francine: markets prepared to scrutinize draghi's delivery when the president faces the media later. will the drop any hints about stimulus? unilvever cuts costs and raises prices. and france's finance minister tells britain, we want our money back. the eu divorce bill and the 100 billion euro figure that will not go away. this is "bloomberg surveillance" and i'm francine lacqua in london. we have a great show for you. but first, to your data and

asset check. we see little bit of a risk on mood, certainly when it comes to a lot of these stocks. the stoxx 600 gaining from 0.3%. there is a rally in stocks continuing today. an all-time time for u.s. equities. the boj, maintaining the mega monetary stimulus. another i wanted to add, the dollar reversing the events that plunged it down to .88 cents. let's get straight to the bloomberg first word news with taylor riggs. reporter: president trump has told senate republicans to stay in washington until they repeal obamacare. this comes two days after gop efforts to announce the new health-care law collapsed. they were scheduled to go on recess next week, but mitch mcconnell delayed this by a fortnight. >> my message is really simple. we have to stay here.

we should not leave town. we should hammer this out and get it done. reporter: u.s. senator john mccain has been diagnosed with brain cancer. it was discovered when doctors removed the blood clot above his left eye. president trump says his thoughts and prayers are with the 80 year old. china and america have agreed to start what they call cooperation to narrow the trade deficit. this statement from the chinese foreign minister came after high-level associations broke down yesterday with the world's two biggest economies unable to produce a joint statement. the talks got off to a tense start as wilbur ross scolded china over trade and balance. ministere's finance discuss the repayment of money it owes to the european union to the tune of 100 billion euros. he told the economic committee, we want our money back. meanwhile, theresa may will be

urged to do more to reassure businesses about her brexit plans as she begins her first serious consultation with companies on the subject. senior figures have been invited to sit around the cabinet table today and offer their views. having spent her first 12 months and office attacking industries for overcharging customers and not paying staff enough, may is now trying more conciliatory approach. 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. francine? francine: thank you. mario draghi has a fine line to walk. and tradersbeat could push yields too high. but appear too downer, and he will have to adjust expectations and policymakers will not announce any stimulus policy changes. draghi knows the effect his words can have on the market,

having spun them into chaos last month. meanwhile, the european situation. the bank of japan has pushed 2%k the project for reaching inflation for a fifth time. stimulus will remain in place for a long time to come. let's bring in fabio balboni, an economist at hsbc, and gary greenberg. thank you for showing up on "surveillance." the boj is pretty much steady as she goes. how significant will be the words of mario draghi to figure out what the ecb can do without causing cover tantrums? >> in contrast with the ecb, the situation is quite similar. time we will not get a new inflation. but if we did have one, it would probably have to be another downward revision, because they

would price it down and the euro is up. the economic background is not too dissimilar. boj, the ecb is stuck between a rock and a hard place they know they cannot afford to define for much longer. that is why we expect eventually they will have to taper, but as you said, draghi will have to very careful communicating that to the market to avoid the wide spread, which would undermine the effectiveness of the monetary policy. francine: i have a chartier here, looking at inflation in the eurozone. you can to the difference between core inflation, the white line, and the blue line, inflation overall. the main difference between the boj is first of all, the balance sheet, the percent of the gdp. has a much more

structural problem when it comes to inflation. >> absolutely. that white line looks remarkably flat all the way to 2014. the ecb has been arguing that their program has worked and it has in easing the monetary beicy conditions and said to making it cheaper for countries to borrow. this is important for countries with a high level of dept. for example, when you look at the cleaner version of the core inflation, well actually, it is not moving much. trajectorywnward reflects the depreciation in 2014. there is not much in there. if the ecb hopes to get wage growth, we are still quite a long way aways before we do get there. certainly, they are far from

meeting those expectations. francine: alaska as i can if the firsteds to taper, but of all, do we have a deflationary problem across the world? >> idle don't think we have either one right now, actually. -- i don't think we have either one right now, actually. it is actually a pretty goldilocks moment. we don't see, in brazil, inflation is coming down in many emerging markets, it is coming down. right now, basically, things look pretty good. francine: but what is important for the emerging markets -- and i will bring you over to the ecb, boj, and fed assets. in blue you have the boj, we are at 93%. the federal reserve here in white. i imagine emerging markets are concerned. that is the biggest risk out there. >> they are. quick,taper is too

that could destabilize markets quite a bit. if they continue to add qe that could result in misallocation of capital. it is a fine line. francine: fabio, do you believe the ecb is itching to do something because they don't have enough german bunds to bu y? >> i think there is a bit of that. they will run out by mid-next year. they can't go on. but it is also something relating probably to, and i think we see was globally. central banks want to reaffirm their own independence and their ability to act, maybe get ready for the next recession. have overlynt to accommodating monetary policy for too long. draghi is right. monetary policy accommodation will give you bigger results in terms of the outcome. francine: are they coordinating with the fed? >> i am not sure if they are,

but certainly a much more concerted move globally than we have been in the past. say this. some people d both stay with us. we will bring you the ecb's policy decision at 12:45 u.k. time. bloomberg customers can follow all of this live on tliv . plenty is coming up, including macron's moment of truth. the new french president faces his first big test as his military commander quits. will u.k. retail sales bounceback. we get that figure at 9:30 u.k. time. this is bloomberg. ♪ francine: this is "bloomberg

surveillance." let's get straight to the bloomberg business flash. reporter: the outlook has been raised after reporting a better than expected 10% quarterly sales come. the german software firm is pretty thing sales anywhere from $23.3 billion euros for the year. fells announced a share buyback of up to 500 million euros this year. we will be speaking to bill mcdermott in his first interview today, 11:30 u.k. time. dry, calm weather in spain has , that came in at a fall 3.6%. this hurt the hydro and renew

able energy generation. and brevan howard asset management is planning a new macroeconomic tech fund to be run by alfredo. he ran a portion of the main fund, and he will manage the new money pool. cas macro fund will start in the fourth quarter. that is your bloomberg business flash. francine: the economic reform plan of the french president have come under the spotlight after the head of the country's military quit. general pierre de villiers said cuts to the defense budget meant he did not feel capable of defending france. we are in paris. first of all, the dispute is over austerity. reporter: absolutely. it all came about one week ago when the french government

announced public spending cuts of 4.5 billion euros, including a hundred 50 million euros of budget cuts for the military. then interned into a public drama when the chief of the villiers generale de said he was not capable of protecting the french with these budget cuts. and then it turned into an even bigger public drama with president macron, just before bastille day last week, reprimanded the generale publicly, reminding everyone that he was the ultimate chief of command, that the attitude of generale de villiers was not dignified, and that he did not need any pressure of commentary and that this was felt as a humiliation for the military. francine: what does this mean, caroline, for the presidency of macron?

he has put forth a very ambitious plan of reform, got the go-ahead from world organizations. does he now have to go back to the drawing board, or just push ahead? reporter: well, it depends whether he can keep the incident as an isolated incident, or whether this stems into a bigger political crisis. this is unprecedented. this is the first time since 1961 that a military chief resigned in france. we know that the popularity of macron has already started to fall. it fell five points in july and it is now at 54% popularity. many among the french public opinion criticize his arrogance, his communication style. autocratic. hisould further impact governing power over the next few months.

also you have to remember france is in a state of emergency and the public opinion has a very good image of the army. they are protecting the french against terrorist attacks. they are fighting in the desert against the jihadists. also, we have had airstrikes in syria and iraq. clearly, this is very damaging for emmanuel macron. we will have to see whether this becomes bigger over the next few weeks. francine: thank you, caroline, in paris. of course, a story we will follow closely. still with us, fabio balboni and gary greenberg. fabio, you look at europe very closely. is this a problem with austerity? we seem to have put aside our political risk. is there a danger this could hurt economic growth in europe? >> in a way, the challenge begins now for macron. where he is struggling is he needs to bring his deficit below

the 3% gdp threshold, which is his commitment to europe. this is part of the reason why he has announced these cuts. not just that. he needs to bring it towards 0%. that is likings 3.5% gdp by 2022. it will be very difficult to deliver in a country that has historically struggled. particularly if he wants to push forward with his agenda. to gain credibility with germany he needs to deliver. that will make it much harder. this is where the challenges. of course, he also has ambition for the labor market reform to push through with that agenda. you need to compensate some of the losers. where will he find the money? that is a big question. francine: gary, we are always surprised that in western europe and the united states, there is a concern about austerity, which leads to populism in some countries.

you see the contrasting in emerging markets. they are much more outward looking. >> it is interesting. one of the big issues for china right now is the issue of austerity. they have got too much debt and are adding too much. they need to slow the country down. it is an old chinese expression incan the people eat bitter, other words, absorb some austerity and make it so china can reconfigure its economy. francine: what does this mean for austerity measures in other countries? there are concerns about spain. we are looking at possible early elections. do you feel comfortable the trend for europe is on the upside? >> absolutely. this is going to be the next big item on the agenda because if you take the u.k. and the u.s., the political debate is shifting away from austerity and the eurozone has very little deficit, just 1.5% of gdp last year.

and that is falling fast. that is why countries want to move away -- in italy for example, renzi said he does not want to reduce the deficit anymore, but bring it back to 3%. in spain, the minority government is struggling to convince the other party to push through with a further cap. this will be the next big policy position. this is why i think for the future of the eurozone, people are getting less worried now about the populist wave. but this is not over. if they cannot implement a big fiscal push jointly comment much will come back in two to three years time. francine: up next, popularity pressure. activist investors step up their drive for efficiency. we hear from the company's ceo. that is next. this is bloomberg. ♪ francine: uniliver is

sharpening its focus on profitability by lifting prices and cutting costs as investors take aim. >> what we are focused on shareholder value creations, long-time compounding with our continuous investment model. and i think this again shows what enormous value can be traded with the uniliver model. so, a model like uniliver is a good model for many of our shareholders.

reporter: when we last spoke, you are launching the strategic review. multipleou make of the it was sold at? >> it is clearly a quality asset, if you look at the price. you look at many of these things when they come on the market because you always learn something. but we have a very disciplined process. we are very glad this first six months of the year to add to our hourglass. and a partnership with the biggest company. we continue to strengthen our own portfolio. portfolio, iyour wanted to ask about the spreads business. what multiple do you think you could achieve for that? >> it is a tremendously complex process. we had 60 to 70 countries we had businesses in.

we are working with a lot of interesting parties to see what the possibilities are and we think we will complete the process probably by the end of this year, early next year. that is what we are focused on. reporter: every talking about an all right sell? >> it could be a sale. we have different options to see how we can maximize the value and guarantee the success of the business. because it is a big and successful business. reporter: indeed. and any idea on the enterprise value it might fetch? >> know, we don't go into that. reporter: the last time we spoke as well during the strategic review, we talked about m&a, continuous m&a. i am wondering, as you go forward, are you thinking of making big purchases, or smaller acquisitions? >> we had a very good strategy over the last seven to nine years. we have made steady and

consistent acquisitions. we are extending these businesses now into other countries. into the uk. and china, as we talk. we have enormous opportunities to take our portfolio and expand them, to make these strategic acquisitions and put uniliver's scale and global reach behind them and create the shareholder value as a result of that. francine: up next, the u.k. retail sales. this is bloomberg. ♪

francine: you are watching "bloomberg surveillance." let's get straight to the bloomberg first word news. here's taylor riggs. taylor: president trump has told senate republicans to stay in

washington until they repeal obamacare. after gopwo days efforts collapsed. majority leader mitch mcconnell, who drafted the failed legislation, delayed it by a fortnight. china and america have agreed to start constructive cooperation to narrow the trade deficit. the statement came after a high level negotiation broke down yesterday with the world's two biggest economies unable to produce a joint statement. u.s. commerce secretary wilbur ross scolded china over trade imbalance and both governments canceled closing press conferences. theresa may will be urged to do more to reassure businesses on her brexit plan. senior figures have been invited to sit around the cabinet tables today and offer their views. having spent her first 12 months in office attacking industries

for overcharging customers and not paying staff enough, may is trying a more conciliatory approach. 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. francine: thank you so much. getting some retail sales out of the u.k. by every metric, they are better than expected. retail sales month on month, if gainingp out auto fuel, 0.9% instead of the 0.5% we were expecting. if you do it including fuel, also better than expected at 2.9%. pound currently at 1.2984. this is the week where we have that inflation data. that is probably the number one thing mark carney is looking at. at 88.381.currently still with us, fabio balboni and

terry greenberg. savio, when you look at the boe, we have this shift in policy. he was neutral, then hawkish. now we have retail sales. what can the boe do? fabio: the boe are in a difficult place. they know that inflation is higher. we continue to see inflation hedging towards 3%. they don't know where the supply side of the economy is. there is brexit. there might be a reduction in terms of the labor market. they are worried about that. in our view, it is unlikely they will hike rates. everything we have seen suggests they will be cautious. we were expecting a bounceback in june. the good weather always spurs a little more consumption. real wages continue to be

squeezed. the household savings rate has fallen to an even lower level than the past. englandiew, the bank of is more likely to remain on hold, but is the output gap really that wide, or maybe we should start to worry about inflationary pressures. francine: that has to do with the weakness of pound. do you care about brexit, gary? at some point, there was a believe this could affect markets worldwide. this seems to be much more local. gary: if brexit had been the beginning of a domino effect in europe, then it would be very significant. since that doesn't seem to be the case, it's pretty contained as far as emerging markets are concerned. francine: fabio, i love this function. wirp, world interest rate probability, which you can find on the bloomberg terminal. this is the probability of a

hike is 40%. the probability of no change is at 60%. what kind of data points does mark carney look at? does he need to follow brexit negotiations? 2009, inflation was close to 5%. the gap was very wide. i think they will be looking at wages. that is probably a better indication of domestic inflationary pressure. wages are not increasing much in the u.k. to me, until we start to see some wage pressure piling up, mark carney is going to remain relatively relaxed. there are limits to the tolerance of the bank of england. depreciating,eeps we could have a much more sustained inflation closer to 3%. at that stage, maybe the bank of england will rethink their

strategy. francine: how much weaker are you expecting pound to be? this is one thing they are concerned about, if inflation goes up. what does this mean for wage growth for the average person to go up? fabio: this is ultimately what matters, wage growth. we haven't seen a productivity recovery in the u.k. there are many elements in the labor market that suggest the wage growth won't pick up meaningfully, and that is a global phenomenon, not just the u.k. if they continue to see productivity gains, that blue line is unlikely to move significantly. francine: we will talk about china, brazil, oil. the last 18 months were a real shift for investors. we have all these kind of productivity puzzles and concerns. phillips curve being broken in western countries. gary: yeah.

emerging markets look relatively calm compared to western countries. at the end of the day, there's reasonably decent growth there. if we do get an economic recovery in the west, that is icing on the cake. a lot of investors have been looking at emerging markets. francine: we will be back. fabio balboni and gary greenberg. plenty coming up, including, china and the u.s. get down to business even as relations seem to sour. the world's largest economies agree to narrow the trade deficit. and cooling on qatar. will the block putting heat on qatar change it stone? this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get a quick check on your markets. nejra: global stocks setting record highs again. european equities up for a second day after the biggest selloff in three weeks on tuesday. we're up 0.4% in this session. energy stocks really leading the gains. we've got brent crude holding about $49 a barrel. $47 after that bigger drawdown than expected. most industry groups heading higher here with european equities. this ahead of the ecb policy decision, which is why we are closely watching euro-dollar. we are a little weaker on the euro for a second day. the theme this year has been

euro strength. forming a triple top on euro-dollar. mario draghi is going to have a difficult balancing act. too dovish and it could really hurt the bulls because the market has bullish positioning on euro-dollar. it is net bullish for the first time in three years. the most bullish since 2011 as well. socgen saying, we could touch 1.13. in terms of euro-yen, we could touch 127. some interesting technicals to watch as well. we've been seeing euro-yen approach that moving average. is it going to touch that after the ecb meeting? draghi holding the key. we've been keeping a close eye on dollar-yen. its stimulusing study, also pushing out its

inflation target. we are seeing dollar strength against the yen. this is the dollar index. we went above 95. even though we are higher today, we are lower on the week. pretty similar to the 10-year treasury yield. francine: thank you so much. china and the united states have agreed to start cooperation to narrow the trade deficit. the statement from the chinese foreign ministry came after negotiations broke up yesterday. tenselks got off to a start as u.s. commerce secretary wilbur ross scolded china over trade imbalances and both governments canceled closing press conferences. still with us, fabio balboni and gary greenberg. gary, tense relationship. i guess the main concern for the markets is that there could be some pretty heavy capital from

china. is it still a concern? outflows in terms of direct investment are really being penalized the government. five or six large companies which have been investing all over the world have been called onto the carpet by authorities. it looks like that is going to stop. that has the advantage perhaps of stopping some money laundering. more importantly, it is going to stabilize foreign-exchange reserves. francine: you've just come back from china. are you positive on china? gary: i think the market is pretty aware of the risks. the risks really are the risks of policy error, just like in the united states, u.k., in europe. policy error meaning too much of a slowdown or not enough of a slowdown. they need to have a little bit of austerity.

the state owned enterprises need to be reformed. that is a difficult thing to do. one has to expect a little bit of policy reform in the upcoming people's congress but not a lot. francine: fabio, do you worry about china? it was the biggest risk 20 months ago and large economies seemed to ignore this risk. fabio: there was a moment where the market was worried about china, but those worries have really gone away from a market perspective. we know that china is going through a difficult transition. i think gary is right in saying that has to be managed positively. that transition, so far, seems to be proceeding relatively smoothly. we are encouraged by the fact that you start to see more of the private sector activity picking up.

investment and some of those numbers have been performing strongly. we think there is a little more momentum. francine: gary, how do you see the relationship actually going? gary: i think at the end of the day, everything is going to be fine. francine: because of north korea. the last need china as an ally. gary: i don't think china is going to do a lot with north korea. i think china is going to say, there's just so much we can do. the u.s. will have to get used to that fact and find some way to live with north korea. , china isf economics growing pretty well. i would expect that to slow a little bit. actually in fairly good health. that spells good things for the rest of the world. francine: do you agree with that, fabio, that it is not going to be some kind of ugly

trade war? fabio: some of the chinese trade numbers have been very positive. going back to the eurozone, they .ave helped lift german exports certainly there has been a little more momentum. for years, china has been a competitor for exporters in the west. that has contributed to the erosion of the trade markets. now that momentum is shifting. many areas like transport, infrastructure, we are starting to see european exporters looking at that market. francine: gary, when you look at the market, does passive investment change the way the market is composed? is that a concern? gary: i think passive investment gives a big play to the large cap stocks and the benchmark.

if you are in part of the cycle where those stocks are attractive, it is a good thing. mostly, what it does is it gives more power to whoever is getting inflows. francine: thank you so much. gary greenberg and fabio balboni , both stay with us. is there a change in tone from the gulf alliance trying to impose its demands on qatar? this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash. here's taylor riggs. taylor: s&p has raised its outlook for revenue. the german software firm is now projecting sales between 23.3, 23.7 billion euros for the year. it also announced a share buyback of up to 500 million euros. we will be speaking to sap at 11:30 a.m. u.k. time. dry weather in spain has spurred tough earnings.

they came in at 3.7 billion euros. ledlack of wind and rain hydro and renewable energy generation, prompting spain's largest our company to turn to more expensive ways of generating electricity. easyjet shares are lower after cautioning that shares remain under pressure and are likely to decline further next year. it said annual profits should increase more than forecast by analysts. the airline is bracing for the exit of the ceo, who is leading to head up icb. francine: thank you so much. the saudi-led lock putting pressure on qatar may be softening its tone. the alliance is pulling back from its original list of 13 demands and is calling on doha to agree to six broad principles. our middle east and africa editor is in dubai. why the shift from a very strong

demand, now softening their tone? >> those 13 demands can probably be included in those six principles. it is kind of a packaging thing. they've made it all a bit more vague. they've created a bit of fog, which will allow an opening in terms of negotiation. what we are hearing from some interview we had an with a minister in the uae, they seem to be focused on monitoring whatever they agree on. they are focused on things that qatar has already agreed to, which opens the door to hopefully finding an agreement. francine: are we more likely to find an agreement now than we were three weeks ago? it is more than six weeks, and this is the worst crisis in the history of the gcc. >> indeed. i don't think anybody is saying

we're going to find a solution in the immediate future. all officials are indicating this might take a while. what we are seeing, what this roadmap seems to want to achieve, is to take the tension out of it. one of the suggestions is that they cease the attacks in the media against each other. it is kind of trying to create an environment where they can sit down, talk directly, and find the processes, the procedures, to resolve these things. basically they are all saying, we want the implementation of what was agreed in 2013 and 2014, but we want proof that it is being done. qatar is saying, fine, but that means everybody has to do it. didn't3-2014 agreement specifically specify qatar. francine: interesting. thank you so much.

bloomberg's middle east and africa editor. still with us, fabio balboni and gary greenberg. does it make a difference to either of you what was happening in the middle east in terms of forecast for either markets are the economy? there seems to be more willingness to come together. did it ever put in jeopardy the oil forecast or anything like that? fabio: only to some extent. the impression is the oil price is cap around $50 per barrel. that is not necessarily a lack of demand. it is more the elasticity of supply in countries like the u.s. that are able to ramp up production quickly. that is a structural challenge for many of those countries. they need to rebalance the economy gradually away from oil production. that puts a lot of pressure on the fiscal in the short term. globally, i think it is unlikely

we see another return of the oil price to the levels a couple years ago. francine: do you agree with that, gary? gary: most emerging markets are importers of oil. as the crisis diffuses, and the possibility of a war which would impact the oil price goes away, it is good for emerging markets. francine: are there any favorite emerging markets you have? a lot of them have structural reforms. some of them haven't. gary: some of them haven't. it has been a matter of picking stocks over the last year or two rather than countries. there aren't any great macro factors right now at the country level. francine: not even politics? if you look at brazil, turkey, is it cheap valuations, or do you shy away from them? gary: brazil is a little easier than turkey. brazil is passing reforms. -- they've been

passing labor reform. the outlook for reforms is pretty positive now because the workers party president was convicted. if that conviction is upheld, he won't be able to run for any elected position. that would mean the outlook for reforms is more locked in. we are seeing -- i was just there last week. we're seeing the first signs of spring. they are starting to make the expenditure they put off. francine: fabio, do you believe it is looking better in emerging markets? how much does that contribute to the stability of western countries? fabio: probably the direction is the other way around. there is a big question mark for emerging markets. seemsould hurt because it there is a bit of complacency in the market around some of the

structural issues around countries like turkey, south africa, and there is still a question mark on how the market will react and whether the capital flows may be withdrawing capital. francine: thank you so much for joining us, fabio balboni and gary greenberg. "bloomberg surveillance" continues in the next hour. tom keene joins me at of new york. we will be joined by harvard university's kenneth rogoff. i want to talk about the ecb. we are covering it from all angles. i'm also looking at pound. we talk about the divorce bill with brexit. this is bloomberg. ♪

prepare forrkets

draghi's delivery when he faces the media later. trump tells the new york times at jeff sessions should have never recused himself. after theresa may briefs business leaders, will the u.k. pay a divorce bill? this is "bloomberg surveillance." divorce, one hundred billion. that is what is on the cards. the eu commission and france are playing tough. tom: it is back-and-forth and will be like this for two years. buried in the news is the ecb meeting. to me, that is a huge dealing cannot rise above the news flow. calline: when will the ecb

it from the markets and underpin what we are seeing from asset classes? let's get to first word news. jeffr: an admission about sessions by president trump. he says he would not have appointed sessions if he knew sessions would work use himself from the russia investigation. recusal unfair to the present here john mccain has been diagnosed with brain cancer . his office says he and his family are reviewing treatment options. he is 80 years old. more than five years in a prison cap after being shot down during the vietnam war. its monetaryept stimulus unchanged. they have pushed back their timing for reaching 2% inflation

pure they expect to hit it around april 2019, one year later than previously projected. toresa may is being urged assure businesses over her brexit strategy. she will have her first consultation with business -- businesses since taking office more than a year ago. 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. data equities, bonds, currencies, commodities, our coverage across all of our geographies. euro weaker in the last 24 hours. i made this equity base, the , we the dallas -- the dow

are not there yet. the nasdaq near 6000. brent crude it near 50. francine: u.s. equities, we had an all-time high. it seems the good mood is filtering through european stocks. boj maintaining monetary stimulus. overall, i am looking at dollar. 47.06 on the back of gains. oil holding some gains, losing a touch in the last five minutes. chart.stumbled into this of two the nasdaq 100 worlds in two times and two

places. on the left is the boom of the 1990's. notice how it is curved. to have a curve on a long axis is a rare and beautiful thing. i have never seen that. the 1990's.boom of this has not been repeated. this is much more linear. make up 42% of the nasdaq 100. .e live in odd times francine: that's a great chart. we don't spend enough time talking about it. this is my chart. it is simple. it is the day to look at this. -- a balance sheet

of the fed, boj, and the european central bank. this is a percentage of gdp on the balance sheets and you can see the concern. after three years of asset purchases and cheap loans, the ecb is confident it has beaten the risk of deflation. tom: for our global audience, we are not going to do this like u.s. cable networks. we are going to try to inform you on the last 24 hours in america's capital. the battle back-and-forth between the new york times and washington post. thenew york times takes upper hand. the president said mr. mueller an office with

conflicts of interest and warned investigators against delving into matters too far afield from russia. he never said he would order the justice department to fire mr. mueller, nor would he outline circumstances under which he might do so, but he left open the possibility. this harkens back to the middle to early 1970's. kathleen hunter provides perspective in london. is spinning with all that is going on in washington. kathleen, let's start with the morning must-read and mr. mueller. are we getting to a water game moment? more thats more and way. i am looking forward to next week when donald trump jr. will testify publicly about his

meeting last june with the russian lawyer. a revelatory to be moment. onert mueller has signed off paul manafort and donald trump jr. testifying public. publicly.ing i think that means mueller is comfortable with the two individuals making public statements about this. from his perspective, it is one more opportunity to get some evidence into the public record in addition to being into whatever record he is collecting into his own investigation. that is the next step to watch. it will be a media circus, but potentially explosive. tom: you see this on the french side.

as generals will say in france, that is it, i am done. no one is saying i am done in the friend -- and the trump no one istion -- saying i am done in the trump administration. what would you expect to see trumpeff sessions after throws him under the proverbial bus? >> it will be interesting to see what he says. it is interesting to note donald trump is someone who demands fierce loyalty from people that work for him. donald notable that trump was willing to throw him under the bus given that he demands loyalty from his people. france's we have richard turner as well.

-- francine: we have richard turner as well. is this something you worry mayt because the president lose political capital which hurts his ability to perform elsewhere? surprising isen how little these events have impacted markets over time. impactspoint, policy market. it impacts when it starts to impact your expectations. over the last few months, expectations about a significant fiscal package in the u.s. have declined. it will be much smaller than originally hoped for and unlikely to be fully funded. these events are unlikely to change those expectations. the risk of those expectations, if you get a significant package

. francine: what is it based on? >> based on fundamentals. we are seeing a sustained global economic expansion. growtha shows economic in all regions above trend. feeding through two strong earnings growth when interest rates are low and investors have been underexposed and underinvested. they are starting to put that money to work. the movement we are seeing is irrational, driven by fundamentals and we think it can be sustained. tom: sustained is the key idea.

kathleen, can we sustain our finance with the washington that we have? interview, what people are talking about is the after battle to come labor day. forget about sessions, mueller, the horrific illness of senator mccain. we may shut down in september. is that possible? >> it is possible. september 30, we only have funding through september 30. the new fiscal year stopped -- starts october 1. it will be tough to get funding legislation through. there was a government shutdown in 2013. we could see a repeat of that in september. francine: thank you. , the ecb will release its decision as mario draghi is set to speak at a news conference soon after.

that begins at 7:45 a.m. in new york. this is bloomberg. ♪

taylor: let's get the bloomberg business flash. a german software firm has raised its revenue outlook after posting an increase in sales. they boosted their projection for cloud and software revenue. sap announced a share buyback. ceo herealk to sap's on bloomberg surveillance. unilever is sharpening focus on profits by raising prices and cutting spending. they are stepping up in efficiency drives.

activist investors have taken aim at other consumer goods giants. >> in some cases, active investors would be a good thing. you want active investors. , ite the line is drawn depends on what you are dealing with. posted unilever first-half earnings that beat estimates. will be: mario draghi watched at the policy meeting. he will attempt to mount optimism over an economic revival against the desire to move as slowly as possible when removing stimulus. the bank has been examining its options around asset purchases. richard, how much of a concern is a way they take away some of

the stimulus? richard: mario draghi is walking a tough line. economic growth is picking up. we see signs of that broadening and becoming more sustainable. , wellion remains low below the ecb target. inflation expectations are below the ecb target. they want to move away from putr easy monetary policy, in place at a time when effect.n was in they want to be cautious about spooking the markets and the economy at a time when inflation is low and below target. it is a fine line. be cautious. they are trying to manage the market and x tatian's. -- and expectations.

the ecb cannot continue buying assets at its current rate. it will run out of assets to buy . that change needs to take place. what the ecb is trying to do is manage market expectations. whether or not that change comes, early 2018, that happens in a way market do not react. tom: you always nail it. it is a shift from a deflation discourse in thinking and modeled in theory to something more restrictive. mario draghi is a first rate economist. does he do a jump condition to inflation discourse in dialogue or is there an evolution of it along the way? richard: the language has to be gradual.

see a step change, it will be an asset purchases. it will leave the ecb running monetary policy at a stimulative level. with the ecb expects is strong growth in the euro will lead to a pick up in price pressures. we are not seeing it today. languagethe aggressively at this stage indicates a shift in policy would not be appropriate. do you know a time when a central bank has gotten in front of inflation successfully, or must they wait until they see the whites of inflation's eyes? richard: they are good at managing inflation rates over time. they have managed around deflation expectations.

they will be pleased and what they have seen. they will be pleased and what they have seen. inflation levels today are closer to, but below, their target. the ecb will be more confident about dealing with an inflation problem that it would be about , seeing theoo early economy slow rapidly. they will be cautious about moving policy quickly. this is going to be great. we will come back with richard. i hate these countdown clocks. they are tacky. this one is great. thank you for putting up a classy countdown clock on bloomberg television, for those who can see that. what you will see in the next hour, robert shiller will join us.

for the entire hour, kenneth university.rvard stay with us. this is bloomberg. ♪

need to talk about france and the resignation of their military chief over cuts to the military budget. it is one of the biggest challenges to macron's

authority. richard, this has not happened for the last 34 years where you have a political deflection -- political defection from military personnel. a goes down for wider conversation about austerity. markets european stock have done well on the back of a number of factors. most important, growth is picking up. the political developments have been taken positively. it is reducing the risk of populism. they create the possibility of a , the frenchu core and german governments increasingly aligned. start to see meaningful reforms come through, particularly in terms of labor

market reform. this marks the end of the honeymoon period. it is the first challenge to his authority. markets will watch closely to see how he responds and see if he comes through this and maintain the level of confidence supported. will be francine: will he manage? does france want to be reformed? richard: we have seen a clear mandate for reform. what we are going to see is the ability to implement that overtime. we will see reform around labor market reform, which is the top priority. there will be challenges in implementing that. it is time to see whether we to execute on those promises and expectations within the market. you look at why the european french stock market has done well.

some of it is about expectation about reform, the lot is about the strong growth that looks sustainable in france and europe. tom: interesting experience. we will see. richard will continue with us. is your housing and investment -- is your housing an investment? richard scholer on the housing -- richard schuler on the housing market. on what is too true for most americans. they cannot afford their housing. stay with us. from new york, this is bloomberg. ♪

. these days families want to be connected 24/7.

that's why at comcast we're continuing to make our services more reliable than ever. like technology that can update itself. an advanced fiber-network infrustructure. new, more reliable equipment for your home. and a new culture built around customer service.

it all adds up to our most reliable network ever. one that keeps you connected to what matters most. francine: i am francine. they are talking about the divorce will.

minister isrime saying they need to pay the $100 billion in this say hot political potato at home in london. billion and this is a hot political potato at home in london. i have to say, it has been pretty emotional so far. straight to first word news, here is taylor riggs. taylor: best and it may take another shot at getting a health care bill passed as president trump urged republicans tuesday in washington until they repeal obamacare. senator majority leader mitch stillell what to hold -- wants to hold procedural vote next week. doesn't judiciary committee once -- the senate judiciary -- donaldwants credit trump jr. to testify. son-in-law will

talk to senate investigators behind closed doors all of this after revelations of a secret meeting last year. the honeymoon on trade between the u.s. and china is over. economic talks between the two have ended with no joint session -- statement. they can barely describe on -- they can barely agree on how to describe their disagreement. tona said both sides agreed constructive cooperation. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom? francine? francine: thank you. kept itsof japan program unchanged. the nikkei got a boost, the central bank pushed back. timex for reaching its 2% inflation rate for a second time.

a goldman sachs vice president joins us in a london and we still have richard turnill. what do you make of the challenges of the ceo? what is their number one question that investors want answered? inflation or staying on after his term? kathy matsui: i seem to be top of my question is for many investors that we speak with is, what is the kind of endgame for this so-called yield curve control of quantitative easing framework and asset purchase program? you mentioned the other question is will corrode stay on of -- kuroda stay on after his expiration of next april? how much longer can the bank of japan sustain the current program? they setent is because

their inflation target quite high at percent, it is likely they will persist with the current framework, including both the yield curve control as well as asset purchases they are currently executing. having said that, we are in the view there are some signs of inflation beginning to creep through, wages are beginning to pick up, expectations are creeping higher. the 2% that the bank of japan is aiming for, we will in thee increasing signs next six to 12 months down the road. the priceby delaying target, price goals, is the boj effectively acknowledging that they need to continue easing for years to come? would appear it so. we do not know how long that would be at a lot would ride if kuroda stays or leaves next

year. or fact they did delay postpone the timeline for reaching their target inflation level, the markets interpreting that as more prolonged think and we are seeing the convergence of central banks, the fed and the ecb versus the bank of japan will probably continue this quite aggressive amulets program -- stimulus program for the foreseeable future. tom: good morning, i want to bring up a chart. japan's nominal gdp. we have robert shiller in the next hour with his work on animal spirits. the animal spirit has evaporated and nominal gdp which is on a obvious mix friendly -- abenomics friendly trend. it has rolled over. how important is it nominal gdp has rolled over? it is obviously

supercritical because at the end of the day, managers and others think a nominal terms as opposed to real term. there has been an initial sort of jumpstart to getting the economy out of the -- and get a growth to expand and all of that. more needs to be done. i think the concern of the market is the government in japan might be distracted by other issues and needs to focus on the economy, stimulus the economy identity animal spirit to revise. the corporate sector is in fine shape and we have record profits, record profit margins. it is not as if there is no cash around. you are putting everything on the right point, where is the catalyst to get corporate managers to deploy the cash into the real economy through and - capex and -

other means? we are in a much better place than five years ago but more needs to be done. tom: i want to do this on television like facebook live. average see me make the 20 or line of nominal gdp growth. you can barely see it. i will make it a need, bright, ugly red. no mobile gdp over two decades in japan has flatlined -- nominal gdp over two decades in gdp has flatlined. is there pressure by society to jumpstart societal animal spirit or are they doing to for toyota and hunter? -- honda? : you have to think about this in terms if you look at the demographic divide, the older japanese cohorts who are

retired, no more earned income but trying to live off their savings. deflation for them is the best because of a contrast -- stretch their savings. first those who see their wages falling. there's been a battle between the 2 cohorts. we have seen the former group winning the game and now the other group is raising its voice and saying it is not good for us for prosperity and we need to change the dynamic here. i think your painting a picture cs cames why abenomi through in the society said enough is enough. we made a retirement community happy for while but it is terrible for our future. the verdict is still out whether it will business tenable sufficiently -- whether it will be sustainable sufficiently. saidwhat mrs. kathy matsui

is exactly the debate going on in the united states except japan is doing it on steroids. francine: you are right. if you speak to any european from your societal animal spirits, i will ask richard turnill what is it means. switching to another topic and we will push it out and we brought it back to 1992 and they say snapshot of the challenges when it comes to the boj. richard turnill: this is the ninth time in the last 25 years that it breaks above 1600 and every time previously has failed and proved to be close to the peak in the market rolled over. there's good reason to think we can sustain the move higher and i remain very positive on the japanese market. the first is valuation. the bubble in the 1980's

and 1990's to a level today. valuations themselves are not enough. the markets are very skeptical about growth. you see earnings growth picking up across japan and that is not just because japanese companies are highly exposed to the global state expansion we have seen come through. with the evidence of a corporate in japan are focusing on shareholders, shareholder value. -- theally, the pink bank of japan while the fed is tightening to reduce their balance sheets, we talked about the ecb earlier, the bank of japan shows no sign it will step back from super easing monetary policy. that is important not only because of they are buying the japanese docs but it keeps the yen at a relatively stable

level. a stable yen creates a very stable background. we think potentially it can break out above the level which has been the feeling for some time for us. tom: thank you, richard turnill and kathy matsui . she is with goldman sachs, as well. let me tell you buy one of our issues at "bloomberg businessweek," it is a collage and it looks like francine's kids put it together. i can see amazon, can you see facebook? can you see apple? should we break of tech? there it is. ♪

--ncine:8," i am for "bloomberg surveillance," i am francine lacqua. tom: francine, coming up, the ecb meeting will be most interesting to say the least. need --ank yeah, we francine: yeah, we need to talk about qatar. a roadmap to resolve this. they arelike requesting what needs to be done since to be changing. let's get to the by with more on this. thank you for joining. the proposals seem to just include, has the tone changed the what does it mean for resolution? tone is shifting in the and the whole thing moving from

a list of 13 their mass that everybody thought was impossible thatying -- of 13 things everybody thought was impossible to saying let's agree on principles. the ideas to get both sides talking and to base of the solution on the six principles. analysts and investors are seeing the shift in tone. francine: what does it mean for the popular resolution? it is probably the worst prices they have seen, are we mirroring the resolution or all up in the air? get shahine: idea not to the last bit of the question of. -- i did not get the last bit of the question. francine: is about tom softening? -- is the total softening? : it is easier to get a resolution than two weeks

ago. there are certain things we are not sure qatar will agree. an international mechanism should be a major component of any deal. if qatar will agree is a big question for dr. there is -- if qatar will agree is a big question. is an advertisement in the axios speed, it is time to face the facts in qatar. we have an advertisement paid for my the saudi american public relations affairs committee. my question to you is how is saudi arabia and public relations doing on this matter? who is winning the battle? alaa shahine: it is really hard to answer this question.

on the domestic angle, newspapers here are field with -- filled with hostile up at and that's what -- editorials and that is what we are getting. and of the u.s., we are seeing both sides trying to win u.s. opinion and it is very hard to see who is winning but it is going on every day like said. francine: thank you. alaa shahine editor by. still with us is richard turnill . does it translate into markets a seeing less concern about geopolitics or more on the impact on the price of oil? richard turnill: what has been driving the price of oil is supplied especially supply in nigeria and libya and what we have not seen is a rebalancing that many investors expected to

come by the end of the year. we think it is coming and should have stability around current levels. the level is lower than most would expect. if we got a resolution and if it could help create positive sentiment, yet i'm a it is not feeling over into the market. -- yet, it is not spilling over to the market. francine: thank you. if you are a bloomberg customer, watch of using tv . -- watch us using the tv . we have had great feedback. ask, click on the button and tom and i will ask the question to richard on your behalf. this is richard. -- this is bloomberg. ♪

tom: good morning. there is a headline, a london headline. what to do you think? telling: john cryan reporters that deutsche bank is preparing for a hard brexit. you heard because of the time frame that negotiations have they march of 2019 and

should prepare for the worst and hope for the best and whether it is trying to position himself and saying it is not what we are expecting but we are planning is my first point. very clear when you look at frankford, there seems to be emerging a winner for the fight of thousands of london jobs, not one morgan stanley but company saying they have picked frankford. tom: there it is. it continues in brussels. this is a pleasure full top bob haber -- this a pleasure. -- bob haber created in this. is an owner of the boston celtics which is the coolest ownership in professional sports. ll is with us.

that's a mixture of equities and bonds, are the traditional models you use for decades at fidelity, can you use them today? bob haber: we can use of them but we are watching the relationship between rates and equity prices because our sense is that the big fear will be inflation. we have had a couple of long regimes and when you see rates going up and stocks going down, the market is beginning fear inflation. that has not been the case for 17 or 18 years. there was a case going back to the great inflation. tom: you are a giant of the mixture of equities. what you think about buying back shares and the idea of the dividend growth? is it a substitute? bob haber: i have not seen any studies.

it would be interesting to see what percent of companies are buying this to excessively as opposed to giving the cash back to investors and letting them do what they want to do with it. we will always have a healthy dose of fixed income because we want that flow for our families. tom: within your work, where does cash feet and now? it is a non-interest-bearing item that some people will say it is an asset, is it? bob haber: we just had a discussion, it has become an asset again. if you look at the standard etf, which is one of pimco and punch in on your bloomberg dvd, you will see it is yielding 1.8%. it has become something as opposed to zero and it starts to impact. you should compare that's 1.8% with us date of dividend yield which is 3.3%. start to getey

closer, it has an important dynamic in allocating. tom: yell. francine: i want to continue that covers nation with richard turnill. if you look at the competition and the markets, it has led to much more hedge fund activity because there are fewer players. richard turnill: we see significant flows into the market through etf. or we see in the cross of the industry and that is driven by investors looking at the market in a cost, liquid way over time. one of the features many people do not recognize, you think of it being indiscriminately buying stocks. the reality is most of the buying passive is actually making activist decisions, active managers using etf and index tools to get exposure into

the market. going init is money and distorted is not the case. it is groomed by active managers. i pointed out that although we , it is a a huge growth very small part of the market. so, it is a long way from distortion. tom: the very important question. a lot of fun, fun in boston. how do you drive the celtics? do they have to get checkbook out and do some big steps to go all the way? bob haber: it is a great time to be an nba player, it is probably one of the hottest the leaks. -- leagues. we are right on the cusp of being at the top. tom: how do you get at the top besides your checkbook? bob haber: we might be the

proverbial one player away. and our general manager is not shy about trading. tom: he is not shy. bob haber: we are close. tom: you're not down here meeting with the knicks. thank you, bob haber and richard turnill. we have a wonderful our coming up, we have robert shiller and kenneth rogoff with us. kenneth rogoff and the future of the federal reserve system and his book "the curse of cash." stay with us. this is bloomberg. ♪

♪ morning, all the presidents men must wonder if he has a their back as mr. trump

throws the attorney general under the proverbial bus. trumpcare is under the bus, 23 million americans would lose insurance. the ecb and boj stepped delicately top -- delicately. john cryan just said his bank as a goose wall, will deutsche bank move jobs from the london wall? this is "bloomberg surveillance ." and we are live in new york. francine lacqua at the london headquarters. how big a deal is it? they can go straight to frankfurt fx? francine: partly saying we have a great base and it will be easier for us and a way of cutting expenses. andn't know is significant john cryan saying they are preparing for a hard brexit. i do not know if it is the

number one expectation. we will see other markets reacts in the next couple of hours. tom: the ecb meeting today and mr. draghi's important comments at the press conference. the senator from arizona. senator john mccain has been diagnosed with brain cancer. doctors discovered it after removing a blood clot from above his eyes. the arizona republican is 83-year-old and he was -- 80 years old and he was the 2008 presidential candidate and spent more than five years in a prison camp after being shot down in vietnam. a startling revelation for president trump. he said he would not have pointed jeff sessions if he would have recused himself from the russian investigation of. -- russian investigation. the kremlin said that the donald trump did not tell vladimir

putin that the united states was ending aid to syria. he said there was no secret to meeting. the bank of japan has cut the monetary stimulus program unchanged and for six time, they pushed it back timing for reaching 2% inflation. hit itsexpects to target around april of 2019, a year later than a previous projection. 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? tom? tom: on this day of the ecb at nine: 30 this morning, the important draghi comments. , 4972 asmerican oil well. the equity markets on a tear. they are on a tear

spurred by an all-time high for you as equities and seeing a leg higher -- u.s. equities and we are seeing a leg higher and has to do with japan keeping their monetary stimulus. on it to oil, it seems to be holding to stockpiles decreasing. tom: the news flow day today in washington is extraordinary. the most interesting, you have no idea of 24 hours in advance where we will be. kevin cirilli is exhausted by this, our chief washington correspondent. i wanted away from cable chitchat, when it does somebody resign and let's start with the attorney general for he was thrown under the bus. when it does the senator from alabama say i have had it? kevin: the new york times interview that president trump gave that he lambasted attorney

general sessions and said it was unfair and president trump said he would not have hired or appointed general jeff sessions tool opposed if you know -- to be posted if he had known he would recuse himself. you get the feeling that it caught the administration off course. tom: when do people start resigning? that is what everybody knows? you are in the know. your paladin cocktails at the trump bar? kevin: i do not drink. folks are set to testify publicly and privately, the president's son-in-law, jared kushner, will meet with meetings and paul manafort and donald trump jr. clearly, these hearings next week are going to continue and these folks at the center of all

of this are going to be potentially on capitol hill. francine: what happens to be data selling? should we care more about the debt ceiling? kevin: they impact these battles on capitol hill because a take away from congress' ability to focus. i have spoken to several treasury department officials who tell me that the conversations are very much going on nearly daily and to speak with their counterparts to try to prevent any type of debt limit showdown. that said, in addition with tax reform, things are really moving whether or not congress cap address health care which the president didn't get to yesterday at the white house saying essentially republicans, i still wanted to have a vote -- which is the president digged

into yesterday at the white house saying essentially, i still want to have a vote. francine: what are you more equally to hear from, kushner or trump jr.? kevin: deutsche bank. the president was asked if he would have any firings with regards to people looking into russia and he did not say whether he would fire in one bank'sthey -- deutsche tangling with the donald trump for when he was a businessman is something we will be hearing a lot of. democrats have pressed for records and have not given them to democrats. there is no formal asking from republicans. should be investigations go to congress or the intelligence committee start to issue subpoenas, things could get interesting. tom: you want a viral with your

push-ups with 83-year-old senator grassley. tell me about the mood and the senator from arizona. kevin: senator john mccain, his office announced last night he has brain cancer. this is someone who has been an elected member of the united rates congress since the 1980's, a war hero and very beloved on capitol hill receiving bipartisan thoughts and prayers last night. tom: kevin cirilli, thank you in washington. we have laureate schiller later. the next 60 minutes, kenneth rogoff from harvard. was my bookf cash" of the year last year and an afterword in india and the uproar of mr. modi. on one androgoff one

we will get to that later. everybody wants to know your view on american policy. can you do a study of policy given the cacophony that mr. cirelli spoke of? good thingoff: the is that the u.s. economy is a marvel and when they do not do anything, it works well and that is the only good news as a stake of dysfunction and i worry about institutional challenges. if will worried about the attorney general, what about the new fed chairman and three months later say i've never would have appointed her if i had known they would do this or that? tom: i want to talk about the new fed chairman. do we need stimulus? are we within austerity that we need an impulse to get out to mr. trump's 3% gdp? theeth rogoff: infrastructure is low hanging fruit and we have had eight years of deferred maintenance

and we needed to do something. i do not think any single policy is as important as productivity, things like animal spirits, regulation. and the person will i do not see that helpful and i doubt -- and on the personal, i do not see that helpful and i doubt that. do not know if they will be able to do anything in the environment. i feel terrible about similar to mccain, a wonderful man and that will make it -- i feel terrible about senator mccain, a wonderful man and that will make it harder for francine: what actual impact will animal spirits have? a goodt know if there is leaves of political capital being lost by the president and he cannot push through infrastructure. will that impacted economy? kenneth rogoff: obviously, that

is helpful, had he been able to work with congress and pass a reasonable bill, we would have higher growth by the end of the year. it is delayed and i do not know how long it will be delayed at this point. means, everything is proposing to do but infrastructure spending would be enormously helpful. francine: does it make a difference to the economy if it gets pushed through this year or next year? kenneth rogoff: of course, it makes a difference. they are long-term. i think it is important when you get it done and get it done right and not that they rush through of real and get something done -- it through a bill and get something done. it seems like a they are reaching a point they will say we got it through and it is a great thing with unnecessarily counting it out.

tom: we had a wonderful conversation on the tokyo and the only thing that is working this profitability and the focus for the need of profits in any economic system. in america, our profits diffusing out to the public or in a new rogoff america where profits are held by the leads? is -- held by the elites. kenneth rogoff: i do not think there is a downward spiral and one of the reasons is global competition, technology and in these things are pushing up profits. wages, despite the employment numbers very strong, they are very tepid. wages are a key driver -- tom: should the central bank get in front of inflation or wait to see it? they try toff:

predict it and try to that in front of it. the markets do not think they are. i think the market wants to see inflation. not even getting up to 2% after 10 years. francine: we will talk with kenneth rogoff more about inflation in the u.k.. he stayed with us. the ecb will release is policy decision and mario draghi to speak after that. stay with bloomberg for that event that begins at 7:45 and this is bloomberg. ♪

francine: this is the culture

minister of the u.k. and we heard in the last couple of minutes, the decision on whether to approve rupert murdoch 21 century fox acquisition of skype plc would be delayed. she is saying this would be delayed and she cannot make the decision in time. another couple of weeks and parliament then breaks up and recesses for the summer. we had a warning from rupert murdoch yesterday, his team and not himself saying delaying the approval would show the u.k. was not open for business as the country leaves the european union. that a political potato the cultural secretary is trying to push away but may have implications for how to a tract investors -- attract investors to the country. something different is central banks of mario draghi's tone

will be close to watched at the policy meeting and he will try to balance optimism over revival and the desire to move as slowly as possible with moving stimulus. kenneth rogoff, harvard professor, is still with us. mr. kenneth rogoff when you look at the european central bank: real drop it the impossible job looklling the markets -- at the central bank and mario draghi has the almost impossible job of telling the markets they have a room, how does he do it? kenneth rogoff: he is both fiscal policy for the eurozone and monetary policy. yes, he is going to want to gradually and adjust interest rates and that is one thing. the quantitative easing has been underpinning bond prices in italy, portugal, etc. if he were to dramatically slow down the bond purchases, there is no substitute.

they do not have any eurozone treasury to's have in, they are talking about it -- treasury to step in, they are talking about it. he will try to balance he is optimistic about the economy and maybe he will deal with it with interest rate. the quantitative easing will slow down very gradually and will try to push out the envelope. if there is not the solution, it could be messy full top francine: after three years of asset purchasing, what would constitute a policy mistake? something to hawkish? kenneth rogoff: there are lots of directions, but i think a sudden change in quantitative easing or a much faster than the market expected could suddenly, you could be back in a euro bond crisis going up at some point very quickly. tom: you mentioned the idea of a future for chair yellen a year of written about it.

-- for chair yellen and he you have written about it. of confidence in monetary policy has been proved repeatedly by central banks around the world and go back to the 1920's and 1930's and 1970's. we know mario draghi understands the basics. 2013, on to say about in a study of deflation weston the new model of our global economy, to theudy of inflation new model of our global economy, can we go to where mr. trump is talking about a generalist economist? look atrogoff: if you the history although the federal reserve, they have alternated, in ave 2 phd economists row and a third would be out of

character for what will done traditionally. on the other hand, a great study by david and christina that focuses on this technical covert this issue -- competence issue and if they haven't, it works. there are good in names. i have a wall street person that might not work as well. tom: the idea of rules versus discretion, isn't it a time that america makes a decision to be more like the bank of new zealand or an american monetary model? kenneth rogoff: i think we want to continue with the american monetary model. one of the names considered is john taylor and i am a great admirer of him. he has of the taylor rules. if you became the fed chairman, he will be a classic. , he isthing goes wrong going to modify policy and not going to strict -- a stick

rigidly to the rules. tom: and we say good morning to professor tyler. he put your formula and "the curse of cash" and we will, back to this wonderful book and it was my book of the the year and it is the most courageous. think of the hate mail that kenneth rogoff got pretty there has never been any hate mail -- kenneth rogoff got. -- there's never been any hate mail for robert shiller. this is bloomberg. ♪

tom: "bloomberg surveillance," we await the ecb decision one hour and 21 minutes into the press conference. kenneth rogoff has written the most courageous book and economics in a while, "the curse of cash," the hate mail and the death threats. he is up -- he is out with an a paperback. most importantly, an update on the experiment of india, kenneth rogoff leaves for india. will you meet with mr. modi the one you tell home about his desk the what would you them about his applications of your theory -- you want to tell about his application of your very? kenneth rogoff: i am not anticipated meeting mr. modi. my books as if you are an

emerging markets, maybe you want to wait. say getbook does not rid of cash, do it slowly over five to seven years. it is not likely to be there productive. they get a sneak attack, they tried to our hoping a lot of money would not, in the wood baby to add to the treasury. on the other hand, what is interesting and i want to understand, it is political master struggle. -- that each ride in hoping that a lot of money would it not come into the treasury. he has done a lot of other things to fight corruption to try to have inclusion that has worked. i do not know if this one would be necessarily economic well tuned but was counterproductive in some ways. tom: the joy of your book is 2

books, cash and negative interest rates. what have we learned? kenneth rogoff: having effective at negative interest rate policy is the future, especially living in this low interest rate environment we are likely to be in for a long time. it does not mean central aims can do it there's all kinds of caps and impediments. these can be addressed them and and iannot -- addressed am not saying you cannot do it now. off, "the curse of cash." this is bloomberg. stay with us. ♪

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u.k. pre-brexit to give a joint -- for brexit to give a joint news conference shortly. more of an indication of the u.k. is prepared to think about paying 100 billion, which is what the french prime minister once for the eu. john mccain has been diagnosed with brain cancer. doctors made the discovery while removing a blood clot above his left eye. he and his family are reviewing treatment options. the arizona republican is 80 years old. he was a 2008 presidential candidate and spent five years in a prison camp after being shot down during the vietnam war. another shot at getting a health care bill passed. republican senators met last

night with white house officials. mitch mcconnell still wants a procedural vote on a health care bill next week. the senate judiciary committee wants donald trump jr. to testify as part of the trump's campaign links to russia. paul manafort has also been asked to testify. jared kushner will talk to senate investigators behind closed doors. this after revelations of a secret meeting last year between the three and a russian lawyer. the honeymoon on trade between the u.s. and china is over. economic talks between the countries in washington has ended without a joint statement. the trump administration scolded china over trade imbalance with the u.s. china says both sides agreed to start constructive cooperation. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.

francine, tom? tom: this is why it is so much fun. we get guests and they continue to keep on giving. has done that. no joining us his colleague and crime, the laureate robert shiller. a privileged to have you on together. you have written on our housing and your wonderful book. please explain how civil society gets to a better housing economy. economics one. normally functions pretty well. prices, we'reup talking about houses in one city, it creates a lag.

the price increase is temporary and it dissipates to a normal level. there is also a speculative element that can be wild. tom: what politics, what is the schiller prescription for washington state's or cities to make for more affordable housing? the fundamental problem with housing is people who already own houses have an interest in restrict the --ilability of land restricting availability for land for new houses. this would make their neighborhood were crowded into maybe they don't like that, but it would lower the value of their houses as competition comes in. people that are there tend to be associated with the city and community. regulation zoning

that would allow new housing in. a have a perennial shortage, tendency towards shortage of housing. work over the decades, one part has been about of american behavioral brick rational exuberance. are we our own worst enemy, individual for itself, do we need a better society that we need more infrastructure to bring the commuting agony down? prof. shiller: fortunately, the united states is strong on civil society. we have an overall good attitude toward each other. it may need to be helped along at times. i think when wealthy people see that there is a problem with home prices, they are likely to an increased supply of

homes. we just have to make the case. francine: professor shiller, what is the case where the u.k.? how do you fix london? when you look at the ranking they are expensive cities. you mentioned hong kong at the top, if not the top, but you could argue that brexit was a bashing for londoners. prof. shiller: the problem around many places of in the cities left toat their own limited civil society will limit entry of new builders. prices will go up. only wealthy people can live in the cities. people who are lower income find themselves incentivized to move out to make room for more wealthy people.

this is a dynamic that we see in many -- you mentioned london and hong kong, fortunately the cities do have public housing. hong kong has a lot of it. it still becomes a very expensive place. tom: it is wonderful to have the two of you here. with shiller at m.i.t., then following rogoff with your studies, can ken rogoff be a good fed chairman? can we get ken rogoff as fed chairman? that would be appropriate, right? prof. shiller: that would be great. 100% for that. ken has a good view of history and institutions, as well as economic theory. a perfectsay it is fit for fed chairman. that is what we need.

tom: you will say you need to be away from a rules-based fed chairman, do we need a phd like mario draghi and janet yellen? prof. shiller: i think it is a good idea. i am an academic. maybe i am biased. we have had a lot of academics in said positions. but not always. good as long as they are academics. there are some -- [laughter] tom: robert shiller of yale university, what was in the aygen in the halls of m.i.t. few years ago? what was it like at m.i.t. following on after shiller? prof. rogoff: there were a lot of great students. you learned a lot from the students, but there were incredible professors that founded the department. they had this policy of "we will keep our door open."

daylights scare the out of you if you went to challenge them, but anyone could talk to them. you didn't have a hunker down mentality. it was very collegial. professor was a larger-than-life person that inspired a lot of students. tom: we will continue with professor rogoff. schiller and rogoff together with me and francine. theidea of technology and stew that is amazon and facebook. , the mysterieser that are out there within the new media. look for bloomberg businessweek, 2 covers. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." . am taylor riggs bank of america told investment bankers stop working on bills with china's group. there is growing concern about debt levels and ownership structure. reports have fueled a dead back na.ing spree at h deciding whether to let rupert murdoch takeover sky of according to the culture secretary. she says she wore for the guild to the competition and market authority for a fuller investigation. deutsche bank is preparing for a hard brexit. ceo john said the bank will probably have the bulk of its assets in frankfurt.

he said deutsche bank cannot afford to postpone its decisions on brexit pending the u.k. talks with the eu. francine: that was quite significant. the news that we had from john cryan. he basically said that we are preparing for a hard brexit. there are two things. this basically dovetails with his desire to concentrate more business in frankfurt, which is germany's financial health. a lot of other companies like morgan stanley said they would move people from london to frankfurt. it fits nicely with deutsche's narrative that they are .reparing for a hard brexit it is the rhetoric from a lot of ceos that the bank cannot afford to postpone decisions. you plan for the worst and hope for the best. tom: it is an important decision from london today. s.a.p. has been the company no

one has believed in an america. it is a linear function of outstanding stock prices at return. he has always been controversial and outspoken about sap and their distinction on how they survived so many other companies. think of where cisco was 20 . and enterprise software. how is s.a.p. different than five years ago? innovation. we invented the memory data platform for the modern enterprise. customers need data for the digital revolution. we have the most modern arp. we put it in the cloud. every executive can run their business applications and their functional cloud. we have extended the enterprise , this isked chain, iot a growth story.

tom: you have been an entrepreneur. very different from corporate ceos. you micromanage or delegate authority and give leadership to your subordinates? mr. mcdermott: you have to set a culture. tom: you micromanage? mr. mcdermott: we let them run the show. we set a vision, but the best people in the job, we try to over-higher, then we let them run the show. we try to watch with their doing, but you have to trust and verify. francine: we need to talk a little bit about what you basically your, sales outlook and you are buying back stock. however, investors are concerned about your margins. what you need to put margins back at 30%? mr. mcdermott: we have invested very heavily into areas of the

first half of the year. one is hiring the best people at an accelerated clip, because we want to the leverage from those hires in the back end of the year. you will see a slow down because we went fast. the second thing is we invested in the cloud. we are expanding so quickly in the cloud we didn't want to slow down. now the expense has come down in the cloud, sales go up, and the cost base remains relatively the same. fast growth in the cloud and the core and the operating income expands with better margins. francine: can you increase customers and cloud? oracle has been doing really well, especially in europe, to convert customers to cloud. will you do better? mr. mcdermott: we will. our core business is up in double digits. we are the only large enterprise software company in the world with the core business growing

in double digits. the cloud business grows in the middle 30's or a better every quarter. we are expanding more the operating income. if you look at a company like the one you mentioned, one of our competitors, their core business is down every quarter. theou were to dollarize difference in their core business down and what they you will the cloud, see sap continues to outgrow them and gain market share against them. we are the runaway growth story in the enterprise. francine: 40% of your revenue comes from the u.s. will we take animal -- will we see animal spirits take hold, or are you disappointed with what the trump administration has done? mr. mcdermott: we are very happy. we have done amazing things for the best run businesses in the united states. came one of our

signature customers. every single i.t. company invested in sap. then you go to the public sector, the army, the navy, air force, they are all running sap pr degree are critical to the mission of the american economy. tom: you sound like a sales guy, i can't believe it. the business recovered was on technology. is jeff bezos your enemy or friend? what are you going to do about jeff bezos? mr. mcdermott: he is my friend. i'm not giving you happy talk, we were just together at the white house. the service delivery arm in the cloud embraces s.a.p., and they system in their cloud and provision that as a service to their customers. tom: you had a grievous i ergy, tell usye en

how house changes when you learn you have cancer and we have the greatest news about john mccain. mr. mcdermott: it is a shock when it first happens. once you into are the shock, -- once you endure the shock, you go to fighting. you go to shock, research, then you go to battle. when you decide you will win the war, everything gets a little better each day. tom: we will continue with professor rogoff. tv , we have been talking about -- we should get this on every desk at harvard. tv , you click on tv , and you can go back and listen to ken rogoff on the future of the federal reserve. a little pop-up, the workingance gerbils are right now. stay with us, this is bloomberg. ♪

francine: you are listening to the commissioner for brexit just starting a couple of seconds ago to brief reporters on the week

that was with negotiations. on his right is the u.k. brexit secretary. we know that they have not really gotten on. a lot of insiders are telling us mr. barnier saying he will continue to build trust with the u.k.. sometimes it is a fluffy word, but if you're looking at a negotiation that is complex with the clock ticking, you need to trust each other to try to find the best possible outcome. tom: many meetings to come, to the least. our single best chart, how can we link the markets into 's economics?off inflation adjusted, the big long axis.curve on a

that is a mathematical metaphor for the enthusiasm, may be exuberance of the late 1990's. yellen rallyet that we have seen? prof. rogoff: there is a bit of that because interest rates are low. tom: overplayed by the media? prof. rogoff: a lot of the tech sector is growing. it is a dynamic sector. the firms that dominate the nasdaq are viewed as monopolies. they will be around forever. we did not think that 10 to 15 years ago. that probably is not good for productivity and innovation. tom: in rochester we have seen the distractions that used to be kodak park. there seems to be a durability .n the tech stocks

at the same time, all good things come to an end. how do you make policy off of technological creative destruction? prof. rogoff: the problem is that they might maintain their monopoly. they buy up firms that might threaten them, even if it costs a few billion dollars. you don't get the next wave of innovation. they sit on their product. they try to milk it for as long as possible. francine: is there something that makes you wonder -- worry about the world economy because of distortion? prof. rogoff: because of distortion? technk that if i had distortion, i'm worried about the chinese economy and what will happen after the party congress meets and they reappoint the president. how long can they sustain their credit-driven and housing-driven

economy? they have done a great job. the general level of low interest rates, while it may be sustained, we don't understand why it has gone down, how do we know it won't go back up? has been veryard concerned about this. if productivity tips up, it will be good for most people, but interest rates could go up a lot. "the cursego back to of cash" and your trip to india. we are getting there on crime. how and when it is crime on cash in america? cash isgoff: the big tax evasion according to the irs. a -- of course it is used in crime. they used bitcoin on uncut diamonds, but cash is king for a good reason. i think ordinary people should

be allowed to use cash, but if you are buying a $30 million apartment in trump towers, you shouldn't be able to pay cash. francine: thank you so much. ken rogoff of harvard university. he joins tom on radio. in the meantime we have been listening to the brexit commissioner for the eu in brussels. he says they need to clarify the differences between the u.k. and the eu. he is mentioning there needs to be oversight by the european court of justice. it is pretty emotional. the tone has been softening somewhat. this is bloomberg. ♪

draghin: president mario

delivers the ecb's latest rate decision. looking for clues about how he might unwind stimulus. the honeymoon with china is over. high-level talks break up. and john cryan on how the bank is preparing for brexit. time highs. at all good morning. i'm jonathan ferro with david westin and alix steel. futures are positive. the s&p 500 begins another day in 2017 for the 27th time at a record high. the euro falls further back from 1.1505.h at alix: in the currency market, the u.k., butn that isn't helping sterling. it is all about brexit. john cryan warning about a heart brexit.