>> ceo john cryan says revenue is not as high as he would have liked. astrazeneca as luz billion after suffering a huge blow. and dovish on rates. the dollar plunges to a two year low. officials say unwinding will begin soon. good morning, everyone. this is "bloomberg surveillance" and i'm francine lacqua in london. we are getting breaking news out

of the financial conduct authority. a speechs arguing in right outside the studio downstairs in our auditorium. he believes the benchmark is untenable. he's looking at a couple of reasons for this. he says there is a lack of transaction providing real basis. the rates, i would argue in the years, were sito six cut, leading to a $9 million banking fine. we will be listening exclusively to the ceo of the financial conduct authority. time.s at 9:40 u.k. in the meantime, we will be speaking to paul hamill. first things first, let's quickly check on euro data. we have a lot of news.

the dollar dropping on the back of the fed. first of all, dollar down. earnings in europe are a little mixed. some optimism in certain sectors, meaning the european equities are fluctuating. the 10 year yield is fluctuating. and then, i don't do this very often, but i have another board for you and it is looking at some of the companies. plunging after this crucial lung cancer drug trial, down 15%. volkswagen has revenues lifting their forecast. we do have an interview with the ceo, coming up. first, let's get straight to the bloomberg first word news with nejra cehic. reporter: i have the stories on some of those stocks will step deutsche bank has reported a 10% decline in second-quarter revenue. it fell to 6.6 2 billion euros.

income from fixed income trading dropped 12% and equities revenue declined 20 at present. -- declined 28%. it expects operating revenue to slide this year. we will bring you our interview with john cryan later this morning. after seneca have had billions of pounds wiped from its market value as the pharmaceutical giant suffered a blow to its next-generation cancer therapy. the cancer study failed to meet one of the three primary targets. the drugs were expected to generate more than $7 billion in sales by 2022. the swedish prime minister is due to speak this hour as he deals with a political crisis. three cabinet ministers are facing no-confidence motions for their botched response to a security breach. elections are not due for

another year, but economists and clinical analysts say he will probably have to resign or call an election. the defeat for the republicans comes in the early stages of an unpredictable floor debate amongst significant doubts the gop can muster the 50 votes needed. the failed amendment was led to the affordable care act repeal that was vetoed by the then president barack obama. theresa may's government has issued a report assessing the impact of workers on the british economy. this comes one year after she first took office. this prompt questions as to why such a study was not concluded earlier. today we ask the independent migration committee to assess the role of european union nationals in the u.k. economy. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world.

i'm nejra cehic. this is bloomberg. francine: hawkish on taper. doveish on rates. that was the take away from the fed's latest policy decision. the dollar plunged to a two year low. inflation remains significantly below target, even as the steam. ickpicks up the central bank will start unwinding its balance sheet though, reasonably soon. with us is paul hamill. i'm glad you made your way to london the day after the fed decision. what did we learn from janet yellen yesterday? >> no major surprises yesterday, which is what people were expecting. the two main themes where the balance sheet run off and getting more uncertainty around the plan within a september timeframe. inflation seems to indicate less

optimism around a rate hike in december. francine: we have a great chart hillary clark did for us, the exercise of unwinding this balance sheet is massive. what do your clients worry about the most? >> i think there is more optimism than morey because it has acted as a significant volatility suppressor of the fed behavior. i think what clients are quite excited about in an orderly, which is what we expect, in an orderly runoff, we will see trading opportunities. meansl learn but it to have that kind of supply come into the market with more constrained on the balance sheets. i think there is probably going to be a higher appetite to turn over that balance sheet quickly, grading relative value opportunities for investors. i think our clients are optimistic about a return to normality and volatility in the market and frankly, some trading opportunities will be created,

provided it is orderly. francine: which is your best case th scenario. do you see opportunities in the market from the moment they start unwinding the balance sheet, or will it take a couple quarters, or even years? >> i think it is hard to predict the velocity. i think that will be related to the market reaction, right? one of the things that comes through when you talk to customers after a day like yesterday, these are just some of the data points. we have the debt ceiling coming up, the fed chair coming up, tax reform. the linkage of all these things will drive market response and volatility overall. i think it is too hard to say. what we've seen is an alarmist enormous demand for intelligence for insight. i don't think anyone knows how all these things will combine. that is what we find ourselves spending our time on, scenario

analysis around the different outcomes. francine: what do they worry about the most? we have been playing about with some of the graphics. the path of the vix was the fear guage. by looking at these graphics, you could argue the dollar is the new fear guage. is the way the market is functioning changing? >> it seems to be for a variety of different reasons. i do think the market structure is not something we should overlook. and by that, i mean how it functions in terms of day to day liquidity. but i would say, at a macroeconomic level, people are most worried about the inflation situation. i think on the market structure side, i think it has been several years since we have had a consistent high volatility environment and i think a return to that will test our thesis

around how the market works today. there are few players with more concentration. what will that look like when people start to want to trade? francine: what will that look like? does that mean investors will be more risky? we have not been in this environment for such a long time. will the market be tested? manus >> i think it will be. what is interesting, i think people are testing us. they are eager to test our capacity as a new engine, feeling that supply gap. how do we apply balance sheet. how do we step up? inn swe see these spikes volatility. test, will big customers be able to do what they want to do? and that means a risk transfer. and also, what will the trading opportunities look like? will it be more chaotic, or more orderly?

francine: thank you, paul hamill stays with us. plenty coming up, including d deutsche bank's decline. libor'sans to kill benchmark. we speak to andrew bailey, who's giving his speech live here at bloomberg. ♪ francine: this is "bloomberg

surveillance." let's get straight to the bloomberg business flash. reporter: bumper-to-bumper data earnings in europe. nestle warned sales growth will be the weakest in two decades, giving investors ammunition that

the food company needs to rejuvenate its businesses. sales increased 2.2% on an organic basis. airbus reported a 27% drop in second-quarter profit. earnings before interest and euros,ell to 859 million excluding one-time items. the company also said delays with the engine maker are continuing to weigh on deliveries of the a320. facebook investors are optimistic about the revenue potential for the company's chat messenger. they would like to move faster. that is came as facebook reported second-quarter sales that beat estimates, climbing 45% to $9.3 billion. that is the bloomberg business flash. francine: john cryan says revenue was not as universally strong as he would have liked.

that, as it fell 10% during the second quarter. they expect revenues to give sliding this year as market volatility and client activity are likely to remain neutral. still with us, paul hamill, the fixed incomeof outrities that sit it securities. -- securities at citadel security. what does this mean for john cryan? >> the focus is now shifting to the top line. out securities. -- securities athe's done the c. now, it's about turning to what he has talked about as being modest growth. the language looking further bit lessa little ambitious than it had been on the growth front. and of course, client activity has been muted, but he also saw difficulties in the u.s. rate business, where we reported

they had faced a lost in one particular trait. this is not just due to therefore, client activity. francine: how much does it have to do with his strategy and how much does that have to do with just being unlucky. willie see similar figures from rivals -- will we see similar figures from rivals? >> they are trying to regain the market confidence they lost last year. that makes it very deutsche bank specific. francine: any silver linings? >> on the cost side, they beat some analyst estimates. of course, as revenue remains muted, you can be working on the cost side. francine: a couple of months ago they changed their management structure. do we read into that and the earnings today that they could be looking at a overhaul for a ceo? >> we are not there yet. this is very much his plan. we are only two months in the making, early days.

i think the focus will be very much on what exactly does the revenue outlook look like? francine: we had figures from wall street. we are looking at the swiss banks tomorrow, ubs and credit suisse. >> they are looking at the wealth management industry. we had strong results earlier aer. week by judith b certainly on the wealth aside, there seems to be an upside. on the i.b. side, the focus will be on the equities business. testimony has looked solid on the equity side. francine: tomorrow we will be speaking to credit suisse and the ubs ceo. when we look at earnings, we have shell, faster than a cup --

razeneca,e shell, ast what does this mean for what the clients are looking at? are they trying to get to the bottom of some of these fundamentals? >> i would say the central bank activity dominates the rates market. it has done for the last couple years. it has been a volatility suppressor. it will continue to dominate for the next couple years, but in a different way. the start of the runaway yesterday has most of our clients excited. i think whatever we see draghi say in jackson hole, there seems to be a lot of expectation about something similar. francine: do your clients see that as distortions in the market? >> i think the distortions are there, but priced in. people understand their impact on the market. i would not say they are looking for more volatility, just a return to normality. francine: thank you both for

joining us. andry busy day for elisa paul hamill. we will also bring you our interview with john cryan later this morning. up next, costly, but part of the game. new banking rules coming into play next january. speak to andrew bailey on overhaul. we are actually getting rid of libor. we will see live pictures of mr. bailey giving his speech in the bloomberg auditorium. this is bloomberg. ♪ francine: you are watching

"bloomberg surveillance" and i'm francine lacqua in london. new banking rules are a costly, but necessary part of the game, according to the ceo, who is confident this will not be a big impediment to his business. it is been complicated by the brexit talks and the single market access. still with us, paul hamill from citadel securities. paul, i imagine a big chunk of your time is spent looking at this, trying to figure out what it means for your clients. what is your biggest worry? >> that we enter what we consider the final furlong of the implementation. and we get down to details,

the details will matter. we are concerned there is a cost, as you mentioned. there is a lot of expectation and we see that in the u.s. as well. that will move the market forward and it is going to great benefits for those investing. i will give you a good example. the trading venue piece. there is a lack of clarity how rules the trading venue will work. right now traders know they have to go to this kind of venue and get the competition. that is unclear in europe. one of the biggest risks now is, we get the costs of implementing these new trading venues, but some loophole might create such a situation where nobody has to use them. i think that would be the concern because if we don't use them, or if there is no opportunity to use them, we will not see the same benefits that we see in the u.s., compression

and pricing, more transparency or more competition. if there is one thing investors want to see come out of the expenditure, it is really more competitive pricing and a better execution for them and their clients. francine: what it actually end up moving big markets to electronic trading? ask think right now, if you what we are worried about, you don't see any shift. what should happen, and i think we have seen this happen in the u.s., there should be a good, healthy balance that comes out. there are very, liquid benchmark products better suited to trade on electronic markets. there are those that are less suited. i think most customers would agree the price discovery and execution process for the liquid benchmark instruments is very well suited to electronic markets. it is faster, there is less complexity around the transaction. they are not looking to call five guys to get a price on a $50 million five-year swap.

francine: do they not care? how much does this impact the clients specifically? >> i would say it impacts lines a lot. -- it impacts clients a lot. cost is way at the top. that is very consistent with what we have seen in the u.s. that is when the discussion pivots to, i hope i get something out of this for myself and my investors. i think the operational readiness is actually quite important. these are big, fundamentally important markets. now, we are looking at january for implementation. frankly, not one of our customers can answer with clarity how they will execute a swap. francine: but this goes beyond the post crisis regulation, right? you think it is a step too soon? >> meaning the implementation? francine: yes. >> i would not say so. i would say the best way to

think about this is in the u.s. we have had this market structure implemented for three years and we are in a good place where we are thinking about places to tweak the rules. francine: thank you, paul hamill from citadel securities. still to come, as the financial conduct authority announces its killing libor, we speak exclusively to andrew bailey. this is bloomberg. we are looking at a lot of earnings. the amount of market caps with all these earnings out today, what they amount to. we are seeing big moves. astrazeneca, down some 15% after it failed to meet a lung cancer drug trial. this is bloomberg. ♪ francine: this is "bloomberg

surveillance" and i'm francine lacqua in london. years nejra cehic. -- here's nejra cehic.

reporter: deutsche bank has reported a 10% decline in second-quarter revenue, falling to 6.62 billion euros. income from fixed income trading dropped 10% and equities revenue declined 20 a8%. market volatility and client activity are likely to remain muted. we will bring you our interview with john cryan later this morning. astrazeneca has had billions of pounds wiped from its market value as the pharmaceutical giant suffered a blow to its next-generation cancer therapy. the lung cancer study failed to meet one of the three primary targets. the drugs were expected to generate more than $7 billion by 2022. or, the benchmark underpinning more than $350 trillion of financial products, will be phased out by the end of 2021. u.k. regulators and banks to

replace it with a more reliable system. andrew bailey said the rate is not sustainable because of a lack of transactions providing data. we speak exclusively to andrew bailey. willweetest prime minister speak this hour as he deals with a political crisis that threatens to topple the social democrat led government. facingabinet members are charges due to a bust response to a security breach. elections are not due for another year, but economists say he will probably need to resign or colin earlier election if sweden is to move on. theresa may's government has commissioned a report assessing the report of eu workers on the british economy. this comes one year after she took office as prime minister, prompting why such a study was not done earlier. andrew rudd will ask the committee to assess the role of european union nationals in the

u.k. economy. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. we just got breaking news out of the newspaper "the telegraph." that theresa may might delay the next stage of brexit talks to december. there is not much reaction on the pound, but i want to show you a longer-term chart, currently 1.3140. parliament is in recess. we understand theresa may have and hiking in switzerland she will reassess her position on brexit when she comes back in september. "the telegraph" says because of the divorce bill, which means the amount of money the u.k. has to pay to the eu, this might be delayed by two months. the clock is ticking.

i don't know how this will be taken. i will point out that yesterday was a tough day for the prime minister. her director of strategy resigned. on to corporate earnings. shell earnings have beat expectations. the oil and gas firm also saw cash flow from operations rise to the highest in more than two years. now, more now from our interview with the shell ceo. we asked him about the future of shell's growth dividend. >> we have two priorities, two things to take care of. the equity markets and the debt markets. we had an elevated debt level. we feel we need to have a line of sight to 20%. we are well on our way.

at the end of this quarter we were just over 25% so, we are well on our way and that is that $50 oil. we will get there. we will get our bit faster, if not, we will get it later. 7% dividendat a yield, we are very motivated. guy: and you will remove that if and when you hit that debt level of 20%? >> that is a proxy. we need to get to set of credit metrics that is compelling, that brings us into a safe area. and then indeed, we focus on the turning of the script and starting a very significant buyback program. we don't really want to put some sort of mechanical trigger in the market. this is a measure of judgment, of prudence. but what we have so far, we think is still fair guidance. we have a 20% gearing level.

guy: and you did the clu blockbuster deal. would you ever reach out for a deal that size and of that magnitude again? >> not this year, i would say. joking aside, no, it was a good deal for us. much of the results you see today is on the back of that deal. we had been able to bring in high quality assets with brazil, with australia, but also places like kazakhstan. it has afforded us to upgrade the portfolio and come with a lot of growth opportunities we are still harvesting. we are still growing our cash flow on the back of that deal. altogether, it is a deal that has worked out well. by the end of the year we think

we will be done with the synergies to the $4.5 billion we promised to capital markets. we will get that by the and of this year, one year early. do we have something in our target at this point in time? i don't think so. at the moment it is still about really digesting, getting the company into a strong footing. an if we find ourselves in opportunity to contemplate something transformational again, of course. we have the track record to do it. in a think we have some good opportunities coming up in the years ahead of us. francine: that was the ceo of shell. earlier this week we had the opec and non-opec producers meeting in st. petersburg, where we spoke to the oil minister of the uae. there could be a linkage between oil price and inflation. janet yellen says that inflation remains persistently below target. still with us, paul hamill.

paul, first of all, thanks for sticking around. i want to bring you to our bloomberg chart. this is a different way of looking at longer-term inflation expectations. this is the breakevens in the u.s. they have the two year, the five year, and the 10. the matter how you look at inflation, are your clients worried about inflation? >> it is the central theme. our best lens into the is we find ourselves spending a lot of time with experts in front of clients hypothesizing scenario analysis. i would say, as you pointed out, the phillips curve is simply not working the way it is supposed to. we see a tightening labor market, but not an inflation catch up. the message from the fed is, we think tit will. thi biggest da point is the rate hike.

iraq below 40% yesterday and ended up somewhere around 42%. as reflected through customer's reaction, they are becoming less clear on the rate hike cycle. those two themes of the balance sheet runoff. and what inflation means for rate hikes. it comes a consistently. asly, i have no good answers to why the phillips curve is not working. francine: it is something we will continue working on. paul hamill, global head of fixed income at citadel secured his. plenty coming up. we big to the regulator ceo, andrew bailey. -- we speak to the regulator ceo, andrew bailey. he is up next. this is bloomberg. ♪ francine: this is "bloomberg

surveillance" and i'm francine lacqua in london. within the last hour, andrew bailey announced that libor wil ill be be abolished by the end of 2021. they are looking to replace this with a system based on actual transaction. i'm pleased to welcome on "surveillance," andrew bailey. mr. bailey, thank you for joining us. you gave this speech downstairs in our auditorium. why are you reforming libor now? >> because we observed the reset in which libor was that the assumption behind that resetting was that the transactions in bank funding would reemerge, but they have not. the assumptions that we have markets and money that will support libor has not happened.

the current structure, in a sense, depends on expert judgment, which by the way, they do well. i was careful this morning to say, this is not a scandal, but about the long-term sustainability of the structure. francine: if the structure is not sustainable, why keep it on for another four years? >> the reason we have to have the is the transition to the new world. we have to have interest rate benchmarks and we have to have interest rate benchmarks that represent pure interest rate risk and the bank risk element. we need that period of time to make the transition. the second thing, we have been in very close exchanges with the panel, to ask them to continue to submit during that time, so we can emerge with something different. francine: if there is not enough, or insufficient underlying transactions, how accurate can the replacement be? eachhe replacements --

central bank is involved with us. this is part of the overall structure of the work. the replacements are based on much more active markets. this is shifting towards a transaction-based market, where the transactions can be found. then, the transition will be done. francine: can you verify these midterms? >> they are using so-called expert judgment. there is a lot more scrutiny of this, starting with the panel banks themselves and the governance they have around that. as theo bty us regulators. we feel a system based on expert judgment is not one we want to see indefinitely. francine: how long have you been working on this? >> i have been working on this for a year. the work has been going on

longer. fsb group and that work has been going on before my time. francine: will it impact h ibor in hong kong? libor are very much the responsibility of local authorities. you are not intervening in that world. francine: but does that mean there is an appetite in the world for -- >> i suspect all authorities are asking themselves the question, is our benchmark rate based on observable transactions that we feel comfortable with? it is for them to reach those decisions. francine: do you think this could have or should have been done before? >> i think the reforms that took place some years ago were based upon the assumption, which was not unreasonable at the time, that we would reemerge into the markets with money. that is not happening and our judgment that will not happen in the foreseeable future.

the reasons that will not happen i think, you can deduce. francine: why do you think? >> we remain in a sustained low interest rate world. we have built substantial amounts of quantitative easing. i think we are going to remain in a world where there is incidentally more reserve money in the system. so, the transactions volume and short-term bank funding markets all of different. the other thing is -- francine: even -- >> they increase their deposit funding base. the funding ratios look very different today. francine: the transaction will not go back to how they used to be when the fed and other central banks start normalizing? will we ever go back? >> it should not go back to the markets we had immediately before the crisis because obviously they the trade the vulnerability. we will not go back to that world, in terms of the funding

dependent existence. francine: how do you think regulators have changed since the financial crisis? >> as i said in the speech, i think libor was one of those things, it had been present. its roots were in the euro-transient market sis in london. it was taken for granted. there is far more scrutiny now on market infrastructure in the post crisis world. regulators from has changeds enormously. francine: this is a big question, but are you concerned that because be a regulating the parts of the market that led to the financial has changed enormously. crisis, but not regulating parts

of the markets where the next crisis will come from? >> that is a good question. i am on the macro potential committee, and also my involvement in the fsb, we spend a lot of our time doing horizon scanning, precisely for this reason. of course, we have to spend our time saying, are therecrisis ths emerging? are we in danger of fighting the last war? francine: is there a part of the market that you want to keep a closer eye on? >> we see developments in markets. we would have said so if it was screaming at us, as it were. francine: of course. >> all the work that has been done on the clearinghouse arrangements is illustrative of the fact that right now they play a much more prominent and central role in the system. if you do a map of the infrastructure in the system we have, we very deliberately put them in a far bigger role.

therefore, there is more scrutiny. francine: andrew bailey, thank you, he stays with us. which talk more about european regulation. we will get straight to the bloomberg business flash. reporter: let's get back to the earnings day. shell cash flow earnings have risen to $11.3 billion. this beta second-quarter performance. -- this beat second-quarter performance. sales growthrned this year will be the weakest in two decades. companyd's largest food is to rejuvenate its business. reported a 27% drop in second-quarter profit. taxings before interest and fell 859 million euros, excluding one-time items.

the company also said delays from the engine maker are continuing to weigh on deliveries. growthquarter profit beat analyst estimates. earnings rose 11.8% to 5.35 billion dollars. they benefited from higher thees and cost savings on acquisition of a b miller. facebook investors are optimistic about the revenue potential of the company's chats businesses. mark zuckerberg said he would like to move "a little faster." that news came as facebook reported second-quarter sales that beat analyst estimates, 45%.in climbing francine: a lot going on in the markets. let's check on the markets with mark barton. mark: one analyst called this the day from hell.

a wonderful function on the bloomberg. look at the surprise. we have beats on average for the companies reporting on earnings. just explore, if you have got a bloomberg, ea biggest a kle, rting this 10% drop. -- due to bank shares down with -- deutsche bank shares down with the biggest decline since march. white line is going to .34. we were lower in september last year when the bank was facing this existential crisis. we are up barley since then. well below the purple line, which is hsbc. astrazeneca, a massive fall today, a 17% fall today. this is the biggest decline on record. it suffered a blow to its next-generation cancer therapy. the new drug combination failed

to check the growth of lung tumors better than chemotherapy. the drugs were poised to generate $7 billion in sales by 2022. really quickly, in the wake of the fed's meeting, balance sheet normalization will start sin, acknowledging inflation remains below target. the dollar is at its lowest level since 2015. the yellow line is the 200 week average. if we break to that, we could fall to 1050, another drop of 9%. it has already fallen by 9% from january's record. francine: i am getting breaking news out of sweden. we knew that the prime minister was going to give a press conference. the economy has been hit by a

political crisis that threatened to topple the government. we heard from the prime minister that he will reshuffle the government. his argument is he does not want to put sweden in a political crisis. he is holding a news conference in stockholm. we can see him in the middle, on the right side of your screen. he is reshuffling the government. right now we have the infrastructure minister, not giving a huge impact on the swedish krona. as we look at the bloomberg 5872.nal, 9. still with us is andrew bailey, that with us. paul hamill with us as well. thank you both. we had a nice conversation about regulation and what you are doing with ilbor. d-- with libor. do you worry the u.s. will regulate last the industry?

and we are therefore, not on a level playing field with europe? >> i think we are in a different world post crisis, where there are much stronger global standards. led by the g20 and the fsb. yes, we talk about it a lot. adon't think there has been fundamental fracturing of the commitments to these standards of regulation post crisis, based of course on the experience of the crisis and what we all learned from it. us should say our system of regulation is perfect, that it will never be revised. history clearly tells us that is wrong. i think it is natural there is discussion in the u.s. about the way forward. i draw a line though, between that and the commitment to global standards. francine: do you agree with that, paul?

you are on the other side of that. >> sure, i think what we have seen is, initially when we do the initial review of existing regulations, there was an immediate reaction suggesting there would be a big roll back. practically what we have seen is the practical and rational effort led by the treasury to produce these white papers, which will address changes to regulations around the market. one came out in june and one comes out in september, which will be the most impactful for our customers. from what we can see, there is a strong appetite to lock in the gains that we have seen around sensible things. francine: when it comes to brexit, what is your biggest headache when looking at regulation, andrew? >> a couple things. brexit shouldat lead to a continued system of

open markets and financial services. i do not see why brexit should lead to a closure of markets, and that would be a bad thing. obviously, it requires agreement out of the brexit negotiations, which we are not doing. it is up to the government to do that. since we all benefit from open financial markets, this global system we were talking about just a minute ago, is embedded. now is not the time to lose that. i firmly believe that. now, we have got to get there. in the short-term, i think it is important to have a transitional arrangement. i don't think firms should be put in a place where they have to decide the future before they know what the system is. the second thing, from our point of view, the biggest amount of work is the work from the withdrawal legislation. francine: we are running out of time. i have to get you both back on

for at least two hours. andrew bailey and paul hamill, thank you for joining us. we are getting breaking news from astrazeneca. remember, this is the company that is plunging by the most in the trading session, plunging by a record low after suffering a huge setback to its next-generation cancer therapy, purging the chief executive's ambition to join the big leagues. he has just that he is not a quitter. this is bloomberg. ♪ francine: tom and francine from

london and new york. this is after the fed's meeting. we see $3 trillion from companies posting hard earnings. the german bank just warned on

its outlook. our very own matt miller speaking to the ceo, john cryan. >> we continue to work on our costs, yes. you probably saw the head count hasn't started to come down. that is a mixture of the work we did to restructure in germany, which is now almost complete. also we have been internalizing some of our technology. the head count has come down and that will be through reduced costs in the future. we continue to try to modernize the bank. we want to keep up the investment because we do need to move on with the modernization program. it is a bit ofa mixed picture, but we have been focusing on costs. now when need to focus on the revenues. matt: you have got renumeration down, to some extent. have you started to turn that around because surely, if you want to get the best talent, you

have got to pay for it? we have, yes. and the numbers we put out today, you will see the numbers have come up a little bit. so, we are in grilling to a bigger number this year. we only make the decision at the end of this year. yes, we recognize that we have been a bit of an underpayer. we need to rectify that. matt: is that why fixed income trading revenue, equity trading revenue have been down, but underperforming your peers in the u.s.? >> i would argue against that in relation to fixed income. we are down about 12% on the trading side. that is in the pack. on equities we have lost a bit of market share. we think there are some underlying factors there. we do need to invest more in electronic trading. in the cash trading and derivatives, it is ok. we have seen balances come back, but they are not being worked on yet.

we have more potential to make revenues. those balances are back. once levels pickup we should see an improvement in revenue. matt: even if the whole pie is shrinking, you still want a bigger piece? >> a little bit. the goal is always long-term sustainable profitability. obviously, revenues are important and we need to make sure we are relevant to our clients. we need to invest in systems and people. theave been doing so on advisory side, but we have also been trying to build up the numbers. that also works under the new rules? matt: because of brexit, we are wondering if your business will be focused based? >> on the advisory side, we want to build up our sectors. a lot of the hires we have made in the second quarter have been in the u.s. because there is

a lot of global expertise in certain sectors. london will be an important venue for us, but we will focus more on continental europe and in particular, germany, where we have been trying to strengthen the roots of the bank here. matt: is it only a little bit more? i get the idea that you will move 1/5 of the balance sheet to frankfurt. what is the headcount you are moving from london to frankfurt? >> on the balance sheet, i know this sounds a bit complicated, actually already in germany. there is this idea of a london branch, but the booking is in deutsche bank itself. whether we have an adjustment to where our people are depends on what a brexit looks like, and what the rules are. what we've said is, we need to ensure we can do in germany in we can019 everything

and we know today that means adding operations people here in germany. i'm not sure about moving, but from the perspective of making sure the confidences are the same, we do need to build in germany. there is a positive impact here. we don't know what the impact will be in london, we genuinely don't. matt: what would you guess your business will look like in london? >> i would guess that eurozone clients will gravitate towards doing more business within the eurozone. because going outside the european union adds a modicum of risk, just as they don't tend to book in our tokyo or new york branches today. it will probably gravitate to europe, and we have respond to how clients react. it is difficult to do anything other than put ourselves in a position where we can do that. matt: is it more difficult to

attract the best minds to work in frankfurt? if you have worked in london, new york, hong kong, frankfurt -- >> it has always been easy to move people from new york to london and london to new york because they are the main global hubs. it will be more difficult to move people here. it is not english speaking. new york and london have a lot of the track attractions which appeal to people in investment banking. i think it will be difficult, if all the banks in london move somewhere else, it is not going to work for a while. the infrastructure and is there, like it or not. matt: let's talk about your revenue outlook. you said i believe, operational revenue will be smaller this year than last year. can you quantify that a little more precisely? >> if you take the first half as a whole that will be indicative

of the new footprint of the bank. we have said in some areas the revenues don't meet expectations. there is good and bad. the macroeconomic environment in europe is positive. if you look forward, a lot of the protections now are for growth up to 3%. that is way over taking the u.s. we should be well-positioned. we are very well exposed to interest rates going up, very possibly exposed. if they go up, they marke more money without additional costs. client activity levels were pretty good across the sector. so, there's a lot of positive tailwind to that, but with the timing of those improvements, it is difficult to gauge. francine: that was the deutsche bank ceo john cryan talking about some of the summer linings. if you look at timelines for deutsche bank, he has overhauled

it. they seem to be over the cost-cutting and now they need to focus on growth. tom: let me go to a chart to show how urgent this is for john cryan. experiment of deutsche bank through the last decade and down they go. just 10 years of mystery during the financial crisis. -- just 10 years of misery during the financial crisis. what's important is the bounds gets it up to the miserable trended has been on and it underscores the mandate john cryan has from deutsche bank over the next 36 to 48 months. francine: let's get more on that. that is a great chart. let's get more from otto dichtl. when you look at deutsche bank and when you look at what john cryan has to do now, is he still the right man for the job? now we have to look at trading

and transaction banking. can he push this forward, or has he done his bit in cost-cutting? >> i think we will have to give him a little more time. in fairness, it has been a monumental task really, to restructure deutsche bank. it's a large franchise. the chart just now underscored that challenge. i think to some extent, he and the management team have done strongly in their power cost-cutting and trying to improve the efficiency and normalizing the bank. goingk the revenue side forward is clearly now the big question mark, the big challenge. i think yes, they need to show and deliver more on that side. francine: they are a little bit slower than expected. are they hungry enough? do they really want to gain market share? hungry, butthey're

the market is never easy and available for one competitor. the issue within the investment banking franchise, when you cut costa ns and reduce head counts does not make for the nicest atmosphere on the trading floor. clearly there has been some impact on revenues from that. the question is, is that a temporary thing that of course, during the first phase of a restructuring there is more r has there been more lasting damage? tom: i don't understand where deutsche bank fits in. out --, 36 to 48 months everyone gives john cryan a lot of points -- where do they fit in for london and new york banking? i can't figure it out. >> where do they fit?

pretty much where they are. i don't see any major strategic change. clearly, they have a strong footprint in fixed income. i guess they are betting a little bit on this ongoing actually, recovery and economic -- tom: otto, come on. this is important. stop. i don't want the soap opera deutsche bank. i want to know how they can compete with barclays in 24 months and jpmorgan in 24 months. every conversation i have in new york is where does deutsche bank fit in? what kind of bank will they be, so they can compete and move from number six to number three or from number four to number two. how would they do that against jamie dimon and barclays? >> i mean, i don't know if they can move to number two or number

three. deutsche bank is the still cutting costs at this point. costse growth will be on and only on profitability. the bank -- i'm not sure they going to move up to number two or number three. tom: what otto just that is brilliant. are they going to chase market share? that is the older disease and i don't the john cryan doing that. francine: something he might be addressing, but we have not seen yet. tom, great question. otto, good answer. tomorrow, a look at our interview with the credit suisse ceo. we also speak to the ubs ceo. both banks, the biggest rivals in switzerland, reporting on the same day. this is bloomberg. ♪ reporter: this is "bloomberg

surveillance" and i'm taylor riggs. the end is in sight for libor. it will be phased out by the end of 2021. british regulators will try to replace it with a more reliable system. became corrupted after traders were thought trying to manipulate it. republicans are still looking for ways to get rid of obamacare after the senate rejected a plan that would repeal major parts of the affordable care act without replacing it. conservative supported the plan, but it would have left millions of americans without health

coverage. congress struck a deal that would limit president trump's power to put sanctions on russia. russia says if the bill becomes law, president putin will decide on a response. president trump's chief strategist steve bannon wants to make the rich pay for middle-class tax cuts. bannon what have those making more than $5 million a year pay a top tax rate of 44%, the highest level in 30 years. it is not clear if president trump would support this move. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. francine: thank you. hawkish on taper and dovish on rates, the take away from the fed's latest policy decision. the dollar has plunged to a two year low and treasuries are climbing after the fomc remains

below target. officials indicated the central bank with their unwinding the balance sheet relatively thin. let's get straight to ewen ca meron watt. tom did a brilliant job on that fed special. what is your take on how the markets will be watching out for this? they say there is inflation and growth? set for the fed not to be boxed in for september, but to go in the autumn. there will be a lot of attention paid to the comments made in jackson hole. tse fed is going to srhink i -- shrink its balance sheet. the question is, at what rate and with what methodology? the fed is caught between a rock and a hard place. it does not want to create financial instability, which if it goes too fast, it runs the risk of doing so.

on the other hand, it clearly wants to get on with it and leave itself some runway for the next cycle. i would guess it would be a roll down on securities. this is just guesswork at this stage. they are understandably, playing their cards close to their chest. tom: good morning. my fed coverage was not so great yesterday. it was an adverb economic. our guidance wrapped around data dependency has been relatively -- we have become robustly. how did we get to adverb economics? -- not positing the need politely, im

but that he for everyone to have a story. this is an evolutionary process. they are trying extremely hard to choose words that don't upset people. i think they almost spend more time on the parsing of the statement than on the discussion now. tom: jeff rosenberg was with us yesterday and he noted how far the market vigilantes are from the fed. did they get any closer together yesterday? other the fed closer to the bond people are the bond people closer to the fed? >> i don't think so, really. behind this you have also got to remind yourself that there is a slowly accelerating economy. if the fed does nothing, it is easing policy. the rate rises we have had so far this year, they have been keeping up with activity. they have not tightened yet, in real terms. all the monetary conditions tell you that. in a sense, it is not surprising

the bond market and the fed are ways apart from each other. the fed has not done yet what you would expect it to be doing during this cycle. tom: we will continue with this. today, richard cleared from pimco. we speak to the professor on his theories of the path forward for chair yellen and the next chair. this is bloomberg. ♪ francine: this is "bloomberg

surveillance" and i'm francine lacqua in london. tom keene is in new york. we have a lot of earnings today. roche shares are trading higher today. earnings came in at 8.23 francs. we are joined by the ceo from switzerland. thank you for joining us. first of all, what drugs will drive your growth next year, mr. schwan? >> we have seen a very strong performance in the first six months and it was driven by the newly launched medicine. it is now approved in late stage lines for those lung and bladder

cancer. a very good uptick of our medicine in a specific form of lung cancer. and finally, our new medicine good initialry demand over the last quarter. francine: europe has seemed to approve to purchase two versions of your best seller. how can you defend your old bestsellers? >> our strategy is very clear. we are not hanging onto the old medicines. we are investing into improving the standard of care, of medicinesew, better to the market to improve the value for patients. that is why i am so grateful to see how the product pipeline has developed and how successful the launch of the new medicine goes. francine: i know a lot of pharmaceuticals are looking at us. you had a disappointing affinity

result. how is the status of your new breast cancer drug? >> it is already a very important medicine for us. it already has sales of 2 billion swiss francs. it has grown by 17% in the first six months. and this is only in the metastatic breast cancer. we have shown we can make a big difference for women at the early stage of breast cancer. in other words, at a stage when we can literally cure women. so, this is very, very meaningful data. we will file, as planned, in the new setting. we hope to bring this medicine also for this new indication t patientos as fast as possible. i have no doubt whatsoever that it will be a major growth driver for our franchise in the years to come.

francine: how much of a chance does it have to stay on the market in the u.s.? >> i did not get your question. could you repeat the question, please? francine: we are running out of time, but how long will it stay on the market? i think you answered that earlier on. that was severin schwan. we look at the other pharmaceutical stocks that did not do so well. astrazeneca down some 15%. and of course, it is the day after the fed. this is bloomberg. ♪

tom: the day after the fed, we are looking forward to the next hour. the turmoil in washington. francine lacqua in london, tom keene in new york. d.c., senate

republicans looking to deliver on repealing obamacare. this senate rejected a repeal-only health care plan. critics say the measure would have left millions without health insurance. a report president trump has discussed using a recess appointment to replace jeff sessions. according to "the washington post" president trump has been warned not to put sessions out because of the ramifications. china, another sign the economy is picking up. the government said industrial profits rose more than 19% many year ago. there's as companies deal with a .eavy debt load prime minister theresa may's government will study the impact of british workers on the economy. may's strategy director has

resigned. her other top strategist quit after the conservatives lost their majority in parliament. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. i am taylor riggs. calling: analysts are it the busiest earnings day for 20 years. let's break down the numbers with bloomberg intelligence. around.u for sticking what do you have for us? it depends on the sector you are in? >> it does. from the european perspective, it is a crazy day. not as crazy as it is in the u.s.. europe is coming full bore. 20% of looked at european companies having been

reported a day ago, a little bit of a negative surprise. --ouple of presents light percents light of expectations. is the broadbrush review. francine: overall is it getting easier or more difficult? we going to see fundamentals stronger in the next quarters? $64,000t is the question for sure. number one, if we look at what we have seen in the quarter, we have industrials that are like. -- light. a lot of the industrials are industrials that are widely diversified with exposure

to china, materials, and energy. they have been disappointing. we are looking at is this a canary in a coal mine for other cyclicals across europe? in that context, the strong euro. if that sustains itself it would become more of a headwind for doing business. tom: i don't mean to interrupt. euro.ntioned the do you have in your head a euro safe year where rules change for european companies? is there a point where we have a too strong euro? 1.22, 1.28? where does it in french on court on corporate performance? an awful lot of business is

done within the eurozone. a ton of business is also done with the u.s. and china. that is a translation headwind, or a competitive headwind, or both for globally-oriented exporters. that is a concern. tom: where are we in five years? a theme is looking at the sell side and looking how they move performance, whatever. where is the sell side community five years from now? big question, we could talk for hours. is certainly the critical issue within that context. it presents a challenge for sell side research, as well as buy side.

to think about making a business out of research, costing it out, putting a price on it. we see that the age challenge for sell-site providers. providers.e we have been looking at the death of research, and we aren't there. we don't think we will be there for five years. research is important within the context of market functioning. the more passive investing we get, we have a part of the market not looking at fundamentals, the more important research may become. francine: you can argue the more passive investors become the more distortions there are. that is a fair point. i think there is a fair point with the relationship between ell buy side and the s

side. if you rely on your own the research is better if you subcontract it to someone else with an ax to grind. then i don't think you are doing your job properly. francine: how will that shift? ewen: when the research from the buy side is coming in house. there is an increasing relationship between the buy side and the providers. not the independent research providers, i'm talking about academia, dictator, -- academia, big data, those resources that have become increasingly important. tom: do you assume more combination?in

to me, that is the only path to synergy if you have a week nominal gdp the only way you get there is mergers? i don'ton't --ewen: think we agree. in the see of earnings, there is a contrasting example in good management and bad. astra is down because they missed a trial. this is in control of the management. it is a wonderful day because we are talking about companies, not address economics. management are operating relatively slow growth in demand. it is a self-help economy. that is an interesting thing to think about as an investor. i look at their financials, i see a massive capex buildout on the help of

revenues down the road. what are we seeing for capex in europe in general? tim: i think that is part of a broader story that we are doing some work on now. capex from the standpoint of helping to invest business,future o looking at margins, the core of bottom-line profitability, ifope has lagged the u.s. you want to put that is the benchmark comparison. gap,ten see a especially with the u.s. having done as well as it has done. part of that is profits have lagged. that is a critical issue over the next three to five years, can europe paris in gender -- -engender? re

-- last five years there has been a worry about the death of the euro and the european union. we have had political uncertainty, shall we say. -merkele a macron revitalization of europe? that is possible. there are more globally-oriented -- think pharmaceuticals. that is a global business. there is no europe versus the u.s. if you look at core industrials, retail, local business there is a dynamic at play locally. francine: thank you. if you have bloomberg customer , you canave tv

look at the charts that tom put tim, and go back to listen to our deutsche bank interview -- deutsche bank interview. this is bloomberg. ♪

francine: this is "bloomberg surveillance." lacqua in london, tom in new york. they had of the conduct authority announced the benchmark under pending three hundred $50 trillion of financial product would be abolished i 2021. -- $350 trillion of financial

product would be abolished by 2021. here is what they had to say about why they are reforming now. observed that the assumption behind the resetting was that the sanctions and bank funding would reemerge, but they haven't. that we have markets and money that would support liable hasn't happened. the current structure depends excessively on our expert judgment. they do well, and i was careful to say this is not another scandal, this is about the long-term sustainability of the structure. tom: i remember it -- francine: i remember six or seven years conversationsave and you would cut me off and say, i need to look at libor..

tom: let me explain the history in the moment, 10 years on in the crisis. we looked at the t-bill and something called the ted spread. libor is a legitimate liquid benchmark, the linchpin we had 2008,g on through 2007, 2009. in her article she says they ran into transparency issues. i get that. what i want to know, what is going to replace this benchmark for every loan in the house? this is the crucial question. looking at transactions and if there is enough liquidity in the transactions and how accurately they represent the replacement. i can't answer that.

we have bloomberg's investigation reporter. great job on this, as always. how can we make sure that replacement is an accurate reflection of the true cost? >> this is an interesting question. i had an issue when he was saying libor is broken and we need to replace it. there is a concern if we replace it with one thing, could there be a way of having multiple benchmarks rather than just one. the bank of england came out discussing with sonja, that seems to be a lead benchmark they're looking at, but the possibility it wouldn't be depending on one major benchmark. sureine: how can we make these transactions, that they are just making it up? over the last decade, it

was the scandal in the industry. the same question over the last four years, that is a long time. why are you saying it is broken now? hass saying the benchmark done a lot aroun govern its, and there is more accountability -- around governance and there is more accountability. tom: let me ask the money question. what is going to replace three-month libor? have the answer for you. that is the long road we will travel down. people want to replace the majority of libor products, but we don't know what will be the alternative. tom: you are one of the guys in

pricing libors every afternoon at 4:00 p.m. ewen: i afraid not. we are not a bank, we are asset management. kiddingnderstand, i'm you of course. can sovereign debt substitute for libor? ewen: short duration sovereign debt has the potential of the substitute as an anchor. i am concerned not about suzi's answer being correct, but if it is correct we have a lo melange trying to price risk off. that would not like to be the case either. it is where the market migrates to. if we turn off libor essentially because the market has migrated away from it. if the market had stayed around

libor, it would still be the benchmark. tom: in the case of the three-month 90 day duration, why don't we take three-month u.s. for faith in credit, three-month blah,lah, blah, three-month something in asia? talking about possible options and the huge change it will undergo. hanks in four to five years, it was the minimum they could envision to change this. they have gone for the minimum. there is a huge chunk ahead of them deciding how they will migrate it. tom: thank you. we will continue with black rock. what is good about this is not that it is about samsung, but it

is the lead author. dother jewel by brad stone i know him from amazon. his take on the family issues and the way forward for the technology giant. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. shares of a british drugmaker setback for its new cancer therapy. it failed to do better than chemotherapy in slowing the growth for lung tumors. largest food company warrants sales growth will be the weakest in two decades. they have taken a $3.5 billion stake in nestle demanding higher returns for shareholders. second quarter profits fell 27% at airbus. they have cut production of the 380 super jumbo.

that is your bloomberg business flash. tom: a quick chart. bring up this puppy, if you would. up, up, up, off the lehman low's on the left side. there is the ugly yesterday. anyone in equities knows that that is japan. die, japan,oing to yet it has been one heck of a lehman low rally. that gets us to our guest in london. francine: ewen cameron watt thinks japanese company's earnings growth will hit a high this year? ewen: they have been coasting with a terrible economy and an excessively high economy. there has been a steady increase in return in equity of the last three years.

the trick is japanese companies have not had any leverage. we are now seeing that be deployed in buybacks and dividends. i know there a political scandal in japan, i don't know if that impacts economics. if the prime minister is replaced, that would hurt earnings going forward. reported a increase in japan. what we see through the real estate investments in japan there has been a definitive pickup in demand for commercial real estate, not only in metropolitan tokyo, but down. this is a reviving economy in a number of important sectors. tom: do you presume that we could see japanese valuations

advance to where we see nasdaq 100, spx, and even the dow? have grown way faster than valuations in japan in three years. it is the other way around in developed markets, the earnings story stays strong. we don't have to that much of an assumption on valuations. is the valuation on various industries in japan? is there one that sticks out? ewen: it is company by company, it depends on execution at the end of the day. for the japanese story to work, ultimately it will be the domestic side of the economy and that willusinesses come through through self-help rather than a runaway level of demand. tom: thank you, so much.

yesterday, what an inspiring conversation. with us, richard clarida of pimco joining us on america's manufacturing might. really looking forward to this for the entire hour. we will do that next. right now, francine lacqua in london, tom keene in new york, kevin cirilli will join us at the top of the hour. this is bloomberg. ♪

♪ tom: this thursday it is a washington vote-a-rama. two down, one to go, skinny and mr. scaramucci.

it is a great soap onto economics. economics, chair yellen gradually and robustly commits economics in this hour. richard clarida of pimco on indigestion. on the deutsche bank recovery. good morning. this is "bloomberg surveillance." we are live from new york. . am tom keene francine lacqua putting up with adverbs in london. i was impressed with john cryan's idea of patients. francine: you are mindreader when it comes to me and adverbs. i do not know if shareholder --tients runs out

patience runs out at some point. tom: where is deutsche bank 3, 4, 10 years out? taylor: the end is in sight for libor. the benchmark that underpins 350 trillion dollars will be phased .ut by 2021 british regulators will try to replace it with a more reliable system. it became the byword for corruption after traders were caught trying to manipulate it. a bare-bones approach and repealing obamacare. this debate may have a bill that ins the individual mandate and other provisions. bill was rejected that routed repeal major parts of obamacare without replacing it. a bill that would limit president trump's power to lift sanctions on russia. the legislation include sanctions on north korea. if the bill becomes law,

president vladimir putin will decide on a response. steve bannon wants to make the be paidlass tax cuts for by the rich. those making within $5 billion -- $5 million year would pay the highest tax rate in 30 years. it is unclear if president trump would enforce the move. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: -- tom: he is loving the movie "faint of the seriou furious." over every sector, this has been the roberts family plan for years. gets it done, nbc, nbc universal, i will have to watch this week. i promise i will watch this week

. to the data, equities, bonds, currencies, commodities, oil with a lift. screen as well. 0.9% should be green of one basis point higher yield and the lower bond price. a little yield turn off the fed meeting. equity valuations, what does it mean mathematically? i have no clue. francine: in the last five minutes we had earnings. this is abu dhabi-based carrier. i am expecting news on qatar and how the lockdown is affecting companies. at the moment, a $1.8 billion loss. overall, the dollar is what i'm looking at after the fed. the 10 year yield. in europe, un-conviction because

of earnings. tough competition raining and the recovery. volkswagen down 1.1%. astrazeneca down after the setback in the lung cancer drug trial. and it is about market share. the stock is down. francine: in washington -- tom: in washington with the continued soap opera. kevin, we begin with the attorney general. does he make it to monday? .evin: i think he does at least that is what my capitol hill sources are telling with me. chuckor aide noted that grassley tweeted out last night that he will not budge on the calendar. in terms of an approval process. should the president fire the attorney general or the attorney

general resign they would have to go through a new confirmation process. they are saying we are not touching the schedule through the end of the calendar year. senators are personally calling the president from the republican party urging him to back off. tom: this is an act army reserve guy and ask eagle scout. over his dead body will he give it up. is there a track record of people calling the president's bluff where in real life he goes "you're fired?" kevin: i spoke with a republican from alabama and every one from member ofckburn, a gop leadership in the house of representatives, and they say they do not want to the attorney general fire. not supporting the president on this at all. tom: help our viewers,

listeners, and bloomberg radio, and what time do we see a vote on skinny repeal? kevin: who knows because of the scheduling, but mid-day today. people should not interpret that as any indication this will become law. the skinny version of the bill is not popular. i interviewed the house freedom caucus chairman yesterday who said there is no way this skinny version of the billable get out of the house of representatives. it is not necessarily the timing of the vote, but we are calling it a vote-o-rama. inin: it is a word washington meaning a series of votes, just another step on the way. this can a version does not have support, it

would have to significantly change. the conference process is not a one day, today, or a weeklong process. that could extend into the fault despite the pressure from the white house to get it done before the august recess. if they do not get it done before the august recess it early nextall or year and the window is dramatically isolated. francine: how much are people talking about anthony scaramucci and the tweet about the leaks? intrigueat is a palace story. it is not really something that people are saying is significantly impacting politics. he is the face of the white house right now along with sarah huckabee sanders. that is not their job. the concerns of the palace

intrigue story, what is going on is the ushering out of the sean spicer allies in the ushering in sara michie allies. the mucci allies. tom: we will talk with the chief about hisofficer leadership, richard clarida with his leadership at columbia economics and now pimco. this briefly, then dive deeper. does the president have a clue ulli's ohio?rd does he have a clue from toledo to cincinnati what is going on?

robert: he is doing a heckuva job in rallying his base. there has been distance relative to his campaign where he is today. i would like for him to be increasingly articulate about some of the policies the administration is trying to put forward. do you teach adverts at columbia economics? richard: i learned them in sixth grade. tom: how do we get here with some of the opaqueness where michael mckee is fixated on the -ly words? richard: the fed signaling they want this done in september. they want to give themselves wiggle room. yellen before the december fed meeting also said "relatively soon." they're saying we want to

announce the normalization at the september meeting, but it comes down to adverbs instead of nouns. francine: we love adverbs, especially if they are jumbled together. raising the debt ceiling, how much would that impact the fed's plan to redirect the balance sheet? richard: that is a great question. the balance sheet decision, the fed would like that in september , but if history is a guide september could be a contentious month and extending the debt limit. secretary mnuchin has some leeway into where the debt ceiling is binding, but that could be a factor. beunderstanding is it won't that this goes into october before the debt ceiling gets on the front pages. it could be a factor. francine: you say it is time for the trump administration to go

back to policy. what is the number one policy you would like to see, tax reform or something else? robert: talking to my colleagues and ceos, there is optimism about tax reform and the individual level, particularly for the small business person who reports on a personal level. cloudytimism is a little . it will not be retro active january at this point, i don't think. i understand the affordable health care issue. they want to put that forward first. i hope they can do something on tax reform. we are working off optimism before we see the ceos put capex on the table, they will want to see tax action. 2 very different experiences to drive your morning forward. tomorrow we will do that on

banking. the same challenge of making ofopean banking kind of more like american banking. from ubs, credit suisse, barclays, and santander. we will look at that tomorrow. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." bloomberg business flash. a downturn is paying off.

rising to the highest level since the oil price slump in 2014. shell has made deep cost cuts. this eeo is not worried about the move to electric cars. >> the move to electrified the ability in northwest europe, the u.s., and china is a good thing. we need to be at a higher degree of electric vehicle penetration, and hydrogen vehicles, and gas vehicles if you want to stay between the two degrees outcome. a $10 billion facility for filling the taiwan manufacturers' promise to build in the u.s.. foxconn will employee 3000 people at first. it could provide 13,000 jobs. that is your bloomberg is nice flash. tom: what about a charge before we talk fed talk.

alan blinder, bill gross, and .ther worthies the cleveland cpi series, elevated above the white line. inflation may be relatively, relatively,-- robustly, felt every day. up it goes, time to raise rates? maybe not. fed that has been overwhelmed by the hard data? not overwhelmed, but the data is not cooperating. they wanted to hike. they have hikes twice. -- hiked twice. they were hoping the data would confirm the wisdom of that. the labor market data, which is important. the real data has been soft.

the big data for the fed is the core inflation. the fed's preferred measure is february isntly as trending down, moving in the wrong direction. , that richardet clarida has done with his research, that might be my chart of the year. this is labor share. for decades, like a billiard table, labor was this share of business revenue. something happened here, down we go. -- standards deviations standard deviations. this allows for a new president, etc. etc.. why has labor lost power? richard: this is one of the big macro stories of the last quarter century. labor share is a constant,

wiggles a little. it has declined for 15 years. there are too many explanations. technology, trade, education, antitrust laws? all are probably a factor. in the u.s. and elsewhere labor share has been declining, and that creates an environment where you have political polarization. people say capital gdp is not helping me. we have had a little bounceback, which we have observed in prior cycles. francine: the dollar, there is discussion if the dollar where it is now is the real gauge? richard: the dollar is reflecting u.s. data has been soft and inflation disappointing . the data in europe has been relatively strong. .raghi is sounding hawkish

you get a relative move in the dollar based on those two factors. i don't think we are at a fear gauge moment. in crisis, the dollar rallies as people become more relaxed. you are right, that puts downward pressure on it. francine: coming up next, our interview with the deutsche bank ceo john cryan talking market share and comcast. this is bloomberg. ♪

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it will come through as deep cuts in the future as we try to modernize the bank. distinguish between running expenses and investing. we want to keep up the investing , because we want to move on with the modernization program. we focused on costs, now we want to focus on the revenues. francine: that was john cryan speaking to us after a 10% decline in revenues. we also asked about the plans to relocate in the wake of the brexit vote. >> it is always been easy to move people from london to new york and new york to london, the two main global hubs. it will be more difficult to move people here. it is not english speaking. new york and london have a lot of attractions. it is where the infrastructure

is. i think it will be difficult if all the banks in london will move somewhere else. it won't work for a while, because the infrastructure is there, like it or not. francine: joining us to discuss these earnings is the bloomberg head of finance for middle east and africa. overall, investors are you the turnaround is too slow? >> that has become apparent with the quarter. how long it will take. balances we were told were coming back. it is still not yielding normal activity and more revenue on the trading side. why is it so difficult to gain market share? elisa they: have come out of a difficult year where they are facing competition from the u.s. banks that is strong. the market isn't expanding.

they have also lost, they have had a turnover in staff. that is weighing on activity. lining, yousilver mentioned the things he would point to saying give us more time, but we are getting there. elisa: the focus on cost is encouraging. they do need to be investing in it upchnology, bringing to speed with the industry and taking it forward with investments like electronic trading. tom: if you are talking to mackenzie about where deutsche bank is in five years, where do they want to be? i cannot figure out what kind of bank that john cryan wants to be. does he want to be jpmorgan, barclays, or an original concoction? elisa: i think an original.

they are making the rates in germany the focus of the turnaround. they are incorporating a consumer business, and that makes them different from the banks you mentioned. on the investment banking side they do compete with the bigger firms, and they will continue to compete, but perhaps not on every product in every market. francine: plenty more on earnings. look out for interviews with the credit suisse ceo. we talk big oil. this is bloomberg. ♪

tom: congratulations to our team in hong kong who made the bloomberg television view ever more beautiful. set in hong kong to grace you in the american evening. we're looking forward to building out our hong kong

franchise. a beautiful hong kong on thursday evening as they migrate to friday morning. senate republicans looking for ways to deliver on the promise of repealing obamacare. the senate rejected a repeal-only plan that would have scrapped major portions of the affordable care act. the measure would have left millions without health insurance. a report that president trump has discussed using a recess appoint to replace jeff sessions . according to "the washington post" the president has been warned not to push sessions out because of the ramifications. china, another sign the economy is keeping its momentum. industrial profits rose 19% in june from one year ago, helping chinese companies deal with their debt load.

theresa may's government will study the impact of european workers on the british economy. critics are asking why the study was not conducted after last vote. richard brexit global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: german carmaker shares are down. haven antitrust regulators accused them of colluding on technology for two years. is not aware formal investigations and is doing an assessment to clarify the facts. ae are joined by bob nardelli and richard clarida of pimco. it is unclear if this is a

eu.el case rocked by the if there is, it could be long and winding. the initial thought was they need to come up with something better? robert: this has really grown. it started with vw,, bmw, fiat. to spread relative to the willful -- relative to the willful violations. back.re and buying cars it looks like there may be imposed regulation to buy more of the vehicles back, which would be a tremendous cost and burden to the european manufacturers. francine: does this hurt the german car industry? it is unclear to me apart from appetitees it hurt the for a consumer to buy one of their cars? question.ere is no

when a retail company has a cyber attack and they lose consumer information, it is there is ae that sense towards a manufacturer on the credibility of what they are buying. there have been proposed that diesel engines are abandoned by 20 40, taken off the market completely because of some of the issues relative to environmental regulations. francine: do you believe electric cars are the future? and we look at the chart, and we are looking at the concentration, at least the electric mini, this has more to do what we are seeing an electric. robert: in the u.s., electric is less than 1%. when they say it is not pumped by fuel, i'm not sure where they

think they are getting the electrons. typell create a different of demand. as we heard from the chairman ceo of shell, leaning towards a more environmentally friendly vehicle, don't forget they have to be charged. for me, there is still the energy anxiety of only being able to go a certain distance. a transitional with a 1.9 liter that is continually charging the battery and allowing you to drive cross-country with an electric vehicle driven by motors versus a combustion engine in totality. i don't think we will see a sweeping change. if you look at what people are buying today, there is a strong consumer demand for those vehicles. "surveillance" is about the conversation.

when you have richard clarida and robert nardelli it can be a conversation. the legacy ofbout nardelli. that that that all of pricing power is back. arida to weigh in. you think he would've heard a bed president redux bo nardelli? richard: i was fortunate to go through it the first time with jack and general electric. i thought the team did an excellent job navigating. i think it is more challenging. there are other issues facing corporations today. tom: this used to be religion

ages ago looking at business inflation, ppi. you remember. this is finished good ppi for a year moving average. know we were back. richard clarida, define pricing power if the revenue line, why it is so important. richard: if the company has two ways to boost revenue, it can .oost prices or units historically, you had a balance of both. he was a pioneer doing this for an academic sometimes, pricing power in the economy, especially the goods producing sectors, has evaporated. if you look at u.s. inflation data and separate it into service and goods, we have had goods deflation for decades. tom: i will give you a nobel

laureate kind of question. ofwe have the separation inflation, is chair yellen running a correct policy for business guys like you? robert: great question. overall, she has done a fairly good job. she has earned her spurs. the issue is look at corporations. the only way they get topline growth is mega-mergers. they are either having to do that to drive out activity, we saw the labor share issue. we have things negatively driving the share buyback. tom: economists at columbia and pimco, i will ask the question i appeared bob nardelli at we going back to combinations and transactions that lead to a

combined america? there has been a move in that direction. longer-term, the pendulum swings both sides in the cycles. given what you have documented and political polarization labor share, could we see the pendulum moving the other way on the big combinations? we could. francine: away from the mumbo-jumbo, very quickly, what needs to happen for ceos to feel better about the future and grow organically? mentioned earlier that they are waiting to see what happens on corporate tax, individual tax rate, repatriation incentives. number two, there might be unearned optimism in the market causing problems. we have to get cash back to the

consumer, therefore increasing demand to enhancing the core opportunities versus the megamergers that are somewhat false representations of growth within the economy today. richard: i would only add that i agree. it is crucial that we have an opportunity to improve and have a world-class corporate tax system. our corporate tax code is an abomination. it doesn't raise a lot of revenue and encourages companies to keep investment abroad. economicly, from an point of view, hope washington seizes the opportunity to do a fundamental tax reform and encourage companies to relocate in the u.s. robert: regulation has stifled us and corporations. if they roll back regulations we

will see more spontaneity in growth. tom: we will continue with richard clarida and robert nardelli. wonderful comments. buzz onting a massive the new bloomberg business week. doing it again, this time on technology. this is a must-read. i will read every word of brad stone from amazon. brad stone on samsung. bloomberg is this week. ♪

taylor: this is "bloomberg surveillance." . am taylor riggs shares of estrogenic are plunging.

to theffered a setback next-generation cancer therapy. a drug combination fail to do better than chemotherapy in lowering the growth of lung tumors. the world's largest food company warns sales growth will be the weakest in two decades. a 2.5 billion dollar stake has been taken in nestle demanding higher returns to shareholders. airbus has cut production of the slow selling a-380 superjumbo. that is your bloomberg business flash. lacqua and london, i am tom keene in new york. we drive forward to an earnings announcement in 16 minutes. the entire team will be locked down with team coverage of twitter. it is an itty bitty company.

why do we care? you care about advertising and the growth of media spend it is going to media. if you look at the internet, it is 15% to 20%. people are trying to figure out aside from the usual google and facebook, can i play at twitter and snapchat? the jury is out on that. tom: i think they're saying there is substance here. who is going to buy this stock and put it out of its misery? >> twitter feels like they have a few more quarters to go. if you look at estimates, people are saying this is probably the bottom. tom: answer the question. wins the final four or we find out from tom sweeney who will buy this dog?

this was made for apple? .> or google they tried google plus and it didn't work. francine: what would you do tend not to not become a takeover target or be bought out? >> with the company is trying to do is say we know we cannot grow our user base to be at the scale of facebook. maybe what we can do is make our users more engaged. maybe they come back six times a day. that is something i can sell to an advertiser. how to i do that? . invest in video they're trying to benefit from a social platform to a video-centric platform. we will see if that turns it around. tom is not convinced. francine: with the amount that it and i spent on twitter,

is selfish to think i hope this goes on, but how much times you give it? investors and management are saying we are throwing all of our money behind video to see if we can drive user engagement and make that argument to advertisers. they will know within a year if that will work. tom: let's have bob mark daily -- let's have bob nardelli. the fearve lived of building scale. it is tough, to build scale? this will sound strange from a nuts and bolts guy, but i think about what is the market value of your content strategy? we're seeing a shift. i would not arrange the funeral too soon. nuts, bolts and

socket wrenches? robert: you talked in the opening hour of comcast and the success at nbc and universal. you talked about asset sales, which is a big issue. it is demoralizing to think he'll have to sell assets because someone else can run them better. i think it is focus and commitment on the investment side and market strategy making sure you are customer centric and are innovating, or you will be of operating. that is where -- will be evaporating. that is where we are. >> if you are taking 80% to 90% of ad dollars, they're trying to find the relevant place. francine: they seem to have more urgency focusing on their chat

business. do they take market share from rivals, or is there another chat? focused on growing the other platforms aside from the facebook platform. they talked about whatsapp, messenger, and instagram. both of those messaging platforms are one billion users plus. have not started to monetize that. zuckerbergt suggested is that they are going to start to monetize those businesses because they recognize the face the platform is where it is. you can't put more ads on the facebook feed so they have to look at other platforms. fiat chrysler figures coming out second-quarter adjusted and line with expectations -- and line -- in line with expectations.

if you look at driverless cars are we 15 years away from that? is google going to be my driving person? robert: one strategy we had at chrysler was to provide the amenities and comfort as if you were sitting in your favorite room, whether it was ,nvironmental, acoustics regardless. i think there is more road to be achieved in driving innovation and technology into the car, not in lieu of a town was cars and so on, but there is a lot of fit, finish, and amenities that meet the desire of the consumers today. tom: thank you, so much. we will see you at 7:00 a.m. out with earnings, straightforward.

let me show you exactly how i bring up tv you go to tv at your trading desk, the gerbil works, , and up away madly comes the tv screen of the present tense. what is valuable is you can go back and be dazzled by bob nardelli and richard clarida on pricing power. this is bloomberg. ♪

tom: "bloomberg surveillance." charge,t a single best the united kingdom insulation, governor carney is worried about red, elevated sterling weaker. yellen rolling over inflation as well. thec is about yellen and -- it is about yellen and the clarida critique. a lucas moment yesterday. you cannot design policy based on the historical back to you. are we dealing with orthodox

economics, or like the lucas critique, are we flying blind because we don't know what our history is? 30 second answer on that? trying to change her regime is a challenge for the fed. the world fundamentally changed since two thousand seven, and a zero rate or negative rate in , any historical correlations are not going to be that helpful. even though the fed has laid out plan fore, to me, reducing the balance sheet they don't know really how it will work. that is a good example of the lucas critique. rising and lowering rates, we know how that works. shrinking a $4 trillion balance sheet to a $2 trillion alan's sheet has not been done. olivier blanchard going

and and looking at ds ge what he did with labor dynamics. if i look at this, are we flying blind? richard: we are flying with a blindfold for sure. maybe we are not flying blind. we have a fully inflated economy with inflation close to that a little below 2%. i do not think we are fundamentally on the wrong track, but people are too relaxed on getting from here to there in the next five years. ?rancine: how long will it take i know it is the impossible question, but we have a break even for two years and five years. what does this chart tell us about the future? richard: in a lot of ways the discussion of the fed and the economy is driving without a spare tire.

in the nextr, downturn, whenever it is, traditionally central banks cannot raise fiscal coverage. there is not a lot of room and fiscal stimulus. that is why the next three to five years will be a challenge. how about foreign exchange? an interesting report, euro 1.1708. stay with us. this is bloomberg. ♪ .

jonathan: the busiest earnings day a value of 3 trillion -- a value of $3 trillion.

the latest turnaround plan, john cryan comes under pressure to find growth and billionaire howard marx said it is better to turn cautious to some than to wait until it is too late. from new york city, good morning, good morning, this is "bloomberg daybreak." i am jonathan ferro. into the market action this thursday. futures are up on the s&p 500, positive five points. downaded at 117 flat to about 0.25% down. reversible treasuries yesterday following the fed's statement. 230. alix: the damage deutsche bank as doing to the dax.