>> investors await the latest federal reserve policy decisions. can yellen and co. break the run of trent really? -- the run of tranquility? we get the latest snapshot of the economy with gdp data. mario draghi promised to do whatever it takes to save the euro, half a decade on. we assess the consequences as the ecb thinks about normalization.

this is "bloomberg surveillance" and i'm mark barton. we'll look at the company's results, chat with the ceo, that is at 9:30. engulfed inand controversy, we are joined by the deputy prime minister. > on your bloomberg. we will follow what you ask, within reason. european equities gaining for a second consecutive day. today is the biggie, day two of the fed. 0.5 present. up by -- 0.5%. five years to the day after draghi's speech. the day before that speech the

euro was at 1.2158. today we are near the highest levels since january 2015. the 10 year u.s. down by a couple of basis points. fomc yield rising. a big move away from the haven assets. andcrude oil up to $48 change, exchanging gains. yesterday showed crude stockpiles plunging. inventories tumbled by 10.2 million barrels last week according to the american petroleum institute. let's get the bloomberg first word news with juliette saly. reporter: the u.s. senate has rejected mitch mcconnell's health care proposal. that came at the start of several days of debate.

meanwhile, the house has voted to strengthen sanctions against rebuked president donald trump's by preventing him from unilaterally lifting penalties. australian's dollar has a slumped against most major peers after slower than expected gains in consumer prices. meanwhile, philip lowe has reiterated his view that australia does not need to follow other central banks in withdrawing stimulus. >> just as we did not move in lockstep when market stimulus was being delivered, we don't need to move in lockstep now that stimulus is removed. reporter: japan's former top currency official says the central bank there should normal as monetary policy. they want the bank of japan might leave itself without room for policy responses in the event of another financial crisis. the u.k. will ban sales of

diesel and petrol cars by 20 40. the announcement of a new clean air plan is expected. they plan to become a carbon neutral nation. in spain, the first sitting prime minister of the country's democratic era to give evidence in a criminal trial. he takes the stand this morning in a national court probe into his party's financing. 37 people, including the former people's party treasurer, are accused of running a bribery ring to run party operations. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. to: nobody expects the fomc move on rates, but investors are howing for clues as to

this could hit the balance sheet productivity. yesterday, the vix closing below 10. president trump says he could reappoint janet yellen to a second term. in an interview with the wall street journal he indicated that gary cohn, also a top contender for the position. commenteclining to about her future beyond stating her attention to serve out the current term, which expires at the end of february. alberto gallo is here. let's start with the chart. is the dollar the new vix? no volatility in the vix. is the dollar the new vix? does it replace as the fear gauge? >> the fed has become the central bank of the world. if it is more hawkish, it affects the markets. a strong dollar would be back

for a lot of carry trades. think about emerging-market currencies, emerging market bonds, high yield. every investor has reached secure assets because of the lower yield in treasuries. a higher treasury yield creates a spillover back into less risky assets. now, the danger this time around is there a lot of strategies around the market selling volatility, or they are going long, risky assets, balancing the treasuries. this time around the risk free asset causes the risk. we are left potentially without a risk-free asset. that is why the dollar has become the fear gauge. it is inversely related to what was going before. tom: rebalancing and revolution, you pose a lot of questions. let's throw some at you. because it is all related to central banks and what you

called the road to qualitative tightening. you said it is going to be treacherous. who are going to the be winners and losers from the end of what you say is qe infinity? >> first of all, we know central bankers are trying to be more hawkish. we also know that it is really hard for some of them. there are central banks who are doing better, like the u.s., where you will be able to do a few more hikes. there's the ecb, which is a most forced to be hawkish. and there's central banks which are blossoming, like the bank of england, where things are getting pretty bad in the economy, but governor carney pretends they can hidke so sterling does not follows much. wire they all falling at the same time? i think because qe has run its course and the collateral effects of becoming more apparent.

people have assets are making more money than those that don't. in the end, the economy is rebalancing. getting out of qe is going to be hard. francine: you asked this question as well. what will the economy look like than, when the lights turn back on? >> investors are still dancing. clublike a scene in the where the music is softening and investors are still dancing. at some point, they could rush to the exit. the economy does not look as good as markets believe it is. we have record valuations in u.s. stocks. we have the vix at record lows, but we don't have increasing productivity. there is record high inequality and politics are becoming more and more polarized, which means the left is becoming harder left, and the conservatives are becoming harder, particularly in anglo-american economies where inequality is higher.

i think this short-term, this extremism prevents government from focusing on readjusting the economy. you need long run reforms to get back to productivity. francine: we will talk about that when we talk about the five-year anniversary of draghi 's speech, whatever it takes to have the reform taking place in those five years. stays with us in the next 40 minutes. we bring you the latest fed policy decision live on bloomberg television and on tv . plenty coming up today, including obamacare on life support. will republicans be able to repeal the affordable care act? and pledging to do whatever it takes to save the euro. how close is mario draghi to policy normalization? this is bloomberg. ♪ mark: here is the bloomberg

business flash of juliette saly. reporter: unicredit has revealed it has been hit by security breaches. the italian banks says 400,000 customers have been affected. since the breach in september and october, with june and july this year. inmler reported a 15% jump second quarter profit. it delivered another double-digit boost to revenue. earnings climbed to 3.7 5 billion euros, but came in lower than estimates. german carmakers are reeling scandals. of

the automaker has chosen the u.k. over alternatives in germany and the netherlands, despite risks associated with brexit. that is your bloomberg business flash. mark: thank you. rejecting mitch mcconnell's bill. this came hours after a dramatic 51-50 vote, allowing the republicans to start the debate on repealing the affordable care act to vice president mike pence. let's get more with our u.s. congress important. -- congress reporter. what are they ultimately voting on? what amendments will be tabled over the next couple days and ultimately, will there be a vote in the next few days?

reporter: definitely still up in the air. we started seeing last night when they rejected mcconnell's proposal was a series of opportunities for senators to get votes on their individual ideas. i think now is the time for senators to get a chance to have the senate go on record, in all likelihood rejecting those ideas. as we move towards the weekend, potentially tomorrow night, we will say whether or not republican leaders are able to cobble together 51 votes for some kind of proposal. gh bar. really hik don't be misled by the fact that they got the 51 votes fairly with mike pence to open the debate. getting 51 votes for starting the debate on repealing health care is a lot easier than getting 51 votes to do that.

it is still a high bar. in some ways, what we see here is republican leadership trying to thread this needle where they are trying to appease the base by showing they have done everything they could to appeal obamacare. at the same time, they know the law has been implemented. it's fairly popular at this point. there are folks speaking out in swing districts and states saying, don't take away these benefits. by having this debate, they get to appease the base. mark: meanwhile, donald trump has stepped up his rhetoric against the attorney general jeff sessions. guess by the rhetoric yesterday that he would not survive the day. he did. is he on borrowed time? >> he might be. if anything, if i had to bet, i would have bet that he would

have been gone by the end of yesterday, with the tweet storm we saw from trump yesterday, calling him "weak." trump himself given interview to the "wall street journal." -- trumpp himself gav himself given interview to the "wall street journal." there were some reports overnight that there would be an announcement from the justice department, announcing they are stepping up their probes. if that is the case, that could forn escape ahatcyhh sessions for him to keep his job. but the administration still thinks he is too far gone. mark: alberto, we will come back to your question. what does this all mean for the agenda? what does this mean for tax

cuts, infrastructure and for economic reform? is it being continually pushed back into the future? >> we see too many distractions, too much political drama domestically, and also, foreign politics. the u.s. is hardening rhetoric against north korea. but where are the reforms? where is the inflation? these questions are pending and the investor excitement after the election is turning into -- mark: has that deflated? >> it is delflating. the u.s. enterprises are falling. on the one hand, you have the market being disappointed. a little bit of economic data could create a bounceback, but structurally it is becoming very hard to do anything but a simple corporate tax cut, which is not boosting gdp much above 2.5%.

we are very far from getting to the 3% target steve mnuchin has discussed, which means it is harder for the fed normalize. it will be hard to build a buffer for the next crisis. both that candidates, janet yellen and gary cohn, they are both dovish. mark: we have one more fed hike this year and next year, is three looking way too hawkish? >> i think so. all of our hopes of policy liberalization rest on the trump reforms. the corporate tax cut helps. but it is not tax reform. and you have infrastructure spending, which is harder to do. but the temp tatian to distract people with domestic politics -- but the temp tatian to distract people with domestic politics -- but the temptation to distract people of domestic politics, it is harder. trump could do it with north korea. this is the risk.

geopolitical tensions increase and markets are very unprepared for this. mark: kathleen hunter, thank you. up next, five years ago today, mario draghi pledging to do what ever it takes to save the euro. what is next for the ecb? this is bloomberg. ♪ mark: you are watching

"bloomberg surveillance" and i'm mark barton in london. the spanish prime minister becoming the first sitting prime minister to give evidence in a criminal trial. he testifies today international court. of hise is, into a probe party's financing he takes to the stand. 37 people, including the former people's party treasurer, accused of running a bribery ring to fund party operations. this is the comprehensive case and we will keep monitoring it. five years ago today mario draghi pledged to do whatever it takes to save the euro. at the same time, it looked like fundamental flaws would rip it apart. draghi predicted fundamental negative rates would return. now, half a decade later normalization is finally being talked about as a realistic option.

still with us, alberto gallo head of global macroeconomic strategies at algebris. how much of a pat on the back is draghi due five yeraars on? when it comes to structural reforms, which he is not in control of, the evidence is very clear to see. >> there is a lot more to do in the eurozone. however, the skeptics have been proven wrong many times. until a few months ago, europe was seen as -- the eurozone, as something economically not viable. the reality is, with the current political set up with president macron in france and chancellor merkel likely to be reelected, this risk of a break up is gone. and actually, brexit, which was supposed to free the uk.k. of an economic corpse has strengthened

the eurozone. the eu rrozone is carrying the u.k. 's growth. if qe has helped to prevent this tail risk of a breakup, persisting negative interest rates, depressed lending, and kick the can for companies that should restructure. we need to be careful here about being too gradual in the normalization. we may not end up to the next slowdown with any in th ammunition. mark: i bring up this 10 year too because of the five year yesterday. it was a three-year break between the last time it sold. this is another stage of the journey. greece is not there yet. it's on the road to recovery, but is not recovered. >> greece is on a healthier

path. we have been investing in greece. we have been arguing that greece needs debt relief, and debt relief is a very small token for the eurozone. greek gdp is the equivalent of milan. in financial markets, and greece is recovering. yields are low. the shorter data bonds are mov ing forward. what is missing is a plan for the economy. there have been reforms and asset sales. you need growth. mark: alberto gallo stays with us. u.k. gdp next. ♪

mark: breaking news from petrochina. billionme to be 9-11 yuan.

it's given a profit forecast based on china accounting. as much asng today 3.7%. versus 528 million yuan a year ago. we are just getting u.k. economic data crossing the turn erminal. theeconomy grew by 0.3% in second quarter. the first quarter to remind you was 0.2%. we're bang in line. the estimate was 1.7%. so, the lackluster performance to extend into the second quarter. just a modest pick up, as i said. the ons said the economy experienced and noticeable

slowdown in the first half of the year. growth in the second quarter was led by services which rose 0.5%. the sole positive contribute her. production and construction were a dry. agriculture had zero impact. -- production and construction work a drag. has jumped.aking even with the improvement in retailing, the sector posted a flat growth through six months through june. the weak pound putting a strain on their pockets. and noticeable slowdown in the first half of the year. now, double-digit growth in footwear para hoping puma-- helping puma -- the company expects net income to rise significantly for the rest of the year. we're joined by the chief

executive. you have had a strong second quarter. what does that tell us about the expectations for the third quarter? >> well, i think puma is on a good trend. m we have been in a turnaround mode. we think that trend will continue. and look positive into the future. which product lines are selling well, but which countries are you making good progress in? >> well, i just heard you say that retail in the u.k. is weak. we have a very good trend in the u.k., doing very well there. i'm happy with that. it is fair to say where industry and sports -- meet there is growth and then you have a brand like puma which is now improving. we actually have growth everywhere. it should not be surprising that

the biggest growth is probably in china. we also grow in america and all the major markets in europe. so, i think this is a brand recovering and therefore you also need growth in all markets. and the growth is led by footwear. you probably know in the sports brandry, innovations and image is where we have the highest growth. mark: in february you disparage her own operating margin of 3.5%. you called it ridiculously low. you said you had to strive to reach the lofty levels between 8% and 10%. how soon before you get to those operating profit margin levels? >> well, i'm not going to give you a timeline on that. i think if we do our job giving the retailers on the consumer better products, we will grow and we will get there sooner or later. at this point in time, we are ebt market 5% to 6%

coming from almost zero. we think it is better to build something in mid long-term then try to impress. i'm going to tell you-- not going to tell you when. 5% to 6% achievable this year? 5%.eah, we should be about your competition might have -- do you think your operating profit margin closer to your peers makes it willlikely that carren offload its stake in puma. >>. we have a great relationship there is nothing more to say about that. we have been together with me as the ceo for four years, an we

have a great relationship and there is no signs of that changing. mark: you're helped at a large part by endorsements by celebrities. who's the most valuable to your brand right now, which celebrity you do not have endorsing you would you like? list? top on the to-get >> if i told you that, that would be more expensive. mark: it was worth a try. very quickly, this year are major big sporting events. how are you able to increase sales? there is no world cup, there is no olympics. how you doing without a major sporting event? >> in general, all over the world, people do more sport. people are more active, doing more activity and that is good for our industry. don't forget a big part of this industry is fashion. sports and fashion is merging. that's why we have growth.

having said that, i think in london, there is the world championship in track and field starting in 10 days. there is a big event were maybe the biggest athlete ever will run and celebrate his goodbye. that's a big event, too. mark: which benefits you, of course. we love big events. good luck to you. the chief executive officer of puma. stew others is alberto gallo a. he was known for being a fast 100 meters runner in his day. i completely made that up. let's talk about the u.k. economy. just before you said it was going to be 0.2%. it is 0.3%. a noticeable slowdown. alberto: it is. what we are seeing now is the realization that actually brexit -- across the consumers. we are starting to see tightening across all consumers

where the high street retailers are suffering from lower sales while everything trades down into lower-costs, retailers which are doing better. this is just before we get into the real negotiations about brexit. what we knows the government remains very unprepared about how to negotiate but also how to engineer plan b for the economy. unfortunately, neither the government nor the opposition have this plant b. -- plan b. both are advocating a brexit that has jobs and that makes people still better off, which is a bit like trying to drive a car, pushing the accelerator and then feeling the handbrake at the same time. it's economically unviable. we think there has been a lot of bearishness about sterling and fx markets, but what you are

going to see now is the consumer squeeze. and that's going to last for a while. it could have political consequences when the next orctions come even -- even earlier. you can see the prime minister at some point being replaced by someone else. it's clear that opinions have changed. now, what could happen if you have new elections, even if you don't is that the government will have to spend more. do finally pay nurses an firefighters more in a country where -- land is owns, 1/3 of the land is owned by if you nobles. so, you are starting to see people being upset about the economy not growing. it was all fine until house prices was going out and debt was going up. so, the result is that the government will find itself in a corner, will have to spend more.

and you will have a shock on the gilt markets. does today's gdp number boeto bed any notion the could hike? >> the bank of england is trying to pretend they can hike in order to avoid a sharp depreciation in sterling which would cause more inflation. the the bank of england is in no position to hike. first, because it has been politicized by the government. the government has pushed households to borrow even more by bonds, reducing the degree of freedom for the banks to hike. the second reason is that household debt is at record high. even the brexit affect push people to borrow even more. we have 3/4 of all cars thought on leasing. 160 poundslies with

of savings. sorry, 1/5 ton, withi no ltaken everage. if you look at gdp, gdp is good because corporate have benefited. to enjoy lower tax rates but wages have not gone up. now wages against inflation are going down. this is going to have the political impact. it's going to restrain any interest rate hikes. mark: great to see you. up next, poland engulfed in controversy about the future of his judiciary. this is bloomberg. ♪

mark: you are watching bloomberg "surveillance." the european commissioners is to discuss the legal and political tools that has to push poland into scaling back a package of controversial legislation it believes is damaging democracy in the country following anti- government protest the president vetoing two bills that aimed to hand control to politicians. he signed a third measure into law. poland's deputy prime minister mateusz morawiecki is here today . thank you very much for joining us. investors were relieved that those key parts were vetoed. what's your take on that surprise decision? actually, to be

very precise the reaction of the bond markets was zero from pre-veto and post-veto. it moved up and down but actually nothing changed. my understanding of this whole situation is that 80% of polish society was the judiciary system to be reformed, and in the world this-- if you strip out report, there is also clearly, this is also an achilles heel of polish economy and political system. the judicial system needs reform. this one might have been more longer discussed with the president and should be based on more discussions and hence, the president vetoed. mark: the next attempt at reform will be less contentious? mr. morawiecki: the president vetoes this. he said, he will present new

legislation. not possible in this parliament because it requires 3/5 of majority. so, the previous legislation is kind of close. and now the move will be made by the president. mark: the european commission meets today and addresses the matter. how important was the climb down in your relations with the e.u.? mr. morawiecki: our relationships with the e.u. are not so rosy over the last 18 months but actually, i believe there was lots of misunderstanding in all of this. i know it is very difficult to explain it a couple of seconds, but everybody agrees that post communist judiciary system needs reform, because they were not, not too much changes after 1989 when we started transformation. now the reform has to be put, theto be thought of by

judges, by the president, the parliament, opposition parties. we see what the next proposition will be on the table. mark: are you ready to take measures in case market sentiment turns against you? you said there was not so much of a market reaction -- whether it is against the euro or the dollar? it is donna percent since the end of last week. are you ready to take actions in case the market, in case sentiment does turn against poland? mr. morawiecki: markets are for me critically important. what i can assure you is that we are -- will do everything actually to make sure that arestors are happy, they certain about our democracy, legal situation and so on. actually, the polish currency

strengthened from the beginning of this year significant way. -- significantly. it was the strongest currency of all emerging markets in the world. mark: you said in march -- mr. morawiecki: i know you focus on this last week but since the beginning of the year was really -- mark: you told bloomberg you are comfortable with it in the 4.4 range. 4.26 today. is that still the preferred range? mr. morawiecki: yes, i would even expand this range from 4.0 to 4.50. this is where i'm still comfortable. if it strengthened too quickly and too strongly below -- it would be dangerous for our exporters. but by and large i'm actually in favor -- mark: the currency is the cap. mr. morawiecki: i would not be happy to exceed this cap.

mark: let's talk brexit, as you are here in london. mr. morawiecki: brexit is an opportunity for us. for the last 12 months we were very successful in attracting british investors, financial institutions into poland. we have actually attracted 100,000 new jobs and not all of them in back of the -- in services centers. many of them in risk management, data management. mark: are we spending too much time on france? should we talk more about warsaw? mr. morawiecki: you should talk more about warsaw. we welcome all the investors in across poland, we have actually increase the presence of financial institutions over the last 12 new jobs 100,000 created by those institutions. warsaw is a fantastic place because the labor is very skilled and the people are very skilled.

40 different languages, our services are provided for all over the world. mark: it's clearly a fantastic place because there are one million poles in the u.k. mr. morawiecki: we would like them back. mark: you are still concerned about the rise of poles living in the u.k. how worried are you about the slow pace of discussion on citizen rights? mr. morawiecki: i believe that post-british elections as what happened in the last -- a couple of weeks ago, i think t his situation will be, will clarified towards not such a har d brexit, which is in the interest of the u.k., in the interest of the e.u. and in the interest of poland. i'mplease -- mark: what does not a hard brexit mean two years down the line? ess morawiecki: i think l

protection in terms of trade, in terms of free movement of services and capital. view of the forge a citizens, are citizens who came to the u.k., i would not be unhappy if they came back. please give them back to us. we have the lowest level of unemployment. mark: that would not be resolved this year. mr. morawiecki: this is not, this is for us, really. a serious issue. shortage of working power. mark: is the potential drop in the e.u. development fund because of disagreements between the e.u. and warsaw, is that an issue? mr. morawiecki: from the point of view of macro economic environment and our major engines for growth because our growth is very well-balanced, based on investment and on exports. so, export led growth is very healthy. at the same time, structural funds have helped us to re-create our infrastructure.

so, they, this is nice to have. exports are important, and that means free trade must be important to you. you disagree with donald trump? mr. morawiecki: i actually had the honor to talk to president trump at wilbur ross on his last trip to poland. and i know that some of the statements which are in the ether, they are exaggerated. president trump is for free trade and fair trade. by this he means with some countries like china and maybe japan, where there is a huge imbalance in terms of export-import, there should be more balanced trading relationship with them, which i agree with. mark: you do not think it is towards protectionist policies? mr. morawiecki: no, we are more free-market oriented because france -- has introduced macron, reducing

or weakening the already weak freedom to provide services. and we are actually, we have lost our allies. the u.k. was our ally in fighting in brussels towards more free-market regulations. so, we are very unhappy. mark: you highlighted the economy, let's talk about gdp. is 4% possible this year? mr. morawiecki: 4% for the first quarter. it is interesting. potentially, artificial forecast is 3.6% to maybe 3.8%. we are conservative. but more and more factors indicate that might be 3.8%, 4%. for the first quarter, there was gdp growth.eal and by the way, half a year ago,

a couple months ago, most financial institutions forecasted the growth for 2.%. so, there is a significant increase in all the forecast the gdphe globe, around growth. and this is a very balanced growth. mark: investment has fallen five straight quarters. when do you expected to recover? why are company scaling back capex? mr. morawiecki: the next couple of quarters we see significant increase in private investment, because this is, you're right. this was the missing link in the healthy private investment by small and midsize enterprises. foreign direct investment last year increased by 8%, very strong increase. eager companies -- bigger companies have invested. midsizent, small and micro, there was a reduction as

you indicated last year. but for this year, we predict 5%. mark: deputy prime minister, thank you very much for joining us. mateusz morawiecki, the deputy prime minister of poland. daimler missing on estimates. earnings climbing to 3.75 billion euros, well below the average estimate. as it suffered a drop in its commercial vehicles division. joining us now is bloomberg intelligence senior auto analysts. i suppose the results have been overshadowed by this collusion scandal, haven't they? >> certainly. the mercedes division which is almost focused for investors actually had a good margin on the back of their sales and suv sales. but what investors want to know is what is happening in terms of

the antitrust collusion issue. and, unfortunate, i do not think we are going to hear much about that today. mr. morawiecki: that is the big story can the other story i'm fascinated about is this story in the u.k. that the u.k. is ready to ban fossil fuel cars by 2040. so, the u.k. seems to be following france in this. >> that is correct. france had a similar ban issued a couple weeks ago and many of the car companies, and rightly, to be developing pure combustion engines. it is more going to be an issue for consumers who hold diesel cars for that length of time to mark: thanks for joining us. the senior automotive analyst, michael dean. bloomberg "surveillance continues. nejra here in london and tom keene in new york. a chief economist -- we will

have a quick look at was happening with european equities. stock are rising. it is all about the fed today. what will they say about balance sheets? one of the questions investors will be eager to be answered during a news conference chair yellen will hold. european stocks rising today. the stoxx 600 is up by 1/2 of percent. also, stocks have had a rough time of it in the last couple of days. keep an eye on exporters of course as the euro continues his strength. "surveillance" continues. this is bloomberg. ♪

tom: there is disinflation and

chair yellen, she must adapt and adjust. this morning, safe havens show a weaker. the vix signal continues. are they good for europe and brexit negotiations? and it is a trump zero world. it is every what has faction for itself. this is "bloomberg surveillance" and i'm tom keene in new york. nejra in for francine. do you think we are going to take the month of august off in the brexit negotiations? does everything just pause here into september? nejra: we do seem to be seeing a pause now. if you look at cable at the moment, not going anywhere. these u.k.-u.s. trade discussions coming into all of this. tom: we will go to our first

word news in new york city. u.s. senatee rejected mitch mcconnell's health care proposal last night. the vote came as the start of several days of debate on replacing obamacare. earlier, john mccain returned after being diagnosed with brain cancer. he said he would not vote to pass the latest version of the health bill. the house sent a message to president trump on russia, boating to impose more sanctions on moscow. the senate has already passed similar legislation. the white house has sent mixed signals as to whether the president would send the measure. the bank of japan's deputy governor says the bank needs to keep monetary stimulus in place. they must get to 2% inflation as soon as possible, but there is a long way to go. the u.k. will ban sales of the silk and gasoline powered cars,

starting in 2040. the decision is partly brought on by tough eu emission rules. france announced a similar ban two weeks ago. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: equities, bonds, currencies, commodities. it is fed day. it's very quiet. the futures, up near record highs. the curve is a little flatter. crude oil, that is american oil, $48.32. crude, $52.39. we are out of the range of hysterics. i do notice nejra, the weaker s wiss franc. a 1.1097 is very interesting.

nejra: interesting, given we have seen a weaker yen. i've got the 10 year yield there, 2.23%. the euro-dollar, interesting to look at because it is five years since mario draghi's whatever it takes speech. the euro stocks moving higher. copper, i'm watching closely, hitting a two year rally. tom: i hope we touch upon mr. draghi five yeraars on here in a bit. i'm going to the bloomberg terminal. this could be my chart of the year. this is complex. the pink line is labor share of the economy. a lot of the fed officials have been writing this up. to the left is what used to be, over here is a labour share as a

percent of the economy. over here we fall off a cliff to a new america. what is important is how stable this trend is over 50 years, half a century. we are six standard deviations -- count them -- six standard deviations of what we knew in our youth. that is an extraordinary chart of a forever changed united states of america. nejra: extraordinary, tom. where you have got complexity, i've got simplicity. i'm looking at the s&p 500. i was talking about a grinding to yet another record high. i'm looking at bear markets. bloomberg did a survey showing the next bear market for stocks h and credit hits in 2018. the biggest risk? a messy unwinding by central

banks. i know you love a historical chart. we are going back to the 1980's, that bear market peaked with a trough, a drop of 39%. the last, during the crisis, a drop of 59%. those bear markets have been taking bigger bites. if and when we get the next drop, how big will it be? tom: the news out of washington is extraordinary and borders around the events of 1972 and 1973. kevin cirilli joins us now. will the attorney general resign or be fired today? >> that is the big question in washington. the white house and the administration are putting so much pressure on attorney general jeff sessions, not just through president trump's tweets, but through public comments, from kellyanne conway

and sarah huckabee sanders, all saying there is tension and distance between the attorney general and the president. tom: do you assume others within the attorney general's office will resign with mr. sessions? in particular the deputy attorney general, who is so linked to robert mueller? >> potentially, you could have a ripple effect, but all of this from the of the station's perspective, is because the attorney general is not going after democrats. i have to be honest though, when i've up on capitol hill and talking to republicans, especially republicans led by intelligence the committee, they are taking this russian investigation seriously. when they were all leaving the closed-door briefing yesterday, not one of them, even the more chatty senators, spoke with reporters about the nature of the investigation. it is tempting say that

republicans are on the same page with the administration when they are taking this seriously. tom: the news flow, kevin, is extraordinary. i guess just because of the clock and what happened late tuesday. we have to migrate over to health care. forget about the drama with the senator from arizona. what did the senate majority leader accomplish tuesday? >> they got a little bit of a win, but this is far from over. look, they are going to open it up for amendments. they can either do the senate majority leader plan, mitch mcconnell's plan -- which is a moderate proposal -- or they can do a straight repeal of the affordable care act, which will lose the moderates. then, there is this new wordage tom called a skinny repal. -- a skinny repeal. i will be interviewing the freedom caucus chairman today. i can tell you they feel it will be very difficult to get all the members on board to support a skinny repeal.

nejra: this gets more complicated by the day, kevin. fascinating, though. i want to know, though. there are so many versions of a repeal, repeal and replace, etc. is there any chance we don't get a repeal at all? if that happens, how harmful will that before president trump's administration? >> it will be very harmful because it will keep the administration from getting a policy win. on the flip side, if the skinny version gets out of the senate, it will go to the house, where it loses the conservative support. but the leadership, the moderate leadership, they are hoping they will be able to pressure, and the white house pressure them to get it to a vote. it's hard to see how that happens right now, given the circumstances, but we might not be looking at anything until next year, should they lose that small window of opportunity. if that happens, it will be

close to 2018. very hard for people to have such a big vote, especially those up for reelection. nejra: thank you so much, kevin cirilli. joining us now is jeremy stretch. great to have you with us. i just got the dollar index here. it is fairly simple. if you look at where we are, versus where we were before the u.s. election, it is like that trump trade never happened. fairly valued now on the dollar index? >> well, we have taken up the trump trade completely and are now convinced we will not see any fiscal reform this year, or even 2018 look highly debatable as the politicians struggle with the legislative challenges in washington. dollarely, i think the is a little bit oversold in the short-term, perhaps. markets have been taking out some of that premium. nevertheless, i think it is the

case of the dollar remaining on a downward trajectory. as you mentioned, one of the premier risks in terms of the equity market, it is this idea that we see other central banks come into play. that will weigh on the dollar and dollar sentiment. tom: let's get one question here. what are the correlations of quiet now within the markets? we saw the vix go to a 9.04. what is the linkage of quiet between equities, bonds, currencies, and commodities? >> it is fascinating that we have seen this remarkable volatility in markets. we have seen that low level of volatility over the last few years because of this presumption all reliance on the fact that central banks would always be there to save the market. that will be the interesting question as we go into 2018, as we see other central banks, beyond the fed and the bank of canada, considering monetary

policy tightening. i think it is fascinating the global economy looks in better shape, but the u.s. is the laggard. that will help encourage commodity prices to look a little better. we are in a scenario where monetary policy is being taken off the table. tom: jeremy stretch with us from cibc. we have a great set of guests to get us to the fed special today. ian bremmer and michael darda, in for us. scarlet leads our coverage with the former vice chairman and willman growth will show up as well. we really looking forward to the 2:00 p.m. discussion on the path forward for chair yellen. this is bloomberg. ♪ reporter: this is "bloomberg

surveillance" and i'm taylor riggs with the bloomberg business flash. reporter: mercedes-benz missed profit estimates. daimler had a drop in earnings in the commercial vehicle division. you are spending more on new auto technology. oufirst half operating profit fell for michelin. the company boosted tire process because of increased in raw material costs. they plan to cut 2000 jobs by 2 021. amazon is calling for the largest jobs fair in the u.s. they will open 10 centers by august 2 and plans to make thousands on the spot job offers. amazon has more than 50,000 jobs available. that is your bloomberg business flash. nejra: thank you. the fed is not expected to raise rates today or make moves to shrink the $4.5 trillion balance

sheet. president trump says he might reappoint janet yellen to a second term at the helm of the central bank. he indicated that gary cohn is a top contender for the position as well. dehn anded by jan jeremy stretch. jan, let me start with you. we are looking to the fed meeting today. not expected to be the most market moving meeting. when you look across markets this year, weaker dollar, yields coming down and money moving into risk assets, i know the old mantra, "don't fight the fed," are markets ignoring the fed? >> no, i think they are scared. we are looking at high equity valuations and low bond yields. the question is, why do they keep their money there?

the answer is, if there is a crash, that could have implications for the real economy as well. you will be safer in financial markets then you are in the real economy because the central banks can step in and buy assets. in the real economy, there is very little room for reforms. you are ironically safer in bonds and stocks. that is where the money is staying there. it is not a sign of optimism about the future, but an expression of fear. nejra: if we look at the potential of the bear market coming, whether it is in stocks or credit, what will be the first signs of that coming? >> we will see it in the real economy. we will see a deterioration in fundamental indicators, a slow down in productivity, a slow down in real gdp rates. a gradual translation of the

economic pressures into the political sphere, where they will be demand for more protectionism, weaker policy at the fed, and a weaker dollar. that is what trump indicated. he would like to see yellen stay on. he particularly sad, because i like low rates. we are heading to a situation where inflation will be preferable, even as a means of driving up growth. even if it undermines long-term financial stability. tom: i think this is a really important insight, low rate janet. but how much of this fear that nejra brings up, how much of this fear is the distortion of the fixed income market? fede just got to get the funds target rate back to a nominal or positive real rate. we are not yeathere yet, are

we? a problem that has been fitted by monetary policy and fiscal policy. an enormous fiscal expansion over the last decade, but we are now in a situation where the debt stock is so large and asset prices are so overvalued that if you tighten monetary policy, you risk hurting the financial markets. it simply cannot tighten very much. tom: i look at where we are and the limitations we have with chair yellen and this fed meeting. what will you want to see in the statement on inflation, on disinflation, and critically on the statement of relfation? >> i think the fed is right to focus on the problem with very low inflation rates.

we do still face the problem of a liquidity trap, where if the economy renews the slowdown, reflationary pressures fall further and because we cannot cut rates, you see an increase in real rates because inflation begins to fall. that will further retrench consumer demand and further undermine the economy. that is a live threat out there and a bigger threat than overheating of the economy. nejra: jeremy, i want to get your thoughts here. where do you see this fear showing up? >> if we are going to see that fear emanating, it will be the traditional risk metrics. we've seen a little bit of a rebound in the dollar-yen. the question is whether we will see that move extend. you were touching a little bit on the boj, but clearly, if the federal reserve is relatively constrained in terms of interest

rates, that impacts the underlying dynamics in terms of the dollar-yen. those are the variables we would look back and going back to the conversation in terms of volatility levels, they look incredibly low. in terms of the monetary policy debate we are also embarking upon, those levels also look rather light and skinny in terms of the current environment. tom: we will continue this discussion. again, on our fed coverage, alan blinder will join us. a really good time to catch up with professor blinder, not only on the general economy, frankly on econ 101, which everyone agrees is twisted. william gross also joins us as well. blinder and will gross. the fed decides, this afternoon at 2:00 p.m. it is a beautiful new york --

that is spectacular. anthony, nice shot of new york city! this is bloomberg. ♪ nejra: i'm nejra cehic in london

with tom keene in new york. it is five years since mario draghi said he would do whatever it takes to save the euro. another comment not everybody remembers is the euro being like

a bumblebee because it should not fly, but it does. we're back with jeremy stretch. here is the euro-dollar going back five years. we have seen a getting close to a two year high. many people are asking if this will cause draghi concern. but when you look at the five-year chart, perhaps not. >> we all have very short memories. i think putting in some historical context is interesting. i would regard fair value as a whole around 1.29. yes, you can see monetary conditions are tightening fairly quickly because of the pace of the appreciation over the last two or three months. the question is, is that a level that causes consternation for the euro? the euro is not causing any problems for germany. that is an easy argument to put forward because germany could

withstand a higher value euro, but we are still on the trajectory to question the pace of the move. if we do go up through that 1.17 14 level, that could open possibilities of 1.20. tom: jeremy stretch with us. we will continue for a longer discussion. a program note on david rubenstein, this has been very successful. thrilled to bring you david rubenstein and the carlyle group with an important conversation this week. conversation with paul singer of elliott management, and :00 p.m. tonight. this is bloomberg. ♪ .

♪ it is a most extraordinary time in the nations capital. i cannot begin to convey to our global audience, the uncertainty of what will happen today in

washington. a substantial team we have, i will highlight, our senate reporter, with decades of experience and wisdom on trying to sort out the washington ballet, a fractured ballet. with our first word news come here is taylor riggs. >> the senate will consider another proposal to repeal obamacare, senators rejected mitch mcconnell's health care plan last night at the start of several days of debate over how to scrap the affordable care act . no clear idea of what obamacare replacement plan senators will be asked to pass. president trump says jeff sessions has let him down but he will not say if he will fire the nations top law-enforcement officer. the president has been critical of jeff sessions on twitter, i'm happy that jeff sessions recused himself from the russian investigation. mayident trump says he

still appoint janet yellen to another term as chair of the federal reserve, telling the wall street journal he likes to see interest rates low and janet yellen has been a low interest rate person but the president indicated the head of the white house economic council was a contender. he has indicated he is happy in his current position. in europe, the european union will discuss whether to punish poland for backsliding on democracy, the polish president unexpectedly vetoed two of the three bills aimed that giving politicians for control over the court system but signed a third measure into law, the european commission will talk about the sanctions to convince poland to scale back the legislation. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. nejra: thank you. copper has surged to the highest level in over two years, lifting shares of producers including

glencore on expectations that demand in china will fuel global shortage as oil continues its rise. about $48 on wti for the first time since early june. is our managing editor for energy and commodities, will kennedy. you -- with you, we saw copper about $6,000 electric ton on monday and it continues to go higher, i understand the optimism around china driving commodity prices but why such as fight specifically in the past two days? , there is aa also report that they want to ban the import of a certain kind of industrial waste from with to -- it back copper which has extract copper, which has made people bullish for copper, regular copper demand, the broader picture, people feel

more confident in the chinese economy and analyst to forecast copper say there is a growing deficit, which is a contrast to the situation a year ago. nejra: if we look at oil, the recent surge, down to the u.s. stockpile story. days, wehe last three have had a number of catalysts, oil is one and a second is we ran a story yesterday that showed any physical market, differentials between benchmark prices and prices of particular grade, the russian grade in particular, russian is the most expensive and has been for years, that is pointing to a critical tightness in the market that was not there a few months ago which is helping sentiment. tom: i looked a real copper and the copper price, nominal and inflation-adjusted, folded into the entire picture of commodities. -- bring up this

chart, bloomberg commodity index , inflation-adjusted, back to 1991. do we have a list off the map -- or commodities, can you say we have a commodity lift? >> it is an important chart, with his conversation in the context of a weak year for commodities, a week two-year run for oil. we have a good few days on oil but at $50, incredibly important to remember that more than two years ago we were about $100. most people in the market clearly see a cap in oil prices, even if we have a good run through the summer, no expectations that we can break above $60 per barrel because of the shale issue. $50,brent crude, back to back to the end of 2014 and early 2015. pro,o you define as an oil

how do you define range bound? >> i think most people would see the range in the $40 to $60, $60 a cap. the interesting thing is whether technological advances in the u.s., better drilling techniques , steadily moves the rate downwards. to $35,40 becomes $55 that is what people will want to watch over the coming months. chart,the long-term which have been talking long term about crude, when you talk about debt, em space, people think week oil prices that floor em which is not necessarily the case? >> even when you look among the oil experts, we are now three years from the drop in oil

prices and we can now say it with a high conviction that most of the oil-producing countries have adjusted sufficiently that they will not default. their bond prices are still trading at it for nearly high yields and spreads -- extraordinarily high yields and spread, you have a relatively high carbon that they will not go under by giving pay a high kerry, that makes them attractive. nejra: how did that featured to the fx base that space? have the do realization that you have a new paradigm for commodities and work through them to the production dynamic and look at the sovereign bond rating, it does suggest that a lot of the em currencies have a degree of value. if we put to decide the question of dollar liabilities and dollar funding costs, but if you look purely at the domestic dynamics, there is not need to be had in certain em currencies as a consequence of more benign commodity price spectrum. tom: how late are commodities to

your emerging market space? a stereotype that em is beholden to commodity, my reading would suggest that is not true. >> i would agree, eastern europe with the exception of russia is net commodity importer, asian, with the exception of malaysia come is not a net commodity reporter and commodity exporters are concentrated in africa and latin america. is theextent the market whole em complex, in reference to commodities, it generates very good buying opportunities and a number of creditors were commodity prices do not matter very much. tom: we had guests in the last couple of days that said the opec meetings were a nonevent. when does opec matter again? >> opec is up against it at the moment. deal has not had the impact they hope, it is starting to have some impact, we are seeing stock was drawn down

in the u.s. and saudi arabia commitment to cut exports is important but not the impact that people hope. the political will or the ability to go deeper at this stage. the argument is it may be counterproductive to go deeper because it encourages producers in the u.s. the cat and mouse game with shale was no doubt that opec remains on the back foot. seehe time being, hard to how that changes, although we have some people warning that two years since, a lack of investment in the broader conventional oil industry means that we could see some supply 2018ages in 2019 and 2020. looks hard for opec to gain traction in this market. nejra: we talk about cutting production, also about cutting exports and how that feeds into financial markets. how do you see that side of the equation? >> that is true, the issue about cutting exports and the revenues

thing that comes with that broader export flow. those are dynamics we will continue to monitor and coming from the canadian institution which candidate is a modest oil producer, but adjusted going , but has anr prices impact on exports in terms of the price dynamic. tom: very good, jeremy stretch will continue with us. come back when oil is $60 per barrel, will kennedy, kidding. , a successful week last week, and technology, look for a new business week coming out today. even into tomorrow as well with our global distribution. bloomberg businessweek, smart, smart reading. this is bloomberg. ♪

♪ inra: i am nejra cehic london with tom keene in new york, the european commission weighing how to make: scale back a controversy legislation following antigovernment protests the president vetoed bill that aimed to strip the court of independence but signed a third measure into law. we spoke to their deputy prime minister who brushed off the biggest slump this year. >> if it strengthened too quickly and too strongly, below the euro, it would be dangerous for our exports, by and large i am in favor of strengthening. i would not be happy to exceed this cap. nejra: that was the polish prime minister, we are back with jan

.ane and jeremy stretch of cibc occupied all of europe all week, what does it mean for you in terms of the future of europe? >> it is an important test of europe's institutions, both the european constitution itself and the eastern european constitution are relatively young, many of them emerson the aftermath at the end of the cold war in 1989 and they are adjustments that need to be made in the balance of power between the executive, legislature, and judiciary overtime. we have to bear in mind that this is not a completely stable and subsystem. -- and set system by the european union is right to keep a close watch on poland because it looks like an attempted power grab. nejra: if we get any form of sanctions, how will that change the dynamic between europe and

the rest of the world? >> i think europe is mostly concerned about its own backyard. the european union is under pressure from different sources, divisions within its own members, brexit, and then the polis situation. in this environment, this european union will try to protect itself as much as it can. shows this chart tended to weaken during u.s. trading hours in the past few days after rallying in europe, what does this say about investors in europe versus the u.s.? jeremy: if you are closer to the story or the action, perhaps you think you have a greater understanding of what is going on in the investors further geographically distanced and the headlines have a tendency to overreact. we have seen that in a number of instances when uncertainty, whether turkey or the brexit see biggeru can to

reactions outside of the time zone where the events happened and that is an example in this context. tom: that was great short-term chart. euro long-term, i did this to dazzle jeremy stretch. and yousynthetic euro about the polish excellence. chart well, the advent of the euro and where poland steps up with polish zloty strength. levering uple polish zloty excellence, the equivalent of hungarian forint. jeremy stretch, poland has been the leader looking at currency of economics in eastern europe, is that true? i think that is true, the macro economic performance

has been relatively good, the underlying dynamics, good reason to suggest why the polish zloty has done better than hungry which is been far greater uncertainty and economically. you could argue that poland has been a poster child of the accession countries of the east, the question is those obsession countries are struggling with their own growing pains with political dynamics, and that perhaps makes it rather less appropriate or attractive as an investment destination in the short-term. tom: is poland and emerging-market or developed nation? >> a little bit of both, poland has in mark's treated like an it isng market country, close to be considered a developed market but we were talking about this offscreen, there is a lot of lingering sentiment that change is slowly when it comes to emerging markets, they often get treated as homogenous groups like commodity dependent and poland isn't exactly -- excellent

something that does not satisfy the traditional definition of an emerging market country. yet, when there is a risk aversion event, often among the first market sold off. nejra: so we do not look at eastern europe as a homogenous mass, where the ecb opportunities? >> eastern european currencies because i like the euro outlook versus the dollar. i think you get it better value of money in europe proxies. i like the fx story. i like russia as well. russia looks interesting, particularly when you get nervousness around sanctions which will not make much of a difference to russia, that created by you opportunity. and jeremydehn stretch, stay with us. watch the show live and you get the headlines on the site and all of our featured

featuredd tom's latest chart. great want to watch through the this is bloomberg. the day. ♪

♪ this ishis is -- >> bloomberg surveillance. at&t is showing it can handle itself in a brutal price for, the guy posted a surprise degrees in wireless subscriber in the second quarter. that will help them by this time awaiting for regulatory approval of its $85 billion takeover of time warner. uber is hoping to name a new ceo by september and they have fewer than six candidate, among the contenders is the -- meg whitman. she is said to have been meeting with their leadership in recent weeks. nestlé is building its first kid cap factory and 26 years in japan, the country's the goto destination for tourists wanting to buy exotic variations of the snack. inng the unusual kit kat's japan, those flavored with green tea and saki. tom: that is painful.

that is an american. -- un-american. thank you for your comments on the institute exams. difficultaordinarily and we are thrilled to say that somebody on the bloomberg surveillance team somehow passed, taylor riggs celebrates level two which i will disclose is the toughest exam. before a one-day window you have to register for the torture of level three. >> i do, i knew i had to fast or you embarrass me on live tv. tom: you do not see any socks is making is taylor goes offset and that is -- that is derivatives -- offset and studies derivatives. one day she was laying out the five ratio dupont scheme. we were begging her to pass to move on from cfa.

all from bloomberg who passed, thank you and congratulations for your work. jan denh with ashmore and jeremy stretch of cibc. they understand the cfa ballet. in emerging markets in the fed, a general first question, is janet yellen the central banker to em? >> absolutely not. what has tended to drive yield levels in the emerging markets is investor behavior. we have seen a lot of outflows acted as agan, it soon ami of global capital and had a negative gravitational which suck money out of em as investors chose instead to invest in developed markets which is beginning to reverse. it had little to do with interest rate policy and everything to do with qe. nejra: i was debating whether to

bring up an em the debt chart or fx. you can see returns have surged to the highest since 2014, is this trade looking crowded? jeremy: there has been a big buy towards yen shorts and a fund in late for carry trades and you could argue there is a degree of routing any process and went -- crowding in the process. that is perhaps a signal we are seeing that sort of lost rush of enthusiasm. there is an element of that but in the context of the fed, it is going nowhere fast and the prospect of the carry trade continuing on into 2018 remains real. nejra: what about em debt, do you see it during to 2018, the appetite for local currency debt in particular? >> iq and local currency debt will probably return something in the order of the percent in dollars over this five-year time

-- 50% in dollars over this five-year time. more than 200 basis points of positive real yields and local bond market and another 20% upside and emerging-market currencies. over five years, we are looking at 50% return in dollars. i do not think anything in global fixed income beats that. tom: this we have shown for years, we call it the lowly pop chart, the fed meetings back arrives in the two-year yields, here is today's meeting, we will not get a yellow rate increase that we will migrate that circle up to where we are in the two-year yield. we say that will yields normalize? your space, will the dollar normalize in 2017? jeremy: it depends what you mean by normalize. that,derlying dynamic of

even if we see janet yellen continued the process of following the head d -- fed dot, and the dollar, if we do see normalization in other central banks, we will see the dollar continued to depreciate and that plays into the narrative in terms of em currencies doing well against the u.s. dollar. tom: thank you. a wonderful conversation to set us up for the rest of the day, in the next hour, michael nardo will join us and ian bremmer will join us from eurasia group and we will speak of russia and much more with ian bremmer on president trump. this is bloomberg. ♪

♪ tom: there is disinflation in chair yellen must adjust, adapt, and adjust, the federal weather

desperate desire to normalize rates. sessions may exit stage right, secretary tillerson may exit stage left, a trump zero world, every white house faction for itself and the u.s. dollar inflates. this is "bloomberg surveillance" live from new york, i am tom keene and in london, nejra cehic . day in theresting united states between the fed and washington, the fed meeting and the effect on the global economy. nejra: we have had fascinating discussions with jeremy stretch and jan dehn, on the lack of impact on the fed on emerging markets. tom: we will get to the dollar dynamics with ian bremmer. the first word news. rejecteds. senate mitch mcconnell's health care proposal last night, it came at

the start of several days on debate on replacing obamacare. republican senator john mccain returned after being diagnosed with brain cancer and said he would not vote to pass the latest version of the health bill. the house is sent a couple message to president trump on russia, voting to impose more sanctions on moscow and to limit the president's ability to lift the penalties on his own. the senate has passed similar legislation. the white house has sent mixed signals are well president trump would sign the measure. the bank of japan's deputy governor says the central bank needs to keep monetary stimulus in place. he says japan has to get to 2% inflation as soon as possible but there is still a long way to go. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: fed day, quiet, we know that oil at $50 in brent crude

at $50 with futures advancing. 9.21, weaker swiss franc. interesting dynamics on safe haven currencies. nejra: breaking news, from the drugmaker glaxosmithkline, the key number is second-quarter 27.2ted eps, at a beat at with glaxosmithkline saying the program to deliver added one billion pounds per year savings by 2020. second-quarter revenue at eight feet, overall the adjusted eps number you want to watch and share price reaction, we saw them drop a little bit when the number came out but it flattened a little bit, off by 2/10 of a percent. elsewhere in the market, european stocks more broadly, demand for risk assets, european

stocks gaining for a second day, euro-dollar is five years since mario draghi said he would do whatever it takes he saved -- to save the euro and walking the 10 year yield as we see the curve flattening following the steepening yesterday. copper, watching commodities broadly but copper hitting a two-year high and the commodity rally feeding through to asian equity markets. tom: thank you. with kevin cirilli in washington , tumultuous day, what should we expect from the senate today? >> they will continue to try to pick up health care reform but unclear what will advance. in terms of where this goes. the skinny version is this compromise, it faces a very uncertain future in the house of representatives. growing tension between the attorney general and the president. expect that to escalate. tom: have you heard a response

from the attorney general, has senator sessions commented? has he talked to you at the trump bar? >> he has been tightlipped, as as -- has his staff, he wants to remain serving as attorney general but no question that there is increased distance from the president and his top communications diplomats, including kellyanne conway and anthony scaramucci, and sarah huckabee sanders expressing that there is growing tension because the president feels the attorney general should be focusing on democrats, republicans are taking the russian investigation seriously. nejra: looking at this from europe, the big question between president trump and jeff sessions is he will move first? anyway to tell? >> it is a political game of chicken at this point.

the tension and the distance between them is quite remarkable, simply because the four jeff sessions was the attorney general, he was a -- aan in the political political veteran in the senate from alabama. one of the early endorsements for then candidate donald trump and someone who many conservatives wanted. their relationship to be so tumultuous, especially from a president who values loyalty, this is quite remarkable because they were so incredibly close earlier during the campaign. tom: have a productive day, our chief washington correspondent in the zoo of the nation's capital. it is rare that someone with an international relations, academic, someone doing analysis, someone from eurasia group can make major news. daysan bremmer did that 10 ago or so with an important interview with our charlie rose on russia and sanctions.

things we need to talk about, let's go to the house and the new sanctions they adapted. synthesize that with us with the president, vladimir putin, what do the new sanctions mean? congress,publican led they are telling the president that they do not trust him to conduct foreign policy in america's national interest with one of the key antagonists of that country in the world, russia. a remarkable thing. donald trump made clear he wants flexibility, he made very clear that he wants this relationship to work more effectively and is engaged with vladimir putin on a number of occasions, some public , some not so much but the fact this would pass the senate and house overwhelmingly despite the pressure from donald trump, this is as vetoproof as you get thomas and the strong message that the united states is not governed by an imperial

president. tom: jeff sessions, secretary tillerson talk about being out the door soon, into the year, doesn't matter? more,sions matters a lot because it is very clear that donald trump fines with some justification that the mueller investigation is going well beyond looking into potential: between russia and the white house -- put into collusion -- potential collusion between russia and the white house, james comey made clear to donald trump that he was not investigating the president directly and took a much narrower you. -- view. in terms of tillerson, if he were to leave, i think nikki haley would probably be most likely to become secretary of state and, if that were the case as a leading light from the republican party, i do not think

-- i consider tillerson to me one of the more capable people in the cabinet but the fact he will not do sharp elbows and force his way into conversations and is basically his conduit is jared kushner, it means there is a prime minister and the trump administration, jared kushner, and his role as secretary of state has diminished. trump mentioned earlier zero, what does trump zero mean to you right now? whether it is boy scouts, this, sessions, that? what does trump zero mean to ian bremmer? wedomestically, it means have the biggest and brightest shiny objects in front of us all the time while the governing of the country does not change that much. not much is getting done is getting -- as far as legislation, surprised to see a legislative -- a health care bill, tax is only big thing you

can see, infrastructure, made in the u.s., not particular, obama had the same problems. we have gotten much more divided as a country and the trump administration facilitates that in a big way. american allies have been rushing away from the u.s. because they do not think they can trust this president. you go around the world, some deferred to him like the saudi arabians, but when you look at the allies, they say they he asked that he is incapable of leaving by the example and that is a problem for the u.s. globally. nejra: i wanted to go back to the uncharted territory of u.s.-russia relations, in terms of retaliation from the russia side, their deputy foreign minister this morning has spoken this morning, what is the worst-case scenario in your view? ian: let me say the most likely worst-case an area, which as we

know the russians were engaged in systematic hacking, not just of the democratic national committee but of the republicans. was leaked andnc the republican national committee was not, there are cyber capabilities are as good as those of the united states, nearly at parity. i know that donald trump said he is not certain that the russians are engaged in hacking of the u.s. but what will he say when they start coming against him and his emily and the republican -- and his family, the republicans? , thate said last week relations between the u.s. and russia would be worse under donald trump, that he would be harder -- under hillary clinton, i think that is true but not for the reasons donald trump said, not because he is not, because of the lack of trust, investigations, congress, all of that means the americans will be hitting pressure hard and when the vladimir putin administration realize that donald trump is not being useful for them, he is not delivering,

i think the ability and willingness of the russians to come after the u.s. with cyber and identify people in the republican administration they want to hit israel. -- is real. we are looking at something like to feel like the russia-turkey relationship and the depth before murder one and putin realize they love each other. tom: we will continue with ian group. of eurasia coming up, a conversation with the conservative think tank dynamo out of heritage, a new effort, jim demint, a former senator. and the 7:00 hour with kevin cirilli. this is bloomberg. ♪

♪ this is bloomberg surveillance, i am nejra cehic with tom keene. from the eu commission say the eu has launched an infringement proceedings against:, acting to preserve the rule of law in poland. saying poland has one month to reply to the formal notice, the eu say it seeks a constructive dialogue with the polish government. tom: we look forward to his question in today's press conference in washington, michael mckee joins us. atyou were to ask a question the non-press conference today with chair yellen, what would it be? >> what is your hurry?

the question is -- when does the fed stop its efforts to raise rates, not doing it today but the market is so pricing in one this year and the fed pricing in four next year and with inflation going down, you have to wonder why. tom: we will not see slack labor, what will you look for in the adjectives and adverbs of economics? >> the most important thing for description is the of inflation, the fed last time said it is running time were below 2% and they can take up a somewhat to reinforce the idea they are watching the disinflationary and false and still think, according to the fed officials we talked to, that it will turn around and inflation will come back up, which justifies their stance. you have to watch for any hint of when they start the balance sheet, most people do not think they will do anything today. they may put something in the statement about very soon or

something to suggest it may happen in september. tom: thank you, maybe we will hear something about the future of chair yellen. ian bremmer is with us from eurasia group and running us is michael the -- michael. i want to bring up a chart which may be my chart of the year, i sold this to the chicago fed and the san francisco fed, you know this chart, labor share, a percent of compensation, what is stunning about this chart is how flat it is for so many decades, we are six standard deviations, 1, 2, 3, 4, 5, 6 standard deviations below what label -- labor share used to be, the scream of the nation that chair yellen here's -- hears. i when i look at that chart, see a great recession chart, we

had an economic downturn, a loose labor market were sometime and that is reversing. the economicif expansion continues and the labor market continues to tighten at the margin that labor share will continue to pick up, we are off the bottom and still low one historical basis but that is a business cycle phenomenon. you have been out front on labor day nymex and capital dynamics and technology, is this about technology taking over everyone's lives, everyone including chair yellen? on the technology front, we need to focus more on productivity growth, it has been weak over the last five years, the last decade to five and 10 have beeng average is moving down and a big debate in the economic community whether that is temporary. also the result of the great recession armor per minute, the innovation we are getting innovations, do not seem to be adding to economic efficiency. if that is the case, a

semipermanent state of affairs, then real wage growth will be lower. tom: this is what surveillance is about, magnificent, can this nation get along with sub 3% gdp? can we get along with that animal spirit below par? can politicians deal with your new reduced gdp? because answer is no the decisions that would need to be taken to actually bring big polarization back together, nowhere close to politically feasible, some cities and states that are showing willingness to invest in their people. very few. not happening from the top down and when we talk about opioid crisis, crumbling infrastructure, k-6 education that underperforms other countries, as the world's only superpower, a reason why so many americans say that the entire

establishment, not just republican and democratic parties, but ceos, bankers, media, public intellectuals, they do not buy it and do not care if we have facts at our disposal, whether they are about climate change or the u.s. economy, they are saying, you are using your fax, picking them selectively and hurting me. i do not see anything in this country politically feasible over the course of the coming years to change that. the baby in metaphor for new york subway system which is front and city in new york city this summer. for the newetaphor york subway system which is front and center in new york this summer. nejra: this is a technical chart showing the backup in yields yesterday taking you back up above the 50 and 200 day moving averages, focused on the balance sheet and words around not from the fed decision later. what are you looking at in terms of the yield curve? >> i will be looking not just at

the level of treasury yields on the 10 year, the 30 year, but also the shape of the curve and inflation expectations. we have seen, since the fed restart of these quarter by quarter rate hikes, a pretty sharp yield curve flattening, a big drop-off in inflation expectations. if that work to continue, it severely limits the scope and duration of future fed rate hikes. watching closely for that. there seems to be a fairly broad consensus on the fed to start the balance sheet reductions soon, even the doubts are worried about low inflation readings and are questioning whether the fed should carry on with quarter by quarter rate hikes, they still think the balance sheets should start coming down soon. we may see something explicit on that. tom: we will come back to talk about chair yellen. at 2:00 p.m. this afternoon, william gross, janice henderson,

scarlet fu leading our coverage with michael mckee in washington. dardatinue with michael and ian bremmer. this is bloomberg. ♪

♪ surveillance." ian bremmer with us and michael darda on the future of the federal the.

low rate janet, maybe low rate janet and low rate gary or low rate somebody else, that is what a politician wants. sure, i would say janet yellen would have to be the front runner in terms of being a known entity. trout was quite critical of her during the campaign but there is a difference between a campaign and once you're in office. gary cohn was mentioned by the president yesterday by somebody in the running. tom: ken rogoff said we need a monetary phd. >> i think we do, it would be off the beaten path. tom: we go back to william j miller, did you study him? >> i am not an economist. tom: you will dive in anyway. ian: politically, i have a hard time seeing donald trump not taking the opportunity to make

.he fed less independent tom: do you agree? >> i worry about the prospect of cousin it is a dangerous place to go, you want someone leading the fed that has an academic and monetary pedigree and janet yellen what have to be the front runner on that basis. if gary cohn is selected, it will raise eyebrows. tom: it will be interesting. ian bremmer and michael darda with us. tonight, a spirited conversation, david rubenstein with paul singer of elliott management, must watch for global wall street. ♪ these days families want to be connected 24/7.

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it all adds up to our most reliable network ever. one that keeps you connected to what matters most. nejra: you are watching surveillance. let's get the first word news with taylor riggs.

taylor: the u.s. senate will consider a proposal to repeal obamacare. debate over how to scrap the affordable care act. there is no clear idea of what the obamacare replacement plan senators will ask -- will be asked to pass. the president has been critical of jeff sessions on twitter this week. he has been happy sessions recused himself from the russia investigation. sessions recused himself from the russian investigation. the president indicated the head of the white house economic cohen was ary current contender. 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. the polish zloty weekend. it comes in response of the introduction of controversial legislation which sparked her to. poland has a one-month deadline to address the concerns. the deputy prime minister. he said an over vote of the president's vote is not possible. present the new .egislation and over vote of his veto is not possible. the previous legislation as closed and the move will be made by the president. michael are with us.

i have the euro against the zloty and we are flat on the day. fx markets don't see too much impact from what we have heard. what are the longer-term implications of the tension between the eu and polling? hungary are not adhering to rule of law. , authoritarian states. it is a good thing the polish president backed off what would undermining the independence of the polish judiciary. you will remember trump, they 15,000 bust in to cheer

him. in thed not have to bust hundreds of thousands that were demonstrating against him to make the country authoritarian. you have to give the trump administration credit. tillerson's state department came out with a strongly worded memo, saying the u.s. would not find it acceptable if they proceeded with this. the president recognized he was going to be in deep is he pushed this hard this quickly. the eu is going to squeeze him to. none of this will change the direction in poland against being integrated in the eu. does it change the fundamental dynamics between russia and the eu? interests is

divide and conquer. they want a weaker transatlantic relationship. they want divisions in europe with countries that can decide themselves how to work with the russians. that is why the germans oppose the u.s. sanctions against the russians that was passed yesterday. doman industry wants to pipelines and other business with the russians. a want more divisions inside the united states. russia, whose economy is smaller than new york city, you are not winning by having a well run global integration. you win by having a backyard no one can plan. you want weaker divisions around it. that is what russia wants. many countries in europe, including candidate member that will never become a member, turkey, with erdogan and putin

being more aligned, those things all way down on russia's interest. tom: this has been out with samuel huntington. class ofdonald trump's the civilizations as you look at the european model out of world war ii? ian: his speech in warsaw was that. tom: agree. how was it taken by germany? ian: they are the single american now i that had the biggest problem with america throwing support away for liberal democracy. democracy was not in the speech. you heard him talk about religion, family, nations. all of the things that bind together the judeo-christian nation's. tom: we have gone from samuel huntington to a post-american

world to your g-0 world. forwardld trump pull international relationships from 40 or 50 years ago? can align himself in parts of the united states with others that would support a regression to that kind of nationalism. the world is heading in that direction. china shows that. not going to change the world order in america's favor. it will create more division. , he ischael dardea talking about tepid nominal gdp, that has been written about, it is not there. michael: it is not. if we are going to move towards populist and a protectionist policies, it is probably not

coming back, at least the forces that are headwinds with regards to demographics end up exacerbated by weakness in productivity with further headwind if we are moving in that direction. political risk was the name of the game when you were looking at europe in the first months of the year. when you look at european fundamentals, how much does political risk factor in into 2018? piece of thes a puzzle. things seem to be going along well. if you look at business surveys,e manufacturing pmi is close to cycle highs. is growing fast enough to pull unemployment down. draghi is succeeding. the medicine is working and the patient is reviving. can you say it is a new,

research in europe? i don't buy that? that is a different question. i see president macron popularity has taken a drop. tom: why did that happen? ian: why did the french election happen? close forgot he was this to not being in the final round. whether the ask euro would come together if that was the situation. the everyone says france is new model. frenchaise among the population is getting worse. michael, you wrote about this. are we out of eurosclerosis in america or europe? i don't buy it. michael: with business cycle dynamics, they are coming out of

two-year recession. they are growing faster than potential. you are focused on potential growth, which is slow due to headwind from weak labor force growth, weaker in europe and japan than in the u.s. and we productivity. that decides and determines how fast you can grow over the long run. if you're coming out of a ditch, you can and should grow faster than the potential. over the long-term, once the cycle has healed, potential growth drives everything. that is weak in the u.s. and europe. tom: we will get this out later on the podcast, on europe and our international relations. businessweek, megan murphy and her team rebuilding the magazine for the new modern world. love it.tell me they it is your weekly primer on what is going on with the news flow

that is out there. check out the new bloomberg businessweek. ♪

theor: let's get to bloomberg business flash good at&t can handle itself in a price war. he posted an increase in subscribers in the second quarter. that will help them by their time while waiting approval of its takeover of time warner. is hoping to name a new ceo by september. they have fewer than x candidates. an six candidates.

that is your bloomberg business flash. tom: the single best charge. we have ian and michael with us. the red line is the united kingdom. forget about that. disinflation, a bit of reflation. andr yellen stands up screams yes, yes, yes. the vigilantes want a press conference. what are we going to get this afternoon? >> close to even on if we get the runoff from the fed today. willto fourth quarter, we let our portfolios shrink, we are not going to reinvest mortgages or treasuries. this is the normalization.

this is post crisis. we are a decade beyond the start of the crisis. get information about how they are going to unwind this. tom: the idea of run it off. paper goes out to the market. can you say we see that price down, yield up? .> not in the long end these are maturing debts. these are things that are two month increments today that will mature in october. tom: he is like an economist. i did not get a straight answer. going to go up? >> in two-year notes? i think they will issue bonds in t-bills and in two-year, three-year notes, not 10 year notes.

can pressure that. it is manufactured by this distortion. >> it is a hawkish comment. it is not the similar to what would happen if the feds hike interest rates once or twice. balance sheet equals how much of a fed fund hike? none of that has been tested yet. this will be a test of how the real world works. anothernot know until six months. tom: can i quote you on that? we finally get to see it implemented. tom: jump into this debate. nejra: i want to bring

michael into this. a bear market is coming in stocks and credit in 2018. michael, does a tightening said fed mean a tightening --. the plot, lookw at where markets are, where the yield curve is flat as a pancake or starts to invert. we have had certain fomc officials say don't worry about the yield curve because long rates are depressed for these nonmonetary reasons. looku go back in history, at every yield curve inversion in the last few recessions, we poo-pooing officials it. that has been costly advice. nejra: another thing to think about -- how much should the fed

look at a weakening dollar in terms of how that feeds through to inflation? we talked about the lack of monetary policy means we should not rely on the weaker dollar to see you through. can look aty inflation expectations and the weakening dollar has not pushed inflation expectations up. they have been coming down for the most part. they may be firmer in the last few weeks. may look at it through the lens of financial conditions. if the dollar is moving down, if anything, that leads the fe to a hawkishd place. what is important about says, it sounds like animal spirit zero. bring up the chart.

this is a stunning chart of the change. this is a 10 year moving average. inflation has come down. nowhere near we were in the time of eisenhower. it is a sluggish animal spirit out there. politicians cannot wait for their world to correct. >> i want to know when we will see consumer sentiment pickup. in a world more divided, you can see the top 1% consuming. going to bring us -- at the end of the day, if the technology is driving more of where the deficiencies are coming from, it seems like the old globalization unwinds. the new globalization model is not ready. tom: what would be your question

for chair yellen? >> what causes you to hike more? we had a situation where the fed says they want to hike gradually, but the market is not pricing for that. the disconnect between the market and the fed means one or two things have to happen. the fed will hike or the fed will have to backtrack. they are not backtracking quickly on this idea they want to hike three or four times. the market is not there. tom: thank you. michael, thank you. will continue on radar. ira will continue with us, as well. handsome michael darda. bring it up. . did i do something wrong?

there it is. this is bloomberg. check it out. ♪

tom: good morning. nejra is in for france wayne.

-- is in for francine. the future of the republican party experiment, that is what we are focused on. can you make a parallel to the ghost of 1973 and watergate? if you are looking to see what is going to get us out of fever,riod of political it will not be restrained from trump. every day he will find something new to titillate and excite and discussed us. have separation of powers in this country. the question is when push comes to shove, it is either the , or ifcans in congress

they are voted out, then congress as a whole palm -- a whole, it is a 5-4 split of the justices in the supreme court, we are heading towards one of those two outcomes. politicalof civil discourse have eroded. we have 24-star admirals onto a captain with all the heritage and history of john mccain. he was crying for republicans to have courage. what is the courage the gop leadership needs? courage with the russian vote. what you don't have all republicans who are going to stand up and say trump, the way you are behaving is out oftable, it is bounds on a host of measures, whether it is about the tweets

or the conflict of interest with the trump organization. they are not willing to do that. i suspect they are placing their own political futures above that of the health of the nation. that because they believe we can get through this, it is not that severe. if we get to the point trump out that is it, i am taking robert mueller, no more investigation, i am above rule of law, republican senators and members of the house have told me off-line they would consider that a step too far. that would be grounds for impeachment. it is one thing to tell someone off-line anonymously. it is another thing when your vote is on the line to do it publicly. we will see what we get. tom: thank you. we will continue this

conversation to we see earnings continue to come out. day forest dow earnings. there is coca-cola bringing it out. we are seeing guidance forward which gives list -- gives lift to the market. we talk about the markets, look at the dollar, treasuries, the s&p 500 hitting another record yesterday. tom: thank you. this afternoon, william gross, janet anderson. the fed decides. this is bloomberg. ♪

♪ jonathan: it is federal reserve decision day.

we went to find out when the balance sheet unwind will begin. the senate debates the future of u.s. health care. republican lawmakers will consider a simple repeal bill today. the s&p 500 begins the day at a record high. it is fueled by better-than-expected earnings. from new york city, good morning. this is "bloomberg daybreak." i am jonathan ferro alongside david westin and alix steel. it is been five years since mario draghi said he would do whatever it takes good the euro-dollar -- would do whatever it takes. we are sitting at a record high today. seeing somee earnings coming out right on time should -- right on time. ford is above estimates from last year. they also beat on the rev