who ♪ ♪ >> feeling the squeeze. will u.k. k inflation continue to steam ahead. we have the latest readings in a half hour. brexit negotiations carry on in brussels. as a republicans health care bill strikes out, what now for the rest of president trump's agenda? show for youked today. let us get quickly to the data. there are three or four things

to watch out for today. the dollar dropping. this is as the dollar is sliding back to a 10 month low. u.s. equity traders. there is a shadow cast on donald trump's broader agenda. that is why we are seeing gold up in the dollar down. -- and the dollar down. let us get straight to the bloomberg first word news. taylor: mitch mcconnell has abandoned efforts to pass a replacement of obamacare, he will instead focus on a repeal. the failure to deliver on seven years of gop promises to repeal and replace the affordable care act would be the biggest failure for donald trump the republican since the election. jumped tolion dollar a two-year high after the rba said the economy was improving.

australia's easy policy has sent housing prices soaring while also encouraging residential construction. speaking of housing prices, a surge in smaller chinese cities in june. the national bureau of statistics said new home prices, excluding government-subsidized housing, was growing. the u.k. housing market will cool this year as uncertainty around brexit hits the economy hits the economy, according to pricewaterhousecoopers. london will be the most is severely impacted. the united arab emirates sees a little likelihood of a speedy resolution to better prices --

two qatear prices. >> as long as it will take them to realize that this is not a crisis, that we are looking for a quick fix. we want torisis that get to the bottom of and we want 's support foratar the extremism and terrorism we are seeing everywhere. we need a solution that will stick and that is longer. taylor: global news 24 hours a day powered by our 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine? francine: we will also get a clearer indication on the squeeze on u.k. households in a .alf hour time

cpi is expected to be at 2.9%, far higher than the bank of england's targets. all of this comes as brexit negotiations continue in brussels. the u.k.is returned to after a few hours yesterday leaving technical talks to a team of 98 british officials. he will be back on thursday. let us bring in our guest for the hour. thank you both for deal -- for joining us. coup brewing? think the politics of brexit is very difficult to read at the moment. i remember talking to you about this previously and we said to the run-up -- and we said during the run-up to the talks that

there would be a lot of political posturing. we are seeing it on both sides. i think it is very difficult to read what is going on underneath the surface. we do know that theresa may's position as prime minister has been weakened by the election results. is a given andd, that is having reverberations in the u.k. and in europe. at the same time, there are a lot of small factions. in today's factions modern news era, can get huge coverage. and the interest in them -- they are thrown on the broadcasts and they are shouting loud. it seems that there are massive things going on that quite a bit are small. francine: do you agree with that assessment? that -- how do you weigh that?

>> forasmuch as the prime minister desire to not to give a commentary, she onks reverberation effects the rates and in consumer confidence. indirectly, on the banks also. francine: richard, talk to me about this chart. this is the u.k. one year inflation swap. this goes back to inflation. how much does the mpc look at this? richard: it is interesting. internationally, monetary policy makers and central banks have been quite keen to introduce a

degree of policy uncertainty. the bank of england is certainly doing this, talking about the possibility of interest rates having to rise at some stage although they seem to have just ned back on that recently. tok carney, clearly, once blame the whole of the increase on the post-brexit fall in sterling. i think that is the wrong thing to do. i think there are other things going on. meaning the inflationary environment has lately deteriorated in the u.k. that potentially means that inflation could go up further and faster than people anticipated. francine: are you expecting a rate hike? richard: i have been expecting one for quite a long time. a big opportunity to normalize policy was lost. i think that normalization

process should have started then. and i think it should now already be underway. will interest rates go up this year? highly unlikely. it would be a good thing to start normalizing policy but in all likelihood, the first step will be delayed and delayed because central banks like the still think the greater danger is tightening too early and i think that is wrong. francine: i know you look at especially at the banks. this goes back to the health of the banking system. profitability is affected. -- i would think also that the bank of canada will be raising rates. opinion, when the fed

embarks on tightening, they are never alone. when you look at the g10 countries, they are followed by 4-6 central banks. i think most likely perhaps next but i don't think the fed will be a loan in hiking rates. francine: we are seeing some technical movements as we solve the bank of canada move. some barriers are being breached. we will get back to the canadian loonie. stay with "surveillance." what chance if any is there for the rest of president trump's agenda? andill discuss households their tightening with the cpi

data coming in at 9:30 a.m. this is bloomberg. ♪

♪ francine: this is bloomberg "surveillance." ericsson shares have plunged after second quarter profitability in sales came in weaker than expected. makers closely watched -- 7.8%. it highlights the challenge facing the new ceo. has scored a record second quarter. the streaming video provider find up 5.2 million subscribers,

2 million more than analysts forecasted. city has settled on frankfurt. according to persons familiar with knowledge of the decision, the bank plans to present the option to its directors this week. they say the move will create between 100 50-250 new roles there. first-half earnings almost doubled on stronger traffic, investors are focused on the lack of progress for the country. it sets of the german airline up for a difficult second half as pressure on fares is set to intensify. the dollar has hit a 10 month low after u.s. senate majority leader mitch mcconnell abandoned efforts to pass a broad republican replacement of obamacare. it will now seek a bill on replacement.

develop onty to seven years of gop promises would also be the biggest failure yet for the president and republicans since they won control of congress and the white house. let us get more from kathleen hunter. thank you, gentlemen for sticking around. what will they vote on today? >> today, they were going to vote on the repeal and replacement thing but they have now a abandoned that. they are looking on voting on a repeal only proposal. it would be repeal only but it would delay that for two years to give them time to come up with a replacement. they did pass a similar bill last year and there were enough republican votes for that at the time but they passed it knowing that president obama would veto that. now that trump would in theory sign a bill, republicans are saying -- we do not support

that. francine: what does that mean for president trump? thate interesting thing is it will amount to a symbolic vote next week. it will free up some space to move on to some other agenda issues. the thing about tax reform is -- health care and overhauling the tax code with the two big things he came in to do. if health care was hard, tax reform will be exponentially more difficult. it does not bode well for donald trump and his legislative agenda. now, richard, it means investors are questioning whether the big reform agenda can see the light of day at any point.

what is the market sentiment? fiscal reform agenda had been priced in. it has now been priced out. positive reforms on tax reform -- i think they would be perceived as good news. maybe not as much is being promised but something towards that. with regard to obamacare and these political issues in the u.s., they are seen internationally as being domestic issues. they do not necessarily weekend donald trump. he didstituency where have credibility, he still does. i don't think this weakens him as a president.

internationally, we see this as domestic match and nations -- machinations. hurt the does this expectation that wall street will be deregulated? outasury pute 80 pages of a comprehensive regulatory overhaul of the financial system. this is a big deal. weakening the -- changing the

calculations. they are a very big piece of the legislation. the fed, could in. , enact those changes. -- the fed, could in theory, enact those changes. thank you, all. still to come, u.s. bank stocks slumped last week. plus, today's earnings from golden -- goldman sachs. we look ahead to that next. this is bloomberg. ♪

♪ francine: you are watching bloomberg "surveillance." the u.s. earnings season continues today. bank stocks tumbled at the end of last week after j.p. morgan, wells fargo, and citigroup second-quarter numbers disappointed. they felt by about 25%. short-termhigher interest rates should help bank of america's revenue and profits. richard jeffrey is still with us. your bread and butter is banks. does this quarter or this season put different winners and losers to the ones we have had in previous quarters? >> i do not believe so. is aquity market reaction

little subdued. is one of banks and returning capital to shareholders. to. morgan just managed return $4.5 billion. -- all of thethem banks in the west will be very jealous of those results. the fed is still in control of the curve. and every rate increase translates into the bottom line of those banks. the bank of america has looked forward [indiscernible]

-- let us not forget that long growth is quite strong in america. j.p. morgan was talking about 8% versus a 2-5 percent gdp growth which tells you it is good for the stability of the bank, in the short term. francine: richard, what is your take overall for the banks? we are still expecting a lot of earnings. european banks seem to be a little back and forth. richard: the two sides of the banking system -- the earnings go up and down depending on how easily they have been able to read trading conditions. risenly bond yields can unexpectedly. we see that in their earnings

results. they are volatile. whether or not what is going on in the banking system is impinging on the financial sectors of ability to support financial growth. are these results telling us something different? the answer is no. the banks in the states are in a pretty healthy position. they can provide credit. they are also able to return capital to shareholders. a are much healthier perhaps than the banks in europe. the situation in europe has improved. first in the u k and now it is improving in mainland europe. as their ability to provide credit to support growth improves, the economic cycle tends to follow. we are seeing the european economy beginning to pick up momentum. francine: -- are we still going to have a big investment think in europe in five years time?

i do, but whether or not they will be european owned is the issue. the u.s. model is still better than the european model which is still struggling. francine: richard jeffrey will stay with us. up next, will the squeeze continue? cpi runs away from wage growth. this is bloomberg. we will be looking at the pound impact and what the impact of higher inflation and lower wage .rowth this is bloomberg. ♪

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to:lin(. 6'r". would bere to deliver the biggest failure since the election. this trillion dollar jumped to a two-year high. the minutes of the central banks july meeting estimated a new interest rate of two percentage points off the record low level. prices have been soaring in sydney and melbourne. speaking of housing prices, they surged in smaller chinese cities as values were dragged down in larger ones. home prices excluding government-subsidized housing rose in 15 out of 17 cities.

global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. francine: we're just getting some inflation figures. it is not as high as we were estimating. , the rate isn 2.6%. we see a pretty big drop in the british pound. because the pound is falling, inflation was going up. wage growth wasn't picking up. this is the big difference in inflation. downlly, inflation goes and we could see wage growth. theit is not having negative effect on consumer prices. this is a huge figure.

that is playing out. officials have a second round of .alks for8 brexit david davis is back. to get her tries views on brexit he neared. she is the head of the policy institute. it's great to have you on the program. what do we know and what do we not know about how the negotiations are going? >> we have to remember we had a time before the election where the u.k. couldn't say anything.

i think we are just starting to move back to parity in that respect. theticking clock as negotiator likes talk about, we don't know when we will get to talking about trade and what it is from leaving the single market. chew off the u.k. a better deal now? be a better offer on the table. >> it's what flexing the red lines mean. tradeg back control over policy, have strongly do you do those things? is there an indirect role for the european court of justice. it's some checks. it's a very light touch work permit system and when we get control of the trade policy back.

is it significant that the u.k. government knowledged they have to pay something into the eu? >> they were probably going to have to pay something, not just a share of assets like an european investment banks. reportf lords committee legally said they didn't have to pay anything. politics will rule the day. it's inevitable we will have to pay something. where does that figure and up? francine: do we know what kind of deal the u.k. government actually wants on trade with the eu? >> they won a free trade agreement and that's about it. there is a lot of talk of no tariffs in place. that is one tiny element. if we're going to and passporting which allows banks in the u.k. to access clients

without having to set up, are we going to continue to have that? they have talked about having a regulatory organization. i think the big thing people are looking at, what happens on transitions. francine: we just got inflation data. growth will get out of line. what does that mean for brexit negotiations? do people look at this and say seems to goation nowhere at the moment, can we play tougher with europe? byi think it will be used certain politicians to say we don't need to plan. i do think it's going to have an impact on the negotiations. the parameters there are already set in francine: i don't know if it's

leaks, does really weaken her hand in negotiating? >> it doesn't look great to have the u.k. having differences within the cabinet. we don't know where we're going to end up. there -- i think it depends at how fast we do these things. francine: is two years enough? do need transitional agreement? she is weakened compared to six weeks ago.

+++ years are the government. i don't think any nation thinks this is feasible. they don't feel they have to hit the trigger on relocation activities. it also doesn't mean that at the moment. francine: i know donald trump spoke to theresa may. it's unlikely that will happen in two years. does it give brexit the fact that it was a good idea? >> the president said he wants a deal fast. you talk to people who are responsible for actually doing that, there are no plans in place at the moment. it will be a lot of style not necessarily stub sensed. -- substance. francine: stay with surveillance. british investments going forward. this is bloomberg. ♪

tom: let's check in on markets. held six daysex of gains. 600urope, we see the stoxx lower. .hat should be unchanged now it was unchanged at the end of yesterday's session. you've got real estate in health care outperforming on the downside. tech stocks are leading the losses. commodity producers are up i .4%. they were leading the rally yesterday. they were moving into territory. the stoxx 600 is unchanged. what we have an european

equities is outperforming the defensive this year. that has been up to higher borrowing costs. keep a close eye on the euro. of the ecb meeting on thursday. it is higher than may 2016. we do see some dollar weakening. strengtheen dollar against the pound. sterling was lower after inflation data coming up a few minutes ago. we have seen the reaction in yields. this is something i am keeping a close eye on. this spread as you can see is tightening on the back of that data. this is something to keep an eye on. citigroup said it's going to tighten even further. finally, it looks like the u.s.

health care reform bill could be dead in its current form. we see the dollar back in a 10 month low. it's important to show this. it's a great chart. you can see how much the dollar index has weakened since the u.s. election. u.s. equities continue to rise higher and the 10 year yield moved higher from that point. francine: thank you so much. they have added or percent because of the uncertainty of brexit. the company says the currency as the cost of running its business. it it rose only 4% in the first half of the year. joined byased to be the banks president. thank you so much for joining us.

to also openting new branches in the u.k.? think that wen't dependent opening new branches. we have 270 branches in the u.k.. nonetheless we will continue to open more branches. when you open any branches this year? >> we don't do projections like that. we find the right opportunity to open a new branch and we will do it. we do have a good u.k. coverage. we have potential within the existing market. francine: how is the uncertainty over how brexit should be affecting brand -- demand for your product. >> we don't believe that will

affect the demand for our product at all. is u.k. bank offerers know we something different. brexit doesn't change this at all. we are equally optimistic about our prospects. francine: have you had or been forced to raise deposit rates? >> no. rates are result of competition. they go up and down overtime. handsomely.ng we will take whatever the rates are in the margins are at the time. francine: we're spending a lot of time on brexit. how do you see the market developing? will you be forced to be more competitive? will consumers take banking with

foreign banks? certainly have then a long time in the u.k.. we never thought it was a disadvantage. doot of banking consumers their due diligence on the bank. ours is one of the strongest banks in the world. think opposition is very strong. francine: the number of branches in sweden is down 10% year on year. you have 423. is your bank changing strategies in your home market? same have stuck to the strategy since the beginning of

the 70's. we have a higher return than our peers. we have no intention of changing strategy. francine: how can brexit affect the lending market in sweden at the moment? pleased to see in sweden that corporate lending to manufacturing companies is starting to increase. we haven't seen that for many years. we've been lending to property companies and that his fueled the increase. say toa trend i would lending to manufacturing companies. if we look at the household side, wen the mortgage tok the largest market share swedish mortgage consumers.

i think we are defending our position there. francine: are you happy with your ratio? it is 1/10 above the range of what a bank should be. minimumabove the requirement. from that point of view, we have a very strong capital position and one of the highest-rated banks in the world. i am very happy with that. francine: thank you so much for your time today. up next, the ecb looks to end its program. bit aboutlk a little inflation data in the u.k. that is an important picture. it unexpectedly dropped. this is bloomberg. ♪

francine: you watching bloomberg surveillance. quartersecond profitability came in weaker than expected. the wireless equipment maker watch growth markets shrink by almost 30%. revenue they'll 7.8%. it highlights the challenge. he took over as ceo six months ago. netflix scored a record second-quarter. they signed up 20 million subscribers. that was 2 million more than analysts forecast. they came from outside the u.s. according to persons with knowledge, they will give that to them for approval.

new roleseate 250 there. life -- stilll with us is richard. we did talk about the deflation data coming out of the u.k. this takes pressure off the boe. richard: that's the title of a book. we need to talk about inflation. this is good news for the banks with headline inflation dropping back a bit. that takes a little bit of pressure on the monetary policy committee. bit of have to think about interest rates as it appeared couple of months ago. ishink the core inflation going to trend higher. economye signs in the that there will be slightly more inflation. the fall in store litan is also

coming through -- sterling is also coming through. there is a seasonality in price movements. francine: core inflation excludes food prices. in may.down from 2.6% what will it take for wage growth to increase? households will be squeezed too much. richard: it is not driven by inflation. if it is, it is not helpful. you don't get a real increase. it is driven by productivity growth. the real challenge for economies like the u.k. in the u.s. and germany and japan, it's to improve the rate of productivity. in real terms, if you are the average worker, we will not get paid more unless we produce more.

be volume and not just the price. the key is valid is growth. francine: that is in a rut. everyone talks about this. we are still in this productivity puzzle. richard: one of the reasons as there is a lack of challenge to companies in the system at the moment. the problem here is investors are looking for income. they are going to companies for income and dividends. investors are saying get capital investment growth. we want you to focus on growing the dividend and putting your free cash into improving the dividend. we are happy with what share prices are doing. from makingouraging capital investment decisions. it comes down to a lack of very low interest rates. francine: this may be more

difficult to read. you have the swedish cpi. then you have the swiss cpi. the trend is going down. do we have a deflation problem worldwide? about twos it just sort? i don't think it is. wage growth doing what it's doing, no. i don't think we've got an inflation problem worldwide. i think there are individual companies were labor markets are much tighter and we could see some inflation in the future. that will be uncomfortable. the most obvious is the united states. if you take the wage growth measures together, they are trending high. the u.k. is an interesting one.

the market looks exceptionally tight and we have access to a much bigger pool of labor. if access to that pool begins to diminish because people don't come to the u.k., that could be more inflationary. we could see some wage inflation coming through. generally, i don't think we have an inflation problem. francine: thank you so much as always for coming on the show. bloomberg surveillance continues in the next hour. tom keene joins me. the dollar, we look at gold. this is bloomberg. ♪

♪ alix: treasury as the health

care bill strikes out. what is left for the rest of trump's agenda. inlation unexpectedly slows june raising the case for an immediate rate hike. brexit negotiations carry-on in .russels theresa may defines backbiting in her own party. is it to on the way? coup on the way? atad to come back, looking dollar, looking at president trump's political capital, also, u.k. inflation. coordination at the meetings in portugal that has gapped into the diversions between slowing u.s. data -- that sort of thing. a glowing global economy. that is the tension you see in the market. francine: i like that we're talking about central pac.

this is the picture. it is important because it gives us a snapshot of what is happening in the u.k. you can see unchanged. in the meantime, let's get to the bloomberg first word news. taylor: senate majority leader mitch mcconnell has raised the white flag on replacing obamacare. he will seek a simple repeal of the affordable care act. it would be delayed for two years as congress works on a replacement, a step back for republicans and donald trump. the party has promised to replace obamacare for seven years. our meeting the letter of their deal but not the spirit . they argue that iran should be punished for other behavior such as the support for the syrian

regime and its development of ballistic missiles. arguing the brexit deal needs to include data protection. without it british police might be prevented from receiving intelligence from you counterparts. a senior uae official says pressure on qatar is working. the group is not looking for a quick fix. 's may want to take away qatar huge support for terrorism that we are seeing everywhere. we need a solution that will stick. we need a solution that is long-term. taylor: the coalition is scale backhat qatar ties with iran and in their relationship with the muslim brotherhood. qatar has refused. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: equities are real quiet,

volume turning. volume churning. euro-dollar, 1.1 524. a weaker dollar. the vix, 9.76 is a stunning number. it has beenwest over three or four days, since time began. sterling, 136. a strong aussie dollar. a divergence of global growth versus u.s. and u.k. worries as well. francine: i'm glad you picked up on pound. this is what i am watching out for because it flipped on the back of the inflation figure, extraordinary because it didn't

rise as much as expected. it takes a little pressure off the boe. the dollar sliding back to a 10 month low. it is about hope on reform fading. that means markets are retreating as they are worried that trump's revitalization agenda is faltering. i didn't see this earlier, i apologize. when we look at it it is a little worse than expected. 86.4 for the month of july. tom: this is better math than .he dxy that is what everyone quotes, 96, 97, 98. we said let's do the math better. the election on the left, stronger dollar, stronger dollar .orever? no you haven't 8% plus move weaker dollar from the top.

the white line on the left's where we are now from election day. at a morei am looking simple u.k. inflation versus growth chart. i bring it back up every couple of weeks, but today it is significant because inflation unexpectedly dropped. that means mark carney can have a sigh of relief. the data weekend's for an immediate interest rate hike that minority policymakers supported. let's look at growth and what it means for inflation. unexpected.le bit foreign-exchange sitting on support or resistance, we will comb that through surveillance this morning. while you were sleeping in the europe,tates, even in

the second attempt at a health care bill in the senate died. death, senatee majority leader mitch mcconnell talking about giving the president what he wants, and outright repeal. peter is with us from rbc this morning. we have good perspective on slower gdp and the challenges. kathleen, what stuck out to you in the soiree last night? : their strategy forward now that they've had to abandon the replacement effort is a straight repeal. it does it sound like they have the votes for that either. that is similar to legislation they passed last year when president obama was in office. definitely there were only enough republican support to

pass it because they knew that obama would retail it. office, trump is in republicans are saying maybe it isn't such a good idea if it will actually be signed into law. tom: an explainer on repeal and replace. i cannot find anybody that can actually explain the phrase "repeal and replace." if you repeal, does obamacare go away? kathleen: so many elements of are seven years into the law? so many aspects have been implemented. the implications of the "straight repeal" are complicated because there are aspects you can't really roll back. implications would be 36 million uninsured through the

ten-year window. that has given people pause. whether the insurance marketplaces would be able to survive or if they would fall under their own weight under a straight repeal is a question. when someone talks about a straight repeal it gets applause lines in the republican base but not a lot of viability as a policy option. francine: what about other reforms? does that take a backseat, or since health care isn't going anywhere they will double down and get the rest done? kathleen: the question is, what can they do? they are ready to clear the deck on the health care bill. it has become a disaster for them. they talked about it being something that would be easy. the health -- the president came out and famously said "health care is kind of complicated." straight repeal isn't really an option. they are in a catch 22.

and moving onto the next thing. what is telling is that health care was supposed to be easy. tax reform will be exponentially harder. if they could not the bipartisan consensus together, even getting all the republicans they would need and their ducks in a row on the republican side, will be extremely difficult. francine: a little bit of movement on dollar. will getts that we less reforms than we were hoping. will it away on the markets, or is everything priced in? peter: at the end of the day for markets, everything is about .nflation or lack thereof shortly coming out of the election, the expectation was you would get the reforms through relatively quickly and easily. that is not happening,

inflation expectations in the market are dropping. that is what we are seeing. on the other hand, expectation of the fed that still wants to hike rates. there is a dichotomy in the market. are we living in austerity if we look at the health care bill going down in flames in the united states? are we saying some of the developed economies are within fiscal austerity? to a degree you can say that about the u.k. we have never been comfortable that we are in full-blown austerity. we still have a large budget deficit. i think in the u.s. the intent is there. it is just getting it put into action that is problematic. there is some reassurance for global, the u.s., that

growth and european growth in particular is on more stable footing than it has been a it that is why markets have 2 minds on how to react. there are fiscal headaches around all of these governments and making changes is not an easy thing. kathleen hunter from bloomberg the u.s. congress reporter staying with us. on thursday, the ecb will announce policy decisions followed by news conference from mario draghi. we will bring coverage when it happens at 7:45 a.m. in new york, 12:45 in london. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." . am taylor riggs

ericsson came up short in the second quarter. -- this swedish wireless maker missed estimates. it will require bigger cost cuts. novartis pointed to early signs of a revival. sales will grow by low single digits percentage. >> with the beginning of the turn, it improves the options that we have available to us. if we were to do a capital markets accident we would want to see a number of quarters of consecutive growth. taylor: novartis is considering all options including a spinoff or ipo. that is your bloomberg business flash. --ncine: the u.k. on u.k. inflation rate unexpectedly slow given grace by that growth

was giving out of hand. congress predicted it would hold at a four-year high of 2.9% in may. we are the head of u.k. macro at ubs and the global macro .trategist what is it mean? that mark carney gets a couple of months off because he does not have to justify or need to explain that interest rates can go high? >> before the reaction to the spike in inflation was hugely overblown in terms of the hawkish swing we saw in response to it. it seems categorically to us that it is a result of the fall in the pound we had on the other side of the referendum, which should be coming out on the year on year numbers soon. when you look at market

inflation expectations or the empirical activity data, it is slowing down. the case for hike it seems was made in congress time, the fact that inflation has slowed down takes it off the table. francine: what was the need for governor carney to make the hawkish sentiment? was a lot of speculation there was a coordinated change in the language. we would argue the ecb was into with the data. we found it puzzling in the bank of england. we think the interpretation of the governor becoming more hawkish is wrong. a couple of the external members have, clearly they are voting for hikes. the governor has not really changed his tune. he is still worried about their lack of evidence of that investment is picking up. he wants to see those things

come through before he thinks it is time to raise rates. we are in agreement. the idea of halfhearted. i love that phrase. ?s it a halfhearted july is the politics staggering through the markets, the markets staggering through on low volumes and dampened volatility? is it a halfhearted july? find: typically, if you back in history, those periods where everyone is quiet and on holiday, volatility will be low, that is the time volatility spikes because something might happen that gets everyone scared. if we look at the things coming up, there are a few things that might stir that. but we currently have is an environment where the central banks are either rightly or wrongly perceived to be more hawkish.

it puts upward pressure on short-term rates everywhere. on the other hand the inflation picture is not coming through. you have a dichotomy that will have to right itself, eventually that happens with higher volatility. tom: what did you mean by halfheartedly? the market's perception around the bank of england, and do they mean it when they are moving towards a hike in terms of the global votes and some of the rhetoric. clearly, short-term rates have moved higher, because that was a mechanical thing to happen. looking at the currency on a trade weighted basis, it is true that sterling has strengthened against the u.s. dollar, but on a trade weighted bases it is the same level that it was prior to the mpc meeting that triggered -- the hawkish move. expectations of how the curve will evolve, it suggests the

market does not believe they mean it, or that if they do get to the point of raising rates they might get away with one hike, but that'll be it. this isn't the start of the cycle. it is the intention to tighten monetary policy that seems halfhearted. francine: are they itching to hike? if you look at our chart, it is a way of looking, the three-month sterling interest rates, looking at bets on the boe. rate cominge the down for most of this year until we have been talking about a sudden spike from mid-june on the swing in the rhetoric. back again.halfway that is why we say there is a halfhearted attitude in the market. bank ofthe england would like markets to believe that rates may go up. they don't want the market assuming rates won't go up at the side of brexit here they are worried about consumer debt

levels building up excessively. they're keeping the market on alert. they will try to slow the previous decline in sterling because they don't want another leg higher in inflation. as for a case of raising rates, we say there isn't. francine: coming up later today, erik schatzker sits down with the iec chairman and founder live from the convention and exhibition center at 1:00 p.m. in new york and 6:00 p.m. in london. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." let's talk about our morning must-read. bankers the how and why of modern monetary management. they can feel the right and wrong, it would be useful's central banks were held to the same standards of truth telling as those required to pharmaceutical manufacturers. here is that there be, and here are its side effects. we are back. maybe they should tweet. i have to defend them. , but when pharma guy i look at what the central banks are telling us, they are telling us to main things. in the environment we are in, we have this phillips curve

argument where we have low unemployment, and wages might rise. we have financial stability concerns. we have to talk about both of them. what they don't know is if they do this, what exactly will happen. but nobody knows. they are saying clearly, this is what we think is the likely outcome, so this is why we are doing what we are doing. with monetary policy there are always winners and losers. they have been cleared by qe has been necessary. they don't necessarily know the consequences, but i think they have done what they can to try to explain it. francine: where data dependent but the markets only follow. clearlye market is focused on those decision-makers. when you talk to decision-makers, it is always the yellen's that have more sway

over the markets and others. i think it is not necessarily that you have a broad spectrum of independent voices going in different directions. markets, moving the you're spending game, one point 1545, the highest since may of 2016. they will stay with us. li joining us. we will be talking to him about the u.s. economy -- will be joining us. we will talking about the u.s. economy. and the former u.k. ambassador to the u.s. this is bloomberg. ♪

tom says you need a data check. expressed best is in

foreign exchange. francine mentioned the middle of 131 -- was.k. was 1.31. the story is the diversions between global growth, emerging market growth, and the quiet of the u.s. and u.k. economy. it, a strong remember strong. even though the party therols both houses of white house, they are giving up on the majority part. mitch mcconnell is pushing for a repeal of the affordable care act. house republicans are unveiling a budget that ignores trump's

proposed cuts to agencies. republicans are calling for a bigger boost in military spending than trump requested. here is a poll that trump would like. viewed clinton is favorably by 39% of americans. more than a fifth who voted for clinton have an unfavorable view of her. there was a drop in the u.k.'s inflation rate. prices rose in june. that is down from 3/10 of a percent in may. it is the first drop in the inflation rate since october. global news, 24 hours a day, powered by journalists and analysts in more than 120 countries. this is bloomberg.

markets will be watching for signs of stimulus unwinding from mario draghi. a survey shows the ecb will probably wait until september before slowing the pace of bond buying. let's get back to our micro strategist. there was a , from ecbd action against anyone else to sound more hawkish. >> it is more than a coincidence there was a sudden, coordinated message from the central bank. before, it was a natural evolution of what they have been tipped towing towards for a while. -- it does notre

seem to fit with the picture in the u.k.. we were trying to work out why some policymakers went off in that direction. would love to see banks at historical normal levels and risk evaluations theyng more like historically do. the process of getting there from where we are now is fraught with danger. francine: peter, you disagree? look at this, most of the economy are in slightly different parts of their cycle. hawkishon for talking are different, in the u.s., talking about the phillips curve and the low unemployment rate, and in the canadian rate, it is very different.

the u.k., no one really knows what they were thinking. the ecb has a different situation. they don't want to hike rates. they don't want rates to go up. they are in a position where they would like to see the policy at current levels much longer than they can deliver. for me, it seems a bit strange to talk about cord and aided action when most of these things happen to be at the same time. tom: where is the inflation? lookingitting around for wage growth and inflation. is there too much supply? too much labor? >> all of the above, to some degree. one of the most interesting

factors, the divisibility of labor and collective bargaining isn't what it used to be. self employed people, a more flexible labor market. one issue is, given how low rates are and given the growth that has been robust, they are worried inflation may reappear with a vengeance. there are not many signs of that. from a i could steal doctor at eurasia group, every nation, every central bank for its self? >> i think so. all of these guys face different economic backdrops. they want to go to length. i am sure they will try to do that on thursday to prevent the market from piping in that perceived hawkishness. indeed, every central bank is

not necessarily for the elves, but faces their own unique set up. in yellow, you have the european central bank. this is a percentage of gdp. you can see the bank of japan at 93%. they need the diversions. >> certainly. what is good for them as if the external environment gives them as much of a boost as they possibly can. the europeans have been waiting for this for a long time. now this happens and their growth picks up and they can be a boost to everyone. francine: the ecb does not want to rock the boat. the changing communication,

it caused a big reaction in the market and they are trying to manage that. it is important that any rise we see in the eurozone is gradual. task.a complex they don't want to rock the boat. we had a conversation that emphasized the loss of vision in the fiscal space. do you pine for more fiscal spending in the united kingdom and in the united states? >> no. what everyone would like is going back on more sustainable footing. that can only happen with robust economy. that is where policymakers are .rying to tip toe towards on the fiscal policy front, people talk about austerity.

we are not in austerity. the u.k. is running a sizable deficit. that needs to be repaired. after the recovery that has been running for seven years without we are not going to get there soon, we are going to have another problem. traditional spending by traditional fiscal spending? granular, wemore could deliver. you are arguing about the continent of europe. couldy, the netherlands do with more fiscal spending. if you target that, it may do something good. do we have social spending?

that eliminates the leeway to put investments out, not necessarily everywhere. if you look at the budget deficit. putting new cables in the ground andinternet transmission other power initiatives that could be done. oute are a lot of proposals there that could be done on the continent of europe. tom: this is a great conversation. stay with us. peter and john with us. goldman sachs out with numbers today. i have been talking about this all week. businessweek, two covers this week. this is a wonderful effort in bloomberg businessweek. catch up on goldman sachs with bloomberg businessweek. this is bloomberg.

♪

francine: let's talk about the banks. trading expectations at goldman sachs and bank of america out today. joining us now is peter and john. you for sticking around.

thank you for joining us. what do we know about banks? we had a couple with tough quarters. what are we expecting today? there is nothing to dispel the fact this quarter will be sobering. the second quarter a year ago was a tough comparison for most of these banks. this quarter is going to be a double-digit decline. francine: what are we expecting from bank of america? >> we know the investment banking is a volatile business. tom: which matters more? traditionalg or

loan banking? bank we ares on the looking at. we are really going to focus on the outlook for trading. if you look at bank of america, more diversified, universal bank. extremelyk is important for them. tom: how wide are the valuations into big to fail? >> we have seen u.s. banks double the performance of the s&p 500. looking for a catalyst to drive the next leg forward. banks are going to have to deliver on the retail banking

side and deliver better than expected trading revenues to provide confidence. francine: when you look at european banks, it is a way of transmitting monetary policy. do we know if the channel works? >> you see creation is -- trade creation is picking up. it is getting more widespread. it is a hard to say, does it transmit in the same amount? yet, but it is getting better. that is something the ecb would look favorable upon. in the macro content, if you think about what we say about bond yields and as the ecb

changes course, what that might that is something that will have to be monitored closely. there is a long road to go down. those may be ripples that spread out to some of the banks. tom: how quiet are the banks now? >> very quiet, but people tend to tread carefully. situation where play or usinge in communication to influence markets. things have been relatively quiet. there is no guarantee they will stay like that. tighter markets trading with each other? you look ats where

the curve. if you look at the short end of the curve, the coalition is not that strong. correlation there is not as strong. inflation isglobal a global theme. as expectations rise and fall on -- a globalces basis, the difference is quite important. francine: what do you banks look like compared to u.s. banks? >> one of the trends we have seen is a concern the u.s. banks have been taking market share. that is a big concern for deutsche bank on the sixth income side.

they are really looking to see better performance on the training side and see if those banks can regain market share tom: thank you. we look forward to those bank earnings. we will continue. let me tell you about tv . john silvia is coming up later. he looks at red socks returns. how are the red socks doing and then he turns to bloomberg tv . bonus round, he can steal the chart. aggregate of the u.s. dollar. this is bloomberg. ♪

taylor: let's get the bloomberg business flash. shares of netflix are's surging. the company had a record second order. forecast for subscriber growth.

citigroup has decided on frankfurt to be its newest training best trading hub. many as 250d as jobs to handle some of the trading done. the said claims a french bank failed to keep traders from tong electronic cat rooms rig electronic prices. that is your bloomberg business flash. tom: here is a chart i have never done. i want you to pick up on this. a 10 yeare price of

yield with a higher coupon of 4.25. , here isoff of brexit the great rollover, widely anticipated and higher yield. it is remarkable. we are back to where we were june 23, 2016. francine: if you look at brexit talks, you would think by now we would have a plan or know the government and what they are trying to get. it seems silence is the only thing theresa may wants. ands get back to john peter. what do we know? is saying the eu would get control of immigration what do markets latch onto?

>> the sound and fury, not a lot else. the reasons the economy held up better than expected is article 50 did not get triggered. there were expectations it might. so far, there has not been any agreement on anything. we are concerned the complexities of the issues is such it will be feeling very late in the process at best. scenario, the loss in momentum is only going to intensify. fallen and wages are going nowhere. andstments are falling disposable income is going down.

the market is doing relatively well. that will be the story going forward. it is hard to see how we can get period ofs in a short time. until we get clarity, what might be at the end of this time all, it is going to be hard for the u.k. economy despite the global politics backdrop year. tom: what are you looking for in july? >> we are expecting second-quarter growth. it is likely to be significantly below eurozone growth. haven't seen that have been two quarters in a row for at least the last 10 years. as we were discussing before, some of that investment is finding its way elsewhere into

europe. tom: thank you. europe and john of ubs. we are going to migrate forward on the american economy. bombshell, down in flames. maybe there will be repeal and then replace. john silvia on what it means for economic growth within the united states. he has been dead on about walking away with three point 5% economic growth. coming up. crisis. ♪

tom: the dollar weakens further. dead.are is will get whatent he wants. senator mcconnell will demand a vote for outright repeal. many will say good luck with that. and goldmanica sachs report. good andfein looking our cover. a great article. this is "bloomberg surveillance." we are live in new york. in london, she returns, francine lacqua. is london asleep waiting for the next brexit thing or is there a good economy going on?

francine: i came back for the inflation report. the most important piece of data. inflation is out of control. wage growth goes nowhere. inflation was weaker than expected. it is a little bit of respite. tom: we have a lot coming up. let's get to our bloomberg first word news. mitch mcconnell has raised the white flag on replacing obamacare. he will seek a simple repeal of the affordable care act, delayed for two years while congress works on a replacement. that would be a big step back for republicans. the letter ofg agreement to curb their nuclear program, but not the spirit.

they have to certify every 90 days that iran is in compliance. moving to the u.k., lawmakers warn a brexit agreement needs to include a deal on data protection. the committee says without it, british police may be prevented from receiving intelligence from eu counterparts. a senior uae official says pressure on qatar seems to be working. and commercial ties were cut with qatar over -- >> we want to take away their huge support for the extremism and terrorism you are seeing. we need solutions that will stick. a solution that is long-term. insisting qatar

scale back their relationship with qatar. they have refused. 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. francine: thank you. let's go to the data. data globally.is light volume. minute.show that in a euro strength, francine 1.1555 isthe stunning. 9.76 is really something. aussie dollar is the poster child of the great divergence. francine: this is what i am looking at, similar to yours. i like you looked at pound. i want to show you gold. that is a way to look at the

economic unease in the market. the dollar is fighting back, but it is about donald trump's economic revitalization agenda. pound, on thee back of the inflation data. need to turn to what happened in washington. let's start with the president's tweet -- he came out after the implosion of trumpcare two. republicans should just repeal obamacare and work on a new health care plan that will start on a clean slate. dems will join! kevin, where is the clean slate? kevin: senators jerry moran and mike lee coming out a kent state. the senate majority -- coming

out against it. i spoke with a senior public and .id -- senior republican aide they are hoping for areva on the 2015 legislation that would have a two-year delay and forced moderate democrats to the table. bus, bypassing conservatives from the negotiation. tom: i looked for this paragraph. i found it buried in a report from january. of 32timated increase million people without coverage 10 years out is the net result fewer,ewer and 19

takeaway 11 million people. that is the math. cbo has already scored repeal and replace? >> they have. that is where this gets interesting. the republicans are going to .rgue this is a two-year punt any were appeal would delay any of the repeal from going in place by two years, restarting republicans and moderate democrats to come to the table to negotiate an alternative to obamacare. francine: good morning. hello, francine. welcome back. a hearing is very much ongoing. there are differences within the republican party. the eight i spoke with last night, if you thought health care was tricky, tax reform will

be more tricky. looming debt limit by itself. in terms of the timeline, those two are ambitious and would argue health care could pass in the fall, but many will say this will take much longer. the president is still without a major congressional legislative win. some say this means the president wants to get something done. what might that something be? bill,they repeat all the repeal.technically a secondly, in terms of tax reform, if you do corporate tax reform, that would disappoint folks.

you could argue taxes are coming down. tom:ays this is -- mcconnell bowed to pressure from conservatives to bring up straight repeal. i don't buy that phrase. a reality check. it is highly unlikely to succeed. conservative groups won't consider republican health care promises filled until they try. what is the likelihood of this song and dance happening? >> it is not a full repeal. get rid of the alter theell as exchanges. the structure on it would be in place. the two-year window would allow them to craft something.

i look to the statement from heidi heitkamp. she is willing to work. the gamble is -- you sunk the bill, but are you forcing the of bringing people like senator heitkamp to the table? tom: a good time to bring in john silvia. he has seen at all. baseball is fun again. trump is not having an all-star legislative season. fargo's gdpr wells estimates? lower it at all. we did not assume anything was going to get done. what you are seeing is a trend in 2017.ic growth

any policies, as kevin orhasized, even tax reform tax cuts will be postponed into 2018. tom: we had a discussion on fiscal stimulus. the miracle of all those new roads, is that what america needs? >> if you want to kick growth up, you need real fiscal stimulus and infrastructure spending. francine: will that be pushed through? health care bill mean the president will focus on that and force people to back him on that point? that if youem is are telling everybody health care hast come first and everything else later, everybody

realizes it is a great barrier to action. i would move on. infrastructure, let's do what we think is possible and worry about health care issues later. francine: thank you. the ecb is set to announce their policy decision. we will bring you live coverage of that when it happens. this is bloomberg. ♪

taylor: this is "bloomberg surveillance."

ericsson missed estimates. they are warning that turning around the company will take more time and wire biggest -- bigger cost cuts. a california company is hiring 1000 employees in the region. rosee said cloud revenue 58% from a year ago. shares of netflix are surging. the company hit a record second quarter. netflix beat forecasts forsook -- four subscriber growth. chart first.s this is the dollar and dollar strength. here is the move up. yankeesgo to the collapsing versus the boston red

sox. here we are with the dollar over here, nicely below where we were election day. john silvia at wells fargo pays attention to this. are you surprised at dollar weakness? to the expectation that not much was going to get done this year. it jumped on the expectation that fiscal policy will come through. economic markets that have relative strength. canada cost economic growth will xceed the u.s. tom: what i don't understand is portugaloordination in . within 10 days, that has exploded into the yellen the virgins. is that the what -- the yellen divergence.

>> inflation is not coming in the way they expected. the fed is not likely to raise rates as aggressively as we saw. francine: we have been talking about divergence. why has it not happened this time? >> initially, the fed was going first. now, the ecb and others are going to catch up and now we see the ecb will wait for draghi at jackson hole, but we are going to see the fed is going to back off a bit. hesitantlen was more on how committed she is in terms of current elation forecast going forward. has started going

backwards. maybe we won't get as much in terms of said tightening. maybe we will get more in terms of the bank of canada and the .cb francine: it is sitting in europe. it is unlikely that market participants believe the ecb will act before the fed. it probably could not survive an interest rate hike. >> draghi mentioned maybe we will change the balance sheet and our purchases. that is going to be the extent of any moves in the ecb. it is that relative change to where the fed is not raising rates. maybe the ecb will do something in the next year or two. tom: i bring this up in the backdrop of what olivia has written about in the last number

of days. here is the two-year yield and up.move three more said meetings -- three more fed meetings to come. do they have a theory or is the -- or, as the professor said, orthodoxy is under threat? >> we are not getting inflation people expected giving the -- given the unemployment rate. weaknessthis inflation is not transitory. seen apparel prices down, used car prices down. do we assume it is the concept we remember from our youth? in the malaise that

we are in? wasart of the equation inflation expectations. it is not just the unemployment rate. it is also inflation expectations and they have declined. coming up later today, erik schatzker sits down with the iac chairman and founder. this is bloomberg. ♪

francine: this is "bloomberg surveillance." is trading lower after u.k. inflation slowed. policymakers are concerned price growth was getting out of hand. economists predicted it would hold. joining us now, our bloomberg intelligence u.k. economist. if you are a bloomberg customer, the date,irp, change this is what it looks like. inflation, you can say the probability of a hike before the end of the year has

dropped significantly. think, on balance. this has made it less likely the boe will list rates. we never thought they would list rates at any case. that comes down to the fact that inflationary pressure is weak. there is so much distortion from the affect of the exchange rate. oil prices fell back on fuel. really, at the margins, inflation numbers, it lowers the chance of a hike by year end. we never thought it was a realistic possibility in the first place. the predominant reason is the fact the economy has held up

better than expected. we have a slowing in the first quarter of the year. perspective, you have this squeeze on real income coming through. that will be set off elsewhere because of the drop in the pound. unemployment will remain low and you get the demand growth remaining on track. that means you get wage inflation. because you are looking to years ahead, you need to start listing rates.- lifting tom: have we ever been in the front of wage growth? >> it would be a big error. the number of times the bank of england has seen these false storms of wage growth, to be thest, they want to see

dawn of wage inflation and see waged pressure in the numbers before they go ahead and sanction the policy. there is not much that -- not much faith in the phillips curve. they want to see it come through before they sanction tight to policy. thatine: working to get phillips curve for the u.k. thank you very much. up, the conversation with peter, the former u.k. ambassador to the u.s. talking about obamacare at 7:30 a.m. in new york. this is a bloomberg. ♪

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i don't know where we are headed. we will learn about that in a few minutes. the news overnight, you need to get up dated. for news here is taylor riggs. withr: we are starting health care. republicans have promise for seven years they would repeal and replace obamacare. even other party controls both houses of congress and the white house they are giving up on the replacement. sanity majority leader -- senate majority leader mitch mcconnell is saying that could be delayed by two years so lawmakers can work on a replacement. house republicans are unveiling a budget that ignores president trump's proposed cuts to federal agencies. rather than the $54 billion in cuts, a different plan proposed. republicans calling for a bigger boost in military spending. a poll president trump would hillary clinton is viewed favorably by just 39% of

americans, two percentage points lower than the president. moving over to china, regulators are moving to reduce financial risk according to people familiar with the matter. some lenders have been told to lower rates they offer on management products. news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: earnings, goldman sachs coming out and bank of america. if i look over at the back clock , we are looking at 14 minutes away on bank of america. this is the guy you want to speak do tomorrow. -- you want to speak to this morning. john lieber, he

knows mcconnell better than any pundit in washington. john, how will the body language be between the senate majority leader and his republicans in the senate? is the relationship forever broken? dayhey are in for a awkward today. they had their members lunch in the afternoon and it will be a tense environment. ron johnson accusing the majority leader of lying to him. you have mike lee and jerry moran who bailed on this repeal and replace effort. mcconnell has no choice but to give it to a repeal bill which was his first choice all along. that is a policy the republicans were pursuing in january until president trump came along and said no you have to repeal and replace at the same time and that has proven to be a bridge too far for these republicans. within the rhetoric across

cable tv, it will be repealing replaced today. i like kevin cirilli's idea that this is the lay and replace. repealing nothing, are we? >> the new bill they will consider is sunsetting the bill over two years. a lot of conservatives had criticized the bill as obamacare lite. once the bill is in place it can be hard to pull back. that was probably the most conservative bill that had -- that had come before this congress. because it was going to take away benefits. that is never happen in the history of congress. lbj and theack to great society, what is the likelihood of ripping apart president johnson's great society? very small -- >> very small. people feel entitled to collect these benefits and congress has a hard time keeping it together. cuts andns would get

democrats would get tax increases but neither party wants to cut entitlements. it is politically toxic. you are seeing you play out now in this bill. francine: how to republicans regroup? >> they need to pivot and move on. mcconnell declared last night this repeal and replace effort was over and they have other items on their agenda which will take over very soon. you have the debt limit they need to get done before october, government funding bill, you have a number of lower profile but extremely important programs like the national flood insurance program that has to be reauthorized and the holy grail for this congress, tax reform. that will be the big thing they want to move through next. the first step is passing a new 2018 budget. that will be of a challenge over the next several months for this congress, how to agree. on those levels. francine: if they can't agree on health care what makes you think

they can agree on tax reform? caree challenge on health for republicans is there is no agreed-upon vision up on what the government's role should be in health care and that is not the same attacks. there is much broader agreement that the corporate rate is too high, that the individual tax rate needs to be simplified and all this should be paid for over the long run so you can get a permanent reduction in rates that is good for the economy. if you can get nine out of 10 republicans today to sign onto a bill like that -- you can. tom: i totally agree with that assessment but i have to pay for it. are we in a new regime of rockefeller republicans? is the president and the people pushing against mulvaney, rockefeller republicans of john silvia's and my youth? >> the republicans are basically northeast democrats so that era is over. when it comes to paying for this bill that reflects the reality of the budget process.

they need to find a way if they want to do something permanent to offset the revenue loss? donald trump could very well cut taxes and run on that in 2020 and perhaps be successful. i don't think deficit politics were as bad as they were for republicans four years ago. i think there is room for a deficit increase. and it isng 4% gdp time to go to john silvia. wells fargo. the gdp wants? jon is correct. it is time to move on to tax reform. move that gdp number from 2.2% to -- tom: we going back to 5%? it is interesting. we don't seem to have any difficulty financing 3% deficits . in the current economic environment, financing those

deficits will not be an issue. i think jon is correct that the republicans of five years ago on deficits are not the same they are today. francine: is there something the president can do today to get people on his side? i don't know if he knows he's lost capital or just a little bit, but who does he need to listen to? >> i would characterize loss of political capital by this president as profound. by capitol hill and he does not have the ability to drive boats. all the members that oppose this bill are not going to be convinced because of a donald trump phone call or visit to mar-a-lago. the scandals involving russia and the distractions this president has brought upon himself, he does not have influence on congress right now. he should stay out of this. with his strategic pivot in january that led him into this,

that is a problem they have today with the deficit. the original plan was to do a straight repeal and sunset till. replace it in two years. it is the president that abandon that. ofch mcconnell is very aware that choice that president trump made that derailed the whole effort in the first place. francine: but this doesn't hurt his base support? >> i don't think this affects president trump. he is not run on repealing and replacing obamacare for seven years. there is a much more poisonous issue for republicans who have to run in republican primaries next year. and have to rely on a republican base. trump can survive. for congressional republicans it is a big deal. tom: should paul ryan and the -- househouse survive speaker ryan doing? we have not talked about him in

six weeks. >> he has been off the radar which is good. they could survive. there are structural advantages the republicans have going into the 2018 midterms. they face headwinds from john donald trump -- from donald trump. there are suburban swing districts where democrats think they can find competitive candidates, the house may be in trouble in 2018. we are one euro a from that and have no idea what issues will define the electoral cycle in september or october of next year. it is premature now. there could be trouble. . we thank you so much, jon will continue with john silvia. chart, ofiller chart nominal gdp. you need a killer business week, you have at this week with two covers, one on europe, the eu and brussels, big splash over in brussels on that more

eurocentric cover. what can we say about the good work of our team who put together a great story on goldman sachs. bank of america coming out in moments. stay with us worldwide. this is bloomberg. ♪

francine: this is bloomberg -- taylor: this is bloomberg surveillance. problems of obamacare in the rearview mirror. as it-quarter results moved away from the affordable care act. a largely quit obamacare after running up losses. johnson & johnson reporting results, it has boosted its or

cast for the year. it has come in above estimates in terms of earnings per share. that is the bloomberg business flash. tom: taylor, thank you so much. i'm just wondering through the j&j statement. of trueexample single-digit revenue growth. very little revenue growth. we are the bombshell the other day, we were talking to robert kaplan of dallas, managing down the income statement to a better outcome as it appears. j&j does this morning. we are waiting on bank of america right now. i'm going to look over here, do we see it yet? peabody withrles us. charles, does the j&j model going to be the too big to fail model with managing and income

statement down to keep the ceo job and return cash? >> that is the challenge the bank space, how do you generate low single digit revenue growth? tom: how close are they to the bone? we have been talking about this for decades but is there a way to do proverbial synergy? banks iss helping the the large share buyback programs. they are buying back 5% of their stock in the case of bank of america, to eight percent or 9% in the case of citigroup. america, can they continue to cut expenses while growing revenues? that is their goal. tom: i get that as a goal but , a ultimate outcome combination where we roll up the banking system into a neo-canadian model of fewer and fewer banks? >> the big banks can play that

game. they are caught by the deposit cap. the regional banks will continue roll ups. tom: what will be the catalyst for regional bank roll ups -- the frenzy we saw, 20 years ago? >> we are seeing it in the small and mid-cap level. largely because of the regulatory cost. it is that the large cap we have not seen yet. we are just getting breaking news tom. bank of america coming out. you have to bear with us because it is only -- it is the drip feed. second-quarter earnings, earnings per share coming in at $.46. i'm looking at whether it is comparable to what we are seeing. this is at the moment not really comparable. i cannot see it yet. what we are looking for, the the important figure, is

loan growth but also the net interest income. that is what i am looking out for. tom: what francine is saying correctly folks is that every bank releases their earnings differently. let me translate. jpmorgan and wells fargo do a very good job of clarity and immediate clarity. timesf america's lost in where they are dealing with a carrier pigeon. francine and i are looking at the screen going what are we doing? it is like we are back in 1995. i don't know what else to say. bank of america does this worse than any of the others. even citigroup has gotten better. >> let's get back to what we know. even if it is difficult to read. this is second-quarter. isyou look at x dba, it $2.11 billion. i believe this is comparable.

the previous quarter and the year before. it seems a touch below estimate. this is the trading revenue for the second quarter of bank of america. i am going to the press releases -- it is quite heavy. i'm going to to see if there is anything else we can look at quickly. tom: what is the key distinction between bank of america and jpmorgan? >> bank of america on the andstment banking investment side has a stronger relationship with corporate clients which can help your investment banking revenues. bank of america has a much stronger wealth management operation. in terms of businesses those of the two changes. both companies are having theire turning around mortgage banking operations, they have been experiencing pressures elsewhere as well. a dripe: we are getting

feed. this is what we know. fixed income trading declining 14%, analysts were calling it 15%. that is better than expected but the bank is blaming a weaker performance in rates in emerging markets this year. relative to a strong quarter and then equities a little bit better than expected. if you're looking at the breakdowns, fixed income declining 14% better than expected, equities better than expected. back to charles, this is not bloomberg possible. this is bank of america with a horrendous release of how they get earnings. charles peabody, a huge governance battle a while back, michael mayo is now over at wells fargo with john silvia. battle beyond?ce >> i think it is.

challenges ind various shareholder votes. what he has to do now to show he can grow the bank. capability excellent of cutting expenses in bringing the bank back from the brink but he is not shown an ability to grow. tom: i like that idea of back from the brink. i will bring up this chart right now. charles peabody, this capability of cutting expenses in is of the banks,ks -- the four moynahan is getting his act together. bring up that chart if you would. there it is. bank of america, versus citigroup. he is finally getting it going. what would be the catalyst for bank of america to get up to wells fargo or jpmorgan-like performance? >> earning cost to capital. that is something they started

to do this year for the first time. i've not seen her r.o.e. but to earn a 10% plus r.o.e. is what they need to do. i think they are starting to do that. francine: boiling down bank of america's quarters to just one number, charles, would it be the net interest income? >> that is where the leverages for all of these banks. generally speaking if you look 's earnings and jpmorgan's earnings it is the income growth that has been driving revenue growth. income has been weak because of the weakness in trading in capital markets. tom: trolls peabody, thank you very greatly appreciate that. peabody, thank you so much. sequence horrendous from bank of america. we will give you more on this as we translated in slow motion over the next 20 minutes. then that conference call as well this morning. ofant to get back to the why

this and it is the same thing with j&j. growth, kaplan talked of this. the first chart, is there no pricing power out there? john: very little. prescription drug prices. another element declining. that is not a transitory thing. that is something that has been in the works for six to nine months. tom: there is the chart. we will do this on radio later. this is the 10 year moving average of nominal gdp and we come from the era of inflation an enormousp of 10%, the great moderation, down we go, we come down harder than we did back in the 1950's and 1960's. a huge plunge here within the crisis of a nominal gdp -- just not there. can policy change that? john: policy can alter that. you have an interesting thing that nominal gdp has come down

despite steady economic growth and lower unemployment rates. where is the inflation pressure? where's the boom in the economy? it's just not there. nominal gdp is the ultimate limit in terms of pricing power. tom: what do we do then to come over -- labor economics and get to tangible wage growth? ado not get the linkage of dearth of animals. , kaplan's no pricing power and wage growth is supposed to show up and set the time and date? john: labor market. going back to the conversation with the ambassador earlier, it is focusing on the new elements in terms of tax reform and structure spending to get that part of the economy moving and the demand for labor which is always a derived demand will improve and that will generate higher compensation for workers. francine: i will last good trick question john. or you more positive negative on the u.s. economy than you were six months ago?

john: no change at all. january the year in with a gdp forecast of 2.3% for the u.s. and today we are at 2.2%. no change at all. quite frankly, francine, we do not expect anything in terms of economic possibly -- economic policy for 2017. francine: is the biggest risk no delivery on policy and washington? john: know the policy of mistake. to move forward on the issues people want. questions of trade, regulation, no there is a lot of risk of their in terms of economic policy -- second attract from a 2.2 percent trend economy. tom: we have the full analysis from bank of america. --king at efficiency ratios the two minute drill on bank of america is the same as every other company.

very tepid topline growth and managing earnings down. there is almost a permanence to this. does this ever go away? is this the atomization of labor? john: i would say with respect to nominal gdp, you saw what could be done in terms of revenue growth and now a lot of it will be on the cost side. controlling costs of operations. looking at technology and labor in terms of giving us better productivity within the financial sector. tom: mobile banking -- bank of america, up 13%. on mobile banking as well. you talked about branch banking, whether it is some other bank doing it. john, to the worry that our viewers have of the future of labor in america -- not everyone can wear a fancy bowtie or work in silicon valley or the in a

slump like erin judge? where is labor in america? john: focused on skilled people. tom: but you're the expert. what portion of america is skilled people? now aunfortunately right small portion relative to the history of what the united dates has done. technology to eliminate repetitive positions and what we are looking for now is skilled decisions requiring decision-making in a difficult and changing environment. that has meant that you have to change the education system, why kids go to college, and what they study when they are in college. bloombergif you are a user and viewer and want to follow more on bank of america and merrill lynch's earnings, live, does the blueprint president trump has

for the economy create quality jobs? john: the blueprint is there. you have to put something into action. rates,g individual tax lowering tax rates, lowering corporate tax rates, changing the form in terms of special provisions, that will get incentives going but the challenge i see in the administration is getting that blueprint in action. tom: john silvia, thank you so much. fixed income down 14% at bank of america. equities up 3%. key data. a foreign exchange report front and center today. the dollar weaker in -- and many other currency showing great strength as well. in the next hour, goldman sachs earnings.

♪ jonathan: the republican health

care bill is dead. mitch mcconnell abandons efforts to replace obamacare. gridlock in bc. -- gridlock in bc -- in washington dc. wall street earnings resume. less than expected, goldman sachs is up next. from new york city, viewers worldwide, good morning. this is bloomberg daybreak. i'm jonathan ferro alongside david westin and alix steel. here's the market action. futures are flat. in the fxaction is market the dollar index the lowest since august of last year. the euro-dollar showing some strength. up 7/10 of 1%. treasuries with a marginal build. alix: the equity market will all be about banks and netflix. surging up over 11%, and are -- netflix, a little light after