see great pictures coming from places like brussels. ultimately, people will look at the final deal when it comes, and we will get that at the 11th hour. -- we problem is we go understand one side, but we don't typically understand the other side. i think points about these things are not done until they are done. trying to model this is almost impossible, isn't it? >> it is not almost, it is. the fact we cannot really decipher what the u.k. side of things are simply tells you that the negotiating power in the

u.k. during these eu discussions is very low. my view is the eu has all the leverage and zero incentive to back down on anything. i cannot think how things pan out to the benefit of the u.k. through this process. majoro you agree that the coefficient of misjudging on sterling consensus has been politics? to me it is the whole story. sterling is swirling. the debate about politics has been the major driver for strong sterling. >> i think that is right. theou actually look at sterling action and cable in particular before we started going into this weak dollar phase, i can come back cable

weakness in the span of 10 days or two weeks at the maximum. camef this dropping cable because of the brexit referendum and in may. that was it. sterlinghat drove lower. that tells you a lot of it is in politics. for is especially relevant the euro. if sterling is driven lower on the back of speculative activity, that means we have not seen the effects of sterling unwinding. of thethe years eurozone, we saw a lot of money eu to thefrom the u.k.. weighting ofyour

foreign equities. do you go bigger into foreign securities, or do you stay within the united kingdom, the u.s., and continental europe? generalone assets in should be a pretty big beneficiary. strategically, it is an environment where the euro itself should be stronger, certainly 1.20 is very reasonable. for that's horrible news mario draghi. >> yes. the challenge becomes the inflation side. that will set low inflation into the eurozone and damages the export side. guy: i need to reach my target on inflation. >> identity of her. if the euro is going -- i beg to

differ. if the euro is going up hand-in-hand with equity markets, which implies financial conditions remain loose, and higher equities implies a boost in demand. that is not a bad combination. ecb has made its case that the euro is undervalued and going higher. we have to understand that the central bank does not sit in front of a screen all day and look at each and every pip in the currency market. first of all, you look at the trade rate. if you look at center, it has gone up 1.5%. that is not a big deal for the ecb. i think you need to see an

appreciation rate of around 5% to 80% to start ringing -- 5% to 8% to start ringing alarm bells. brusselsad the eu in this week. and then we have a special about on ouriting wonderful cover with lloyd blankfein. we really think that for that. it is the new bloomberg businessweek. must read for global wall street. this is bloomberg. ♪

♪ johnson in london.

tom keene in new york. d wimbledon of the weekend. i just had to throw some sports in their at some point just to balance out other things like game of thrones. gdp increased in the second quarter. it increased 6.9%, beating the estimate of 6.8%. economicsasia correspondent joins us from hong kong. there is a subtext surrounding china, and that is about debt. at the moment, i think this economy is moving along successfully. nothing seems to be going wrong at this point. do you think the chinese are happy? if they are happy, why are we so concerned about risk?

>> good morning. i think is on track to interviewed about one third of global growth this year. we are seeing domestic demand. consumption is a big part of the story now. at the same time, authorities know the business model behind this economy. they want to rein in that risk of debt. they don't want to take the kind of measures that will chill the overall economy. the message now is one of stability in the chinese economy. weakon friday we had u.s. data. today we had strong chinese data, and equity markets went down. explain. >> it is mostly because of a conference over the weekend, and

important half each decade conference where they map out trajectories for the years ahead. at this point, the president of china made it clear he wants risk in the financial system elevated to the same national status as -- risksant to see these tackled head on. that might mean lower credit for the economy and slower growth. tom: what is the control of beijing? i know you have really studied this. what is the control of beijing on a 6.9% economy? >> the hand of the state is firmly gripped on the economy at the moment. they have things exactly where they want to be. a year ago, there was some talk

of a hard landing. markets are calm. volatility has been washed out. exports are doing nicely. consumption is holding up as well exactly the way the economy wants-- the government the economy to move along. to tom: -- tom:i want to bring up -- tom: i want to bring up a new chart. ais is american pork, big uproar in the united states. we have seen higher lean hog prices. that is critically important in china. what do you see in food prices and inflation in china centered around this pork? >> you are right. hikess often blamed for

in chinese economy. right now consumer inflation remains tepid, around the target of 3%. no major signs of an outbreak. >> very good. guy: thank you very much. kongng us out of hong earlier on, nick dark side still with us. storyoes the china debt stop manifesting itself? >> at the moment it is very little evidence, as the chinese economy keep scrapping alone. when do we actually start to see the reality of the story coming through? >> much later than people think. countriesnk a lot of with a lot of debt, italy, japan, what happens is you have

the idea of a rolling loan gathers thomas. the key is the cost of finance in china. it is pretty low. stubborn.s debt is an ever present issue. level, they economy will be a shifting of that from the corporate sector onto the government balance sheet. about the thinking kind of policy around the world, which operates low anyway, you think china could be example of a great adaptive force as far as what we are seeing now. >> you have a controlled economy and controlled currency. 18 months ago, china was a huge source of stability. much less so now. -- of instability.

much less so now. guy: i point this out to you. this is a useful feature. it is tv . usually we pick some interviews. you have interactive tv, radio, events coverage coming up, and this feature right here. these are the recommended that he has for you. most-watched. the most-watched video is jamie dimon talking about almost an embarrassment of an american abroad. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get to business flash. americans feel good about the economy, but not certain about president trump. they are closer to realizing their career and financial aspirations. that ties the highest response since the question was asked first in 2013. a growing number of companies in the u.s. are having problems

recruiting skilled workers. 34% of the businesses surveyed cannot find the workers they need. --t is up from 7% in january 27% in january. there is a concern the labor market can hurt profits. --ected the demand to name to the board after months of talks. they want more time to prove management can boost results. up theam glad you bring png news. nick is with us from jpmorgan. this goes back to the fundamental idea, how much debt is good debt. they have 11% debt. is that too little given where interest rates are?

have they not taken on an appropriate amount of debt? >> it is different for each company. the general point is if you look at measures of corporate health. they are pretty robust generally. there is plenty of corporate equity. when you think about entering bond markets, credit spreads should contract as you look out. this started friday and continues into this week. will it justify market valuations where they are? >> very much so. the risk is better. if you think of what corporate america is going to see, they're going to be the beneficiary of the weak dollar. people forget the eurodollar has moved 10% in the last six months. that is a big feet when you look

at earnings. out we have already backed of the trump reflation trade. we have backed out the fact that the consumer the u.s. would kontinue to deliver wea retail sales numbers lastly. >> the dollar is a little weaker as we go forward. we will finish the year at 1.20 or thereabouts for eurodollar. we are seeing synchronized global growth. virtually any economy in the world is growing at -- tom: thank you very much. much to talk about today. i want to do not a correction but a clarification. all of our global audience getting game of thrones late. we will not spoil any of that as

we saw it in the u.s. at a decent hour last night. our next hour is a decent hour krzyzewski anthony -- let me give you some data. checkl do extensive data on the top. i will call it a return to the market with the vix 9.92. that is a wild statistic on the vix. i am tom keene. this is bloomberg. ♪

inflation is coming. well, maybe 10 days from a fed meeting. talk the on talkers

talk back, way back. of pimco. r, anthony rexit is coming, as sterling strengthens. is the chancellor of the remainers to ells leave or leavers to remain, i really don't know what's going on with brexit. russians are coming. wait, that was a carl reiner comedy classic from my childhood. president trump would like the russians, like those dragons, just go away. everyone. g, this is "surveillance." live from our world headquarters in new york, i'm tom keene. "game of thrones." guy johnson does not catch it. game going whole on in the throne of england, which is over brexit. monday an update on a morning, guy. guy: tom keene is speaking in code this morning, but we'll decipher it. figure out what's going on. we'll watch the show. it's the 't think royal family we're worried about, i think it's what's happening with the politics. we're trying to figure it out. trying to work out which is

the more important series of developments, what happens in week, politics this specifically here at home in estminster, or what happens in brussels, where we have mr. brexit, mr. davis, talking today. we'll figure out what happens there. to be honest, too many moving parts to really, i think, get accurate handle on what's going on. guy: does prime minister may of the ancellor ex-check or's back? y: i don't know, to be honest, sir. tom: ok. stay tuned for next sunday at 9:00 p.m., where they'll go through that. now, to first word news in new york, here's taylor. u.s. : tom, guy, in the on capitol hill, senate majority leader mitch mcconnell has put a vote on a healthcare reform bill on hold because fellow republican, john mccain, is unexpected om surgery. mcconnell is struggling to come up with the votes he needs to ass the legislation. and as you were mentioning, the second round of brexit talks tart today in brussels and

u.k. david davis is urging negotiators to push for progress on the rights of living in each other's nations. the e.u. says the citizens' rights is one of the three where there must be progress before it will discuss uture ties with the u.k. in south korea, the new president is following through campaign promises to pursue dialogue with north korea. his government has proposed resuming talks from some humanitarian jong un's kim regime. and china is on track this year amount of he least oil since 2009. from january to june, chinese 5% utput fell more than from a year ago. the country has turned to imports to satisfy the needs of refiners. china has now surpassed the u.s. as the world's largest buyer of oil. 24 hours a day, powered by more than 2700 analysts in nd more than 120 countries. i'm taylor riggs. this is bloomberg. tom? tom: taylor, thanks so much.

let me get to the data right now. nice bull market. euro in. going there's not much on with that data. let's get to the next screen, please. 9.92. .x., it was at 9.80 two hours ago. e dow, look, that's an amazing statistic, 21,600 as well. johnson, g, guy .3070. guy: a cracking week last week. it's rolling over a little bit this morning. stocks going nowhere in a hurry. ake a look at what's happening with the euro sterling rate. that kind of strips out the dollar weakness story, maybe you a more pure brexit play. at 497.65. there is a sense that goes to a better bid. well, yields now, as you can see, starting to pick up a little bit. y attention to the germany-u.k. yield

differential, because that's narrowing and narrowing fairly quickly. tom: thanks to our global audience for demanding those spoilers on "game of thrones." that. to help you, it came out last night, 9:00 p.m. in new york. in london, so we're not going to spoil it, and neither did maureen dowd. writing ureen dowd this weekend on "game of trump." let's bring it up right now, must read. the president has survived and same philosophy espoused by little finger in thrones," chaos is not a pit, chaos is a ladder. i'm not even saying it like we're say it. in the immortal words of the bolton on am say "game of thrones," if you can this has hay happy ending, you attention.n paying we get wisdom and perspective. vin, as you know, it's all about the bit players. who's going to lead the white house in the next 14 days? kevin: well, i think i'm going

to have to totally disagree th maureen dowd, much to the disappointment of my mother, and say that this is less "game f thrones" and more like "veep." what i think you're seeing right now is an administration trying to get its political bearings in washington as these ongoing. ions are we just learned over the weekend now that the legislative op priority has been significantly delayed, most likely until recess.e august of course, that's healthcare. tom: what are the ramifications? speak of senator mccain later in the hour, but what's the fallout this kevin cirilli, of the senator's serious illness in the delay? is it a delay still thursday or is it a delay, as you say, into the late summer? kevin: i got to be candid here that the chances of this going eyond august are now increasing. when you look at in terms of our days in politics is an

eternity, simply because the senators who are undecided, m, on the healthcare bill, lisa murkowskis of the world, as well as the dean hellers of e world, i mean, these folks -- one more of them goes, then the bill is delayed. o i can tell you there's a strong appetite in the house of representatives for the senate to pass it. i talked to several lawmakers house, both he conservatives and moderates, who say if they get a bill out of the senate, tom, the house fall in line and pass it. kevin, it's guy. what is interesting about the it were? os, as they're at either end of the spectrum when it comes to the republican party. i'm kind of which, of wondering what the sort of om for maneuver, mitch mcconnell actually has. if he takes it one way or the to encourage ng more people to go against him. he's kind of stuck in the middle, isn't he? he's stuck in the middle, you're absolutely right. there's no room for all, ering, guy, at

because senator rand paul and senator susan collins, the two posing folks, as you mentioned, are on two different sides of the ideological that's an spectrum, and why this gets so interesting. because senator mike slee all er undecided vote in this, as is senator rob portman. sides e on two different of the ideological spectrum. should he be pulled more to the party, wing of the then he's going lose folks. and then it's game over. guy: then it's game over. are we talking about individuals here? re we talking about blocs? i would have thought it would be incredibly politically brave an individual to go, i'm going to vote against this. i would have thought you need the kind of political cover of three, four accident or five to sort of -- to be clumped together. kind of -- are they talking individuals or targeting caucuses, groups? is the actual politicking going on on the hill? kevin: it's being completely the majority leader's

office. he is driving the force on this. white ctually told the house in terms of political strategy where to keep pressing and where to back off. his ld them to back off of nevada counterpart, senator dean heller. if you look at polling, new bloomberg poll out this morning the terminal, this bill is ncredibly unpopular, and that, of course, unpopular for different reasons. but that, of course, is putting these re pressure on lawmakers as we head into the august recess. portman be bought? there's a whole theory out over the weekend that the senator rom alaska is being bought with a billion dollars of a $3 billion cost to the people of laska. are you telling me rob portman can be bought by the senate leader? kevin: i wouldn't say the senator can be bought, but i without t he has been, question, at the center of these negotiations, simply status as a senator from ohio, a very significant political state.

he did get an increase in the opioid addiction funding. whether or not that's going to we'll have r him, to wait and see. tom: kevin cirilli, thank you our chief washington correspondent. it is a perfect time to speak pimco.ony of not only is his academics and his book writing on the hort-term paper market definitive, he gives advice at pimco on the wisdom of where now.-term paper is right is your world, tony, is it with the permanent sub-par g.d.p.? nthony: it is, in the sense of markets are still priced globally for interest rates to stay low on the central bank level for years to come. and look, it's for the e.c.b., where there's been a change of this, markets still at about a zero percent rate in 2020. same for the bank of japan. japan and europe, probably four to five years behind the united states. is is something that jean-claude trichet told us at that nd anyone can tell

from the data. bond market is aligned with the subpar growth story in the sense that it expects, that at the fiscal level won't be able to pull it off. tom: i make a joke about "game thrones," winter is coming. the idea here is inflation is oming. is there any evidence that chair yell suspect going to get the gift that keeps on giving, level of good inflation? anthony: only in history. eople refer to the so-called phillips curve developed in 58, but that may be just a relic of an era. remember, i listened to a a month or so ago, and he said something teresting, the idea that there is a relic of perhaps a era, that the new series will be out, the new model, the most dynamic model will be out from now. perhaps we're looking at a relationship that doesn't look back a can couple hundred years ago and say there wasn't 100-plus years.

and so they're really relying upon history here, and that's hy it seems that central banks are getting antsy in wanting to remove the moan tar albeit slowly. guy: over the next 18 months, the market our, has one, but we're still thinking about how the balance off. rolls the one sounds great n. some ways, this is a fantastic scenario for the u.s. economy. low, longer ay term rates get affected by the balance sheet rolloff. that means you have an invest longer term, which is great for the u.s. economy, but short rates stay low and the dollar stays cheap. this is goldilocks, isn't it? nthony: it is, but it isn't. for workers, of course. the fact that central banks moving slowly on interest rates another way of saying they believe fiscal authorities and lly will be too slow do too little to push their economies stronger. so it is goldilocks in the markets, and those who have been investing in them, but not for workers. terms of the rate

moves, that probably is about right, what markets have, but a little bit be more, we would suggest, and we'd also suggest that when the to roll serve starts back its balance sheet, perhaps about a quarter point per year it would equate to. a very important point. how do you take that balance eet and bring it over to a ratee quive a? you heard a quarter point, which is most, most interesting. continue with tony of pimco. coming up later on television healthcare, you know his angle. he helped write the affordable are act. the doctor emanuel of pennsylvania will join us across television and radio. stay with us. this is bloomberg. ♪

tom: oh, the rosy hues of a summer eve. usually empty. the senators have not gone ome. of course, the senator from arizona, very sick this morning. we'll speak with greg bellier about senator mccain here in a bit. good morning, everyone. washington. thank you for listening on your drive time. 99.1 f.m. washington. love that signal down there. reports. giving news he always gets the washington nationals to do his news report. i don't know what that's about. we're going to get janet yellen into our surveillance report, weighs look at central banks. guy for the right that. hip up the chart here. he called this the r starred i like.hich thanks for saying shut up and do the chart. moving average of inflation adjusted short-term

fed funds target rate. tony, here's the rate increases. target rate coming up, this is absolutely nprecedented here, the duration of low real yields. as a first order condition, we get back to zero, right? anthony: correct, but it more than the assistance of monetary authority. tom: what's it need? anthony: fiscal authority. think of economic growth historically in the united states. it's been about 3%. why? because of about 1% increase in the amount of people in the workforce, and 2% increase in productive they work. in the last five years, though, e labor force has grown at a 5.0% base. it's something we're likely to see from here on, because of the aging of the population t. as fast. so we've got a half percent more people to produce and consume goods and services. productivity number has been only .5% as well. 2%. rically it's

why? in looking at the three ources, people, stuff, investments in plant equipment, software, structures, frain structure. and third, how we use it all, productivity as it's called. tom: but it ain't happening. anthony: in the data, the main weakness is the middle part, capital. the amount of capital in place per unit of labor. in other words, say say there was a company with 100 people, 50 computers. today, by this measure, for the since 1953, it's declined on a year over year basis. there's 100 people, 48 computers. i want to go back to 1953 here. to go back wants to 1953 when boards were active. was with p&g management the day they bought wella balsam, huge european merger a jillion years ago. at kind of misstep is what mr. peltz is out of patience on. to be clear, this is not rocter & gamble nominating peltz. this is him being nominated that's off and

"the wall street journal" article that we saw overnight. there, s the headline p&g story. eisenhower redux? no, we wish we did. eisenhower spent the highway 50,000 miles of roadway. we still use it. we still gain some benefit in from that. it was the peak of the past 100 years in terms of the amount of vestment by government directly in the economy. we need more of that, and we're simply not seeing it. nd so as i said, the three sources of productivity, the main weaknesses in that area of investment, we're not seeing t. and this is why there's hope that donald trump's will invest in infrastructure. but they'll talk about $1 headline over 10 years, but it will probably be indirect money, only about 20 billion per year, and hoping for multipliers and

involvement by the private ector. guy: tony, i've got so much we? haven't anthony: we do globally, and is is why our star, our real interest rates, are the amounts of how high the fed can put its has gone down over time, so it is difficult. so it's a big quagmire in terms get out of this. the way to do, it people think, is to have more debt, but too difficult. tom: i'm going to steal that crescenzi. we're going to steal it. that's what we do best on a charts. teal i've done that with david blanchflower. to steal charts from professor blanchflower, he of curve, he of smart macro economics, always .ontroversial danny blanchflow neither 8:00 hour. ♪

guy: guy johnson in london, tom keene in new york. proxy story he developing around p&g. remember, the company is now boss to be dominating its effectively, mr. peltz, to the p&g board. getting commentary indicating they're not seeking to replace the director, not the c.e.o. at should go, and it's not advocating a breakup of the company. is saying is that it is a situation where we've got and a urns deteriorating market share.

and as a result of which, hanges must be made. remember, we've got a similar split. there are parallels with what's nestle right now as well on the shores of lake geneva. bring it back around to brexit. we're getting more discussion at the moment in london. theresa may's spokesman being asked about what is happening. apparently they're going to be reminded of their collective responsibility. that's politics in london, ferocious at the moment. the negotiations continue in brussels. hey started earlier this morning. these two gentlemen shaking very firm handshake there. maybe less than the one we saw president french and the u.s. president. et's go to brussels. we've got four days of negotiations. what progress can we expect? you get the sense, there you go, that actually david davis to escape all the political infighting and turmoil in london as he comes

to start ussels these talks. i don't think we're going to get much progress, despite what is say, saying progress absolutely vital because the clock is ticking. but at least now they're both these two priorities, citizens' rights, rights of the e.u. citizens in and u. after brexit, whether the u.k. should pay any money to the e.u. when it eaves. guy: how much -- you talked in brussels. u've got your ear to the ground. what do they make of what is happening in london right now? is going on, tion and you should have two reasonably well organized teams at the table trying to figure out the outcome. we don't have that. so what is the feeling in brussels about what's happening in london at the moment? ian: it's quite funny, actually, because we smaw negotiators the this morning sitting around the table, and the e.u. side was and with piles of paper notebooks and ready to begin, and the three u.k. negotiators just thing and were sitting at the table. i think the e.u. side is

and ng on with frustration dismay with what's going on in london, because it means that hey can't really do the work they want to do and try to hedge toward the detail because negotiators. tom: thank you so much from brussels this morning, greatly appreciate your effort. up, an important conversation on the senior from arizona. we have a note this morning on courage of senator mccain, lso the political economics of our washington. we'll do that next, from london nd new york, this is bloomberg. ♪. these days families want to be connected 24/7.

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>> president trump is preparing to shake up his legal team and the changes may not stop there as investigations into his campaign ties to russia heat up. he is likely to put his long-term attorney into a less prominent role. plus president trump is considering what to do with his communication style. moving over to venezuela, opposition leaders say many cast votes in opposition. it has no legal impact but could pressure med ross to modify his proposal. and then unwinding the stimulus program. economists say they will probably hold off on any action this week and wait until september to slow the pace of its bond buying. the rollback is seen as starting in january and lasting nine months. uae 's a report that the

was behind the hacking of government websites in qatar last may. attributed to amir. qatar says the reported is not true. in lighter news you'll see changes this season when you watch national football games on tv. more split screens and fewer commercial breaks. tv ratings went into tailspin t amir. qatar says the reported is not true. in last year so they used people as lab rats to modify the ormat. this is ploomberg. >> thanks so much. this is a different piece than too big to fail banks. there's a churn here ron revenues and earnings. lot more as they fight the

active passive battle. they took 11% of assets and ran them more over to a black rodge. t's a black box quantitative program. but it's really struggling within the new asset management economy. >> struggling maybe i wouldn't go down that road. 73.76 billion. that is a fairly substantial chunk of change which is the index business. that looks like a fairly solid number to me. there is an eps miss here but nerls i wonder whether the in-flows are going to be something but it's really struggling within the new asset management. i would be interested to see how the market reacts to the long-term story. it's an interesting one. certainly a lot of movement back into fixed income. >> in the footnotes with a near 1/10 of a trillion inflow, 94

billion into black rock as well. ight now we turn to the active -- to washington with greg of horizon's investment. i thought your note was wonderful and what you do best is say would everybody slow down and take a pause. here on the the senator from arizona truly one of our giants. n american giant of uncommon courge. when he leaves the senate, that body will be greatly diminished. the senate majority leader would agree with you. wouldn't he veragets i think so. we've got to say that a craniotomy is a serious procedure. it's not like a hernia operation. the "new york times" this morning quotes several brain surgeons talking about a fairly lengthy recovery period but maybe more seriously what

caused this. was it melanoma? did something bleed into his brain? this is serious stuff way above my pay grade but his absence will be missed. >> we get a cbo score later this week, maybe today, and then we're one republican short in the the senator from arizona. what is the senate majority leader to do? >> i think he has to hope the score isn't too bad. once that happens that will give an excuse to some of the moderates to say i just can't go there. so i think even before mccain got sick chances were only about 35%. now i think chances are even less. >> does it get harder the locker this process unfolds? >> absolutely. and here is the problem. you've got a big budget fight

coming right after labor day and you've got to deal with the debt ceiling, you've got to get a budget resolution. so everyone in the marks who were hoping for action on tax reform, that's not going to happen until later in the year and i don't think we'll get a tax bill enacted into well into 2018. >> what do you think the odds are of a government shutdown? some say perhaps the catalyst could be money for the wall donald trump wants to build. >> the house is determined to bill.p with a radical but the senate won't go along. and the senate of course has chuck schumer who i think in private is salivating over the option of a government shutdown. i think he feels it would backfire on the republicans. so i think there's at least a one in three chance on october 1 we do have a shutdown. >> so where does that leave everything else? we can't get health done. we're struggling with that.

time is against us. that's looking pretty tough. we have a shutdown potential. going to see anything else on the agenda between now and the mid terms? >> more contentious stuff for the president. in particular the russia sanctions bill which passed by 98-2 in the senate which is stalled in anything else on the agenda between now and the mid terms? the house, you have a stalled infrastructure bill, not a lot to kill dodd-frank. so the agenda looks slow. for the financial markets, as long as the tax reform process continues to plod along very slowly but as long as that process is alive, that's still a good story. >> i want you to take the president and bring it down to the late summer into the fall. here's a great article on the price of all this. buried in the senate the house, republican's new healthcare bill is a provision to throw 1 billion large at states where premiums run blah blah blah than average. curesly, i'm shocked. there's just one state that meets this seemingly arbitrary

designation. it's not new hampshire. it's alaska. republicans' healthcare bill will cost alaska medicaid 3 million so they're going to give the senator from alaska the code yak kickback. can they buy off somebody like rob portman down the road? are these senators actually doing pork barrel health care? >> it's going to take a lot of money to do that. more importantly, if you try to get ese people off you pushback from the right, conservatives already upset about the obamacare. so the right wing doesn't like the bill to begin get pushback from the right, with. if you have a lot of kickbacks -- bribes in effect -- the right wing will be upset. as of now i think this bill is not going to make it. >> but can rob portman on ohio, on heroin, opioid, et cetera, can he imbought by a simple

cash transyags either with health care or down the road with the eight other pieces of legislation they hope to accomplish? >> i think portman is a senator of great integrity, in the mccain category. i think rob portman is not buyable. so no. i think he and susan collins and a lot of other moderates, he willer in nevada, cannot be bought on this. it politically viable for a single senator to sort of stand up and say i will be the one? do you not need to do it politi part of a group? do you think that's kind of where we are? we look at individual kind of states but actually we probably need a group of them. otherwise, anybody who does that as a single man will be targeted and end up with a reelection problem down the road. >> heller is in that category. but i would just say this. there are now two excuses to not get this bill done. one of course is john mccain's health.

the other is the score from the cbo later this week. i think both together will give enough of these senators an excuse to say can't go there. >> thank you so much for your comments. we'll continue. lots to talk about. we have an absolutely killer chart back to eisenhower and the state of another time. don't forget. i gasp over bloomberg business week. two covers this week. brexit. n brussels and there's the cover. and thanks to ex co for writing it up as well. great wall street article that you must read. bloomberg business week. this is bloom beg. -- bloomberg.

>> a growing number of companies in the u.s. are having problems recruiting skilled workers, according to the national association for business comics 34% of businesses surveyed can't find the workers they need. that's up from 27% in january. there's concerns that labor shortage could hurt profits. the ceo of easy jets is stepping down to take the role of british broadcaster at the end of the year. she's run easy jets for seven years. the firm seeking a seat on the board for its ceo. they say the company's market share is deteriorating and its return to shareholders has been weak.

>> thank you very much indeed. the chinese primmir is speaking on national radio right now. we'll hear commentary coming through. he's talking about the fact that china needs to keep making good use of foreign investments. and he kind of referenced back to what's been an ongoing story of chinese debt. he's also saying that foreign investment is important to the economy as well. what do you make of those comments? is this just a one-way street for foreign investment? >> well, the timing of it is interesting. remember that we've had a tough economic leadership in china and meeting in washington this week. one of the biggest complaints that american investors have is e lack of resip prossty in

china. perhaps the president is sending out some kind of an olive branch in that regard. but as you say, china is opening up its markets slowly but there's still a fear but you can put your money in but you can't get your money out quick enough. >> there's no mention of that. do you think this will encourage people? foreign investment is important for our economy going forward. partly for domestic purposes as well, we're making these great big strides. we are an integrated path of the global economy. that's got to be a part of the message as well. >> exactly right. he's probably trying to build a narrative as to why they will have to open up part of their economy to competition going forward. some of the biggest invest trs, they don't want to have anything at all to do with foreign competitors. so perhaps he's building a case there to gradually open up ectors of the economy.

remember, has becoming the kind of vanguard for globalization. perhaps he's planning to deliver remember, has on some of those as well. >> i look and hear that the battle with china, the battle over growth, the battle over the politics. and that. what is the view of china as they look to america? are they bewildered? are they baffled? how do they perceive america? >> i think there is certainly a sense of caution and confusion right now. china considers itself playing the role of good global citizen in the way the u.s. once did. they are preaching globalization and anti-protectionism. they have become an unlikely advocate for environmental -- environmental causes which is the paris accord. now, china can say we're on track to contribute one third of global growth, whereas the

u.s. economy continues to disappoint. so i think there's a feeling that china is not quite clear on where the u.s. leadership is going, not least in terms of trade with china. in the meantime china is happy to try to fill that void. >> thank you so much. greatly appreciate that. tony, how does it figure into the calculus? >> china's probably one of the most important stories to follow for the rest of the year. they have a big gathering in party called the 19th congress. it seems the president will be consolidating part of it. the key is, over the weekend, to what extent will china put the effort at stabilizing financial risk over economic growth? in other words, choosing quality ore quantity? so we want to watch this story on china extremely closely. as it was said earlier g.d.p. contribution to the world is significant at $12 trillion,

it's at nearly 800 billion of g.d.p. the u.s. growing at 2% is half that. is is so it can have big reverberations around the the world. >> china's stability -- because they want to dampen down. or instability, because we still don't know where the story is going. >> the story this year has been stability, and during the 19th party congress. exiting it we're unsure. but one should probably bet on stability. stability has been a vital element in this -- global equities this year. it's meant, for example, as the imf has estimated strong growth and g.d.p. that leaves double digit gains in corporate earnings, which of course is a huge underpinning. that is of course also the gains in capital spending which leads to a cycle of increase and reduction spending. so it's very, very important. and a lot of expense which

their president clamps down on financial risk. and all signals are institutionalized, this year. >> we've got an important single best chart for you coming up. really a stunning chart for those that remember, maybe a quieter time of normality within the pleasantville of america. modern technology right at your desk. this has proved hugely popular. you can get tv up, look at my over ce, you can come here and drag over a given segment, click on it, and you could steal that chart and use it over here and drag over a given for pretty cool to say the least. stay with us. this is bloomberg.

>> this is bloom beg. in new york. to the k america taking air. very good morning. >> we are taking the air with two very special glests. we heard on friday how

frustrated he to the air. is with morning. washington. we'll ask whether he's hearing from other ceos and what it may affect their investments. president viser with obama who has met with president trump. we're talking about what warren buffett has called the tape orm for american business, andh that is health care. what we can do to fix it. >> thank you so much. single best chart. i'll steal from anybody, which is easy to do with anthony. this is a great chart. this is what we remember from the 50s if you're of a certain vintage. this is the growth rate of government per year taking over presidential moving average of 16 years. so here's the 16 corridor moving average. there's a gradual decline with a buildup to social programs

but there's this glory of the eisenhower years. isn't there? >> correct. because of the eisenhower industry and defense highway system, 50,000 miles of roadway we still use today, think about that, over 50 years, benefits the u.s. economy >> where does the vision come? >> it's gone. it's partly because as warren buffet said the tape worm of the social safety net in a sense. we've got money directed to other places. we can't deny the money's promised to today's generation of senior citizens but we can tell senior citizens of the future that perhaps the moneys that they expect won't be as large as today's generation is getting. so they should prepare and self-insure. save, in other words. the chinese citizens do. so we can invest in the nation as china does itself. growth in the end will be greater as a result of investments in people, education, and in stuff. infrastructure, plans,

equipment, structure. >> do we get an economic recess at some point as a result of the shifting generation verage we could get a big reset. we need rethinking. but the group of individuals in washington don't seem to be able to think together, and this is unfortunate for the american people. >> very quickly here. give us the fed rate outlook. give us the view forward here. do you move july back to september? >> highly probable the fed begins unwinding its balance sheet. it will be a courtesy for the next chair to announce so they can g ahead with it. so call it about a quarter point per year what that equates to. the reduction of about half trillion dollars for the balance sheet. the fed won't need to move many times per year. call it three max next year. and who knows after that, fiscal reforms

go. >> great stuff. thank you very much for your time this morning. he and tom are about to disappear off to the radio studio and will be carrying on the conversation that really looking forward to hearing exactly what they have to say. so the conversation carries on. day break coming up very shortly. let me wrap a couple of things here because there are some take aways worth noting today. one of which you can see this maybe on this screen here is what has been going on with the aussie dollar. a little bit of softness creeping in. maybe a can airy in the coal mine. they had a cracking week last week but that certainly along with the cat are worth paying attention to. the pound is weakening. i think the big story overnight has been what has been happening in china, particularly in small caps but you can see it in large caps as well.

what we've seen is data coming through turning out to be fairly solid. the csi 300 is down 1% but the small caps have absolutely smashed overnight as well. this is part of the regulatory concern that surrounds him. up later today let's see what we've got coming up. a lovely day in london. not so good for the british pound. it is certainly suffering today. this as british politics continues to produce a great whoooo.

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than expected. according to the latest national pole americans feel good about the economy but not so good about the white house. it's a game of thrones free zone. ood morning. let's go straight to the markets and get you up to speed on the action. futures are up positive. euro dollar it's a stronger dollar story to kick off things for the week. >> no spoilers for three hours. this is what i'm watching, what's happening in the u.k. feeling a little weaker as we get into brexit negotiations number two. the yield down about four bases points.