francine: concern for health of that with earnings season in full swing. make or break time for the u.s. stock market? is deutsche bank about to move 300 billion euros of assets from london to frank for? -- to frankfurt? lending surges. this is "bloomberg surveillance ." i am francine lacqua in london. we are looking at data and some of the earnings and your asset

classes. first thing's first, we are getting the july german business confidence. that data better than expected at 116. we were expecting a figure of 114.9. let us check on the currencies. when it comes to the kind of things, it does have an impact longer-term. reminder, we are two months away from the german election. there will be more focus on a lot of the german data points. that is go straight onto your markets. what i am watching out for is the dollar fluctuating somewhat. stocks seem to be mixed as well before the u.s. federal reserve policy decision. oil expending some of the gains below $47 at 46 .63$. at 46.6 three dollars.

here is nejra cehic. , who: john mccain underwent surgery for brain cancer, will return to washington today at the senate embattledo take up health care legislation. the development could boost republican efforts to get enough votes to pass the measure. he had noner said improper contacts with russian officials during the presidential campaign to rid the white house senior adviser made the comments after spending 2.5 hours answering questions from senate investigators examining meddling by moscow in the 26 election. >> i did not collude with russia, nor do i know anyone else in the campaign who did so. i had no improper contacts. i have not relied on russian funds for my businesses. and i have been fully transparent in providing all requested information. greece is returning to the bond market after a

three-year hiatus, banking on investor interest in its economy. the country, the epicenter of the sovereign crisis that began in 2009, is looking to sell five-year bonds and inviting holders of bonds due in 2019 to tender the notes for cash. turkey's leader has urged qatar in the arab countries isolating it to negotiate an end to the crisis. that came at the president wrapped up a two day to her of -- tour of the region. turkey has both increasingly close ties with qatar in recent years, including opening its first military base in the persian gulf last year. shift 300ank may billion euros from the balance sheet of its u.k. int entity to frankfurt. the project calls for trading in in german city to go live september, 2018, and the assets to be moved by 2019.

that follows britain's decision to leave the european union. global news, 20 four hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. francine: of that shares fell -- alphabet shares fell. the company spends more to expand the advertising businesses. the company reported sales minus partner payouts. that was in line with analyst consensus forecasts. by at was also hammered record antitrust fine from the european union. let us get more of all of this , joining us from tokyo. surprisethe biggest when it came to google or alphabet? peter: it was really the operating margins. there was a strong increase in revenue overall.

the ad business is strong in a number of different areas. google is seeing that the margins on the revenue it is bringing in are going down because of the shift in the traditional advertising they have on pc's towards mobile and to other outlets like youtube. of course, there was the e.u. fund, which took a big chunk out of the net income. francine: there are concerns about cost, but if we see growth, even if it is lagging, if we see growth catching up, you could argue the rising cost of future ad dollars will increase, and everything will be ok. right. the cfo made this point that they are investing and less focused on particular margins and more focused on the long-term growth. they are investing heavily into areas like cloud computing, in particular their nest division

which includes connectivity for other devices. they want to make these investments for the longer-term. the business has grown very quickly for them. the number of paid clicks increased more than 50%. the challenge was that the revenue per click went down sharply, 23%. francine: i know that we heard from ruth, saying spending on theabet fell sharply during quarter because they have been retreating in areas they thought would grow more than expected. peter: that is right. google is famous for its moon shots in the past. numberxtreme bets on a of different areas including floating balloons over areas to give people internet conductivity. they wanted to cut back on those and manage expenses. we did see the spending go down a bit in that area. the traditional advertising business is taking off sharply and is strong in a number of different areas, even if the

margins are thinner than they have been in the past. francine: peter, thank you so much. peter armstrong. -- the biggest head scratcher is how equities can reach heights despite the turmoil in washington. the short term been the expectations for strong profit growth with the earnings season. the bulls will find out whether that optimism is justified. .et us bring in thomas digenan he makes a rare appearance. as always, thank you so much for giving us your time. i know you don't want to talk individual stocks, but what is the technology industry as a whole like? does it look extensive? thomas: it is kind of bifurcated. software does look expensive. with high-tech hardware and

actors, they are becoming less cyclical. the earnings and margins should be steady going forward. we see a lot of opportunities. francine: opportunities, but you have to stop pick? it does seem valuations in certain companies may be a little bit high. what makes the difference? thomas: i think that stopped taking is important. you have to identify where the teens and opportunities are. radiofrequency technology and the cell phones, you are able to make a bet. you do know there is increasing content in the phones, so there is definitely opportunity. francine: you get onto central banks in the fed, and that gives a nice lift to these stock valuations. is the worldwide economy strong enough to support these valuations? >> we have had some flash pmi's in the last 24 hours from the

u.s. and the eurozone. very up the numbers. upbeat numbers. the momentum is with the global economy, but i think the future of the elevated valuations in the stock market hinges on whether -- we cannot ignore that . the yield trade continues to be the prevalent theme in markets. we have the ecb, the boj, pumping liquidity in the market. that trade remains resilient. francine: that makes sense if a lot of these earnings are supported. are they? thomas: on the yield trade, it is resilient, but it is also come i think, a hidden risk in the market. the search for yield does not tens and well for investors. tend to end well for investors. you have an area where people are paying high multiples for very low growth, and i think

they are overpaying for what is perceived safety. think it is well either. we have inflated the asset very painfullyds for a lot of investors, particularly those who come late to this trade. the issue is, what is the trigger? my personal -- francine: a bubble bursting? simon: when you stop the current generation of central bankers, the kurodas, the draghis, the yellens -- when you replace it with generation, look at the financial risks with a more pressing eye than the inflation dynamics, that becomes the risk moment for markets that have become so passive and getting procyclical selloffs coming. you need that trigger. one can speculate it will happen. you need to see the personnel start to change it for that goes

through. francine: do you think markets are passive? thomas: in the u.s. equity, the money going into passive is incredible, but the active opportunities are as big as ever. the biggest dynamic is not the move to passive. his is a 20 year -- this is a 20 year trend. the time horizon has become so truncated that it is a time arbitrage. to passivehe move would be that there are potentially fewer players on the markets, so then you have bigger potential distortions? thomas: correct, but we are so far from that level of passive. it is definitely a growing area. francine: all right, thank you both for the spirited conversation. let us get to the bloomberg business flash. jimmy choo being bought for 890 6 million pounds, clinching the london-based maker of stilettos. thathave approved the deal

would see them paying 230 pence per share to add the luxury shoemaker to its table. akzonobel has reported second-quarter profits that missed analyst estimates that the newly appointed ceo seeks to convince shareholders of the target set by his pre-the assessor is achievable. -- the targets set by his pre-to assessor are achievable. he plans to retire in april and as company appointed -- chief operating officer. carlyle is seeking $15 billion for its next bond. that is according to people familiar with the matter. the fund would be the firm's seventh for the u.s. you're at it as part of the ambition to raise $100 billion by 2019. a spokesman declined to comment. that is your bloomberg business flash. trump hasdonald spoken with advisers about

firing jeff sessions according to reports. -- associated press was they have speculated privately about the consequences of removing him. that comes after the president's son-in-law jared kushner denied collaborating with the russian government, but admitted to contacts with russians in meetings he described as unmemorable. mr. kushner: i did not collude with russia, nor do i know of anyone else in the campaign you did so. i had no improper contacts. i have not relied on russian funds for my businesses. have been fully transparent in providing all requested information. get more withus our u.s. congress reporter kathleen hunter, still with us. know?en, what do we how are the comments of jared

kushner taken? kathleen: it is the first time we have heard jared kushner talk about this matter publicly. today,ack on the hilton talking with the house intelligence committee members again behind closed doors. i think the comments were taken as, you know, not surprising. the thing that struck me is that he, even though he is only testifying in private, he is making these public statements, theasing his statement to senate intelligence committee. yesterday, he released publicly the for he spoke with staff there. they are working hard to get his side of the story out there. interesting since the lawmakers have agreed to hold these meetings in private, the american public and world are not getting to see his version of events getting challenged under oath. francine: first of all, do we have any indication he is thinking about firing jeff sessions? what happens within the

conservative party if he does? kathleen: we have been talking about this for a while now, the possibility that he could fire jeff sessions has been rumbling around in the news and seems to have taken on new life this week , even in the last 24 hours or so. there were reports of rudy giuliani being potentially under consideration as a replacement. the point you are reading in the press about potential replacements, that lends credibility to the idea that we may be on the cusp of seeing jeff sessions get fired, and i think that would be a pretty dramatic move on donald trump's part. francine: do we not know what actually -- how they will take it? kathleen: it is hard to tell. the republicans in congress have been willing to put up with a lot of unprecedented things. chuckwill come a point -- schumer said this. there will be a watershed breaking point where they will get up in arms and challenge the president, but i do not know that firing sessions will be that point.

it very well could be, though. something as big as that weren't a correction in the markets? are the markets going to continue to you ignore -- other markets like to continue to ignore it? thomas: one of the questions i asked my client last week, "when you talk to clients, what do they think about trump?" when talking to company management, trump does not come up. tax reform, it does not come up much. that was the rally. the one thing people forget is the one thing that died was the border adjustment tax, and that was a real positive. pre-election, people thought the market was going to tank, which i guess it did for five hours, because of trade. some of the trade stuff backed off. it will be interesting. he has got a battle ahead of him on tax. all this noise does not help. francine: so let us say -- i

know we need to look at this, the politics and the impact it has on his possible reforms, and what does that do to the economy? fired, there is a crisis that hurts confidence in the united states, or is that far-fetched? simon: the perception problem on the capital of an administration that cannot control its inner circle does not lend itself to the kind of discipline you need reform, health care reform. you focus on those big reform programs, the shutdown coming in autumn, and the politics, the dynamics of very fiscally conservative members of congress ahead of that, will be absolutely key. the matchup is not helpful when you have jared kushner, speculation over jeff sessions, or getting key, marginal voters needed to pass some of those programs on your side.

it is simply optics on the capital. francine: how many interviews do we have today? kushner withred the house intelligence committee. we have the hearing tomorrow that donald trump jr. and paul manafort were originally supposed to appear at, but you know, the news broke last friday that they are going instead to be providing documents and information, but not having to testify publicly at this time. kushner is the main event for this week. francine: have you changed your forecast to not think about tax reform, or did you -- >> i have not changed my forecast because i never had tax reform in my baseline for fiscal year 2017-2018. i did not see the numbers stacked up in congress. francine: thank you so much. kathleen hunter. you can follow the fed's onision tomorrow in full bloomberg tv from 7:00 p.m. london time.

in the meantime, we had greece returning to the bond market after a three-year hiatus, and it does seem we have seen a lot of appetites from our bloomberg customers in this recovery story. the commissioner for e.u. finances, p or moscovici -- pierre moscovici is speaking in greece. this is also what we are hearing from the commissioner, who is quite pleased about what he has seen so far. the ceo.we speak to we will ask him about china. this is bloomberg. ♪

francine: this is "bloomberg surveillance." shares are down after underlying earnings rose by less than in part due to costs. joining us now is the company's ceo. thank you for joining us here on "bloomberg surveillance." talk to me about china. a lot of the aluminum prices had to do with capacity cuts or at least expectations of capacity cuts. are you bullish or bearish on china? guest: thank you, very much. we are following this market very carefully. more than 50% of the global demand and production.

ishave seen that there supply reform ongoing, they are attacking companies, which has built capacity without the necessary concessions. we see that capacity is now being taken out of these reducing thed production capacity in china, but there is also another ongoing reform, which is connected to the environmental problems in several cities. they have said that in 28 cities in china, they will be taking out 30% capacity over aluminum production. if that happens, it will have a major impact. francine: do you believe producers outside china can maintain supply discipline if

china capacity continues to close and prices continue to rise? the worldyou look at outside china, there is quite a reduced appetite for rebuilding capacity. this is mainly for the domestic market. the rest of the world, there is little capacity coming up. it is mainly china in which there is no building capacity for aluminum. francine: i am looking at your various units. where do you see the biggest rebound in the third quarter? svein: if you think about the global supply, we expect that the market will be largely balanced. again, it remains to be seen what happens to china. francine: thank you so much for your time today. we are very grateful to have you richard.llance, svein

will have to have a large a look at china and some of these aluminum prices. up next, a warning to u.k. lenders. complacency amid credit growth. some of the concerns. what we want to look at is whether the deutsche bank story about the patch reading at -- the repatriating of assets is more of an internal story. these are your market. the dollar fluctuating. stocks mixed. i want to point to a move on crude oil. we were following that saint petersburg form closely. this is bloomberg. ♪

>> john mccain who underwent surgery last week brain cancer

will return to washington today is the senate compares to take a the battled health care inflation. this could be public in efforts to get enough votes to pass the measure. president trump's son-in-law says he had no improper contract -- contact with russians during the campaign. he made the comments after spending 2.5 hours answering questions from senate investigators are in >> i did not collude with russia, nor do i know of anybody else who did so. i had no improper contact. i have not relied on russian funds for my businesses. i have been fully transparent and providing all requested information. the onses returning to market after a hiatus. was thetry which epicenter of the crisis that began in 2009 is looking for a

five-year bond. the bonds are expected to be priced. urged in ander has to the crisis. he had a two day tour of the area. increasings built close ties. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. thank you so much. deutsche bank is considering moving the balance sheet from u.k. entities right. to project calls for trading go live in september 2018 and the assets switched to be moved

by march, 2019. assets migrate to the continent after the business decision to leave the european union. stephen joins us from berlin. thank you so much for joining us. how much does this have to do with internal restructuring and how much do we really think it's prompted i exit -- by brexit? stephen: it's both. thanks in europe are operating from london have new passporting rights will have to reconsider their presence on the european continent. it was triggered that. it seems like deutsche bank is going on what would be required by the brexit scenario. they have a new strategy focusing on corporate clients. focused andt is

that seems to be part of that are in -- that. francine: are they going through a rough spot? they have had tough times the last two years. steven: when you talk to people inside the bank, that's feeling of relief after all the crisis last year. billion euros in march and april. that relaxed fears about the strength of the bank. focusing on the future. they are trying to get there. they will do what they can. there is a feeling they put the price behind them. they want to move assets from u.k. to germany. when will they take the decision? steven: it seems like a decision

has been made. is they will start informing clients from september. contracts are be affected either change. the actual move of assets and contracts would start in 2018. by will complete that spring 2019. francine: thank you so much. theme, thethe brexit first meeting of u.s. trade and investment in washington. president trump tweeted. they met for stronger trade. has warnedngland that lenders may be taking on

more risk after years of unemployment. he said it growth extended interest rates for credit cards and mortgage lenders have created risk, they have not entered that they may be created in a spiral of complacency. the spiral of complacency sounds great. how much of a danger is that? >> it's a bit of strong rhetoric. let's take a consumer market first. we have a couple of extensions from the. the credit market may be out of control. they increased the accounts. theirave to hold against increases again later this year.

they have also instigated a review of underwriting standards. they are citing the big growth in car loans and credit card debt. the depreciation of the quality of underwriting in the last nine months because credit has been growing at 10% year on year, they are trying to tear this. action is already in the marketplace. francine: we talk about brexit 480 percent of the show. when you look at stock valuations, is brexit in your parameter? feelthink u.s. investors the view. how does this affect trade? partner, it does not dominate the news.

but the issues, it's pretty far down there. francine: are you expecting to be held in? the markets don't believe they can hide. me, they can hide this year or in. simon: there has been a little bit stuck between a rock and a hard place in terms of the narrative. that ifhe felt investment in exports would pick up this year, some think they will, a lot of indicators suggest it won't, if it does, he would be in position to withdraw some stimulus put in in august last year. that is a basis point cut. i think he needs to see it in that context. we are talking about on balance

and with the governor. francine: it's very clear at the , it was portugal and the central bank in the bed in the boe and there was people talking about central banks had to be more hawkish. how much in your research to central banks need to decide? >> you have to look at the discount rate. there has been a denial within markets that the bears don't believe the current interest rate. the earnings yield on s&p is 5%. if you compare that with on yields, not just in the u.s. but globally, it looks less attractive. yellen havenaki and said for years lower for longer.

rates multiplee times over the next two years and still have a very accommodating policy relative to the s&p. will have more about the s&p and we will look at that. stay with us. global mergers and acquisitions have shrugged off brexit. we will have more. is bloomberg. ♪

francine: you are watching bloomberg surveillance during the mergers and acquisitions market is strong despite

intervention by governments and regulators. that is according to a new report. the outlook the remainder of the year is positive. from the global venture advisory. thank you so much. welcome to surveillance during m&a is a funny thing. ifan never quite figure out people are nervous about the future and they want to buy each other up or if they are optimistic. m&a is: what is driving the understanding that standing still is not an option. companies when you are looking at digital disruption in the world, when you look at the need to expand geographically to get to a growth rate that extends gdp, m&a is a tool.

you have to use m&a. if you look at the deal -- -- think about one to 10. that is the magic grain. -- range. it's down about 4%. is evenlue in the range with flash year. i expect to see it take up in the latter half of the year as we normally do. francine: we've been talking a little bit regarding the valuations. does that impact m&a? steve: the u.s. has been a very strong m&a market. the u.s. has been a target for acquisitions from outside, a lot of activity into the u.s.. if you look around at the different markets, the u.k. has been strong. the u.s. has been strong.

china think about outbound as the story for china, there has been a lot of domestic consolidation. it's tough to find a market that has not been from a geographic standpoint. francine: i do have a chart looking at the u.k.. this is looking at optimist him -- optimism in china. story one of&a cheap things to buy because of the drop in the pound western mark steve: i don't think it's because of the drop in the pound. currency shift may provide a short window of opportunity to make a move. companies to reels -- new deals for strategic reasons. themu take an example like selling their food business. if you look at engineering and construction and private equity,

these are themes throughout the world. ,t is advancing technology reshaping your portfolio. i think you had some pent-up demand. inre was a slow time of it the u.k.. francine: this is a chart we just aid. gas made. -- just made. year, it was last not ready enough to take the lead in m&a. that is a global strategy. are we going to see more m&a with disruptors come in and trying to take hold? >> the whole foods deal was unseen in the market. it was amazon it going from where the have gone

historically. they are buying bricks and mortar. in grocery, you do need local distribution and some bricks and mortar. tried tohey are not a try new things. they are not afraid to fail. that is why jeff bezos is a genius in terms of capital allocation. if something doesn't work, a cut it. >> i think it's about getting access to data. you can see that across other industries. deal with two big household names that got a lot of attention. francine: it may change the way we shop in the future. does this translate into your world of the economy? is it the other way around? i don't agree with the comments that this is a structural change.

disruption need you can't afford in most sectors to sit still and you have to be buying up firms to acquire within your product x. otherwise, you are going to be weighted down. it's very much a structural shift. >> any company that you talk with right now, they are starting to really understand ecosystem of startups. you've got to be aware where the disruptors can be in your market, whether it's a competitor today or some it may not be. francine: a lot of it has to do with financing. i know it makes sense strategically, it's easier when interest rates are low and steve: the financing markets of been accommodating. i don't believe that is the sole driver.

if you look at private equity, we have seen a big part of the come back and the traditional players. financing has been good. there has been a lot of dry powder that you see for some of the funds, given them more room to take operational measures and increase returns. of and the corporate sector, depending on the size of the company, it is not always is critical to these deals are in financing has been good for sure. there are many other drivers. this is the fourth industrial revolution driving it and francine: thank you very much. next, investors are looking at the fed rate decision. this is bloomberg. ♪

francine: let's get into your markets. 600 is gaining for the first day in four.

they are awaiting the that open market committee meeting, which kicks off today. the earnings season continues. the dax is an interesting benchmark. it is trading global equities for the first year since 2011. the blue line is the index and the white line is the dax. the strengthening euro is casting a cloud over overseas. measure issession -- falling in the last date sessions. its annual gain is less than half the dance of the country world index. the bloomberg index is gaining for the second day. the today som see meeting kicks off today. the dollar is on track to post it fifth straight monthly loss. this is a monthly chart here.

jimmy choo is the big dan or. it's a big reputation. michael core has agreed to buy jimmy choo or about 896 million pounds. look at the shares. they are 17% higher. it's going to pay about 230 pounds or share. to 17.5 times it suggested for 2016. it comes amid consolidation in the luxury industry. coach is buying kate spade. jimmy choo, up 17%. made famous by a certain carrie bradshaw. francine: we are looking at the fed here.

that is not something that happens very often. we are looking at the two-year yields. i'm sure there is some connection. this is what my everett charts of the day. tomorrow, we are looking at the fed. speculators are increasing their that's against the two-year yield. thomas and us is simon. them comment. an chart, it says you are even more convinced you were right here in simon: they are anticipating a high-yield. you've also got a chart that highlights the market is similar in mid-2007. there was no need to remind what happened next. thanks across world provided much more monetary policy.

the market is missing the short positions on the anticipation the that is into a hiking cycle. there might be fears of inflation worries. there will be worries about inflation targets area they will be much more cautious. they will return to hesitancy. they have given up on it this year. this is your view on the markets, there is low volatility. you don't believe there is rest -- less risk? >> i see investors blocking to low volatility. that is the overpriced area of the market. true risk reduction is buying underpriced stock.

you've got etf's popping up all over the place. i do think it's going to change. people go over the trend is. that's great in the short run. from a long-term investor, there is a danger spot and people not getting what they think they are going to get. francine: we are out of time. you will both need to come back. bloomberg surveillance does continue. keene in newy tom york and we will continue talking about the fed. we look at deutsche bank and other assets. this is bloomberg. ♪

francine: making a comeback, john mccain returns to capitol hill as president trump says

it's time to seize the moment over healthcare. the is deutsche bank about to move 300 billions of euros. and greece is the word. the nation returns to debt market after a three-year hiatus in what could be a big win for the government. good morning, everyone. this is "surveillance." i'm francine lacqua in london. tom keene is in new york. we have an interesting day. we're two months away from the german election. we look at politics, and, of course, we look at dollar movement and dollar dynamic. tom: dollar dynamic front and center in washington. later, we have a weaker dollar call. we begin the two-day meeting, we go to the fed meeting tomorrow afternoon. within it all, in part maybe even of the debate in europe, it's no inflation. francine: yeah, no inflation, certainly something that we'll be watching out for. chief economist of the d.o.e. is speaking. now let's get straight to news.

taylor: as you were mentioning, in washington, a dramatic turn of events for senate republicans preparing to take up healthcare legislation. senator john mccain will return to washington days after being diagnosed with brain cancer. today's vote is whether they begin debate on the issue. republican leaders still haven't decided which healthcare proposal to vote on. they promised for years they would repeal and replace obamacare. and there are now multiple reports that president trump has spoken to advisors about firing attorney general jeff sessions. the president refers to sessions in a tweet as beleaguered, and he's said to be furious that sessions recused himself from all matters related to the russia investigation. moving over to poland, the fight over who controls the nation's court isn't over yet. the government vowed to redouble its effort to overhaul the judiciary after the president vetoed laws. the ruling party more power. that debate led to eight days of nationwide protests by demonstrators demanding the

courts be independent. and greece is betting investors will go for its recovery story. the country is returning to the bond market for the first time in three years. five-year bonds are expected to be priced today. the greek government is looking to exit from the current bailout program, which ends in a little more than a year. global news 24 hours a day, powered by more than 2700 journalists and analyst in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: taylor, thanks so much. i've only got one data check today, one board. this is what happens before a fed meeting, really quiet on the western and eastern front. two cent spread in a little bit. we'll talk to tony dwyer about the equity markets. we'll do that in the next hour. the euro, 1.1655, a bit he will visited. fran cry, you got to do better than me today. francine: i can't, but stocks are advancing a little bit. we're seeing a little bit of a rebound, but let's see the earnings. gold heading for the first drop in four days.

the dollar swinging between gains and losses. it's all about the fed. i'm looking at oil because, just because. because we spend the a lot of time on it yesterday, and it's a significant move. still below $47, but up a touch. tom: that's very good. i like that. that's the wizard of oz approach there to the data check, because, because, because. how about this data screen? i'm going over to the bloomberg right now. maybe this is what's on chair yellen's demand. i'm reading everything i can, and francine, real simple. here's where we were. here's where we are now. there's an up tick here. this is wages and benefits, wages and benefits. we'll throw this out on radio here in a bit. but francine, this is really the global chart for a lack of wage growth. francine: yeah, the chart of the day. this goes back to inflation, and also when it comes to b.o.e. and e.c.b., i am just tracking the two-year treasury

yield, tom. so this is a very simple chart, and we're calling it the even bigger short. speculators are increasing bets against the two-year treasury to record levels, so something to keep an eye on ahead of the fed, tom. tom: very good. let's turn to the politics in the united states, give you a global briefing. all sorts of cross talk going on, news going on, particularly about cabinet officers, also healthcare front and center this morning. christian keller joins us. he is with barclays, head of economic research. and we dragged in off of bloomberg news floor in london, kathleen hunter with us this morning. kathleen, percolating is the future of the attorney general, and at a lesser level, the future of the secretary of state. this can't be good for anybody, can it? kathleen: well, definitely not. i think, you know, usually we think about in a new administration trying to solidify the cabinet in the

opening weeks, certainly the opening months. trump was fairly effective at doing that. he got his folks in place, but now all this talk of will he or won't he in terms of firing sessions really does just kind of build on the narrative that the administration is in turmoil and, you know, takes away from discussions about the things that trump actually wants to be doing. tom: what's your measure oment healthcare today? i wrote the opening for the 6:00 hour, talking about delay, repeal, replace, scommope a prayer. is this just an exercise, almost a parliamentary exercise that they're going to, or is there substance to what we can see today and tomorrow? kathleen: i think the fact we are still unclear on exactly what it is they're going to vote on, i think we're unclear, because, you know, the senate, members of the senate are unclear. i think that goes to show that, to an extent, this is a parliamentary exercise in the sense that they feel like they need to vote on something. certainly they would love to

get the 51 votes they need to advance the bill. i noticed that mike pence, the vice president, is going to be up on capitol hill today around lunchtime and doesn't have a whole lot else on his schedule. he is empowered as the vice president, president of the senate, to cast the tie-breaking vote if it comes down to 50-50. i think that's something to certainly watch. they're obviously trying to make him available to do that if need be. francine: we'll get to christian keller in just a second, but kathleen, what is the likelihood of jeff sessions actually being fired? kathleen: i feel like the likelihood is increasing. it's hard to say. i think with this administration, it doesn't seem like -- in the obama administration, it seemed like there were strategic leaks in the sense that the white house would float a trial balloon on a policy issue, not so much firing someone, but the name for a potential nominee, that sort of thing. i think with this administration, it's not really so linear in terms of strategy. i think it comes down to trump personally and how he's feeling on a given day.

i think given the additional, you know, challenges ahead for him on the russian debate, i think he certainly sees sessions as at least partly responsible for that, so i think the chances are definitely increasing, but it really -- i think the only person that really knows is trump himself. francine: christian, how does that impact your forecast? do you look at trump tweets? do you follow this office to see how much support he has for pushing through reform, or choose to ignore it and focus on inflation and wage growth? christian: i think you can't ignore it. we try to stay out of it day to day. but if you make forecasts, you lock at them over the months, it's enormous how the picture is changing. go back to six months ago when we really thought all the risk was in europe, and the u.s. seemed a bright future. and now you look at it, it's completely shifted. political risk has turned positive to some extent in europe, while we have a lot more uncertainty than we thought in the u.s. that does influence us. we have revised our growth up

for europe, and i think while we have not adjusted our growth forecast, there's higher uncertainty as to all forecasts which were always relatively -- i won't say bearish, but sober with regard to u.s. growth. what i think, what you do see markets reacting, the euro dollar. it was mentioned earlier. where we had a shift where, you know, now the euro seems to reflect that there's a lot less risk, there's better growth momentum, and this is now i think reflected in a stronger europe. tom: i haven't asked this question yet. i'm sorry i haven't brought it up as we migrate toward the 116. we're back to where euro dollar was in early 1999, a level calculated at the time to be reasonably fair value for the euro. is this fair value for the euro in 2017? christian: there are new models, and having looked at the various models that exist

-- tom: christian, it's morning tv, ok? we understand. christian: i know, i know. i'm coming to it, but as the economist, let me do my disclaimer. tom: that's ok. christian: i think we are there. i think it is true that the dollar strength against the euro is over. i will be careful to calling this now a depression trend for the dollar. but i think we had a shift, and that reflects what i just said, and i think this is true. we will see some volatility. you know, you see positioning actually very long on the you're sandrow very short the dollar. how long that can be sustained, where we see some shift, and if the fed surprises on the hawkish side because there's strengthening again, but we will not go back to the weakness of the euro that we have seen in the past. i think that is fair to say. francine: we really have to come back on fed, and every a million questions. but kathleen, very quickly, being interviewed? kathleen: in the next phase, seems like every day there's

news on capitol hill when it comes to the russia probe. today we have jared kushner up on the hill again, the house side instead of the senate side. but again, he's going to be testifying -- i'm sorry, today he's actually answering questions, so he's not under oath. but today he'll speak with members of the house intelligence committee. yesterday he spoke with the senate intelligence committee. basically the intelligence committee on either side of the capitol. one of the things i think is most interesting and most worthy of noting is that, you know, he has put out his statement. he made a rare public statement at the white house yesterday. but we as the american public and, you know, people around the world aren't really getting to see what lawmakers are doing and what staff is doing in terms of challenging his account of events. so i think we're getting sort of an out-balanced perspective from jared kushner, not necessarily the challenging of that perspective in terms of his involvement with russia. tom: somehow i would suggest more to come. kathleen hunter, thank you so much, from bloomberg news this morning. we continue with mr. keller of barclays ahead of the economic

research effort. tomorrow, 2:00 p.m., i win. i get to be with scarlet fu as she does the fed decides. we got smart guests, including william gross and a guy named blinder from princeton. not bad. this is bloomberg. ♪

taylor: this is "surveillance." let's get to the bloomberg business flash. two big names in the fashion world are combining. michael kors has agreed to buy luxury shoe company jimmy choo for $1.2 billion. jimmy choo rose to prominence in the early 1990's. they had high-profile fans like the late princess diana and carrie bradshaw in "sex in the

city." it appears soft bank wants to cover all their bases much "the wall street journal" says the japanese firm has approached uber about buying a multibillion dollar stake. any deal is likely to be put hold on hold until uber hires a new c.e.o. soft bank gave $2 billion to uber's biggest asian rival. and dutch pay maker post second quarter profits. they plan to split itself in two after a tumultuous several months. p.p.g. industries unsuccessfully tried a takeover that was backed by elliot management. last week, the c.e.o. resigned for health reasons. and that's your bloomberg business flash. tom, francine? francine: thank you so much. deutsche bank is considering moving about 300 billion euros from the balance sheet to frankfurt. a person familiar with the matter says the project calls for trading to go live in september 2018. the assets to be moved by march

2019. that's as clients trading and asset migrates to the continent , following britain's decision to leave the european union. mark, always a treat you have to on the show, so thank you so much for coming in. how much do we know about what deutsche bank actually wants to do? they may be looking at transferring 300 billion sthfment because of internal machinations? after all, deutsche bank hasn't had an easy time. or is it because of brexit? mark: i think it's a combination. we have a long story about deutsche bank's strategy, and deutsche bank is retrenching to its market, the decision not to sell the bank is a sign that it wants to be part of the german family. they had a near-death experience with the outflows when its bonds looking like they might not get paid. they've turned the firm around, but there's definitely

retrenchment going back to france, and this is part of that. brexit is also playing a part. frankfurt is winning a lot of he business of seeking an e.u. 2017 going forward. it kind of makes seasons both counts for deutsche bank to move assets back to frankfurt, back to its home market, back to becoming part of the german establishment, maybe limiting a bit of its global ambitions a bit. but brexit is definitely playing a role. francine: when will it get easier? mark: these are tough times in investment banking. you know, the regulatory outlook in europe is still not fixed. although that's partly the bank's fault for resist sog hard every effort to tighten the rules. but he's raising out of the way. he's got money to invest. he says himself that the bank's i.p. systems are antiquated and not fit for purpose, so that's a big challenge. but if not now, when? tom: right. mark: it looks like the wind is

set. tom: i first met new frankfurt. you and i wandered in one lonely day a million years ago. mark gilbert, i'm sorry, i can't remember who right now, but all i know is i was with mark gilbert. how cool is that? mark, can you really fathom people moving from london to frankfurt, or for that matter, any other city? mark: it was actually jurgen stark we went to see at the european central bank, tom, and frankfurt has a problem. it doesn't have the infrastructure. tom: agreed. mark: to cope with a big influx of bankers. in terms of moving your family from london, paris looks more attractive maybe. but these people are looking for somewhere to base themselves in the e.u., and germany is winning that battle. in terms of number of head counts, we're not seeing that much movement yet, but he says, look, we might move from london, but we might just add head count in frankfurt because

of these positions. so it's not yet clear what the flows of people are. what's clear, though, is that frankfurt is winning that battle to be the central head office for the e.u. 27 once brexit happens. tom: christian, i don't want to get new trouble with barclays today, but i wander to this question. and don't answer it if you think it's inappropriate. can technology solve distance problems in investment banking, in investment management, in investment research? can technology really be a substitute for getting everybody together in london? christian: well, as a general answer, technology is solving more and more of it, to be frank. we already use economists in india, so this is already happening. you know, it's becoming easier and easier with new technology in a way to have conference calls, seeing other people, working as if you were sitting next to each other. so i think maybe this whole argument about having, you

know, going longer, where everyone comes together, and the big advantage is to see each other while having coffee, maybe that's reduced a bit. you can make the counter argument it allows you to continue to actually live and work in london, while maybe, you know, the central, or the list of regulatory entity is somewhere in the e.u. now, i don't know the regulator seems to be saying that there's a minimum number of people to actually move to the entity that is regulated in the e.u. so, you know, but i do think that london seems to remain an important center in the future. francine: coffee is always a good idea. i need to fly to new york. that would not be a bad thing. mark gilbert and christian keller of barclays, both stay with us. coming up later this week, look out for our interviews with the credit suisse c.e.o., and then the u.b.s. c.e.o. that's both on friday. speak to san also tar door and other c.e.o.'s.

this is bloomberg. ♪

francine: tom and francine, and there's this brilliant m.m.r. this morning entitled greece should not be greedy in its second rehab attempt. this is mark fwill better saying greece has decided to brave the waters with a new five-year benchmark bond. but they basically say, for now, if they return to the fixed income matter without security the best terms or the

most money. we're joined here by the author of this piece. he is mark gilbert, and christian keller of brclaze, head of economic research. you argue, mark, basically they just need to do this successfully. it doesn't matter how much money they rake in, doesn't matter the terms. it needs to be a success. mark: three years ago they came to market. 550 investors offered to lend them 20 billion euros. they settled for three billion euros, but that's the last we saw of them. there was an increase in september, but that's the last time they tapped the market. it all went pear-shaped since. they're set to come out of the program next year. they need to regain asset to the markets on an onbegun basis for the next year to prue investor faith in the country. this needs not not to be a one-off. they're only hitting the debt ceiling that they set up for its program countries. they need to just accept a smaller issue than they can get away with and not employ for the greediest terms. tom: is there any semblance of

economic growth within greece, basic growth, or are they still mired in lett ar gee and recession? christian: the privatization program has gone quite well. i was there in december, and that was going ok. and there is evidence of reform, and they've got the i.m.f. on board. the i.m.f. still thinks they need more debt relief. that will come through. but the key thing is market access. if they can maintain market access the next year, they really will be out of the woods. francine: the i am similar watching all this. christian: they shouldn't be greedy, yes, but it's an opportune time to go. they're no longer in recession. we forecast slightly positive growth, half a percent growth or so next year. they're no longer in deflation. they have made efforts and clearly on the way. now by issuing, the government -- that's important. they can also signal domestically, look, now we're back to the market. it's a little bit of a

validation in a way of their efforts. and the i.m.f. is saying, you know, that they still need debt relief. without it, they're not sustainable. but frankly, most people expect that this would happen after the german election. it comes after. and with that, and that's an important point to make, they'd probably be accepted into the e.c.b. program next year, and then, of course, and this is what a lot of investors will get, if the e.c.b. is in the back, that's a good path. tom: we'll leave it there. christian, thanks. mark, as always, thank you, from bloomberg. coming up, a good conversation with k.k.r.'s henry. we'll do that in the 7:00 hour this morning on bloomberg. ♪

francine: this is "bloomberg surveillance." we are looking at political machinations over in washington, d.c.

we are hoping to hear form are from the president, jared kushner, and what will happen the jeff sessions. our only pimm fox is the u.k. trade secretary. the u.s. relationship with britain is going to be even better after a post-brexit trade deal. people that were for brexit or think that brexit is a great idea will latch upon. if the president wants to put this trade agreement as a priority, this means that the u.k. will continue with the special relationship and be at the forefront. we speak to a lot of experts who say that even if they are at the forefront of the president's mind, it will take five years to have a proper trade deal to these things involve hundreds if not thousands of lawyers. tom: it's an ongoing debate -- no other way to put it.

i do like the idea of an extended timeline. i think it's very important . francine: news out of the german business climate hitting records as the economy seems to be robust. tomorrow we have the fed. in terms of market action, everything is oscillating on the back of what we can or cannot hear from the fed yesterday. the dollar swinging between gains and losses. investors trading carefully before the interest rate decision tomorrow. inflationalk about and whether it will creep up slowly or whether it is dumbfounding the fed. let's talk about inflation and the prices with barclays head of economic research. when you look at inflation and what the fed tells you to do next, those the world have been inflation problem?

christian: we have three economies that are tight which are the u.s., japan, and germany. none of them are expecting wage growth that you would expect from the past models that would lead you to wage growth and inflation with that type of employment. generally central banks have stuck to the models. the claimant topic for a financial crisis, but i wonder whether there is not something underlying which may have to technology, which has structurally changed the relationship more than central banks at the moment care to believe. francine: what are you expecting from the fed tomorrow? are they going to raise rates this year for staying put? christian: we think they will raise rates this year. they will do it in december

and not tomorrow. the basically leave in the announcement of the balance sheet adjustment in september and the rate hike in december. if you want, this may be a slight risk. they kept surprising us when it came to the balance sheet adjustment that they may announce it tomorrow, but that would be a big surprise. you are asking for probability of the risk and it could be one . we seeing the inflation dynamic and the dynamics of central-bank action go into bubbles within the market? i think of steve roach for years at morgan stanley. christian talking about a third leg of concern, which is the idea bubbles. we have not visited that recently cou. is there any validity to the idea of an equity bubble? moment, thet the

fed is quite key to continue to normalize even though they see inflation is not as strong as expected. what they do see his financial conditions becoming loose and looser. i'm not here to call the bubble, but you have tech stocks moving up 20% at the beginning of the year. you look to the blue chip tech concernd that must the central banks. at the same time, having the foot on the pedal if you want . that usually doesn't go very well. central banks are concerned about may lose financial conditions when the economy is healthy up a time that does lead to excessive valuations. i believe they are concerned about this. tom: let's revisit a chart that we should frankly revisit every day. inflatione chart of in the united kingdom, elevated with currency depreciation as

part of that. here's the united states down ine in the recent rollover u.s. inflation. is united kingdom inflation discrete or linked to other nations price change? andstian: i think one thing i would not necessarily only the u.k., but for globally and generally, i would say one of the phenomenon of the recent decades is that inflation is more international. that's another thing that may be has not been fully grasp in a way by central banks as they stick to the dea domestic inflation target models. there's an element that has to do with global value chains come etc. u.k., we argue that the inflation path for the weaker pound would be a bit faster than apparently others in the market consensus expected. yes, a lot of this is due to global factors the on just the exchange of depreciation.

this lack in the global labor market that can be accessed through global value chains that exist. francine: is it a different type of inflation or lack of inflation that we see in the u.s. than we do here in europe? .om's chart was brilliant then you have the ecb where they actually believe that they will create better quality jobs that lead to wage growth and inflation. christian: the fundamental difference is that any metric you use, the output gap in the europe is still much larger than euro the u.s.. i talked about germany earlier as a tight labor market, but there is a lot of slack elsewhere. lookmentally i think we do at a similar problem where even in the situation where the labor market is tight come apparently

workers are no longer demanding really the same type of wage increases they would have in the past. we see that in japan and germany. safewant the job to be rather than ask for the additional wage increase. inflation is not very high and the real wages are ok. francine: thanks so much, christian keller. he stays with us. visit businessweek.com and access insights, analysis, and other benefits to stay ahead of the competition. i think we have a great story on the tech companies like google and facebook. very interesting in light of the alphabet results yesterday. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." let's get to first word news. president trump urging republicans to move on to her appeal of obamacare. they've have not decided which proposal to vote on. they will vote on to whether even begin the debate. was one dramatic development could john mccain plans to return to vote days after being diagnosed with brain cancer. the house is prepared to impose more sanctions on russia. it also imposes more sanctions on iran and north korea. house leaders expect democrats to join the republican majority in voting for the bill. present trump's son-in-law will be back on capitol hill for more closed-door questioning about russia. jared kushner will be interviewed by the house intelligence committee after talking to senate investigators yesterday. he said he did not collude with russia and did not know if anyone in the trump campaign did.

martin shkreli will not take the stand in his fraud trial in new york. that's a surprising turn for someone who has spent months lashing out at critics. is accused of defrauding investors and his company and his hedge fund. global news 20 for hours a day powered by more than twice of hundred journalists and analysts in more than 120 countries, i'm taylor rigs. this is bloomberg. francine: economist have raise their forecast for economic output after growth in the first half beat estimates. that robust activity is giving policymakers room to curb excessive are willing could -- borrowing. according toose bloomberg survey. we are joined by the vice-chairman of asia-pacific at jpmorgan asset-management. still with us this christian keller. what is your take on china you

hav? what happens for the rest of the year? >> in the near term, the pressure is off because growth has actually been exceedingly governments own forecast. in the second half of the year, growth may not be 6.9%, but it's going to be above 6.5%. in the medium-term, we are looking at growth rates to hover around 6.5%. long-term structural issues remain. for example, credit risk is elevated. credit growth has been too high. the central government recently convened a financial work conference that takes place once every five years. this elevated importance of financial risk is equivalent to national security risk. in the coming several months, i think they will continue to tighten financial regulations, including some of the irregular financial products, what management products, also

curbing irregular outbound investments from china. growth rates may soften a little bit in the second half of this year. francine: if you look of the debt levels, this is a concern. we always felt was managed by the government so that it could be rolled over. how much do you worry about this compared to how much you are worried about outflows of capital and what the government can do to do that? jing: outflows of capital have slowed. the peak was about a year ago. in the recent several months, we are seeing china's currency stabilize. it has appreciated against the u.s. dollar this year. the reserves have also stabilized. reserves are about $3 trillion and we seeing china's measures to curb capital flight basically becoming quite effective. i would say the near-term that capital flows outside of a country are not a very big concern. the near-term concern is

basically the domestic economy and how china will keep the momentum going in the meantime without delaying structural reform. it's a fine balance. tom: a fine balance is the government of beijing. how is this government different from other governments you have no? known? jing: this government number one has really strengthened the domestic power base. jingping hassh easin consolidated power domestically and has done more than any other project china's influence from projects like one beltway road, leadership in the economic region not just in asia but eurasia. it is a two-pronged strategy. one is to strengthen the domestic economy. without a strong domestic economy, china cannot be strong international. basically to strengthen china's global leadership. tom: a couple weeks ago, we had

a very emotional interview with lord patten on hong kong. we talked about the new hong kong and the suppose it independence -- supposed independence of hong kong. how less independent will hong kong be? jing: hong kong is part of china because we have the soap called one country to system for two years. 20 years have passed since hong kong was passed over to chinese control. if you look at the economy today, it is so to the mainland economy that in the future we basically expect hong kong to be even more integrated with mainland china. you look at the hong kong stock market these days and most of the large-cap companies are actually from mainland china. it's over 16% of the index. traditionalg

companies have shrunken in size compared to the massive size of chinese companies. know, 43 million chinese people travel to hong kong every year. they buy goods and services and insurance products. they buy properties. mainland china's consumption is a very big part of the hong kong economy. that will remain the case for the next five or 10 years. francine: christian, how vulnerable is china financial? lly? christian: it was all laid out correctly the way the situation is right now. can they finely calibrate their way out of reducing leverage and particular the corporate and maintain the 6.5% growth? inn we have congress october, we are looking whether there's any indication from the president that he may be willing now that he has consolidated power now that the economy has shown it can growth it needs to to lower possibly the 615%

because it's a difficult to attain if you want to attain reform and deleveraging. jing: in the next five years, the critical challenge facing the chinese leadership will be to deleverage the economy and basically continue to undergo the rebalancing away from investments to services and consumption coul. been need to have to tolerate near-term growth basically lower than the previous couple of years. in the next five years, i believe that will be several important reforms being undertaken. first of all, enterprise reform. secondly, banking reform. the two are linked. thirdly, reform on the fiscal front, basically deleveraging the local government, which are heavily in debt, by allocating resources to the municipalities and provinces. all this will entail perhaps a higher unemployment rate in the near-term.

the have to tolerate lower growth rates if they were to fundamentally restructure the economy. xincine: how does president get along with president trump? will they find consensus with north korea? jing: it is not just peripheral. critical to the health and stability of north asia globally. north korea is a very important geopolitical flashpoint. if you look at the recent encounters and meetings between presidents xi and trump, the meeting in march and florida that went very well, recently at g20 come a some tensions have resurfaced surrounding north korea and trade tensions. remember china and the u.s. are the two largest economies in the world. the trade surplus that china runs this 350 billion u.s. dollars. president trump does not like any country that runs a massive trade surplus with the united states.

there's trade tensions, geopolitical tensions. president trump does not think china is doing enough to detain north korea. there's tension absolutely come up but in the coming quarters, we will to the opening of the industry in china to u.s. companies. francine: thank you very much . christian keller stays with us. looking at some of the technical levels that we see with the phillips curve. if you are bloomberg customer, go on to your terminal and you can watch tv . you can also watch some of our data checks and you can really see it. this is bloomberg. ♪

francine: "bloomberg surveillance." we getting some headlines from the turkish president speaking ankara after his visit to qatar. countriesat western have an incomprehensible stance on turkey and that germany is

hitting below the belt with economic threat. matt miller joins us now. first of all, how are these tensions going down in germany. he said that germany has turkey as its biggest trading partner. matt: these two countries have an incredibly deep relationship . it's not just trade. there are also 6800 german companies operating within turkish borders and 3 million german citizens of turkish descent living in this country so very close relationship. lately those tensions have been growing almost out of control with president erdogan referring to the germans as nazis. they need to reevaluate their relationship as a partner and a

nato partner. it was a problem looking to be did escalated yesterday when the turkish government with drew a list of 700 german companies that they had previously said had ties to terrorism. now with the speech, it seems to getting worse again. tom: within this is the interesting culture of the turks in germany. how has that changed in the last couple of years? matt: one of the biggest issues is that the turks in germany have been increasingly supportive of the right wing government in charge and on karen u in on karen right now. they have been holding rallies in germany in order to get those voters to come back to ingres and cast their votes for him. and that has been fairly successful. francine: matt miller in berlin. ankara. due in

christian: things have changed a lot since then. optimism with what it meant for how it was an example of a democratic country that is predominately islamic. a lot of this has blown up now. i think there is still a mutual interest to the escalate. chart,show in your turkey is by far the most important trading partner. there's a lot of relations through these large migrant populations in germany, which are business leagues as well. tourism is a very important factor. relations go back of a long time, even back to the ottoman an empire. once the german elections are over and erdogan has some time to cool down a bit, i think we will have initiatives in the way

to bring this back to a more workable relationship. tom: christian, thank you so much. exceptionally valuable. to have dr. lucky kelly's experience with the international monetary fund and turkey. we had to get him on. he is one of our least popular guests. tony dwyer is the one you hate. confirmedbeen a signed, sealed, and delivered bull since time began. he has been wrong and right. anthony dwyer continues optimistic in a higher valued stock market. he will be an in the next hour. francine lacqua in london and i'm tom keene in new york. stay with us. this is bloomberg. ♪

♪ this tuesday, republican senator will repeal, maybe

delay, maybe replace or meld obamacare with some unknowable form of trumpcare. arizona senator from will return to cast his vote. the federal open market committee will meet. michael mckee calls it a snooze fest. sherry ella goes in search of inflation. market dwyer on a bull that we are all so afraid of. good morning, everyone. this is "bloomberg surveillance." we're live from our world headquarters in new york. i am tom keene. francine lacqua, triple leverage doing great. this is going to be great. investment in this hour along with everything else. it is the most unlovable market since time began. francine: this is what i cannot figure out. it is unloved and yet we are seeing higher and higher stocks. we had an important chat with

ahead of u.s. equities at ebs because he said go along the fed will stay put. tom: let's do this. there's dupont with a little bit of a beat. we will come back to that in a bit. right now in washington with our first word news, here's taylor riggs. taylor: a dramatic turn of events for senate republicans preparing to take up health care legislation. senator john mccain will return to washington days after being diagnosed with brain cancer. today's vote is to begin debate on the issue. republican leaders have not decided which health care proposal to vote on. -- they promise for years to repeal and replace obamacare. multiple reports that president trump has spoken to advisers about firing attorney general jeff sessions. he referred to sessions as beleaguered and is furious that sessions recused himself in all matters relating to the russian investigation. the fight over who controls the nation's coast is not over yet.

to overhaulnt vowed the judiciary after the president vetoed laws that would've given the ruling party more power. that debate led to eight days of nationwide protesters by demonstrators demanding the court be independent. investors will go for the recovery story. they're returning to the market for the first time in five years. the greek government is looking to exit from the current bailout program, which ends in little more than a year. global news 24 hours a day powered by more than 27 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: on dewpoint, it's sort of a proxy for industrial america. it's not the dupont of gunpowder days. right up at the top of their pressure, they call it a merger of equals. i can tell you folks that i never in the history of the phrase merger of equals seen a

merger of equals. it never happens, but they are giving it an old college try. as usual, they're doing a nominal gdp proxy on revenues and bring it down to a nice double-digit margin. we will see how they can sustain that overtime. how about a data check your? here? tony dwyer did not even have to show up today. that's all i've got this morning. francine: i know you have better than that. i'm looking at oil and gold. gold heading for the first drop in four days. the swings between gains and losses and investors trying to tread water ahead of the rate decision from the fed, they may be looking for something they may not get. that's not a snooze fest. that's important. tom: let's go to washington with kevin cirilli with our daily soap opera update.

there are things that we can talk about that i did not think about yesterday. i think we have two senior cabinet officers at risk. a little bit of a percolation that mr. tillerson has had enough. that's a little bit of a story. i was tossing that out yesterday, but jeff sessions israel. the attorney general is really at risk, isn't he? kevin: he got criticism for president trump in a tweet with the president calling him beleaguered. it all comes as the pressure yesterday facing this white house and jerod fisher -- jared kushner's meeting with the committee.lligence clearly the president and his supporters are tried to push back and saying why isn't the attorney general investigating helicon? hillary clinton? these investigations are very serious with russia. tom: i wanted to go to the wonderful boy scout experience. they are outraged at the president's behavior last night. is that going to be followed on or is that a one-day flat for the president who cannot figure

out how to talk to a bunch of kids? kevin: i did not know you were a boy scout, but president trump will be attending the boy scout summit later this week. in terms of where this all goes from here is essentially that he is going to be in youngstown, ohio later tonight. +++ conference later this afternoon before he takes off to ohio whether or not he will have a win with health care. it remains to be seen if the health care procedural vote will come down to the wire. francine: tom was a boy scout, i need to see photographic

evidence. [laughter] how will the republicans deal if sessions does get fired? kevin: listen, i think they would have to immediately try to get someone else should the attorney general be fired. there were some rumblings that it would be rudy giuliani. he put forth a statement pouring cold water on that notion. francine: who are we hearing from today? we heard from jared kushner how it. was that taken? kevin: he will be meeting with the house intelligence committee behind closed doors today. this all comes as the health care procedural vote is set to fire up. i spoke with several senators on the senate intelligence committee after their closed-door briefing yesterday . they all said he was seemingly cooperative. even some of the chatty senators declined comment. tom: trying to get back to policymaking, how hard is it to legislate? tot are the ramifications the republican majority in the senate if we move on to a present crashing and burning in flames of health care legislation? what's the outcome? kevin: they will have to immediately pivot to tax reform. they are meeting behind the scenes for that already.

in terms of health care, there will be dramatic scenes later today. john mccain flying in. he was diagnosed with brain cancer and he will be flying in to make this procedural vote. vice president mike pence himself will be presiding over this in case he has to make a tiebreaker. can only afford to lose to republican votes. anything more than that and the procedure fails. the vice president should they have two votes, he will cast the tie-breaking vote could a lot of political drama on health-care related to the today. francine: i know this is a difficult question. is there a chance that this will never get repealed and replaced? kevin: pretty slim to none. longer-term, pretty slim to none simply because if they are feeling today, the chances increase of there being what's known as a band-aid type of bill that would fix some of the exchanges.

they would have to win over some centrist democrats, but it would not be a dramatic overhaul. either way, it would greatly diminish the president and the republican's ability to have dramatic health care overhaul. tom: we have to rip up the script as we only did. this is the president watching eight networks. it's a little bit of a jumble, but i will let you translate. "ukrainian efforts to sabotage trump campaign quietly working to boost clinton. so where is the investigation ag? at sean hannity." i assume this was mr. hannity on fox. how long can the attorney general keep up with this stuff? there's no precedent for this. from: you have to remember trump world perspective, they campaigned every single time with chants of lock her up.

the notion that there is no investigation into hillary clinton, that is where all this is coming from. a republican congress is spotlighting them. i can tell you that they are very real concerns from prominent republican members and staffers about russian meddling. he will also note that the rush of sanctions bill is up for a vote today and house of representatives. it is pretty big news that the fact of the republican pass aled congress would legislation that would handcuff the president from weakening russia sanctions. tom: kevin cirilli, thank you very much. -- one of the great things about tony dwyer is that he is never written a 12 page research piece in his life. he writes short pieces linking the different markets and ownership of stocks.

he has been shockingly right from 2009 and before then. let's go back and explained to her audience -- to our audience of why you need to be in stocks given all the worries out there including for what we heard from mr. kevin cirilli. tony: i would love to claimant as my own, but it's historical fact. the market correlates to the earnings. driven by economic activity and fed policy. tom: dupont coming out as an example of ok revenue growth and managing down the income statement to operating earnings and cash flow. if that's the mantra, can it continue or is not only the wall with or the medium-high hanging fruit taken out? tony: let's do some math. a pension plan and need to make a 7.5% return to pay your eddie fisher is in the highest risk category of income

in the high-yield corporate debt market is 4.5% and you're 60% bonds, you cannot get there. you have to take more risks. this whole thing is built around, is their availability of money for both companies and households? does that create earnings? the answer to that is yes, as evidenced by dupont and the rest of corporate america in recent quarters. francine: will they have to adjust if the fed surprises or if the fed does something that could be seen as a policy mistake? tony: that's a great question because i hear a lot of times in the media and the client base at the yield curve is flattening in the bond market is telling you something. the fed is raising rates on the long end is coming down. for the viewers that are not aware, that means the difference between fed policy and what the market rates are. the only decision historically -- tom has been doing this for 1400 years. when you look back at the history of the marketplace, when you're outside the purview of the very identifiable recession, you never want to sell weakness

because it recovers very quickly. the only question that we have to answer is how close are we to recession? the recession does not happen until after the yield curve inverts. every recession in the u.s. has been preceded by an inversion of the yield curve and we are no close. tom: tony dwyer is with us and we will show some of that inversion in our single best chart later in the program. we speak to congressman doing the ballet. the focus has really been on the senate, but we try to go to the representatives of the house today. william heard joins us for an interesting conversation. an original republican from texas. then we will migrate up to senator portman from ohio and a conversation with timothy ryan. totally different constituencies. we are unfair and unbalanced. "bloomberg surveillance" -- good

morning. ♪

tom: we give you measured tweets. if they are superfluous, we don't do them. showed five or eight minutes ago, the one of the bottom is new. the attorney general has taken a very weak position on secretary clinton's crimes. let me go back. attorney general jeff sessions has taken a very weak position on hillary clinton crimes parentheses where our emails and and intel leakers. how would say this is a whole new level. we have never seen this in our

modern history. attorneys general are always beleaguered in every moment in the united states. it does not matter the party or mr. holder or mr. meese. on and on, but we have never seen anything like this. francine: we have not. my concern is that we are reporting things that are happening within the white house . the fact that donald trump trump is looking into whether he could fire jeff sessions and the fallout from that. my understanding is that the previous administrations leaks were done for a purpose, . a lot of the times the leak would common to test the waters. its now difficult to test what is true or not. tom: it's a new distribution of message and the message is coming out. we will have more on this through the morning as well. there's a fed meeting where there are no tweets leaked out by janet yellen.

tony dwyer, do you care about the fed or is in a nonevent as you try to stagger to september where tuition payments are due? tony: thing got him have one left. -- thank god i only have one left. i absolutely care about the fed because that absolutely drives in version of the yield curve and the shutting down of credit. just to show you how important credit availability is to the market, think about what has happened the cycle. what else can go wrong? we had brexit and trump and a fiscal clip and affordable care act. every year there is a european debt crisis. we had the commodity crisis and the slowing of china. we have had everything and yet we have not gone into a recession or prolonged sustained decline in equity prices. that is because there is still availability and credit. when you want to get really defensive and cautious and seleka weakness -- cell into weakness is when you know army's

are going to go negative because a recession is on the horizon. that only happens after the inversion of the yield curve driven by fed policy. fed policy historically accommodative, it is hard to make the case. weakness will come. the question is not whether the market can correct. the question is what do you do with it? with the policy of the yield curve, you have to buy it historically. francine: i've a question of volatility. i also want to get your thought on this. you're talking on treasuries and the fed. this is a very simple two-year treasury note noncommercial futures position. by looking at this, we will push it out for radio listeners. we call this the even bigger short and investors are increasing bets against the two-year treasury. thing thats the one we have different in the last six to 12 months that we've not had this entire cycle and that

is that you have a synchronized global economic recovery. up until this last year, you had the world in decline and economic activity. very similar to what happened in the second half of the 1990's. the u.s. dollar had been strong because there had been this very weak global economic picture. that has changed. the one thing that i will say to new asset class management's is that we acquired brian reynolds. out that theg three-month t-bill has been under pressure. yesterday was a really bad auction because guess when the debt ceiling vote is? three months from now. that may act as turbulence for the marketplace. tom: we will come back. we have to do the single best chart today to keep mr. dwyer awake. we are not going to be quite tomorrow. we are really making an effort to give you smart conversation around this fed meeting. scarlet fu leads our coverage.

william gross of janice henderson and the former vice chairman of princeton. stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. handbag maker michael kors has agreed to buy luxury she company jimmy chief. jimmy choo rose to prominence in the late 1990's and early

2000's. diana fans like princess and the fictional carrie bradshaw and "sex and the city." tom: taylor riggs with the history on fashion. the says francine lacqua to me. bring it up right now. a little dated image, would you not say? francine: a little bit, but cool as well. i needed to talk about fashion. we will talk about it later because i need to focus on deutsche bank. it is considering moving about 300 million euros from the balance sheet of its tk and to two to frankfurt. a person familiar with the matter calls for trading in the german city to go live in september 2013 and the assets to be moved by march a plane of 2019. joining us now is the managing director busily is a matinee

elisa. how much is because of troubles inside or brexit? >> they're facing decisions about where to put their business after brexit. having said that, deutsche bank is specific. every bank has its own specific circumstances. case, a lot bank's of their trading business is from london as it where -- where it operates as a branch could the. they would have to convert that to a subsidiary and move those assets back home. it's caution to read across the every other firm is doing a similar move of that magnitude. francine: tomorrow we have earnings for deutsche bank. elisa: thursday actually. francine: is it getting easier for john cryan? he's had such a tough time. elisa: clearly he has overcome some of the large legal hurdles

since he took over when he became ceo. the focus now is going to be very much on the execution of his strategy, which he put together a couple months ago. he is trying to basically grow revenue out of business that is actually tracking. he is cutting the cost base c. he has slashed bonuses. how do you turn that machine around to generate more revenue? it is basically what he will be asked to deliver. francine: we will talk more about deutsche bank next. thank you very much. we have deutsche bank earnings thursday. it's a huge week for bank stocks. we also hear from the credit suisse ceo on friday. this is bloomberg. ♪

♪ tom: good morning gary "bloomberg surveillance." we will launch into the fed show tomorrow at 2:00 p.m.. first wordws, --

news. taylor: senate leaders have not decided yet which proposal to vote on. today the senate will vote on whether to begin the debate. one dramatic involvement, john mccain plans to return to washington for the vote days after being diagnosed with brain cancer. it also imposes more sanctions on iran and north korea. house leaders expect democrats to join the republican majority in voting for the bill. president trump's son-in-law will be back on capitol hill for more closed-door questioning on russia. jared kushner will be in front of the house intelligence committee. after speaking with senators yesterday, he said he does not know of anyone who collaborated with russia. martin shirley will not take the

stand in his trial in new york. for is a surprising turn someone who has spent a month lashing out at critics. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you so much. it is always great to speak with paul mortimer-lee with bnp paribas. focusing on the global economy, and really focusing on the ecb and this historic moment for greece. joining us is anthony dwyer on equities. what a wonderful day for the people of greece. this looks like a stock chart. it is amazing this financial recovery of greece. is the nation recovered? are the people of greece recovered? >> not really, no.

gdp has been flat for the last several years. we have seen a massive improvement in public finances. that is opened the door to renewed access to the bond market you see now. tom: i look at the renewed access to the bond market, is it all clear for greece? or are you worried that they still have to do some form of work out to get free and clear? >> i think they need debt write-off. they need to deliver. they are not going to deliver ahead of the german elections. it is impossible for germany to agree to reduce debt. correct, their deadline to official creditors is too high. they have to take a haircut. tom: i'm going to follow-up on

this chart. this is a bond chart. this looks like a bull market chart. this is a 10 year piece of greec tothe coupon priced from 20 89. that is the ultimate recovery chart of a 10 year bond. >> it is amazing. it is absolutely amazing. they have done that through cutting budgets. >> isn't that the story? it is not just that greece has recovered economically. that is not the important point. it is the impact it has had on the rest of the european banks. in 2012 when this was priced like it was going to default, you had the cdf and various markets trading like all the european banks were going out of business. how do you view that point? >> that risk has been reduced massively partly by the recapitalization of the banks

and partly because the economies of europe look so much better. the budget deficits have all come down. the breakup risks people feared in 2012 have evaporated. >> can you imagine greece is about to default and russia happens at the same time? the whole thing would have gone to zero. -- brexit happens at the same time. the whole thing would have gone to zero. francine: braving the waters, looking at a new five-year benchmark bond, do they not have to be picky? for theuld not look very best terms, they just needed to go smoothly. >> they need to get through this. what their strategy is is not to have a one-off but a series of bond issues and to get from out under the official adjustment

program. it is important this goes well for them as a first step down the road towards a series of issues and more economic freedom to do what they want. francine: what happened with the imf? i hear some money european politicians looking at the u.s. or speaking internally to their domestic audience saying we are better than the u.s. because we are growing at a faster pace. the basis is so low, isn't really something they get fried victory over? growing clearly faster than potential. potential is low. they are growing over 2%. unemployment is coming down quickly. confidence is high. i think they can feel very high in -- confidence in the future of growth. that gives them a bit of a quandary about to do with their

monetary policy, whether to start heading for the exit on quantitative easing, which i think they will do because growth is so good. francine: who do you worry about, the ecb or the fed? >> i think the fed is largely marking time because of low inflation. it is not going to do anything. we have got a massive shift away from easing too much more neutral policy or tightening as they phaseout qe. for markets that is a much different thing. people have processed the fact that the fed is on a hiking track. i don't think the market has priced in the ecb. tom: tony talks about equity markets and how corporations do. bring up the chart if you will. we showed this yesterday.

we are going to do this on facebook live today. this is a weaker dollar. if you teach a course on moving averages, this is what trend is all about. what is the trend on dollar six months out? >> next year we will be around the 1.20 level and then 1.30. is model predicts 1.30 stable. that is euro against the dollar. stronger euro over time. i think people overbought the euro. at some stage we will get backtracking. european growth is good. worries about european politics have faded. the ecb is shifting towards tightening wallet that is shifting towards -- while the fed is shifting towards holding. tom: this cost the other white

doesn't it? >> it is a tailwind for corporate profits. when you look at the history of the dollar, the trend of the dollar is based on global economic activity. if you think of when the dollar is exceedingly strong, negative impact on asset classes in the u.s., that is after serious weak periods of global growth. 2012 to 2014 with the european debt crisis and asian crisis. tom: you two are lousy guests. you both agree. we're going to come back. what a set of success for bloomberg businessweek. megan murphy killing it. i am getting a great anecdote from young readers on bloomberg businessweek. what a week of celebration.

what is going to happen to all of those skyhigh stocks you alone. -- you own. it is google. the cover on conservative media. it is an interesting article as well. stay with us. this is bloomberg. ♪

♪ this is "bloomberg surveillance." let's get to the bloomberg business flash. investigating -- over killings in beginning. tinto fired to executives over the issue.

musk took ader elon shot at mark zuckerberg today saying his understanding of artificial intelligence is limited. zuckerbergafter mark called out elon musk. are lower t gle rading. alphabet's second-quarter profit was hurt by antitrust fines from the european union. tom: thanks so much. there has been an entire decade of underestimation of output alphabet. i was there the day of their initial public offering. there were doubters that as there are now. francine: there are. - atou look at out o-

up,abet, costs are going but market share is going up. at some point they get so much market share where they are the best in class, that would make more sense. tom: i would go with that. i look at the track record, and it is a phenomenal return. paul, what is the distinction here of alphabet? is it a new company? is it looking for new direction? is it business as usual? >> i think it is business as usual. the business as usual is dominating online advertising. they're taking control of all digital advertising, and i don't see that changing in the future. we have seen this company invest in businesses outside of its

core search business, the great example would be youtube. the reason they made that acquisition and continue to invest is because the fastest growth of online advertising is video advertising. another example would be the cloud. tom: the annualized return on google, 25.3% per year going back to the evil ipo. it has always been a sort of mess i would call it. how close are they to making youtube slick and providing ample cash flow? is that this year or out there for a few years? >> i think it is absolutely right now. they don't disclose their numbers for youtube, but this is a business that is probably in revenue of $4 billion and

continues to grow dramatically. they are the dominant player in online video. that is a very profitable business for them. when you combine that with their core search business and the cloud, which they don't disclose, which the revenue there is up over 40% this qu arter. it is becoming clear to people that the cost of getting some of these revenue streams is going to be a little higher than what they anticipated. that is called traffic acquisition costs, tac. tac was a little higher. when you try to bring mobile in, you have to pay partners more than you did in the past. that is what caused their absolute revenue to come in a little below what investors were thinking about. that is causing the stock to fall back a little this morning. suggestedtac, she

shrink asy they focus more on increasing total profits rather than increasing margins. does that make sense to you? >> they will get the benefit of the doubt here despite the early pullback in the stock. she came in and really opposed some discipline on this company and mark zuckerberg and his management team as far as managing capital spending growth to work on free cash flow. she gets a lot of credit from the street. the disclosure here was new news for some investors. that has sparked action this morning. i believe investors put a lot of -- into two her ability her ability to manage the stock. quick, i know you

don't do individual stocks. how do you feel comfortable about the ratios of amazon, of google? are neutral weight information technology not because of valuations but the reason for technology running is the market has priced in no growth or slow growth. if you want to find growth, you have to buy technology or a bond surrogate like consumer staples or telecom. we think the global economy is beginning to do well. prised. estimate has sur the citigroup economic surprise index is lifting off a low. the fundamentals are there. is a lackthat there of fundamentals, but there has

been too much of a move into this space. tom: when i look at the concentration of the major businesses in the s&p 500, does that over concentration harm the passiveal of investment or active investment? >> i think it will harm passive investment. the great debate will get solved by one thing, who can manage and what can manage better as interest rates rise. when there is so much money around, it is easy to go to the debt market and buy back your stock. be how thesee will companies respond to a higher level of interest rates by the fed. tom: we wait for the higher interest rates as we wait for wage growth and inflation. tv go, this is quite good you dwyer on darts at tony

tv go. you can click on a previous segment. you can steal that dollar chart. you can steal that right off tv go. stay with us. yankees killed it last night. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." we talk a lot about japan, but mainly we focus on governor kuroda. now we have to talk politics because we have a new poll that came out six hours ago, early morning japan time. former defense minister overtook shinzo abe as the best person to lead japan in an opinion poll. , according to this poll, the most appropriate

choice for prime minister. we are back with paul mortimer-lee of bnp paribas and tony dwyer. talking about that the oj, the balance sheet, and the percentage of gdp, what could another prime minister, if mr. abe gets replaced, how much influence could they have? >> it would clearly be a massive shift, certainly a shift of philosophy. certainly abe has to worry about is opinion poll ratings. once you get to a certain level, you tend not to come back. we are not at the level where it is irretrievable. it is worrying. change, there would be challenges and questions about what this would mean our japanese economic policy for the oj -- boj and

yen. imponderables here are critical. it is important to understand the timeline of his future. we don't know. >> we don't. >> let's go to the single best chart right now. we were going to do this with mr. dwyer. this chart is a spoof. it is the ugliest chart i have ever done on bloomberg. the white line is the inverted yield curve heading towards the doom and gloom of that red oval. the yellow line is the stock market. you say we need some yield curve myth busting. with the convolution of this junk chart, what do we need to understand about yield curve myth busting? >> while this might look busy, this is the most important chart her equities

investing in the u.s. look at where that white line horizontalthe blueline, that is when the juncker and birds. that is a signal. when you look at the point we are currently at on that line to where it drops below the blueline, there is a significant rally, almost 20% rally in the last two cycles. once you go through that line, you get more upside until the peak of the bull market. to suggest you should be nervous about equities on a sustained basis, they could correct any time. tom: we need to understand how distorted our fixed income markets still are. they are not anywhere near accommodative or normal to an economist. >> absolutely. qe in the u.s. and abroad has vastly distorted the long end of

the market. this chart gives a misleading signal of how close we are to inversion. >> i totally disagree with your premise. qe is doing something different, that it is manipulating the yield curve, no kidding. they do it every cycle. remember when alan greenspan said we would never see this level of rates again? the fed always manipulates. tom: thank you. paul mortimer-lee. this is bloomberg. ♪

♪ jonathan: alphabet earnings were

good, but not good enough. senators prepared to roll the dice on health care. the president says there was enough talk, now is the time for action. our survey says wait until september for the plan to unwind the balance sheet. this is bloomberg daybreak. i am jonathan ferro alongside david westin. abouts are positive, up four points on the s&p 500. the euro is stronger as german business confidence rolls higher for the sixth straight month. treasuries are on offer. year.our yield on a 10 alix: german confidence not really reflected in stocks.