some eurozone enthusiasm. data shows that economy started the third quarter of the weakest pace in six months and opec and partners meet to discuss the progress of cutting supply. saudi arabia says it would make deep cuts to august export. from new york city, good morning, good morning to our audience worldwide. this is "bloomberg daybreak." i am alongside alix steel in new york and david westin in washington, d.c. today let's get you up to speed on market action. futures down about .1% after three straight week of gains on a benchmark in the united states. the euro kicking off the week weaker following that data over in the eurozone. seven -- 1.1647. treasury is unchanged. the long is really piling

in weighing on the dax and automakers like volkswagen, daimler, and via -- bmw. against theeaker yen. dollar-yen down 3/10 of 1% and the vix up by 5%, but really we are looking at potential record closes below 10. that would be a very long winning -- losing -- below 10 streak for the vix. brent monitoring as well happening 1% on the highs of the .ession the opec secretary-general says many things are looking at changes to be ahead of the curve and nigeria has no ambition to exceed to the want 8 million barrels of oil a day. jonathan: in the market is it easier to monitor exports than production? alix: it is actually not in that it is difficult to understand which numbers to use from

exported. production at least seems to be a relatively cohesive number. jonathan: 48.62 this morning. up by 1.14 percentage. alix: david westin is monitoring all things in washington, d.c. with a special guest. david: we welcome our bloomberg radio listeners for an important interview we are going to have with daniel tarullo. the unofficial head of banking regulation. he was an assistant secretary of state and served on the economic council and the national security council under president clinton. he joins us for his first television and radio appearance since leaving the fed and welcome back to bloomberg. good to have you. dan: we have important fed dan: thankesday -- you for having me, david. david: what is the fed going to

do in reaction to the lack of inflation pick dan: the question about what happened to inflation has been plaguing us for several years now and the inflation rate has gone above the 2% target only a couple of times briefly during that period. after a period last year in which it seemed to firm up, it is again showing softness this year, notwithstanding the continued gains and unemployment. i think there are three kinds of explanations for why it hasn't been moving as many people expected. one is cyclical. term,nd is some longer perhaps after affects of the great recession and a third would be the stagnation type argument that there is long-term factors in the economy that are holding it down. for a wild, i think the cyclical expo nation was -- for a while, i think the cyclical explanation was dominant. a lot of us suspected there was more slack of any -- than the

unemployment numbers suggested. it's not surprising inflation remains soft. now, after a long period of unemployment growth substantially above the levels to deal with new entrants, one begins to wonder whether other factors have been at work. things like the end of the commodity super cycle, perhaps labor is finally getting a higher proportion of the returns to industry and that is going -- is being eaten by companies rather than resulting in price increases. those sorts of explanations i think need to be considered. david: until now, we have had a sense the fed is pretty much set on attractive gradual -- at date -- what they would call normalization, raising rates because models have indicated given the unemployment rate we should have inflation kicking in. i want point do they give in on the models and really say they are data dependent and they better rethink the normalization path?

dan: you are right thinking the basic orientation shifted from what is the reason to raise rates to what is the reason to go off of the plan for gradual increase? as you can probably tell from the comments of chair yellen and others, people are thinking about what is going on with inflation. we don't know whether in the next couple of meetings those concerns will be strong enough that the fed will hold off from another rate increase are not. i think this question of what is driving inflation is not a new one. it's not as though the fed has just discovered in the last six months at the phillips curve is not operating as they might have liked. at the phillips curve really hasn't been a good predictor of inflation for about 20 years. it is a weak correlation between inflation and unemployment that has been well documented at this point and people know it. i think it is interesting that,

notwithstanding the fact people know it intellectually, they tend to fall back on the intuition that as employment strengthens, at some point, wages are going to increase and thus, at something, so will inflation. balance theo you upside and downside risk of going too fast or too slow? a policylk about mistake possibility. what are the mistakes of going too slow and getting runaway inflation or inflation that bubbles as opposed to slowing down the economy? dan: one of the most important factors for the last several years of people thinking about monetary policy has been the fact that with interest rates low, still quite close to zero, should we get a shock to the economy? tore is not much room reduce rates. in a normal recession, the fed response will be several hundred basis points of easing. there is not room to do that and, therefore, there has been a sense that risk in the

structural sense were asymmetric to the downside. side ofs on the other runaway inflation seem pretty modest at this juncture. a placebe able to make for inflation getting to target and staying there. i think it's a little hard to make the case for the kind of inflation runaway we saw, for example, in the late 70's. with respect to asset prices, that has been something people have been looking at thinking orut i would say for three four years now. most analyses i think would suggest that while they bear watching, they are not the immediate kinds of concerns that if that highly leveraged asset bubble could break in a very distractive way. david: it's not only interest rates in the fed has us at cool in its toolbox. there's also the balance sheet and there has been increasing talks from members on the fed a reducing the balance sheet. why now? dan:

now is a good question. i think the first factor is there is a group of people on the fed that have wanted to reduce the size of the balance sheet for some time now. ashink the fed as a whole, it said on a number of occasions, has not wanted to do so until rates have been raised enough until -- that there was a little bit of room to accommodate in case you had a mild slowdown in the economy. you don't have 300 basis points worth of room, but 50 basis points worth of room. why go now? i think there are probably a couple of reasons. one is the sense that the fed announced it was going to begin to change the size of the balance sheet once rates got up to a certain point. markets seem to think that was somewhere above 1% and that is where we are. i think a second reason may be that as the uncertainty about whether chair yellen will be reappointed is a looming, it may be that the fed wants to make

sure that policy is set on an understandable and certain course so that if there is a transition to a new chair, that the balance sheet adjustments will already be laid out and thus, you do not lay in the lap with aw chair to come up new balance sheet adjustment policy. we don't know whether chair yellen will be reappointed. i think it would be great if she were, but that is probably something that is also affecting their decision. david: for our bloomberg tv viewers and radio listeners, we are speaking to daniel tarullo. you reis -- you raise the possibility that chair yellen will -- may not continue into next february. taking into account chair yellen and a possible candidate, what are the attributes we should be looking for? dan: i think there are two categories of attributes. one is the substance of the in visual -- of the individual and

the other is the stature. in terms of substance, particularly at a moment where past correlations and past assumptions about monetary policy don't all seem to behold income i think it is important to have someone who has grappled with monetary policy questions over some period of time so that they are aware of what has been tried in the past and what has happened in the past. that doesn't mean you need to be a phd economist who has done macro economics his or her entire career, but i think you need to have grappled with those questions and to be honest, people can comment on monetary policy without ever having grappled with the questions. why is the neutral rate of interest as low as it is and how low is it? that sort of thing. the second set of attributes are those around what i would call stature. a sense of the person's independence, a sense of the person's integrity, a sense that this is a serious person that

markets can trust because i would not understate the importance of market having some confidence that the chair of the fed is an individual who is meaning what he or she is saying and has the wherewithal to make tough decisions and a tough environment. if you think about the chairs of the fed from we look back on now and say they made a -- a very important contribution, paul rocher, when he dealt with inflation in the early 80's -- and's took in america -- enormous amount of criticism. ben bernanke when he moved forward with policies in the last seven or eight years took an enormous amount of public criticism. those of those men were willing to do that because they were trying to do what is best for the country and that's what we central independent bank. you want an individual that is going to live up to those standards. david: could it be something -- somebody straight out of wall street? dan: i guess it could be.

there's not a particular reason why it shouldn't be someone straight out of wall street. there may be concerns about an individual's orientation towards financial regulation if they have come straight from wall street. david: let's turn to financial regulation. we now have a paper out of the treasury department about deregulation. you studied it, you know it, what do you think of it? dan: there is quite a bit in that paper which is somewhere likeen good ideas, things helping smaller banks, raising the threshold for systemically important institutions, to things that are debatable, maybe you want to do them and maybe you don't. there are things in there that i would not do, but would not be the end of the world. there are two categories i think should be troublesome to everybody. one is the effort essentially to pb and seconde sf is a series of proposed steps

which would reduce the capital levels of our very largest banks. i will not say much about the first other than to say i hope people do not have amnesia about what happened to consumers in the 2001-2008 period. with respect to the second, we can do a lot, i think, to play with, to dial down some of the bankshat affect smaller and even large regional banks like bb&t or u.s. banks which have big balance sheets and do an enormous amount of lending. when we talk about those eight largest systemically important institutions, troubles at any one of which could pose a risk to the financial system. it is there where we want an extra margin of safety and there where we need to keep capital levels up, i would say somewhat higher -- a little higher than where they are now, but certainly no lower. david: we heard from the leader

of one of those biggest systemic banks, jamie dimon, and he had a somewhat different view pre-listen to what he had to say about what the capital requirements have done. jamie: the counterfactual would have been a trillion dollars would have been lent out and these rules changed years ago. banks werehat the lent the money. there is a false notion that all this stuff did not hold back the economy. yes it did. david: jamie dimon says one trillion to $3 trillion was not loaned out because of capital requirements. do you agree? dan: i don't know what the analysis is on that. on the consistently question of whether we have supply-side constraints on lending. the overwhelming answer throughout the recession and the period of recovery from it was there just wasn't the demand for loans, at least not the demand for the kind of loans you would want banks making. banks can always go out and make

a lot more loans, but you want them to be sustainable loans, those that are actually something productive activity. you don't want them to be loans which are going to disproportionately fault. we tried that with mortgages and mortgage lending 10, 12 years ago and it didn't work out so well. in the think perhaps mortgage area, particularly first-time homebuyers, there have been some supply-side constraints. i don't think they are actual from -- actually from capital requirements, i think they tend to be more from some of the requirements on servicing and things like that. freddie policies and the desire to not do lending that could result in foreclosure. david: how do you measure risk versus reward? dan: some of it, of course, is

just a feel for where you are and you have the sense there is unmet demand for what looked to be solid loans. david: you have the sense there is not that demand? dan: there is always going to be some, right? i don't think there has been much evidence for the proposition that there are large numbers of companies with, for example, expansion plans that look promising, but that are being thwarted because people cannot get loans. you can always come up with anecdotes. i think it is hard to find the information systematically. let me point out again, david, what i think is most important is keep up the strong capital levels on eight largest institutions that have the biggest balance sheets, the most systemically important activities. if we move forward and do some of the things that were proposed by the fed when i was still

there, capital requirements on even the very big regional banks would effectively go down a little bit and this is an important thing to keep in mind. you can keep capital requirements up on the very largest of systemically important banks like jpmorgan, morgan stanley, while at the same time, having traditional lending in the regional banks be under circumstances were not as much capital needs to be held and so, it is not a matter of necessarily saying with got to go up another percentage or percentage and a half for everybody. there is actually some calibration based on the potential risk to the economy posed by the bank. david: how much could you reduce capital requirements on the big 8? the ones that you mentioned that are systemically important and not run the substantial risk of 2008 and 2009 again? dan: it is hard, obviously, to judge how much stems from the risk of 2008 and 2009.

what a number of studies have done is to try and look at at least a very general way at potential benefits to the economy of reducing the chances of financial crisis or severity what would be entailed by having those banks have somewhat higher capital. most of those studies and if you exclude ones are or indirectly funded by banks, really most of those studies actually suggest that somewhere between a little bit more and a good bit more capital would still be cost-effective for the economy as a whole. next to sortthat of a backward looking estimate, how much loss has been suffered in major downturns in the past and you see that when you try to take into account second order affect fire sales and funding problems, that you probably do want a little more capital in these institutions.

you know, if you look at the profitability of these banks in the last couple of years, i think it is hard to make the case for the proposition that capital requirements are somehow constraining. the growth of these institutions. one final point, if there is to be relaxation on things like the volcker rule or as the wall street journal suggests, the executive compensation rules, than there is all the more reason to keep capital than that most central of regulatory requirements, the thing that really defines resiliency, to keep that high. david: thank you very much for being here. we have been talking with n.l. to rollo, the former fed governor. michaelining us now is mckee, bloomberg economic international -- politic engineer. let's talk with what he was saying about bank regulation.

he have jamie dimon saying he would have made three trillion dollar more in loans and daniel tarullo saying they are super profitable will. -- would argue that jamie dimon was wrong in this. a chart of bank credit over the last 60 or 70 years and you can see the rise until you get to the red box. that was the great recession and it flattened out and didn't really go down and no it is rising about the same place it always was. now that we are out of the great recession, people are starting loan again. jpmorgan, the most profitable quarter it has had so it is hard to make the case regulation has hurt big banks. as dan said, it has hurt the smaller banks and is an effort to try and relax some restrictions on that. if there's any kind of overall restriction that may have been

on lending, it probably comes from the idea of bank examiners pressuring people to be very careful about their loans. jonathan: let's turn to monetary policy. is the concern for inflation getting away from the federal reserve anytime soon? michael: the inflation rate has not performed as expected. everybody was thinking we would see a phillips curve effect and the fed's philosophy that when unemployment goes down, you will see wages rise and i have a chart that shows inflation and unemployment and unemployment has been coming down until recently, there was no reaction at all from inflation. now you can see over the last year, it has gone up and rolled over again. how do you think about inflation going forward? how do you make monetary policy if this is your model and your model is broken? jonathan: i want to bring in -- america merrill lynch, he joins us from london. it great to have you on the program. someone messaged me and said

what happened to the conversation about going smoother -- sooner as opposed to going later. what has happened to that debate in the fed? kamal: i think ultimately the phase now in the mandate of normalization of policy. terminal rates have not shifted significantly according to latest projections and therefore, the size of the balance sheet at $4.5 trillion is now the added third wheel to the policy normalization, which should, in and of itself, start to see declining of financial the kitchens. jonathan: we have done -- we have done a survey and suggest investors to just it was the move in september. is that your base case? kamal: this week's meeting is set to be a placeholder for the conversation on balance sheet in september.

the focus will remain on the inflation dynamic. alix: to pivot off of that in terms of the economic survey, yes a december hike, but oneicated on ecb averaging -- .1% over the next three months. what is the reality we get that? dan: it will be hard to do although we have seen the oil -- michael: it will be hard to do although we have seen the oil level go up. does energy feed into the rest of the economy? it hasn't so far. it has been holding down inflation and the problem the fed has had is it is not just energy, it is kind of across the board with mobile phone prices and prescription drugs at the time of the year when auto prices start to weigh because the old stuff is coming off and the new stuff -- you have a real inflation question. daniel tarullo was too nice to mention it. a year and a half ago he was up front saying i do not see the

phillips curve relationship and i don't think we should be raising rates. he went along with the chair, but he has been proven right. alix: when you take a look at positioning, the market sort of has made its short-term call with positioning pretty bearish on the dollar. what about the medium to longer term? when the neutral rate debate is raging in the fed, just how low is it and willing move higher as rates go up? kamal: obviously the second half of this trump trade has not really been delivered and i think we are seeing a tug-of-war between the political dynamic that is the trump administration and the data. ultimately, we think there is some -- for the dollar to recover by the end of the year. dollar shorts are building. as for the expectations of the -- and for anything from the side are very low. there are asymmetries being

built here. ultimately, the second phase of ons trump -- will depend obamacare. jonathan: i know there has been a big euro story over the past couple of months, but on the story pacific league -- specifically, it seems to be fading as that inflation data comes through. as the dollar actually distracting what should be happening in other markets? push the fedng to to keep raising rates regardless of what happens with inflation? kamal: i certainly think that is in the tone and the comments from yellen this year has been about having one eye on what she calls the equity markets. i think it is worth highlighting and reinforcing the view that the dollar always enjoys first mover advantage. it's always the lead central bank to start tightening. as we have seen through history, it generally has to struggle through a time.

we have already seen that from the bank of canada. the ecb, of course, the bank of england. the rate advances that the dollar has enjoyed in the run-up to these timing cycles is beginning to be eroded and if your member coming into the beginning of this year, the market was -- if you remember coming into the beginning of this year, there were two phases of the trump trade. the second part of that has faded and the dollar has come under pressure. jonathan: thank you. michael mckee will stay with us good on wednesday, bloomberg will have special coverage of at fed decision starting 2:00 p.m. eastern time right here on bloomberg tv. this is bloomberg. ♪

>> this is bloomberg tv. three straight week of gains -- gains. we are down by about a 10th of

1%. alto's, collusion around omissions. bmw coming out saying there is not much to it. some of the big auto players down by about 4/10 of 1%. treasuries unchanged. thepmi's come softer in eurozone. where down by about a 10th of 1%. aboutteel says it is not production cuts. >> they're going to be really serious about it. >> i look forward to that.

elsewhere, the imf forecasting its global growth. the world relying less on the united states and the united kingdom. michael, the story in the forecast, what is it? 4/10e imf has cut by about and they see 2.1% in 2018 as well so we are looking at is stalled 2% growth. the imf getting out of the trump trade as well. they're bumping up the trade for china and the eurozone. the traditional drivers have been out front. the u.s. and u.k. are going to fall back. >> the imus has a forecast lasting.

the economic forecast exists only to make astrology seem important and good. that is paraphrasing. delete pay much attention? >> what people look at is there forecast for smaller countries. huge staffs who are paid. it is an interesting discussion point in the reasoning behind it to drives. is unable growth forward. -- the army might expect the eurozone to pick up -- the i'm my expect the eurozone to pick up. still with us from london, --

gimme your idea of where the euro is going to go and how the data is going to back it up. >> i think ultimately, the data may -- remains relevant. -- the recently revised growth looks relatively deep. we think not. we think the inflation rate will keep the 1.5 this year and go down to 1.0 next year. how that plays into the euro, again, a lot of this has been euro appreciation rather than the dollar on the performance. unless the ecb starts to highlight its concerns about -- er inflation,

>> the big question is when it will eat into equity markets. >> haven't really kept up with the global rally. where do you see that dynamic turning question mark >> ultimate, one of the key things we heard from investors has been inflows.w of equity again, i think with the markets approaching, we are expecting some kind of normalization. obviously, when equity markets soccer, that generally -- as long as growth, i think that should keep equity performance independent. >> i want to point out something else the imf was saying. they say evaluation is really low.

and raise the likelihood of a market correction. where do you see that kind of scenario playing out? >> again, many central banks have -- again, i think the question is you have this very accommodative policy. at a point at which the central banks start to continue. that is why we are seeing a , butalist approach ultimately, they are not prepared to accelerate the timing. >> you mentioned a little earlier and talked about the bank of england as well. you also got a call for a

.eekend pound if you look at the bank of england comments, the timing is unusual. if you make those comments in february, it would've made a lot more sense. fact -- we don't expect the rate hike in august. the risks are they have to move sooner rather than later. there has been a significant deviation. we've had a relatively rocky start. a lack of clarity in terms of its position. we still have? 's.

>> if this is all about politics, i wonder what cable is doing -- one thing i would make clear is there was a significant amount of bearish in the market. i think investors are on the sideline waiting for the next and criminal news. >> thank you very much. let's get an update. making headlines, first word news.

issident trump sunna wal denying any amber -- denying any inappropriate contact with russia. he denies russia has financed any activities. >> the president of poland says theill veto any overhaul of court system. veto bills on the moving over tos france, president amanda mac owns popularity has taken a dive. a new poll shows approval ratings fell 10 percentage points to 54%.

>> thank you so much. changes.als no big saudi arabia says they will see deep cuts into their exports in .ugust this is bloomberg. ♪

hour,ing up in the next former deputy treasury

secretary. this is bloomberg. >> let's get you up to speed on the market action. we are a little bit softer. futures down about 10 points. a stronger pound in the mix. story. one part of the very much about the big auto players. up, rejecting allegations -- we will cover that story in just a little bit. unchanged. there is the stronger pound on the screen.

the data in europe, moves and coming in weaker than some people excited. >> oil up a 10th of 1%. positivelyng to talk . >> we agreed on the framework of andsight and mechanism hopefully comply to the respective obligations. joining us now from st. petersburg, you said if we take a look, really came and saudi arabia said they will make deep cuts to exports in august. walk us through that. not just specific to

.hat they're planning to do this is the first time the committee is needed in the new capacity. and one wasgs compliance. they made it clear that 98% was the average compliance rate for the first six months. they will go head-to-head with that issue. very clear and passionate. we were not going to let everyone out there take a free ride. they will have to pull their weight. rebalancing isl still on track. you don't need to adjust anything just yet. ultimately, inventories are going to adjust and you might see that reflected into the

price. >> nevertheless, the uae think we may need to discuss extending those cuts. how prevalent was that conversation from where you are? >> it was definitely on the , but of some conversations not as high on the priority list. they're working in real-time. this is something we have been seeing develop into a pattern. they want to act more as the data comes and adjust accordingly. having said that, an extension is very much on the table, but that comes to what is happening on inventories and what is happening with the price which is still pretty much were restarted when the deal came. eufaula politics ever seen

with a on bloomberg tv. -- >> no. absenceugh we did see -- occasionally the requirement not expected to be there. that is the bloomberg tv interview. having said that, that tension is not being reflected anyway shape or form. >> joining us now, great to see you. -- they will keep the oil for

themselves and a distinction between reality and what is good behind the scenes. importsnk they will cap for the remainder of this. i think it is important to understand this group is very hopeful that in the second half of the year, they're going to get that inventory drawdown and we will -- we believe that will be supportive for prices. i think -- the prospect that right now we could conceivably go back to that after march 2018 and i don't think for any of these countries, they want to go back to that paradigm were prices go back to 60 and they could go back to 30.

>> if you look at anyone, they will say the rebalancing is starting to happen. they look at the time spread. the sentiment in some ways much more important in when you hear headlines like a rock, they are down under 30%. when you are that, it really undermines reality. list, had to that long libya and nigeria. you think about january 3 now, things were going well. opec had taken off, but basically if you look at our forecast, the effectiveness of drawing down is much more muted. is look at --

these producers have been able to continue to grow their production at lower prices. -- it is important to understand the impact that that is going to have an so what can opec do? not much at all. here's where production is going to be. and warned wall street about what they are doing. is it about low rates that is really the problem here question mark >> it is in part the financial channel is not working in the way that you would expect , but i think at the same time, you have to look and understand it is still up 900 million

barrels. >> there is not much opec can do about that. >> good to see you. out tv . click on our graphics. can click on the charts inside and rewatch anything you may have missed. this is bloomberg.

>> germany's carmakers coming under pressure that they colluded for decades. timer down by 3%. understand that the eu regulating possible collusion.

talking to the allegation. on friday andrted the initial investigation into collision with three big german automakers. flight. owned by ball collusion to try and get a better deal from steelmakers. somehow spunation into collision on other things like making convertible tops. if you look at a lot of the technology across the three german carmakers, it is similar. it finally led to collusion about the size of the container that holds this liquid and that the nitricds back oxide exhaust in the system.

that is the real problem. the reports are the allegations are that these automakers to keep these canisters small so they would not take a lot of from in the car. >> they say that two of them both have whistleblowers. b&w has come out and said this .as in no way collusion when they run out of liquidity have to refill them so making them small would not serve any purpose other than forcing customers to go back to the dealership more often. they said we were talking to try infrastructurer

for this liquid technology to be accessible to customers. there why were ford and opal not invited to these >> that is one of the things these regulators are probing. is this likely to become a political football in the upcoming election? >> you can bet your bottom dollar on that. marshall's, who is opposing angela merkel has very little to fight her untreated economy is doing well, the refugees have been taken in quite well and that hasn't been a crisis a lot of people expected. reportedly, angela merkel kicks the transport minister -- the top regulator was picked by

the automakers. that is the kind of thing that will be thrown around the campaign. matt miller, great to have you with us. >> much more on that coming up. jpmorgan's head of research will be joining us to discuss that and much more. here we are globally and equities. much software across europe. the euro will software. 11648 is how we trade.

♪ >> jared kushner appears before

congress. why his possible ties with russia may derail the president probe agenda. federal reserve governor ofny cerullo says the risk inflation seems pretty modest -- seems modest.ion to get you up to speed, let's begin. futures a little bit softer. and -- 's >> time now for your morning brief. it is our turn for market pmi's. at 10:00 a.m., existing home

sales and google will kick it off with its second-quarter results. >> for anyone that is nervous about inflation, your conversation -- >> we talked about the possibility of policy mistakes. they said we don't have to worry about inflation and we asked them why we have not seen more and he through the phillips curve under the bus. been a predictor correlation and unemployment. that has been well documented and people know it. >> i get is interesting that intellectually, they tend to fall back that as employment

strengthens, so will inflation. we all thought dan tarullo was really concerned about wages. this is consistent with that. wonder, why the other side is not going without argument. >> there has been no evidence of wage growth coming through. argument. >> it seems like the balance normalization has to do with growth. inyou did have been weighing on the balance sheet. >> exactly treated we asked them why they move now. >> this is what he had to stay. >> make sure the policies set

and understandable so that if there is a transition to a new chair, the balance sheet adjustment will have parted been laid out and thus, you don't lay in the lap of the new chair and you don't have to have a balance sheet adjustment policy. >> close to janet yellen by all accounts, saying maybe she's getting ready for the michael,ty -- nine >> when these fed officials talk about the next fed chair, they talk about it as if they are doing them a favor. i wonder if that is really what is going on. $.20, you can argue they are doing a favor.

really what they're trying to do is login so that it does not get .ffected by the transition even if you have a chair that is some they are, it will take them speed. to get up to roomey want to have some and they want to take out this extraordinary policy is a tool for right now. >> how significant is the transition? >> i think we are seeing synchronize growth and we are seeing financial environment. >> when you wind up seeing both hikeposition versus a rate

. the feel like that's the case question mark >> the balance sheet is $4 trillion. we are looking at that to come off. on the inflation side, i think the important thing is the growth indicators are showing in europe and global markets. think this is the right time to do it. like economists are rateng on that september hike. abouttend not to talk where it ends up. what is the difference to the marketplace?

we are looking at an estimate over the next two years, but i think this is something that will be modified as economic conditions play out. it is a reduction in balance sheet. take to getdoes it there? >> i think the timeline has been all the way to 2022 so we're starting thee feds process as well, but i think the market has already incorporated this. 2022 when a compass the longest expansion on record, wouldn't it? are you optimistic we can get there without a recession and is the balance sheet going to continue if we do get one?

what we have been seeing is growth and little above average. we've had very few economic surprises compared to other .ears >> we just don't have the downside last two years. >> one of the big questions is the effect of the balance sheet. are the markets priced in? only going to see no real moves once they start the process #>> i think one of the big surprises as you have record demand for bonds and we had to take up our forecast. so the negative yields have led

to demand. you've had a moving commodity well.in the 25% range as >> to your point, the question is where will we see this brought on? will this belongs home for short-term? they dispose their it come, you will see to the market is one of the questions is what is the treasurer going to be doing question mark we know it is going to grow and now they are talking about ending additional money and tax cut and things like that. we may see a question of what people are willing to pay. if that is the case, rates could

go up faster. mckee,mberg's michael thank you. coming up on wednesday, bloomberg will have a special report of the fed decision starting at 2:00 p.m. this is bloomberg.

>> this is bloomberg. can, lookinge forward to another dramatic week. is kevinake us to call cirilli. >> let's talk about capitol hill

and mr. kushner. what jared know kushner's -- jared kushner is going to tell the u.s. senate committee when he meets with them later today behind closed doors. he will likely face questions about meetings he had not previously disclosed and about his role with working -- working with cambridge international. he was heavily involved with social media and the trump campaign. he released an 11 page document earlier this morning and we have a bit of it for you. he says i did not collude or .now of anyone in the campaign i have no improper contacts. i have not relied on russian funds to finance my business

activities in the -- on friday, he filed additional -- who are >> it is not the only thing going on. here, we're going to have a vote on a health care bill. tomorrow, likely the senate authority leader going to try to move forward with plans repeal and or repeal and replace parts of the affordable care act. there was a procedural pickup, throwing another wrench with languageo antiabortion

. they don't know what they're going to vote on. the president himself is trying to get a bill. he says this republic -- if republicans don't replace obamacare, the repercussions will be far greater than any of them understand. later today, the president will meet with what they are calling victims of obamacare. >> thanks so much. we will talk to you later on. of -- this is a lot people are very excited. does it matter at all? >> i think the market has got quite decent.

tohave taken up the target 2550 because the earnings growth is not so strong. it seems like they are trying to play down health care and see if there's anything that can be done. >> down here in washington, even critics -- there is talk they might get something done on taxes. >> we have run a lot of different scenarios. mean eight to $10. we think there could be surprises towards the end of the year. i think there will be a discussion on tax reform. the dollarhing with

7% weaker, that has been a boost. >> is the potential more for upside is there still risk to a downside? off think a lot were taken earlier this year. i think very little is being priced. the market will focus on the debt springs. just that cause an upside for the market. -- we don't think there is that much further. >> when we talk about the markets, we tend to focus on tax

reform. what about trade? how sensitive are the equity markets to trade possibilities for a conflict. >> think the error of trade wars has abated. no joint -- there seems to be some lori about this still sectors, that i think rather than looking at global trade wars. the market will remain focused on what happens on the energy --e, but i do think that looking at specific measures than something more sweeping. >> thank you. she will be staying with us. u.s. ambassador to germany. this is bloomberg.

>> here's your number business flash. to selle has agreed itself. the deal is valued at about $2.8 billion. used by 75 million consumers a month. -- bmw template talks, saying they were focused on promoting exhaust treatment technology. >> that is bloomberg business flash. >> a big week for earnings. where do you play earnings when you have a synchronized global close -- growth recovery?

is the s&p and the purple line is developed markets. you can see for emerging markets. also with us, joyce chang. your.hear about -- i think the market is quite negatively. the profit cycle is very early in the do think this has further to run. it is a much earlier stage of recovery can we have seen. >> is that original story? europe? exposure to

>> part of it is the asia story, but you also have in latin america, stabilization. >> it is not just one region. we are seeing funds come into emerging markets. >> we've not seen political stabilization. fact, listens it came on tv, someone wrote -- how significant is that for financial markets? >> the situation in venezuela is truly tragic. >> the fall levels are priced

into the marketplace and i think the talk about sanctions and other markets is aware. it has fallen to only 2%. this has an going on for quite a while. >> i think they have been very what will as to happen in the market pricing reflects that. >> where does the solution come from? >> i think you have to see how the politics play out. as far as -- what are the different levers? it has become a less important part. several years ago, it was a percent of the market.

>> i think it is hard to say. is usingan say sanctions that are more aggressive in other parts. we have caution everyone that this is a unpredictable situation. i don't think it is systemic. >> -- i think that is the story of the emerging markets. that is kind of the name of the game. you can do many different plays

for you strip out some of the -- or only the larger countries. >> is that would you would in buys investors to do? >> i think what you have is more synchronization and some of countries are more under political uncertainty or not as deep because they have not been able to issue as much. they are budgeting oil at a lower price. the external accounts have really turned around in the currency has appreciated a lot so you're looking at external balances that have less risk.

>> thank you very much for. former u.s. ambassador to germany will be joining us from washington, d.c. with david westin. futures unchanged in the united states. first down about a quarter of 1%. treasuries, yield unchanged and that is how we stay in the euro a little bit weaker. city for our viewers worldwide, you're watching bloomberg tv.

>> from new york city, this is bloomberg daybreak. --id westin and down and down and washington, d.c.. unchanged.

three straight weeks of gains. bmw, volkswagen down much more than that. there is probing of those countries. we will get you up to speed promoting the individual companies in just a moment. 224 u.s. tenure. unitedta comes from the states and about one hour 15 minutes time. look out for that as those pileup. as you cross a source, let's get you up to speed. president trump son-in-law is anying any contact --

inappropriate contact with russians. he also denies russia finance any of its -- his business activity. legislation has led to eight straight days of antigovernment protests. u.k. is making the case for quick trade deal in the u.s. as soon as brexit is complete. barriers lead to by 2030. $45 billion

>> president trump is counting on his treasury department get some of his ambitious goals accomplished. in and talkome about what can get done. firm may have some role to play. welcome back to the program. get to have you here. list fork first on the most of our viewers is tax reform. is it doable this year. is it possible to get tax reform done question mark >> it's possible. it will be difficult. itshouse is going to take resolution up this week. i think they will pass it.

reform cannot start until after september, but the preparatory effort is going on right now. house and mr. the .yan and steven mnuchin preparatory work is going on. procedurally, it is reconciliation and then it is tax reform. to get it done, it will be difficult, but not impossible. >> the plan is to have a plan that is presold so when they come out at least republicans will be able to support it. -- are they on track to get it done question mark >> i don't have any inside information, but i think some the lessons learned that some of the more work that can be done

before the announcement, the better. last time we did major tax reform, and a lot of work in 1985 in 1986. by the time we announce the deal, we largely had the bipartisan group needed to pass it. it was roundly criticized from every direction and we knew it was going to get through. >> everyone talks about 1986. ronald reagan was well into his presidency and secondly, you frome like senator bradley new jersey cross the aisle. what you're talking about now it's republicans trying to get this done without democratic support. bei hope there will bipartisan support for mentioning six, we did not control the house of representatives. republicans do know.

-- oesn't need to be >> i think it has to be cognizant of the fact we don't want to go deeper into the -- deeper into debt just for the sake of tax reform. the growing economy has to be as fiscal -- m you have to take a look at the physical consequences. >> donald trump came to office on a promise of growth. that.of people agree with can he and his a menstruation remain or become laser focused

on that when there are so many things going on? every day pick up the paper, there is some new story that does not have to do with tax reform. >> clearly, there are multiple sores going on. you have to have the -- have the discipline. i think the answer is yes, they fewero lower taxes, have regulations, spur economic growth. it is going to be difficult. it has to be done on a global basis, but i think it is achievable. .t requires discipline >> one of the things that has other -- fallen is bank regulation and treasury came up with the paper proposing various

aspects. >> with respect to asset prices, that is been something that people have been looking at for at least three or four years created most analyses would suggest they are there watching, they are not the media kinds of concerns that could break in a very destructive way. there are some he thinks good ideas, some he would not personally do and a couple that he thinks would be a disaster. >> by think the -- that is a really key point and

discussion to have. someone from the previous being as open as very goodhink is a sign. the fact we have begun the is open.n i think it is very positive signal. >> he does not see that in the data. have we really slow down the economy? let's i believe we have. i don't have the data to back it up. i think we should always start with the question, what is right to grow the economy and clearly

more lending into the economy feel and look at the economy is what is important in the u.s. the question, what is the appropriate regulation for soundness? >> that is a think the difference between republican and democratic administration. >> great to have you here. >> coming up, the oil optimists are back. the mostds boosted since february as the rhetoric comes to st. petersburg. this is bloomberg.

hewlett-packard

greenroom, coming up wednesday, -- >> still with us is bob kimmitt and number two treasury. typically, we don't think of the treasury department as responsible for trade. we've had meetings in washington. what is going on with u.s.-china trade. are we getting off the rails? >> anytime you're talking, i think you're headed in a good direction. on --hink they picked picked up on some pretty good

talks for trade issues. out of hamburg on climate. minas and he is or is a lot of discussion. been -- continued in different forms. interestingly, secretary mnuchin and secretary ross lead this effort. i think the two of them are taking an unusually high-profile role with trade and investment in particular. i think that is good because these are 2 -- two people close to the president. are talking to seriously empowered people even if discussions are tough. >> how dangerous are these? was thought they would have an agreement coming out of u.s. china discussions.

they did not get it. there are proceedings pending right now. , what are theward risks of the overall trade? >> i think the discussions are not dangerous. i think it is when you're not talking that there is a real danger of miscommunication, a miss understanding. i don't have any inside on where the administration stands, but i think you make a very important point. people thought of that as a u.s.-china issue. ie one thing i would say is hope the administration is looking at this in a global context because at the end of the day, the global economy works best with free and fair trade. on ave to look at it global basis. >> if you're looking at the us

economy, why focus on steel? >> the potential investment works whatever can be done with steel. freeing up financial services, why pick on steel? i think is important to put down the market that people have to play by the rules of the global economy. china signed up when they join the world trade organization. i think it is appropriate to the live upmake sure china to our obligation and i agree there might be some larger sector. right tohe president's focus on steel, but i don't think he is doing get on the exclusion to other issues. was randall corals

nominated, which showed his photo and every time we showed it, he was standing next to you. what you have to say? >> he is an outstanding candidate. a wonderful background. importantly, there is strong on stature. i think that applies to the vice chair also. interestingly, randy started the bushice to administration. then, he was -- he became undersecretary. domestic finance does most regulatory work, but it is always done in a global setting danthe fact that he, like

tarullo started on the international side is a very important signal to the market that were putting someone in that the u.s. regulatory system operates in this broader, global environment. >> there's a lot of talk about what sort of candidate would be best. has anthat decision ideological part to it? should that be part of the decision of the president about >> to nominate russia mark ideological is always a loaded word. has to bee person capable of dealing with the tough stuff. here she has to have stature.

if you say who are the successful governors outside the states, you have people like mark carney. interestingly, all of them have ministers.inance i would say people look at that substances -- substance as well as breast. >> thank you for being with us. out tv ,eck watch it online and interactive with us. feel free to go back. this is bloomberg.

>> here's your bloomberg

business flash. in st. petersburg, saudi arabia -- saudis -- more trouble for wells fargo. according to a person familiar with the matter, regulators are asking about a mistaken data breach. wells fargo is still dealing year'sllout from last bank account scandal in disney's 38,000 union workers want to we opened wage hikes. a window to renegotiate pay, but if a deal isn't reached by october, the deal could be reopened. talk in st.l the petersburg. wasbidding -- big headline

saudi arabia said they would cut exports. talking taking so,e onshore and offshore we're pretty sure the process may be going at a slower pace it is bounded, but to accelerate in the second half. >> august is going to demonstrate further leadership. we have early informed our andomers of deep cuts allocations again exceeding 600,000 barrels per day. also, august is going to experience the maximum demand

within the kingdom of saudi arabia. , to me, it isnow more of the same. it is going to get better, but the saudi foot seems to be ramped up a bit. >> yes. it is also the overall projection of strength put on today in the last few hours. look, we are going to stick by our lead by example models. that will continue to do over the way we do business. also, those not pulling their weight. he said we are to go heavier on them. tolerated.longer be they think the second half will

pick up. optionsaid that, all for any future adjustment which is fascinating to say the least. >> the rhetoric was perhaps to make the for the supply who are not going to cap production until they get to a certain level. was there any conversation around that? metta stephany not the truth from where they are sending and ultimately would be a very big jump for the saudis to pull off. that, libya and nigeria were part of the discussions. i find it interesting you have jpmorgan coming on and projecting a different reality.

>> also, morgan stanley saying they will be well supplied going forward. what adjustments are they going to be looking for over the next six months? adjustments that can be done. looking at extending duration for the length of the agreement. expanding the opec, non-opec agreement and perhaps looking at ways to accelerating the overall draw. in, that is a conversation for december. >> thank you very much for joining us. coming up wednesday, don't miss this. bloomberg will have this. i'm just moment, we will bring you highlights from what the -- aboutderal reserve

what he thinks and the economics of inflation. the.story in just on let's get you up to speed on market action. futures go nowhere. down 9/10 of a percent. if you switch out the board, here is the story. pmi's were in focus. pmi's in 50the u.s. minutes time. you're watching bloomberg tv.

jonathan: jared kushner appears before congress, amid a widening

probe into possible ties to russia may derail the president growth agenda. the s&p is out this week and the ,anking steals the spotlight financial focus in europe and former federal reserve governor daniel tarullo tells us that the risk of runaway inflation seems pretty modest at this juncture. from new york city to our viewers worldwide, a warm welcome to bloomberg daybreak on july 24. i am jonathan ferro alongside alix steel. david westin is in washington, d.c. today. let's whip through the action. futures are unchanged on the s&p miner losses. and after three straight weeks of gains we don't know where i had of the cash open. 1.1654llar is weaker at and the pmi's disappoint in europe. singleies topped up a basis point. 2.25 on the u.s. 10 year. let's get movers with alix

steel. alix: private equities putting money to work this morning. buying web m.d. for 56.50 a share. $2.8whole deal valued at million. web m.d. has 75 monthly users. it has a million monthly users. been looking at a buyout and kkr is the winner. activist blue harbor is the number two shareholder with a stake of about 9%. money gram down by 3%. -- wall street journal had a had an article saying the white house is looking at upper stance on china deals and that could impact the potential takeout of in late april. there are four other bids by chinese-u.s. mergers that might need to be refiled. it could still go through but it makes the process more lengthy and less predictable. earnings in oil services,

halliburton out, that is up over two and a half percent. over $1 billion in sales last year during the fracking recovery. huge numbers. scholastic have a loss of over 3 million. a big turnaround. north america revenues are up by 24%. international revenue is still seeing a bit of pricing pressure, with services and oil companies reporting this week key to long-term production in the u.s. jonathan: two hours to get to however can earnings in the program. here we are, 28 -- 28 minutes into the open. the federal reserve many people think it is a nonevent. you spoke to a man who thought it would be a nonevent for a while longer. david: we got to talk to dan tarullo, his first tv appearance since you left the fed. we normally talk about banking regulations but now he is quite a bit more expensive about monetary policy and we asked him specifically as we go in later this week, where did the inflation go?

period of long employment growth substantially above the levels needed to deal , one beginsrants to wonder whether other factors have been at work. things like the end of the commodities super cycle. perhaps labor is finally getting a higher proportion of the returns to industry. and that is being eaten by companies rather than resulting in price increases. those sorts of explanations, i think, need to be considered. david: until now, we had a sense that the fed is set on a track of gradual, as they would call, normalization. that is raising rates. their models have indicated that given the unemployment rate we should have inflation taking in. at what point do they give up and say we are data dependent and we had better rethink that normalization past? >> you are right in that basic

orientation shifted from what is the reason to raise rates to what is the reason to go off of the plan for gradual increases? and as you can probably tell from the comments of chair yellen and others, people are thinking about what is going on with inflation. we don't know whether in the next couple of meetings those concerns will be strong enough, that the fed will hold off from another rate increase or not. but i think this question of what is driving inflation is not a new one. it is not as though the fed has just discovered in the last six months that the phillips curve is not operating as they might have liked. the phillips curve has not been a good predictor of inflation for 20 years now. correlation between inflation -- correlation between >> they tend to fall back on the

intuition that as employment strengthens, at some point, wages are going to increase and at some point, so will inflation. david: so how do you balance the upside and downside risks of getting too fast or going too slow? people talk about a policy mistake possibility. what are the risks of going too slow and getting runaway inflation or asset inflation bubbles as opposed to slowing down the economy? >> one of the most important factors of the last several years for people thinking about monetary policy has been the fact that with interest rates to zero,l quite close should we get a shock to the economy? there is not much room to reduce rates? . in the normal recession, the fed's response will be several hundred basis points of easing. there is not the room to do that and therefore there has been a sense that the risk in this structural sense, asymmetric to the downside.

the risks on the other side of runaway inflation seem pretty modest at this juncture. to make a case for inflation getting to targets and staying there. i think it is hard to make the case for the kind of inflation runaway that we saw, for example, in the late 1970's. with respect to asset prices, that has been something people have been thinking about for at least three or four years. most analyses would suggest that while they bear watching, they are not the immediate kinds of concerns that, -- the highly leveraged asset bubbles that could break in a destructive way. david: it is not only interest rates that have that in the toolbox. it is also the balance sheet. there has been talk about reducing the balance sheet. why now? >> why now is a good question. there is a group of people on

the fed that has wanted to reduce the size of the balance sheet for some time now. whole, ase fed as a it has said, has not wanted to do so until rates have been raised enough that there was at least a little bit of room to accommodate in case you have a mild slowdown in the economy. you don't have 300 basis points worth of room but you have, for example, 50 points. why now? there are a couple of reasons. one is the sense that the fed announced it was going to begin to change the size of the balance sheet once rates got up to a certain point. markets seems to think that was somewhere above 1% and that is where we are. a second reason may be that as the uncertainty about whether chair yellen will be reappointed is looming out there, it may be that the fed wants to make sure the policy is set on an

understandable and certain course so that if there is a transition to a new chair, that balance sheet adjustments will already have been laid out and thus you don't lay in the lap of a new chair and need to come up with a balance sheet adjustment policy. i should hasten to add that we don't know whether she will be reappointed. it will be great for the country if she were but that is probably something that is also affecting their decision. david: that was former fed governor daniel tarullo. jonathan: joining us now via skype from winston-salem north carolina is george pearkes, macro strategist. let's talk about the phillips curve. apparently it has been dead for quite a while. what would you say to that? yes, the phillips curve has been very flat for quite a long time. i think there is a lot of debate over why it has been flat. is it illusory and something that has never existed or have

there been shocked that have distorted the reaction of the phillips curve over the last couple of decades. i would fall into the latter camp. deflationary impulse or disinflationary impulse from people in china joining the trade will goods sector has been massive and globalization, in general, the driving of efficiencies in that respect has had a lot of implications that have been overlooked in a lot of sectors. ifo fall in the camp where the phillips curve has been flat but there is a limit to how much flatter it can get and how long it will stay flat. if aggregate demand continues to rise there must be some sort of response from prices. think we are getting closer to that. we are not about to see hyperinflation but the capacity in the labor market is eroding. jonathan: do you think the federal reserve has been overly focused on the demand side of the equation and haven't recognized what is on the supply

side? george pearkes: that would be a fair critique. the supply side for the fed, you have to remember that the policymakers who are currently steering the ship, they are referencing the 1970's and 1980's where we had the opposite problem. we had relatively constrictive policies for the labor market. we had completely different demographic pictures and we didn't have the same global reach that we currently do in the labor market. so i think the critique that the fed hasn't looked at all of the supply side makes sense but you can push it too far and there are people that do that. i think more focused on the supply side does make sense for the fed relative to the past few years. alix: is there any risk on wednesday that the fed does acknowledge a weaker inflation but doesn't signal a more accommodative policy stance and the market could consider that more hawkish? doese pearkes: if the fed say we are worried about

inflation and that means we are not going near rate hikes for a while, that would be an easing of conditions, effectively, reducing the pace of forward rate hikes. we actually think that is not terribly likely. they will acknowledge inflation weakness and say we are not going to hike rates now and we will look at the data as it comes in and that is how the federal reserve has been managing policy for the past 2-3 years. the monkeywrench in that, the fed doing what it has done, is the balance sheet reductions. they will go ahead with that. barring some sort of catastrophe, a negative shot that wouldn't be clickable, desperate at the ball, that is going to be there. we think it is probably going to be in december and it will be a relatively non-event for the market. alix: george pearkes, you will be sticking with us. on wednesday, we will bring you a report of the decision starting at 2:00 p.m. eastern time. this is bloomberg. ♪

david: this is bloomberg. i am david westin. from russia to health care, this is another busy one in washington. kevin cirilli is up on capitol hill and he is ready to give it all to us. start with jared kushner. we know it is behind closed doors. we won't see it on tv. how long does it take before we know what was said? kevin: we have a bit of a preview coming from the 11 page statement i've got right here put forth by jared kushner, the president's son in law about what he is saying is a response to the accusations.

he is trying to defend himself. he says "i did not collude nor know of anyone in the campaign who colluded with any foreign government. ihad no improper contact, have not relied on russian funds to finance my business activities in the private sector. i try to be fully transparent." he also went on to write he has "nothing to hide." democrats and republicans are trying to focus on that meeting from july of last year in which pault with, along with manafort and donald trump jr. a russian attorney. also with data and social media, he says he wants to be as forthcoming as possible and the president himself tweeting out " why aren't the committees and investigators and our illegal attorney general looking into crooked hillary's crimes and

russia relations?" the white house trying to push back. david: i will hold back on saying that the attorney general is beleaguered because of the president of the united dates, but we also have some legislating going on up there. we have heard about health care quite a bit recently. now we are told we will have a vote but we don't know on what bill. is this an act of desperation? do they expect to get this through? kevin: it is remarkable, lawmakers do not know what they are going to be voting on tomorrow. when they vote to proceed to get to an eventual vote. those votes aren't even there. the math is tricky for republicans. the president hoping to get the path forward later today but he will have a public event at the white house and deliver public remarks with what he is calling "victims of obamacare." david: thank you so much, kevin cirilli on capitol hill where he will be for most of the week. george pearkesre

and our own stocks reporter oliver renick. i'll start with you, george. are there any parts of the market, sectors in equities, particularly health care, that may react to what happens today? george pearkes: absolutely. when we first saw trump elected we saw a dramatic sector rotation that had been underway but really got into excessive territory in november and december of last year. that has unwound at this point. and the activity on capitol hill , the back-and-forth around legislations has had some impact but has not had huge moves. so with the current outlook for the republican health care plan, i think the market is largely indifferent to the day today on that at this point because most people think nothing is going to happen, that the aca will not be revealed. i could be wrong but if that is the case you are talking about

status quo and minor changes day-to-day will not have a big impact. david: so oliver, you are something of a wizard with the bloomberg, you find all sorts of things. do you see any of it that could the attributed to what is going on in washington? oliver: it doesn't take much was agreed to look at the intraday chart and see what happens when there are more headlines about russia, headlines about people in front cabinet being interviewed. even though we might see a little dip, it is nothing even close to being on doing what we already saw in the months after the election. the point is there are signs to watch. we look at the intraday and anytime those advice come out -- we were joking that there are algorithms waiting for russian names to hit headlines -- because the markets do move. it doesn't move a lot is there are some valuations that are very high, so to the point that any of that has unwound, -- as far as basing plays around

policy it is very difficult to do that and investors might be avoiding that. it is probably a true sentiment. alix: it then you wind up having bank of america surveys saying money managers are the most underweight for u.s. equities since 2009 and cash continues to be reduced. talk about how much is on the sidelines and where it is going. oliver: that is less trump and more opportunity elsewhere. the loftier markets get, the harder it is for them to get the returns they want. what i think that is probably why you see some of the money that has moved out from equities to some other places like european stocks, emerging market stocks -- the other thing the trump effect has had and won't be a dead horse is the bank of america release today looking at guidance. a are saying, again, only 24 issuances of guidance this quarter is low. how much that is tied to trump is hard to say but it is important to navigate that

environment and it is hard to make the decisions as a corporate executive. jonathan: you've written recently about the mythical rotation, the elusive rotation that used to be the great rotation. when is it coming? george pearkes: i am not sure it has to come. we have seen recently, the great rotation from bonds into equities has started somewhat in terms of returns so through the crisis. periods, it is very rare that global equities outperform government bonds and that has happened on a basis. sid verma had a good report last week. some of them are supposed -- are opposed to stock markets and some aren't. figuring out those exposures are challenging based on the data we have available. people, about 41% of

have some sort of exposure to financial assets which does not exactly scream excessive in suzy as him for the stock market. basis, youdjusted expect some of that rotation to play out as people place returns but it is hard to say how much it is going to happen and if it happens at all. good stuff. thank you both very much. coming up, european carmakers are stuck in reverse under pressure due to allegations that they colluded on technology for decades. what it means for the auto sector abroad and in the u.s. this is bloomberg. ♪

jonathan: the european commissions scandal escalates. bmw issues a denial after reports three german carmakers colluded on control canisters. auto shares down across the board in germany. vw down around 2.5%.

joining us from detroit with more is auto reporter gerry bused us. what thehrough regulations are looking at and how the story evolved and where it started. >> they are looking at these committees that have been meeting since the 1990's, involving hundreds of engineers and employees, maybe 60 working groups over the years, to discuss technology around engines and emissions and other technical matters. this certainly sounds suspicious and it could be. it is why the regulators are looking into it. on the other hand, industry groups are very common in the u.s. and germany and japan. they need to have, if not a unified front, some sort of agreement on what is feasible when dealing with regulators as well as their supply bait.

jonathan: the oil makers are coming under pressure from their own employees. they want some transparency. what have we heard from these three automakers over the last three days since the news broke last week? >> they are saying they are cooperating with regulators and trying to be as transparent as possible. bmw issued a stronger denial over the weekend, saying there is no attempt to collude. the automakers are under pressure. the credibility has been hammered by bw's scandal -- by vw's scandal which involves a lot of cheating and blatant cheating of the regulatory have advanced software to detect when the vehicles are being tested so they can use their emissions systems and then turn it off the rest of the time but the other automakers have had different approaches. as 80's has been unable to get their new diesel approved by the has.regulators but bmw

credibility has been pounded. jonathan: very quickly, whenever we hear emissions scandal's, we do think about vw. have we got any idea the magnitude of this investigation or is it too early to make any conclusions? >> it is very early and very opaque but the implications can be huge. volkswagen, despite the scandal, is the world's largest automaker. they also own porsche and audi. jonathan: great to have you with us on the program. from detroit. up next on bloomberg daybreak, we are moments away from the trading week with the cash open right here in the united states. futures treading water. this is bloomberg. ♪

jonathan: from new york city to our viewers worldwide, this is bloomberg daybreak. moments away from the opening bell. .et's get you up to speed futures are negative on the s&p 500 by pretty much nothing. the dow by about eight points.

a flat open, potentially, around the corner with 10 seconds to go. as you hear the opening bell in new york city we have a series of all-time highs just last week. we have another week of gains for a third straight week. even if we have a couple of days behind, this was a marginal moved to the downside. here is the story in the bond markets. yields higher by a single basis point. two days away from a fed decision. according to a survey we have done, no change is expected. 1/10 of 1%,p to that off the back of some weaker than expected data in the eurozone pulling down the single unit currency. the pma coming down in 15 minutes time. let's get you that open with alix steel. alix: unchanged on the day as we see. the nasdaq and s&p are still around record highs as we head into this huge earnings week.

we have 189 s&p companies reporting and these are fun data points for you. for the 2017 closing highs, the s&p has had 27 and the nasdaq has 41 despite all of the headlines and warnings we have been talking about. crude helping to support the market today but also some of the individual oil stocks. halliburton is up by 1%. it had a very solid, very clean order. it made $1 million more last year due to a racking revival -- fracking revival. a roundup seeing demand outpacing supply and better pricing pressure coming from the international segment. i want to highlight petroleum and apache. those are present in the pace starting tohas some move higher although that has fallen in the last couple of weeks. speaking of earnings, one of the

highlights, where are we in terms of the u.s. versus european earnings, this might be my favorite chart of earnings these and. -- earnings season. our top panel for earnings revision and the euro stocks index, the white line is the s&p and the blue line is the euro stocks index. we see the revision downwards for european stocks well the s&p has held up and just started slowly rolling over in the past few weeks. rolling over for european equities started around the end of june. the bottom panel is how much investors are willing to pay for forward future earnings and the yellow line is the s&p. the purple line is euro stocks. the market is turning to now discount euro stocks earnings going forward. the price now is falling faster than earnings estimates. the s&p is holding up. we talk a lot about this rotation, about synchronized global growth. the earnings picture is telling a different story when it comes to europe. jonathan: it is a bit of a valuation drop here the earnings

season really shifting into full gear this week. 37% of the s&p 500 will unveil quarterly results over the next five sessions with three members of the gang much in focus. islook today, wednesday facebook, and thursday, the banks in the spotlight, barclays out with results throughout the week. that starts on thursday. the big three coming on friday. isning us now to discuss john stoltzfus, oppenheimer chief investment strategist. , oliver renick. the distinction between u.s. markets and european markets, it is tech versus banks. sector and biggest the banks make of the bulk of the stoxx 600 as well. how important is this week? >> if we get some kind of positive surprise out of banks in europe that could make a

difference for the index, but what really makes the difference is the u.s. is likely to lead again with technology, likely surprising to the upside. it is one of the factors that gets a lot of it's revenue, 52%, as i recall, from outside the u.s. the dollar is weaker against big ten currencies and emerging-market currencies so it should be good for u.s. companies. europe versus the u.s. jonathan: it comes down to this. the u.s. has big tech companies and that is where the action is now. john stoltzfus: i am afraid so. that has a lot to do with it and europe has materials companies and older economies. as a result of that, it's indexes are going to feel it. in addition to that, i think the fact is the banks in europe have much longer to come clean about their problems.

just in the last year or so, in the last few weeks, we have seen improvement in italy. the toes got to take state aid, doesn't it? alix: i don't know. anyway, let's move on. from goldman sachs, a note. we are reading his calls that financials and tech are going to outperform and we will see a buyback with killer sales growth. has that rotation been played out? david: there is a strength in tech that is sort of the two johns point, there is strength in tech a lot of people are banking on which is double beat on the earnings side. also to come back to the point of the europe case versus the u.s. case, the question is if you are counting on banks doing well in europe, you have this story of existential risk whereas the risk that you take on because you want to get exposure to the tech is more of

a risk of disappointment or slowing economic growth. there is deadly risk baked into the moment. that is the big part of it that we saw this morning, talking about double beat in facebook and amazon and google as well, grow almost 20% on the still side, keeping people driving into the sectors when it is hard to find growth elsewhere. that is a big part of the story. kevin: the question is the risk. john and i spoke with mohamed el-erian on friday and he spoke to his biggest outlook risk. .> you need a major shock investors are very comfortable now with the notion that you should bet on the federal bank as your best friend so you do need a big shock to get out of this conditioning. alix: major shock, john? john stoltzfus: the major shock that have to be something we changed sentiment drastically but the fundamentals keep improving at this point and at a slow enough pace that wages

grow, being very modest as a key theme of inflation with modest inflation allowing central banks around the world to take longer doing this process of normalization, less disruptive to markets. jonathan: the wall street journal wrote a great piece over the weekend about investors, always worried about something and also worried about the fact that nobody's worried. is it worry and nobody is worrying? oliver: maybe. you don't want to see profound complacency because people get taken by supplies. i will bring up a step from bank of america about earnings and what happens when companies beat and when they miss. this is what a lot of people track. when these companies are beating on both sales, they are outperforming by six percentage points. six percentage points beating the average. if they are missing they are dropping by six percentage points. they are only beating after earnings. the point is there is more

downside here where people say, oh, my company didn't hit what i want, here's the price i am paying, i don't want to do that anymore and i get out. that speaks to trepidation. john stoltzfus: when we talked to private investors -- when we talk to private investors that is what they are worried about. there is always room for jell-o but there is always a good reason not to invest but it hasn't been a great idea over the past 8.5 years. no worries but still worry i guess. alix: the idea is if you don't have earnings living up to the sentiments, that is going to be material. that is not just going to be a sentiment call. john stoltzfus: absolutely. so what is your call for earnings? te expect them to overall bea rejections. projections. analysts typically ramp up their estimates when they get down to the wire on earnings seasons, cut drastically, offering

opportunity for surprises. we get it again in the second quarter reporting. jonathan: did you get a call from a customer -- if you get a call from a customer and they say, how much do i need to pay attention to the paul manafort testimony? john stoltzfus: pay attention in terms of how you want to vote but in terms of the market, we think the market is looking at fundamentals and on a global basis, global economic recovery, economic expansion in the u.s. is sustainable at around 2.5% without stimulus. so i think we are in good shape to move forward. it doesn't mean we are not always vigilant. jonathan: john stoltzfus of oppenheimer, great to have you on the program. oliver renick, always great to catch up with you. let's whip through the action. down 1/10 move lower, of 1% on the dow. down on the s&p 500. the loss is gaining a little bit of a momentum on the ftse 100 in london, the gap driven by the on the big automakers.

the eu and the german regulators takes a look at possible collusion among the biggest automakers on the planet. new york city, you are watching bloomberg tv. ♪

>> this is bloomberg daybreak. i am jessica summers. here in the hewlett-packard enterprise greenroom. coming up, we will bring you a special report starting at 2:00 p.m. eastern. ma is set to pick up in 2017. and having worked on tribune media companies and the sinclair broadcast group, he is the lead

advisor on the saudi aramco ico. the co-founder will be joining us now from the new york stock exchange. , great tooodzadegan see you. i have a chart to describe to you and it looks at ceo confidence in the economy. announced transactions and that ceo confidence is the white line in the blue line is m&a. a huge spread now. at what point does that convert? do we see money getting put to work. >> you are right in pointing out that confidence is a really big part of what typically drives m&a. i do think that if we get more robust economic growth, if we certainly get clarity on important factors like tax reform and regulatory reform and health care reform, we will see confidence improved and if confidence improves that is a good time for m&a.

alix: does that mean we will see the smaller deals like $500 million deals pick up or does that mean the big guys are going to pick up? >> the middle part of the market, the $500 million to $5 billion transactions, that part of the market is healthy . i think as confidence returns and especially as you get more clarity on how the new administration is going to look at antitrust and tax reform, i think you will see a pickup in the larger transactions. alix: what are you hearing about valuations? politics in d.c. is a headwind but what about valuations? the markets are hitting all-time highs in the s&p and the nasdaq so yes, the valuation environment is certainly on the frosty or side now -- the frostier side now and we are seeing that in the markets as well.

but the into this for m&a, despite high valuations, is still there. we see low economic growth and typically when you see low growth you see companies look to m&a to create value and earnings for their companies. you are seeing technology ripple through many sectors of the economy which is forcing a lot of companies to think strongly about where they think strategically, what businesses they want to be in and what businesses they want to get out of. alix: so what does your pipeline look like? >> i don't want to comment specifically on our pipeline. we don't talk about that but we feel great about where our firm sits. we feel great about the team we have in place. we feel great about the dialogue we have with our clients and we are very optimistic about the m&a market. alix: given some perspective on sectors that are popular now in terms of m&a that were not before, are you seeing pipelines stronger in the back half of this year than it was in 2015 or 2016 western mark -- or 2016?

>> in terms of activity and dialogue, those are typically good for indicators of actual m&a activity. like healthaces care, consumer retail, all for butactive spaces right now, generally, when you look across our firm you are seeing a pretty broad-based of good levels of activity. -- alix:alix: outbound m&a from china was huge in the last few years but there was a report over the weekend from the wall street journal saying the u.s. is going to tighten their scrutiny of chinese deal activities in the u.s. are you seeing anything of that? >> it is fair to say that the m&a into china and out of china will slow down. you see capital controls instituted in china. you see the government clamping down on foreign investments and you have obviously seen

political rhetoric out of the u.s. about cross-border activity into china. that part of the market has slowed down from the levels of activity we saw in the last couple of years. it is unclear how that is going to play out. we are dealing with political factors and so i think there is some uncertainty around the future there long-term. i am still very bullish on china as a market. you are going to continue to see activity there but in the intermediate term, the outlook is cloudy. alix: let's go to private equities here. there has been a huge rush into private equities, a ton of fundraising. is that sustainable? >> i think it is. private equity, the financial community is an integral part of our financial ecosystem. i think, as you mentioned, correctly, the very best firms have raise large amounts of capital, not in traditional

buyouts but expanding the horizon. many of those have growth funds and real estate funds. and thatebt placements of companies so i think the financial response is strong and they are going to continue to be a very important part of the m&a landscape for years to come. alix: are they mostly buyers or sellers? >> both. private equity firms are typically both harvesting their portfolios in good markets. you mentioned the valuation market has been strong and certainly the private equities community takes advantage of good markets, both the ipo, their companies and other companies. but you mentioned they have also raised large flows of capital and when you raise large flows they are putting capital out. alix: on saudi aramco, i'm not going to ask you about the specifics but i want to talk about the general trend of saudi aramco spinning off its assets

as well as abu dhabi's national oil companies. how much cash do you feel, investor interest do you feel is really out there to invest in these huge sovereign entities, oil entities when there is a transparency issue. >> i'm not going to comment at all on those particular situations you mentioned but let me make this a general comment. big important companies globally have access to the ipo market. you are seeing that in the overall pick up and you are seeing ipo activity year to date so that is partially reflected in what we are seeing in terms of overall valuation so the ipo tokets are certainly open industry leaders, market leaders, big important companies. alix: nice answer to the question. navid mahmoodzadegan, thank you for joining us. good to have you.

if you have a bloomberg terminal, check out tv and like on our charts and graphics and interact with us directly. this is bloomberg. ♪

david: this is bloomberg. i am david westin. with the president's son-in-law set to testify on capitol hill, things are pretty hot in washington but the president deputies did nothing to cool anything down as he publicly criticized the attorney general, independent counsel bob mueller and former fbi director james comey. what this could mean is our favorite washington expert, al hunt, wrote about the point of no return for the president who made the reaching. is this the point of no return? righthink that trump, now, what he has in mind is getting rid of bob mueller. there, he is not sure.

i'm not sure he will do it in the end because that is the step -- you willumongous recall the saturday night massacre some 44 years ago. it will be the public of that. it is quite apparent after many months when you have a total lack of transparency, of duplicity, that there is something they are hiding. and what is it? are they afraid that bob mueller will find out what it is. a lot of people were speculating about that. can you keep it hidden? does he have the power to fire? david: he probably does. but one of the consequences -- what are the consequences? if he does, who takes the investigation? and what is the backlash? a new f the eye director will come in, confirmed highlylmingly, respective. can he stay in this job or can he resign? i think the consequences of firing mueller will be so found

he may calculate that the consequences are not -- of not firing him are even more profound. david: bob mueller is a very prosecutor but is this a question of whether the republicans on the hill stay with him? going back to those ancient days of richard nixon, that is really when it turned. al hunt: it was but it took a long time. don't forget. the break-in occurred in 1972 and then you had serious stories , andodward and bernstein the courts, and you had the howard baker hearing in the summer of 1973 and it really wasn't until the summer of 1974 when it was clear richard nixon was not going to survive. david: what is the situation with respect to jared kushner? he is testifying today and tomorrow. at what point does it become clear he has to leave? >> if, in any way, he has been more involved with the russians

and he has said, i think at some point they are going to want to cut him loose or he will want to cut himself loose. this has not been a pleasant experience that jared kushner probably envisioned when he came here. david: in the meantime, you know this place very well. is there any business getting done other than this investigation? are they proceeding with policy objectives? >> they are doing some of the deregulatory stuff but really, no. you have seen the way health care was stymied. reform is going to be as difficult as health care was. they haven't even started on infrastructure. housing has had a difficult time of getting the budget through and the president not only has low popularity but on all these issues he doesn't know much about them. if you went into his deepest thoughts on health care you wouldn't get your ankles wet. he doesn't care about the substance. he is obviously a smart man but this obviously doesn't interest

him. does having that helped him or hurt him at this point? stay in session for two more weeks and they do nothing, just flail about and get something done, maybe that is a big if. david: al hunt of bloomberg view, great to have him here. jonathan: done in d.c., that wraps up the program 26 minutes into the session. let's get you up to speed on the market action. we move lower by just a mere 10th of 1% but it is a third straight day of losses in the united states. the s&p 500, negative 0.11%. that wraps it up for daybreak. bloomberg markets is coming up next. you are watching bloomberg. ♪

>> it is 10:00 a.m. in new york, 3:00 p.m. in london and 10:00 p.m. in hong kong. i am vonnie quinn. >> i am mark barton. welcome to bloomberg markets.

cover with's to donald trump, opec, but first we have economic data in the united states to do with housing. julie hyman has this data. >> existing home sales for june coming in at $5.52 million. that is slightly below the $5.57 million estimated. it means a month over month decline of 1.8%. in the existing home sales. we have seen a choppy or existing home sales data -- choppier visiting home sales data generally which has been driving prices higher. our contract closing down 1.8% month over month as we see a slowdown. this is the number that tends to move the overall markets. we see stocks