>> hsbc shares surge. see progress in europe. russia retaliates. putin reacts to u.s. sanctions. what will president trump's next move the? europe inflation problem. we get cpi data in a little under one hour. this is "bloomberg surveillance" and i'm francine lacqua+++

we have to look at the data, as we always do. some of what we saw over the last couple weeks, i imagine would take center hold when it comes to your asset classes. asian raw material producers seem to be advancing after we had a surge in commodity prices. the global economy can gather momentum. the stoxx 600 basic resources are getting 1.2%, one of the biggest gainers in terms of industry groups. oil, extending last week's strongest rally. and hsbc coming up with some figures, but also that share buyback gaining 2.7%. now, let's kissed her to the bloomberg first word news with nejra cehic. >> abe and donald trump have agreed more action is needed on north korea. after speaking to trump via phone, abe said the international community, starting with china and russia,

must take the issue more seriously and increase pressure on the isolated regime. pyongyang'sfter second intercontinental listed metal in a month. the factory output rebounded in june. industrial production increased 1.6% from the previous month, beating forecasts. the 3.6% decline in may reflected when many factories cut back on output. the ecb rose for the first time in may. the abu dhabi meeting is set to take place after saudi arabia said last week it would step up pressure on countries that are not complying. 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: the last couple of seconds we had a bloomberg headline. it planshe boj says

to keep the current pace of bond buyying for the month of august. there was a little bit of concern in certain parts of the market that they would unchange it. we heard from the mass mutual life insurance company earlier on. they expected the boj to maintain the pace of bond purchases in august, meeting it will be unchanged for all maturities given the debt market stability. we see a reaction to the yen, currently up 110.65. putin hopes there will not be any for any further retaliation, or for their kind of contact retaliation against the u.s. u.s.w slashed 750 diplomatic jobs in the country.

president trump said he would improve ties with russia during his election campaign. joining us now for more is bloomberg's congressional reporter kathleen hunter. peter dixon is from commerzbank. welcome to the program. kathleen, what does this mean? does this put president trump in a corner? are we concerned he will do something unexpected? >> what is interesting and telling about putin's remarks if he is saying he hopes he does not have to take any additional steps. in saying that, this is a thinly veiled threat. if washington takes additional action, he would be willing to take further action himself. it does put donald trump in a bit of a corner. i think a lot of people were surprised by donald trump's willingness to sign the sanctions against russia. obviously, he was willing to do that. donald trump has his own problems at home over the russia

investigation. kathleen, president trump has had to send the sanctions, which is probably something he did not want to do. he has had a tough week with also paul ryan focusing on tax reform and the president still focusing on health care. >> it was interesting over the weekend to watch. i think there was a sense that the republican's saving grace coming out of the big flop on health care at the end of the last week was potentially this could be the silver lining, now everyone can focus on tax reform. that is not happening and yet again, we are not seeing that republicans in the white house and republicans in congress are not singing off the same sheet of music. donald trump is essentially taunting senate republicans on twitter, calling them quarters. -- calling them quitters. meanwhile, we have paul ryan talking about tax form.

it is not really send a clear message to people watching washington, what the priority will be going forward. i imagine it does not inspire a lot of confidence. francine: peter, what is priced in? rift between the president and his party is getting larger every week. how do you view the impact on markets? markets had the expectation that they would see a bigger spending package. this does not appear to be in the works right now. i would be surprised if the trump administration manages to get the tax reform through. therefore, you have to say there are some downsides risks, perhaps quite considerable downside risks, to u.s. equities in particular. all the good news is priced in. therefore, i would be very cautious. francine: so, what would a

downside look like? >> i think it would be markets waking up one morning saying, this is not happening. they could be a shock triggered by something something happening else in the world. -- it could be a shock triggered by something happening summer else in the world. you could see from the selloff of 2% to 3% fairly quickly. francine: there was a call between the president and prime minister of japan, shinzo abe, and they are both trying to put pressure on china to do more. >> that has been the white house strategy, in terms of pressuring china. now you see them enlisting the help of japan. the white house says china should be doing more to help with the threat of north korea. rex tillerson was in the area, calling russia and china economic enablers. i think that trump is

definitely going to continue to beat that drum, but whether or not it will be effective, i don't know necessarily that it will be because it has not been thus far. what about the shakeup at the white house? as a market economist, what signs are you looking at? >> we just had a discussion with your colleagues. what i said to them there was politics is exogenous to us. we followed because it is a person of interest thing. in terms of how markets view it, they are probably less sensitive to political infighting than they were 20 years ago. we have gotten used to it. we realize it does not change the world an instantly. there is an stability in the white house and there has to be -- there is instability in the white house.

francine: doe the american people care about this, kathleen? >> i think it is one more piece of the puzzle when it comes to the difficulties the trump administration is facing. in fact they brought scaramucci a week ago and last week we had the "new yorker," where they had choice things to say. and the next a reince priebus resigns and there'll be a new chief of staff. and with the cable news cycle, bisping on constantly in the news. people in the u.s. are talking about this more than they are talking about some of the actual substantive issues, which is never good for an administration. you never want infighting within your white house to be the story because it limits your ability as the president to use the pulpit to push your agenda. francine: thank you, cap lane. peter dixon stays with us. stay with "surveillance."

plenty coming up. we will talk about hsbc. rose wti briefly above $50 for the first time since may. we discussed the geopolitical forces moving the market. this is bloomberg. ♪ francine: let's get straight to

the bloomberg business flash. reporter: heineken reported first to s quarter profits that rose on1.18 billion euros. there is growing demand from her expensive beers in asia.

santander has signed a preliminary contract with blackstone for the sale of 51% assets. popolare's this comes after bloomberg reported on friday that blackstone was the front runner to purchase a majority stake of popular's real estate at a discount. it purchased the spanish lender for one euro in june. the profit this year might not fall after all. it is held by the demand for vaccines and two medicines for multiple sclerosis. earnings-per-share, excluding some items, will be mostly stable this year. that compared to an earlier estimate that profit would be flat to down. that is the bloomberg business flash. francine: hsbc's second-quarter profits beat estimates as a boosted revenue. europe's largest center also announced a stock buyback. bloomberg spoke to the bank's cfo this morning. >> we are very happy with the

7'sst half of 201 performance. we have revenues heading in the right direction across our major businesses and regions, good credit control and good cost control and a very strong capital position, as you mentioned. to 15 months 12 will make us about $5.5 billion by back in total. -- buybacks in total. francine: manus, he spoke to the cfo. he was confident that things were turning around. this is at a crucial time when stuart gulliver is leaving. manus: yes. it is fair to say they are delivering share buybacks. 63% of the revenue comes from asia and china is an important part of that. the jaws are good. in other words, you look at

income growth above the cost of growth. china is a significant contributor to the reducing risk-weighted assets. banks, like credit suisse, deutsche bank, build up your capital. 14.7% and it is giving back in the truest sense. share banks, $5.5 billion since last year and the dividends. this is one of the most generous banks, francine. more generous than most of the americans. francine: does this have to do with the fact that stuart gulliver is leaving? and they want to show that it is working and the trend is reversing? manus: yes, i think it is a statement and very much, they want to show the united states shareholders they have done a good job. it hass a top live blog, been going throughout the morning. all the editors and contributors are there. i like what they put on the blog.

a $200 billion cap and a $2 billion share buyback. is moreld suggest there to come, but it is about regulation. i have done the conversation. this could talk about some of these payers. it is a global bank with the cash management business doing well. in europe, there is not a raging recovery. francine: peter, what can you tell us about the industry as a whole? is it even fair to talk about it as an industry? we have such different banks with different units. >> i think that is right. hsbc is a global bank and it derives a large part of its revenue from asia, specifically china. in an environment when this is moving more rapidly than the european economy. clearly, that is good for them. differencesks offer

to the market. the focus in this part of the world seems to be on reducing costs. so, let's worry about costs first. and then hopefully we get a bit more revenue and a start to see the benefit. francine: that is because we are in a different time cycle as compared to the u.s., and we are talking about deregulation. we are still dealing with the fallout of the financial crisis. >> i would argue that the european banks were a lot slower off the mark than their u.s. counterparts in 2008 and 2009. european banks were not put in that position and it has taken them longer to rebuild their balance sheets. francine: they have a big presence in france, which not many people about. manus: to that end, stuart gulliver was on the tape a couple weeks ago. today it was mackay. maybe1000 people would need to be transferred. they have all the licenses -- tick, tick, tick, tick.

can you do business in europe, if the great moment comes? it would be folly if they did not use all the infrastructure they had. that is great. but what about all these cities that could be transferred to frankfurt? newhat is where the ecosystem is actually built. john cryan basically saying, the plumbing of the global financial system is in london and it is darn hard to move everybody when the plumbing is right here. it is not as easy as everybody thinks to move. francine: we will send manus back to the beach. manus: i'm all ready. francine: peter dixon stays with us. oil gains as opec puts pressure on countries not cutting production.

we will talk about that, and of course, venezuela and what that country is going through. this is bloomberg. ♪ francine: this is "bloomberg

surveillance" and i'm francine lacqua in london. this is what we are hearing from vice president mike pence. he had just said the u.s. is welcoming the military commitments. he said president trump assured the baltic states the u.s. stands with them.

this comes on the back of extra russia sanctions, which has huge political implications for geopolitics, and for the standing of the trump administration within the republican party. on to other things. oil in new york briefly rising above $50 per bale for the first time -- per barrel for the first time in may. the abu dhabi will take place after saudi arabia said it would step up pressure on countries that are not complying with opec. this comes amid reports that the u.s. is increasing sanctions on venezuela's oil industry after the country clashes after the vote on remaking the constitution. peter dixon from commerzbank is still with us. we're also joined by steven barrow. thanks yo for joining us. when you look at the price of oil, can opec do anything? doesn't matter if there is another opec meeting, or not?

>> some of them are important in some of them aren't. the problem is opec is increasingly less powerful in terms of its ability to control the market. with u.s. shale producers ramping up output, saudi arabia has lost its role as the mainstream producer and as a consequence come opec is not a strong. that said, four other opec members to maintain their status, they make opec's status worse if they don't comply. francine: you look at oil as a way of gauging the canadian dollar? >> not really. i mean, when you look at the canadian dollar, for instance, that is a bank story. it has nothing to do with oil. when you look at the oil price, it is high at the moment. we were hovering around the $30

$40 to $50 range. we could be looking at some of the other oil producers as well. norway, for instance. another one of the central banks is slowly shifting around in terms of its monetary policy. the market could be looking more at that than the context of monetary policy. francine: doesn't make a difference to the price of oil if all opec members complying, or do they have to extend production cuts and cudmore, especially saudi arabia? >> it matters, but it is at the margin. we could be talking a matter of cents, rather than dollars, in terms of the impact on the global price. i think our view is that it would be difficult for opec to do anything, which will keep oil above $50 a barrel. therefore, that tells you how weakened opec is compared to a

few years ago. the u.s. will be addressing this market. the oil price is hovering around $50 and therefore, shale producers will come back into play. as a consequence, $50-ish could be the new normal for oil. francine: peter dixon from commerzbank and steven barrow stay with us. it is a big week for the bank of england as a rate decision is released on thursday. but with maintenance and security set to strike, the meeting might not be the only thing on mark carney's mind. we will go through that next. this is bloomberg. ♪ who knew that phones would start doing everything?

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u.s. president donald trump have agreed more action is needed on north korea. -- said theort international community must take these situation more seriously for the comments come two days after pyongyang testfired a missile. russia possible at a recruiting said he felt no need for further retaliation against washington. his comments came after moscow slashed the u.s. to staff in the face of fresh sanctions approved by congress. in thes a new stage deepening disillusionment with donald trump. hsbc second-quarter profits have beat estimates. they will spend up to $2 billion on stocks. to $6 billionrose

while revenue rose 4%. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic, this is bloomberg. francine: we are just getting breaking news out of the u.k.. mortgage approvals below expectations for the month of june. money supply also seems a touch below expectation. net consumer credit actually expectations.ve so is net lending. you can see the pound is steady as it goes. the bad data comes ahead of this week's super thursday for the bank of england and we get the rate decision from the federal -- from the central bank. that isn't the issue that mark carney is dealing with. major security and hospitality staff are set to strike for the first time in 50 years over pay.

peter dixon from commerzbank and steven barrow are still with us. it is actually quite intriguing that they are striking. we are not used to seeing anyone in the u.k. striking. if they are over pay it has to do with inflation and that was the problem we had. how do you manage that with wage growth going nowhere. around 40 years ago you'd be more used to strikes. i think the bank, it sort of embarrassing in a way because obviously the inflation is outstripping the wages. that's true across the public sector. the sense it's all part of biggest area policy which the central bank has been putting in place. the bank of england would argue from economists point of view we are giving some help and support by keeping interest rates low, but obviously with prices

widening. they are unfortunately being squeezed. it is a problem which many middle income face. not a lot we can do about that. francine: what does that mean for what the bank of england will do and for the pound? >> i don't think the bank will do anything. up, but wes going know that is largely a consequence of the weakness in the pound. if the bankeve does, inflation might rise further a little bit. to stabilize sell it and more likely come back down again. i think the discussion within the bank has been whether obviously there -- there needs to be wage rates because of that rising inflation. side believing the

economy is slowing down and leading to that pete in inflation will and as soon. rates bank doesn't raise by november than i don't think it's going to. i see a rate rise anyway as taking back -- last year. francine: do you agree? i have two charts. do you agree with the assessment? >> broadly. i think the bank is made a big play about we will see this. it is not happening across the wider economy. i think that's because the labor market are sensitive to the degree much more than they were. it's much more difficult to get that pass through and i think the bank of england will have to wear this one off hit to inflation. hopefully they will dissipate that in the course of 12 months. francine: this is the dixon chart.

you can see if you charge this it seems you get -- u.k. conditions are improving somewhat. fact that the very consumer confidence is beginning the ranksls you that have to move higher inflation on incomes is beginning to make its presence felt. ratessly raising interest under those circumstances will hit harder for u.k. households and therefore as a result, an agreement that it would necessarily be a central strategy for the bank to embark on a policy of tightening and a succession of rate hikes. francine: this is the barrow is a fairly simple looking at cpi's. andre ethier this is year on year and then you have the white

line is the pound in 2015. >> the pound has sort of recovered back a little bit, not so much against the euro. the euro itself is proof that part of it is stronger. i think sterling is likely to struggle. whatat a consequence of the bank of england does, i'm not really sure. if the bank of england were support us -- to surprise us and raise interest rates, i don't believe it would be a good move and i don't think it would be the start of succession of rate hikes. for me, rate hike would be negative to sterling rather than positive. then of course there is the whole brexit issue. that is still achilles heel for the pound. francine: that must be in achilles heel for the boe and mark carney.

there's infighting with my cabinet. if you are the boe, you have to look and have an idea of where we are headed. >> yes. i'm not sure how exactly do you plan for that and how do you plan for brexit itself. it is not an easy situation for the bank of england to cope with. they can play the game they see at the moment. would they be surprised by cabinet infighting about brexit? of course not. none of us are. that was always going to happen. it is something the bank can't necessarily focus on one way or the other. our view is that is not developing a way consistent. francine: this is our bloomberg brexit barometer. thisan see the higher uncertainty is, the better

people feel about brexit. the concern is that you can expect them infighting on the political scene, but does the boe really know what kind of shape brexit will take. and if not, how difficult is it to do policy? >> they don't really know. nobody really knows. evolvedit debate has over the course of the last few months. it has changed. the election i think changed it significantly. , this is the first inflation report after the election as well. prescribed more uncertainty to its views. they take the view that we can't , we havell on brexit to make our forecast conditional on the status quo. i wouldn't be surprised if that happens run the central forecast because once we get -- we don't know if it will be hard or soft brexit. how can you forecast that, you simply can't. you can make a best guess.

and stephen,er stay with us. up next, whatever it takes for the price tag. how much it costs mario draghi to save the euro. this is bloomberg. ♪

♪ this is "bloomberg surveillance." let's check on your markets. the market -- mark barton have the latest. mark: the stoxx 600 has to rise at least .2 8% to avoid falling for a second straight month. if it does, if the first time it happened since october last year. it fell for the second straight week.

worse stocks, health care. worst month since october. , biggest hsbc jumping gain in a month. second quarter profit beating estimates. the chief executive boosting revenue trending said it will spend up to $2 billion buying back stock. buy ratings. have that is the raising their out of five for unlisted shares. the most positive view since april last year. first buyback, second by back, third by back. this is a fantastic chart. since 2011. the gauge has fallen 9% since reaching that record in january. it is been driven by that -- it has been driven by that lackluster -- indecision in

washington. dollar has dropped 30.30, this is the relative strength index. when you go back above the oversold level, that according to technical analysts is a time to buy. the dollar has been in the doldrums since january. oil trading above the 200 day moving average. you can see that through-line for the first time since may. briefly above 50 a little bit earlier. the first time that happened since may. opec said the group and its partners will meet to discuss why some nations are falling behind on their pledge to cut production. crude last week up by almost 9%. , concernsof 2017 easing that effort by opec and allies will curb output. francine, that is oil.

a great chart. francine: whatever it takes, that is what the eu president said he will do to save the euro five years ago. it turns out that whatever it takes is 1.2 trillion euros. that's the amount central banks balance sheet has expanded since mario draghi made those remarks. we have cpi for the eurozone. it is in spite of decelerate a slightly in july. peter dixon from commerzbank and steven barrow are still with us. stephen, when you look at euro, it seems the rally could continue. do you need the central bank formalization to kind of stand behind that? steven: yes you do. probably only to the extent that the central bank needs to continue to inch in that direction. we don't need a rate hike, we don't necessarily even need to eliminate bond

purchase. just as long as the ecb is moving slowly in that direction. banks give central quite considerable policy guidance. the point of which there currency is getting stronger. you are inften when that sort of process of building up those expectations. is doing that very slowly and it will continue very slowly. , theng as it is doing that eurodollar moves up. francine: do you prefer euro dollar or euro pound? steven: euro everything. eurodollar.probably just on the basis that obviously if you look at eurosterling, that has moved quite considerably as a reflection of sterling weakness and similarly

with respect to euro-yen, i think the upside there is probably less than we have seen in eurodollar. francine: peter, what is your take? is now the ecb on a per -- trajectory that will be something to stay away from? peter: they haven't said anything about that -- what they will do. the expectation is that will tell us in september. the trouble is there isn't any inflation. on to the extent that part of the reason for a docking the policy was to get inflation back to the target, you can argue whether it's being successful. ecb will have to sell it for the position of economic trend -- strength. francine: which they have done so far.

it's kind of a funny thing in the labor market is how they claim it. peter: the trouble is is it permanent or temporary? the question of seemed as it appears to be a shift in the operation market. that might be structural because inflation expectations have been driven down. it might be because of the halloween out of high-level jobs because the competition in asia. it might be because the rise of automation taking away the sort of simple jobs. we don't know. i would be cautious saying we get rate market normalization. francine: do you agree? steven: yes, but at the same time, draghi and the ecb are focused. there are other issues. somers bank was making

comments saying basically the point is is monetary policy effective up to a certain point. the downsides of pursuing expansionary policy can sometime start to outweigh the suppose it happening. -- feels the ecb is pat -- approaching that point or past it. think about the bank of england and the federal reserve. at some of these banks in a traditional inflation context, hang on a second wire the thinking of raising rates. issue is theresk in the background. we don't necessarily see it much. things in theme inflation context. i think that is also a background issue. francine: it does seem when you look at this which is the

citigroup, global risk aversion macro index. going tosk aversion is be crisis average. is this make sense to you? peter: the question is does it have complacency or does it reflect what's going on? there are sense that balances in the world economy being masked by this fairly lax monetary policy. it monetary policy were not to tighten, to what extent is that going to cause some of the issues we have been talking about over the course of the last five or six years to resurrect themselves? we saw quite a sharp spike in 2011 and a bit of a spike, those are primarily -- issues. we are not worried about the u.s. anymore, but certainly .urope is in an area of concern

the ecb is mindful of the fact that if it were to overly tighten, many balances would remain in play. francine: we have been hearing that for mario draghi. peter dixon and steven barrow, stay with us. we run through the key things to look out for this week which includes the latest jobs data. this is bloomberg. ♪

♪ francine: i'm francine lacqua in london. you shouldree things be watching out. on wednesday there's a rate decision. 'se next day it is the u.k. turn. on friday we get payroll from the u.s.. there is all the political machinations not too far in between. let's get final thoughts from peter dixon and steven barrow. peter, we have this nice little chart tracking the balance sheet of the fed. gdp,is as a percentage of what is your maintenance for the fed.

tol they actually be able normalize as many times as they want this year? peter: probably not this year, but i see it in the course of 2019 we will see a reasonable pace of normalization. as may not have to go as far people seem to suggest. there is been a lot of talk the fed will need to reduce the balance sheet by 2.5 trillion. ben bernanke suggested in the long-term the u.s. might actually need a balance sheet around $4 trillion. maybe the degree of reduction in balance sheet wouldn't be that dramatic anyway. we shouldn't get too fixated on that. steven: i'm not sure. at the end of it, what size balance sheet should a central bank have? at the moment, that is less in

the u.s., about $1.5 trillion. we want to see the economy increases. i'm not saying you need to bring it back down to that sort of level, but i'm not necessarily a fan of balance sheets. francine: what's the biggest risk out there? is it china? our forecasts are the dollar will get weaker over a sustained amount of time. the risk in that scenario would be that something positive happens in the u.s. that generates a much stronger dollar. that could come from the political side. a policy, thehaps trump administration start doing something. is maybeisk obviously the ecb isn't going to go quite as far as it suggests. francine: what is your biggest

risk? peter: mistakes. by central banks. markets are too complacent. we could be in for a rather difficult time. francine: thank you so much. peter dixon and steven barrow. "bloomberg surveillance" continues. we will go through asset classes . hsbc is rising. we will go through oil and politics. this is bloomberg. ♪

francine: russia retaliates. vladimir putin reacts to u.s. sanctions.

what will president trump's next move be? a $2 billion share buyback. -- tells bloomberg he has seen progress. cpi for the eurozone is hitting the wires right now. will it derail ecb tightening plans? good morning. this is "bloomberg surveillance." tom keene has a rare day off. today.i'm excited about there is a lot to talk about. we have earnings and inflation data out of the eurozone. david: hsbc driving the day. francine: they are one of the biggest gainers in today's trading session. we have that july inflation for the eurozone. the rate is remaining at 1.3%. we are getting unemployment figures, falling to 9.1%. if i was mario draghi, i would

really look at inflation. that underpins everything i want to do and whether i am ready for the ecb to taper. unemployment not having much effect on euro-dollar. let's get straight to bloomberg first word news. taylor: china is betting president trump will not carry out his threat to use threats against north korea. testfired an icbm for the second time in as many weeks. mentioning, vladimir putin says he hopes there is no further need for retaliation. his government has ordered the u.s. to reduce staff at its diplomatic mission in russia by two thirds, 775 people. moving to venezuela, president nicolas maduro has taken the first step towards upending

democracy. a new legislative body that maduro says is needed after months of protests. critics call it a paragraph. there is new concerned about inconsistencies in the british brexit talks. havessed claims that they agreed to the free movement of people for three years following brexit. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. on to your data. oil extending the rally we saw last week to this is important because it is giving a spur to influenced currencies.

oil, copper, and gold is up. hsbc is spurring a lot of lenders after it beat estimates. the share buyback investors are liking today. david: we will have more on that today. index, the dollar spot -- euro-dollar. you are up 2. looking at nymex, crude is the big story. that is pushing ahead to the next opec meeting in a couple of days. francine: i like that opec meeting. they are just talking about compliance on august 7. i wonder how much that will actually impact the price of oil. this is my charge of the day. this is a simple global risk and version. it is an index for our radio listeners.

it is a simple chart that shows investors seem to be risk on. by speaking to a lot of market participants, they asked what if this is complacency. it is not that they feel better about the world, they're just too complacent. that is an interesting angle. david: risk on according to the particular index. agree morerump action is needed on north korea after speaking with china. koreays ago north testfired its second icbm within a month. this.is a formula to after one of these tests, these two leaders talked. president trump talking to shinzo abe. nikki haley saying she would not call for an emergency meeting of

the un security council. is this different this time around? >> yes and no. here is what is interesting, the u.s. and japan are saying it is an icbm. china and russia are saying it is not. ,ntil they make it is an icbm then the u.n., nikki haley being the top u.s. diplomat there, cannot add more sanctions. in particular, trade is everything. china is overwhelmingly, something like 80%, north korea's top exporter and importer. david: the president is fond of using tweets. i want to read some. allow them to make hundreds of billions of dollars a year in

trade, yet they do nothing about north korea." what is the message he is delivering to china now? what are the back channel medications? >> that is on foreign policy with north korea. the chinese are refusing to admit along with vladimir putin that this is an icbm. this is an icbm by every stretch of the military community. on the second side, we should note the deteriorating economic relations between the u.s. and china during the last round of meetings last week. taken as a whole, this is a shift in the u.s. relations with china in terms of foreign policy and economics. francine: how are the relations between donald trump and his own party the republicans? saying weaul ryan need to focus on tax reform. president trump tweeting the

world is watching, repeal and replace, health care. administratione wants to continue to work on health care, but by all intents and purposes, this is done. in terms of tax reform, several sources at the treasury department are adamant they will be able to correct the political mistakes made by their colleagues on health care reform. the administration coming out against speaker paul ryan who indoors the border adjustment tax. -- endorsed the border adjustment tax. with the ousting of reince priebus, he was on the side of paul ryan. speaker paul ryan was a top advocate for the order adjustment tax. francine: if you look at the white house reshuffling, a lot

of people are looked on it. does it mean anything for their priorities? >> it means something in the sense that these are the folks in the president's inner circle. you are right in the sense that all of these stories are indicative of a political media culture in washington as much as they are about the president himself. it is not normal. we have not seen anything like this in terms of what we are seeing. from a policy standpoint, you look at the treasury department, look at what they are doing, and that is very normal in terms of how they are going about implementing policy. francine: thank you very much. kevin cirilli in new york. isabelle mateos y lago from blackrock joining us. thank you for coming on here. thee is paul ryan, tweets,

prime minister in japan getting involved with north korea. how do you cut through the noise? >> that is the right question. what do we need to care about? there are still two big questions. will we see any policy measures supportive of higher growth? we are looking at the tax reform agenda. it was welcome to see an announcement of consensus on something in that case. the decision to not move ahead with the border adjustment tax, but i would stress the positive point was this clear signaling there has been a lot of work going on in the background. they are ready to move. we could see some action in this area. that is the first thing we are looking at, potential growth positives. the prospect of the deterioration of dialogue china around north korea or other trade issues that don't make progress is a concern.

we are watching this very closely. francine: let me bring you over to my chart i showed at the beginning of the hour, which is which peoplemood say could be complacency. of moreean in terms risk appetite? francine: what needs to happen for the market to say this could get worrying? >> you would need something that makes people reconsider fundamentally their outlook for global growth. we have not seen anything that reaches that level. there were fears immediately after the presidential election because of everything that was at around global trade and putting sanctions on china. we are not there yet. scenario,asily see a which we have seen with iran, where the u.s. would impose sanctions on any business doing

business with north korea. chinese companies would be at the forefront of that. that could escalate and get out of hand quickly. nobody is hoping for that. that is the kind of signal that would say this smooth global growth outlook is no longer valid or is in question. that could trigger a spike in volatility. apart from that, we are not among those who think the market is currently complacent. david: are we seeing the consensus in washington diminishing? the republican leaders in congress have adopted here. what have we learned after this last fight over health care about what washington is able to get done? is it is rolled diminished somehow? >> the lesson learned is keep altering out the noise. -- filtering out the noise. focus on economic fundamentals.

the u.s. has strong momentum. absent any policy stimulus, the u.s. economy is doing ok. u.s. companies are healthy. we are looking for something that would get things out of this range bound we are seeing the economy in. if it does not happen, we are still seeing ok outcomes. i don't think washington's importance has diminished. there is still room for good upside and downside surprises. isabelle mateos stays with us. coming up we speak with jeff flake from arizona. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." china has asked the company that bought new york's waldorf hotel to sell its overseas assets. the government also wants anbang to bring its proceeds back to china. the policies that have fueled its growth have been all but banned by regulators. tesla's new model three car has finally arrived. the $35,000 model of the car will be a will to go through 10 miles between charges. -- 310 miles between charges. that is your bloomberg business flash. francine: thank you so much. shares briefly touched

their highest level since 2008. with profits beating estimates, the outgoing cfo trimmed costs. the finance director said sales are heading in the right direction across all major differences and regions. stephen morris joins us. is isabelles mateos. when you look at hsbc, the share buyback is significant. the legacy,this is i have turned it around, i am leaving, and here is some buyback. >> this is coming at the right time personally. he has been in charge since 2011, and he has endeared quite a torrid time being dragged through personal scandals. he is looking to retire next

year. a new chairman is coming in in october. this can be seen as a parting gift. hsbc is one of the few european banks that continues to pay a dividend since the crisis. francine: are they definitely back on track? we have seen improved revenue. it runs on who they appoint next. >> there's nothing below the line. there were no extraordinary legal charges. it was a relatively clean set of results. it looks like the strategy they put in place a couple of years ago is working. exit losingia, countries, and a sprawling institution across god knows how many countries in the world, including 230,000 employees. david: how much of this success is being attributed to

management and mr. gulliver? how much concern is there about the transition coming up? >> for a long time there were questions around and expect it hsbc. it is a change in tone. ofy deserve a fair bit credit because hsbc looks different to how the received the bank in 2011. a fair amount of credit is going to them, and that is justified. with regard to the transition, there are a lot of internal candidates for the job. it remains to be seen if they will have the ear of the new chairman or he will clear house. he may have his own ideas about the bank. francine: how much has this had to do with the u.k. banking sector? if you are swiss franc, a southern european bank, or a british bank, it is very different. >> that is true. generally we are in a global

environment that is favorable to banks. we have this synchronized systemic expansion. we have his environment of slowly rising interest rates, slowly steepening yield curves. that is favorable for banking activity generally. you have the italian banking sector that is finally getting reorganized, restructured, cleaned up with deals being offloaded. you have the u.k. banks that have to deal with the challenges of brexit and adapting to that. there are variations. the banking sector globally is one of our favorite ones at this point. when you think of it in style vectors investing, it a big component of the value factor. david: thank you to stephen morris and isabelle mateos y lago. we have a discussion

with -- this is bloomberg. ♪

♪ francine: "bloomberg surveillance" with david and francine from london and new york. this focuses on brexit today. writing in the uk's independent newspaper, he talks about the ongoing inviting in westminster. was never assumed that he wanted to be administered. formally nominated by theresa

to, he has seized the chance set out on a transitional period after britain leaves the eu in 2019. we're back with isabelle mateos y lago from blackrock. she does not seem to think brexit will happen. there is immigration for another three to four years. this was disputed by liam fox. who is right? >> that is difficult to tell. a key question for markets is what is the risk? week,e came to late last that risk had gone down massively. there seemed to be consensus within the cabinet that a decent transition was needed. that has been thrown into question by the comments liam fox made over the weekend. one has to hope for the sake of

the british economy that we get clarity on that soon. companies need to plan. they cannot wait until march 19. 2019. david: is there some jockeying going on within the cabinet? >> getting on with the negotiations or providing certainty with the economy so businesses can make planning decisions. francine: does this mean it makes the boe's policy difficult to plan. you don't know what you need to adjust inflation for. >> i think that is right. madeoe it seems has reasonably clear that it is waiting for signs inflation is more than the transitory reaction to the depreciation of the pound. unless we are seeing a strengthening of wage pressures, a strengthening of the economic momentum, i don't think there is much of a dilemma.

they are waiting to see what happens. it is very unlikely we will see a strengthening and economic expectations until we see more clarity about this. francine: thank you so much. isabelle mateos y lago of blackrock stays with us. coming up, a conversation with lloyd like fine, that is at 1:30 p.m. in london. coming up on "bloomberg surveillance," the u.s. job numbers on friday. we talk about central-bank risk aversion and some of the positive things that can help with the fed, the boj, and ecb. this is bloomberg. ♪ ♪

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the x1 voice remote. xfinity. the future of awesome. ♪ francine: this is "bloomberg surveillance" with david and francine from london and new york. here is taylor riggs. taylor: retired marine corps

general john kelly takes over as white house chief of staff today. president trump tapped him on friday to replace reince priebus. he will have the backing out president's daughter ivanka and her husband. calling china and russia the biggest economic enablers of north korea after the kim jong-un regime launched the second icbm in a matter of weeks. rex tillerson says the u.s. wants a peaceful resolution to the incident. president china's says his military has the capability to -- he pushed for a modernization program aimed to make the military a leaner horse capable of projecting power overseas. in australia, security has been tightened at major airports after police say they stopped a plot to bring down a plane.

suspects were inspired by the islamic state. 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. david: thanks so much. vladimir putin says he hopes it will not be any for further retaliation against washington. moscow ordered the u.s. to slash staff at its diplomatic base in russia by two thirds. by daraghned mcdowell. what kind of effect is this going to have on the u.s. diplomatic presence in russia? >> it is going to significantly downgrade the u.s. diplomatic presence. going aree people

going to be technical staff on the ground, we're talking russian citizens employed by the u.s. embassy. this is going to affect things such as these applications. this means visa requests are going to stop taking weeks and start taking months. this will downgrade some of the u.s.'s intelligence gathering capability through their embassy. the russians have not specified which personnel are going. there is some flexibility in what the u.s. can do. any organization facing a two thirds cut in its staff is going to find its capabilities significantly reduced. david: we are talking several hundred individuals. the president does seem to be ready to sign this recent legislation that has led to all this. what does this say about the relationship between the u.s. and russia up to now? >> it says that moscow has given

rapprochement of with the u.s. there was a sense that one president trump was elected this provided an opening for improving relations, lifting deal,ons, some sort of where youf yalta 2.0 have some sort of responsibility between the u.s. and russia in global security. this is the russians being very much aware that the purpose of this decision is to take the russian foreign policy or polio out of the white house's hands or make sure it is subject to strict scrutiny by congress. this takes the sanctions from the obama era that were largely executive actions and puts them into law. you have to look at other

situations where the u.s. is engaged in sanctions unilaterally that have lasted for decades. moscow is thinking is there any real point in trying to get along with the trump administration? it is clear that they probably cannot deliver on improved relations. this is now in the hands of congress. we have gone from bilateral negotiations to negotiations with about 535 stakeholders. most of them have their eye on some sort of office. francine: is there something the president can do to get that relationship back on track? the u.s. really needs russia because it has so much trade ties with north korea if it wants to retaliate against north korea. >> it is very difficult to see what the trump administration can do in this case. it is a question of the biggest carrot the u.s. has to offer at the moment is the lifting of sanctions, is particularly the

parts of the sanctions pertaining to the transfer of advanced oil technology, advanced oil drilling and gas technology to russia. in the absence of that character, and this has been taken out of president trump sans, it is hard to see -- president trump's hands, it is hard to see what he can offer. what moscow will probably looking at closer is the european reaction to this. upsetarticular bill has germany and other countries, the european union. can will look more at russia use this to deepen the rift between the u.s. and europe, break that relationship apart. francine: western countries do

need russia to deal with the rising threat of isis and north korea. >> with regards to the middle east, the russian contribution to that fight has been overstated. their mission in syria has been more about defending and building up the resilience of the assad government rather than fighting the islamic state itself. islamic state is currently crumbling pretty rapidly under coalition offenses from iraq and syria. korea, itf north would seem to me that the largest voice and that is china. if china changes policy inputs severe pressure on pyongyang, russia will follow the lead on that. it is not a question of whether the u.s. or europeans can induce

them to do that, that leverages gone. francine: thank you so much. daragh mcdowell there. with us is isabelle mateos y lago of backdrop. geopolitics,s on is any an animosity between meanussian and u.s. something can go wrong on a global scale? >> we don't really see the recent escalation as something that is immediately market relevant. this is more in the realm of important in geopolitical terms, but beyond that, if you think of the outlook of global trade, it does not seem to be an issue. if you look at emerging markets, that does not seem to be an issue. we are in a supportive environment for emerging markets. oil is supportive of russia. this is not something that we

are enormously concerned about. francine: what are you worried about in terms of market impact? we talked about the trump administration, flaring tensions in asia, is there anything in the middle east you are worried about? >> any disruption in oil supply could temporarily lead to a spike in oil prices. our sense is u.s. shale producers could react quickly. that would not necessarily be protracted. it ispolitical concerns, whether we are getting close to a global trade war or massive protectionist regimes. beyond that, what we are most worried about would be coming from central banks, the fed or the ecb in the form of excessive haste of normalizing policies when economies still need

support. that is potentially the biggest disruption risk at this stage. david: have we gotten more clarity on the issue of trade? we have talked to wilbur ross in the u.s. are we getting a sense of what the u.s. trade policy is not that the principles are in place? >> the baseline is looking good. this seems to be an administration that will try primarily to open other markets for u.s. goods. that is totally fine. if it fails to accomplish that, the second round might be less positive. the principles that have been set out in the context of nafta or otherwise look fine. the worry would be more if geopolitics intrude into this agenda, and the trade measures become an instrument of geopolitical dialogue or escalation. we are not there yet. that is something we are looking at. francine: thank you so much. chiefle mateos y lago,

investment officer at blackrock. other benefits to stay ahead of the competition. it is a new relaunched version. there were some really good articles i was reading about elephant riding in asia this week. something you don't often get to talk about. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." tom? tom who? opec says they will meet next

week in abu dhabi to discuss why some patients are following behind on their pledge to cut production. is bloomberg's managing editor for energy and commodities in europe. still with us is isabelle mateos y lago from blackrock. is it still impossible to predict the price of oil? another opec meeting, really? attempt to keep the prices higher is to continue meeting. they will have another meeting in abu dhabi. compliance is really coming into focus. saudi arabia is keen to ensure opec members who are not complying do so, most important iraq. covered opec a

million years ago, and compliance was always talked about close doors. does it actually make a difference on the price of oil? >> i think it is helping. there are several factors that are giving bullish momentum. pping ineeing stock dro the u.s. succorket is drawing from that. we are seeing physical differentials in the market. they looked fairly shown. it is a slightly more positive picture then we have seen. there is a key technical indicator that oil has moved above the 200 day moving average, which is a sign that traders see reason for optimism. venezuela, voters went to the polls to vote for a

constituent assembly that president maduro had called for. we had sanctions lastly, 13 individuals sanctioned by the u.s. government. i have a chart on the bloomberg looking at oil imports from venezuela to the u.s., and you see diminishing effect as that moves downwards. what could this affect the on venezuela if sanctions were imposed? >> i don't think anyone is yet talking about sanctioning exports from venezuela into the u.s. although you correctly point out that is a less significant part of the picture in the u.s. as domestic shale fields ramps up. we are still talking about 600,000 barrels a day. you could not stop that without imposing a significant disruption on the functioning of the american oil market, which

the administration is likely reluctant to do. they would like to find sanctions that would likely hurt venezuela, which would be sanctioning the imports of u.s. fuel into venezuela. that might seem slightly odd. why do they need to import fuel? their refining business is not what used to be. they are dependent on importing fuel. this could really have an effect, a deep effect on the venezuelan economy. that is what the u.s. administration may be looking at as the next step. the companies doing business in venezuela, how are they writing this out? >> venezuela is becoming a difficult place to operate. it is harder to put people there, harder to do financial transactions there. there are companies still with large operations in venezuela.

on the u.s. side, chevron remains a big player in the upstream sector. the u.s. government will be mindful on the impact on its own companies when it looks at how to put pressure on venezuela. francine: we charted what we were saying about the 200 day moving average and what that means for the goods in the future with wti, does this underpin every single forecast you do or do you look at oil as what happens in inflation happens in central bank policy? >> i would not overestimate the impact on what central banks do. what they worry about is headline inflation, but they really worry about core inflation outside of energy and food prices. while in the near term they have to, they cannot completely ignore prices up and down.

ultimately what will determine how they modify or adjust policies going forward is what is happening to core. oil development's are not that relevant. david: on a country by country basis, who is driving oil prices? is it saudi arabia? where is the pressure coming from? >> it depends on where you are in the pricing range. -- near the to bottom of the range, developments linked to opec and how much they can apply to do portant,s important iim the marginal producer is the u.s. shall producer becoming more important. that is why we are seeing oil move within a clear range as you were showing earlier. whenever you are approaching the bottom or the top of that range, one of the key producers comes in and brings it back to the middle.

francine: thank you so much. thank you to will kennedy. we will continue with isabelle mateos y lago of blackrock investment. if you have questions for isabel, i know many of you do, just go on to tv . this is for our bloomberg users. ask the guest a question. it will be my pleasure to ask that on behalf of you to isabel. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." i am taylor riggs. heineken reported first-half profits that beat estimates. they were helped by warm summer weather in europe. and him says there is growing demand for more expensive beer in asia. seenrench drugmaker has demand for vaccines and medicines for multiple sclerosis. they are rolling out a new eczema medicine. a direct bid for charter

communications according to people familiar with the matter. charter rejected an earlier merger proposal made by something. that is your bloomberg business flash. what stood out to me here is we just came off of charters second quarter earnings report last week. charter has become more of a margin story then growth. i wonder if this could push it back into growth territory. francine: that is a good point. i love my quote of the day. bvgpoke to amir -- head at partners. they're going back to come from the world just as we thought they were becoming sensible. blackrock investment institutes latest research note says economic reforms including reasonable valuations support

emerging-market stocks. let's get back to isabelle mateos y lago. if you like emerging-market stocks, does this also have to do with if the fed is raising rates there is so much a pill that we are not expecting much? >> it is well telegraphed. we expect normalization to be gradual, slow, and not lead to a massive overshoot in interest rates, longer-term interest rates, which are important for the financing costs of these companies.rket that is the context in which we will continue to see sustained global growth in a centralized way. that is extremely bullish. david: help me with the connection to commodities. we had leaders meeting in washington, d c, talking about in capacity production load

china. how is that playing out? >> that is being addressed. obviously never fast enough to please everybody. if you look at commodity and ces in the last couple of weeks, there has been -- between demand and supply. in emerging markets we are seeing strong discipline in terms of reduce investment, disinvestment, and good news in the commodities sector thanks to this discipline we are seeing. francine: is there one country that stands out in terms of cheap valuations or potential? >> i would not say that. francine: it is kind of like the block as a whole. we have not talked about china for the moment as a risk because we're looking at the people's congress and everything is stable until then. what happens after that? >> it is a question of the time

frame. i think growth is stronger than anybody expected. as you were mentioning, there is the party congress, meaning they are putting a premium on stability until then. we don't see china on off of a cliff. the risk is more as they rain in this unsustainable credit growth that has been taking place in china, is there a risk of accident that they go too fast or a lot of these of the puzzle. david: we have to leave it there. coming up next hour, we speak with michael shaoul. that is coming up. this is bloomberg. ♪ ♪

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change the way you wifi. xfinity. the future of awesome. francine: russia retaliates. vladimir putin reacts to new need -- to new u.s. sanctions.

level will be the u.s. president's next move? john kelly tech so -- takes over as white house chief of staff with the backing of iraq a trump and jaredivanka trump kushner. good morning, this is bloomberg surveillance. tom keene is off, today. david: very rare. francine: he will be back on friday. geopolitics, u.s. politics and underlying central-bank action. david: a huge day in the u.s. let's get to the bloomberg "first word news." taylor: china is betting president trump will not carry out his threats against north korea. the top american general called

his south korean counterpart to discuss a potential response. russia's president says he hopes there is no further need for retaliation. his government has ordered the u.s. to reduce staff artist of nomadic missions in russia by almost two thirds. that is in response to new sanctions imposed by congress. down in venezuela, the president has taken his first step to upending decades of democracy. voters cast ballots to elect legislation -- delegates that the president says is needed after months of protests. aboutis a new concern inconsistency in the british government's brexit process. trade secretary has dismissed claims the british ministers have agreed to allow the free movement of people for up to three years after leaving the eu. his comments are at odds with reports an agreement has been

reached. day,l news, 24 hours a powered by more than 720 journalists. this is bloomberg. francine: thank you so much. today is a little bit of a funny day. it is rather exciting. we are seeing stocks advance because there is a little bit of bullion see on the markets. raw material producers are up. a lot of traders are interpreting this. little volume out there, looking at oil. 50.id touch recently above david: let's take a look at the data in the u.s.. futures pointing to a up open. continued euro strength. john kelly starts as white house chief of staff.

president trump cap kelly on friday to replace reince priebus. he has the support of ivanka her husband, senior white house adviser jared kushner. -- trump starts today with a new chief of staff, what does john kelly have to do in this new position? how much time will he be given to right the ship? kevin: the secret for general kelly is twofold. leakage to address the of palace intrigue stories that have plagued this administration. the second thing he has to do is work with capitol hill. when you look at last week and the devastating policy blowup it -- of a failure to accomplish health-care reform even when the

chief of staff is the chief of the rnc, he was buddy buddy, ande unquote with paul ryan at the end of the day, he was unable to get health care reform through. david: i interviewed john kelly when he was secretary of the department of homeland security. what you described with the person in this position being able to communicate with congress, is that the biggest deficit you see? working with congress is going to be something new and different. .evin: that is the bottom line in order to get something like tax reform done, that is where that is going to be needing to

watch because this is somewhere priebusu had reince working to get to some kind of consensus where is now you have someone who is very much going to be perhaps not as familiar with that type of goal. that is not a criticism. francine: will the president listen to his new chief of staff? given with regard to russia, administration saying that they will not veto the russia's sanctions bill that a debt that essentially does handicap the president or any president's ability to weaken russian thinking -- sanctions. it would give congress the ability to override any type of russia's sanctions, should they want.

in terms of where this all goes from here, north korea, you look at that and you look at china and russia on the issue of north korea, it is very different than what the united states is. francine: when you look at what the president wants and what republican senators once, when his tax and the other is health care reform. do they meet in the middle? kevin: i think president trump once a policy win -- once -- wants a policy win. i think he would be happy with either or at this point. david: thank you very much, kevin cirilli. michael shaoul is at market feel asset management. great to have you with us -- market field asset management. what matters to the markets at this point? michael: not washington, d.c.,

short answer. it has been a chaotic administration. the assumption is very little legislation, maybe something to do with taxes later on, this year and that allows us to not spend much time worrying about the political situation in much more time worrying about the economic situation. i am quite comfortable with gridlock. the economy is not in a bad place. i don't think we need much help from washington. what is the market worried about? they seem pretty comfortable with world politics. michael: the market is unwary at this point in time.

there is a lot of mess out there in the political arena. the of it really gets to point that the market is going to pay attention. venezuela,ssues in crazy guy in north korea. although this may matter at one point in time, but it does not get the attention of the market. francine: what has to happen to get the attention of the market? michael: it would have to get an awful lot worse. right now, i think the senses, maybe something bad happens, but there is plenty of supply in the rest of the world. i don't think this is the year in which geopolitics is going to disturb the market too much. a lot of what have to go wrong over the next couple of weeks to really matter. --ncine: does this mean

markets are focused on central banks and politics come second? the global fund -- the global economy is in its worst synchronized expansion in over a decade. you think it is an incredible boom, but the whole of the world is doing ok and he has been so long since we have seen the effects of the. people have lost sight of the global economy, moving in the right direction. us,d: like a listing with -- michael is staying with us, michael shaoul ceo of marketfield asset management. this is bloomberg. ♪

taylor: this is bloomberg surveillance. second-quarter profits that beat estimates. the outgoing ceo posted revenue while cutting cost. bytried to improve profits exiting roughly 100 businesses in 18 countries. company thated a hotel new york's waldorf to sell its overdue assets. it went on a global buying spree

and now the policies that fueled his growth have been out -- all but banned by regulators. i scrub capital will pay $1.9 billion for a fiber not the network -- for a fiber optic network. that is your bloomberg business flash. david: let's get a look at the week ahead with three economic points crossing. on wednesday, we get the monthly adp employment data. next is the uk's turn with super thursday. isk carney will speak and it the first friday of the month, so time for the u.s. jobs report. we are back with michael shaoul of marketfield asset management. looking ahead to this jobs report on friday, what are you

expecting? how important is that too monetary policy in the u.s.? -- is that the monetary policy in the u.s.? michael: it is less independent than it used to be. the fomc believes this economic cycle is going ok. it understands the data is volatile. the bar has been raised for what would constitute a surprise. it will be around expectations. anything more than 200,000 would be an upside surprise but you take it with a pinch of salt. i think that would -- it would be surprising that if we get if they are not hiking at least once before the end of the year. the market will pay attention and it will have an effect on where the s&p is at 4:00 on

friday. it is part of the cycle. resume my way through the most recent statement from the sf -- fomc, i was struck by the seeming contentment. backis holding wage growth and what could the fed could do? michael: it is partly the data we are looking at. the weekly earnings are better than the hourly. when you go through the different career paths, some people are getting wage increases and some people are not. i wonder if it is a data issue as much as a economic issue. it is a rational response to the fact that inflation rates have been low. it is not the biggest issue out there. eventually we will get what we are looking for. david: how about a forecasting issue? do you see the fed reckoning with the fact that it's forecasting has not been perfect? point,: i think at some

the fed will have to adjust the fact that i believe it is behind the curve. consumer price inflation will become an issue and it will come as a surprise. for right now, this is the easy part. they've got to -- they got the economy to a point that they are probably pretty happy with. francine: what if this is just a huge policy mistake? how can you be so certain that the markets really understand that we are starting to normalize and given the last seven years, how do you know they are ready? michael: if the announced in september they were going to start trimming their balance sheet, i think the time to worry would be several months into the new policy, but there is a lack of liquidity in markets. i think other central banks are

going to have to taper. i think asset prices are going to have to push higher. at some point, there will be a mismatch between global market cap and the amount of global liquidity that exists. francine: this is the chart that david and i had for the top of the hour. it looks at risk aversion. hadere near level since we even in the early 2000's, and leading up to the financial crisis. what needs to happen for the stress levels to go back down? is it a central bank policy mistake or something from china? michael: i think things are ok. you can put a index together the tally where there is stress in the system. if you look where credit spreads are, were global markets are, we focus on the s&p, but this has

been a remarkable year for markets outside of the u.s. okporate earnings have been and at some point, you look and say we are in the sweet spot. i think you are wrong if you think this week spot last for years and years. right now, it is pointless, picking away and saying what are we missing? it is not mean this market is incapable of going down suddenly -- it does not mean this market is incapable of going down, suddenly. you could have something spectacular and newsworthy, but as far as the sort of where we are, globally is, it is the best place we have been since 2006, 2007. you might as well enjoy this period. david: michael shaoul, ceo of marketfield asset management is

staying with us. a cover story this week by brad stone, a global executive editor for technology, missing on samsung and the interplay between health care in the middle class in the u.s.. this is bloomberg. ♪

francine: this is bloomberg surveillance from new york and london. when you to talk about hsbc because their shares reached --

recently touched nearly there highest point since october 2013. the outgoing ceo boosted growth -- revenue while also reducing cost. sales are heading in the right direction across all major businesses. stephen morrison now joins us. it has been tougher hsbc. they have kind of had to restructure and get away from scandals and cost. >> today is the second quarter where they have posted good numbers. investors have responded well in the sense that they are getting cash returns in the form of buybacks. there were no major litigation the -- disappointments and revenue is going the right way for us. the share buyback is kind of a look, i told you so. stephen: the share buyback was quite well flagged.

investors were well-positioned for that. what executives did when they spoke to the media, they left the door open, for more to come back in. perhaps billions more coming down the line. are you seeing a heap of trouble at home? barclays and hsbc are a different animal and it certainly puts pressure on the other u.k. banks. basically not posting performances encouraging of this , 8, 9 years after the crisis. we are still seeing some in the midst of it. david: how much is this indicative of the fact that we have had good investment banking stories. u.s. financial institutions, it seems like there has been a real beef when it comes to investment banking. stephen: hsbc has been

repositioning itself as more of a merger advisory type bank and debt equity underwriter. it has a lot of room on its balance sheet because it is balanced out by a large retail bank with lots of deposits. that was the side that performed well. in terms of trading, they did not perform so well. how comfortable is this banks capital cushion at this -- bank's capital cushion at this point? stephen: it is among the highest in the u.k. what executives have been warning about is that there were several big changes to capital regulations across the world and the one thing holding them back from returning more money to investors is the fact that they don't know where these capital levels will allow. certainly is the fifth-largest bank in the world, they will be

affected by anything in terms of capital regulations. we will be back with michael shaoul of marketfield asset management. coming up on wednesday, goldman sachs joins us. brexitsking him about and trading revenue that was a touch below. this is your data check. you can see crude oil and -- crude oil a low $50 a barrel and opec is meeting next week. what a surprise, this is bloomberg. ♪

david: this is bloomberg surveillance. i'm david gura in new york, in for tom keene. francine lacqua in london.

let's get the bloomberg first word news" from taylor riggs -- bloomberg "first word news" from taylor riggs. kim jong-un launched a second intercontinental ballistic missile in the matter of weeks. rex tillerson says the u.s. wants a peaceful resolution to the tension. the top american general discuss a possible military response with his south korean counterpart. says hisresident military has the confidence and capability to bolster the country's rise into a world power. he oversaw a parade that showed off chinese forces and has pushed for a modernization program, aimed at making the military a leaner force. retired marine corps general john kelly takes over as white house chief of staff, today. donald trump cap kelly on friday to replace -- tapped kelly on friday to replace former chief of staff reince priebus.

i'm taylor riggs, this is bloomberg. david: let's get more on that shakeup at the white house. joining us from the white house -- joining us from rhode island is the chief of political science at -- kevin cirilli telling is the big battle is between the white house and congress and now how'd chief of staff -- and how now chief of staff john kelly deals with that. >> the first thing he has to do is get the white house in order. he is going to want a chain of -- and, he is going to want it is can he get the principle to work with that organizational system because of the president

does not respect that chain of command, john kelly cannot do his job. david: one of the tweets we saw over the weekend from the president. the health care reform did not pass over the weekend. the tweet saying do not give up, republicans. get cross state lines and more. let me ask you about the 51 votes. the president pushing for this super nuclear option where he said the majority would be enough. how radical of a transformation would that be? wendy: i don't think they are going to do it. there is not enough support to get of the filibuster. this bill was considered under reconciliation and that does not require 60. in that case, you did not need that threshold. you only needed 51 and you could not get it.

all successful sports teams that win championships adjust, they adapt. they figure out a game plan and if it is not working, they do something else. republicans should move on to taxes. if you are losing and losing and losing, change the subject, move off of it for now. work on a solution and come back and claim victory. to stay on this issue would be a very big mistake. the professor thinking they should not vote on anything . what is it going to take to get them back on track to mark wendy: mullaney should know better. do you know why people become senators? they don't want to be told what to do by their party. they want to do what they want and be individually powerful. the last thing that chamber once is to be told by donald trumps a administration to -- what to do.

francine: what is the effective strategy for trump and the trump administration for the president to get a win? i would focus on the power of the executive branch. they have been doing that in the environmental arena. use the power of the regulatory state and put policies in place you want to see. undoing what obama did in terms of regulations. that, you have the power to do. it is a long process to overturn that. it makes it look like you can run the government. have stayed ratings in the same lane for a long time. voters are just going to give up on the guy if he cannot get anything done. francine: focusing on what? you have a multiple-choice question. reform,are, tax

anything else in between. the transport bill, infrastructure. is there one that he would actually get through and look more presidential? wendy: take banking for example, if you want to undo dodd-frank. you could start to unravel some of that, reduced the realtor a burden on businesses. you can do that through the executive branch. environmental, you can make coal miners happier. at things you can do that make an impact across the country, people will start to feel the effects of the trump administration. it is not just one thing. he cannot rely on congress, right now because they are getting very euro traded with him. if they are already irritated, they will want to do things that make them look good for november

18. congress does not trust trump to not throw them under the bus. that is a big problem. who does he need to listen to, and his team? we heard reports about him pushing rex tillerson away. is anybody in his entourage that has the full support of congress? -- is there anybody in his entourage that has the full support of congress? wendy: if you purge people from the republican party and one of paul ryan's most significant wrens, that becomes a problem. the first thing is to let john kelly do what he's supposed to do. that's what eisenhower did when he created the position of chief of staff. getting your own house in order, making sure that congress can trust that the white house and oval office will be consistent and not throw them under the bus.

getting anthony scaramucci under control. that is the immediate concern. make sure the committee geisha and steam and what you are doing is being communicated effectively and there are not eight different voices coming out of the white house. byid: there was a big piece the foreign affairs columnist for the new york times focusing on the state department. he thought a lot of offices that are not filled any rights in american jewel is at stake, i placed her honorable patriots take a oath to the constitution. with conspicuous failings but equally conspicuous bravery, united states diplomats have sought to extend across the world. commenting on the number of these jobs that are not filled and our diplomatic policy at this point. do you think we have a functioning government in washington? wendy: i think the federal government is so entrenched in terms of the civil service and

the bureaucracy that it will run. whether it runs well is a different story. i think the trump administration wants to strike a balance between being interventionists and backing up areas of the world where we just can't make that much of it it's and it is costing us. that is not a unreasonable position to want to achieve. meid: michael shaoul, let turn to you, wendy mentioning potential changes to the regulatory landscape. when you look at where there have been proposals for progress in washington, where there has been meat on the bone has come from the treasury department. we have this document outlining what the administration could do to change the contours of financial regulation. re: going to see that -- are we going to see that?

i think the regulatory bodies have been told to take a step back. has anyone -- as anyone who has worked in regulatory industries understands, under the obama administration, environmental laws and financial regulations, all the bodies were going beyond the letter of the law as far as they could and there has been a entrenchment and that is helpful for corporate america. that is the most likely path for progress. the pendulum always swings from one way to the other. hardnk it had swung too toward regulatory enforcement. francine: how much is priced in? it is an -- it is unclear whether the market is pricing in no tax reform, nothing on

infrastructure or if there is still hope. michael: my feeling is that nothing is priced in. you had a lot of money going into a because the trump trade, but that money is already being forced out. anything actually getting done would be considered a bonus. david: wendy, one more question. we talked about the need for the chief of staff to regard -- three re: and things in the white house. -- reorient things in the white house. how is this white house going to stay on message, going forward? wendy: you have to push for policies that will help the people who voted for you. the press that the trump administration has gotten is just constant, this is going to hurt you if you voted for trump. that is where they have to switch the message. what can they do that will not just for philly promise, but be a tangible benefit to the voters that voted for them.

figure that out and stick to it. don't give up on infrastructure. election years typically, but not always, produce some sort of infrastructure spending bill. francine: thank you so much, wendy shiller of brown university. we also have some comments from the u.k. government spokesperson. he said the eu freedom of movement will end by march 2019. let me recap what is happening in the u.k. there is a brilliant article written and the headline kind of says it all. two steps forward and one step back on the brexit plan which means everyone in the -- which would change of britain's relationship

with the eu past 2019. we have to kind of see who is right in that -- in this brexit mess. this is bloomberg. ♪

taylor: let's get to the bloomberg business flash. blackstone group is in talks to buy a majority stake in real estate loans and assets. when theyacquired were bought for one euro in june. those assets will be valued at less than $12 billion. a billionaire plans to make a direct bid for charter communications according to persons familiar with the matter.

refused a far -- a merger -- an earlier merger offer. francine: thank you. the alliance that severed ties with qatar as a list of 13 demands it says must be met. it comes as economic data highlights the impact of the unprecedented boycott on the gulf nation. 40% from theed same month, a year ago. joining us from dubai is our middle east anchor who has traveled many times, to guitar ar.two qatar -- to qater it seems they're going backwards and forwards with no resolution in sight. latestirst glance, the

news causes some confusion because you have the original 13 demands on that list and those were boiled down to six broad principles. people thought the remediation effort was gaining traction. scratch that, we are back to the original 13 demands. it looks like political gridlock, especially since the mediation efforts have not made much progress. that is what we have found out. you mentioned the economic pain. that is continuing to take a toll on qatar's economy. national reserves for the central bank are down ready percent in june. one of the first real cues in terms of what has happened in the last few weeks. whether this is going to continue remains to be seen. imports down 40% year on year in june. you mentioned some of those trade routes. francine: you said back to

square one. what does it mean for rex tillerson and kuwait? at the moment, we don't know what the next milestone is. we understand they have reached an impasse and the fact that you are back at the 13 demands originally set out, you have your work cut out. that theis maintain other side needs to come down from their position and admit to certain points in order to begin the talks. insists oned block their 13 demands. insists they have to back down from those sanctions. to be what can we expect the conversation at the meeting in august? important to point out that

this meeting between opec and non-opec slated for next week is a technical meeting with representatives. a is not as high level, but note said they hoped for -- this brings about better compliance. it was always going to be a meeting about compliance and some of the laggards being pointed out by saudi arabia. compliance in the month of june. they need to reassert this opec, non-opec position in the markets. much,ne: thank you so bloomberg's middle east anchor. back in our new york studio is michael shaoul, marketfield asset management ceo. the underlying

some diplomacy, globally, being more difficult than it was, five years ago? world at aearly, the geopolitical level is a messy place. this is something you pay attention to and you hope it stays at the level that it is and is not escalate -- and does not escalate. i think we are now three years into this process of fixing this huge imbalance between supply and demand. i think we are getting close to the endpoint. supply side is being talked about, and nausea. that was the drive in what made oil go down. what is being missed is that demand has actually picked up, particularly in china.

i think we are getting to the point at which oil may show itself to be rather more sensitive to this kind of issue, going forward. michael, staying with us to talk about dollar strength or weakness. you can watch our programming on tv . it is on the right-hand column. you can send us a question. this is bloomberg. ♪

david: this is bloomberg surveillance. breaking news about a deal involving discovery communications buying scripps network. shareshare in cash, $27 a in stock. executives, it seems likely it coalesced at that meeting a couple weeks ago. francine: i quite like this story because it was like a marriage of three and then they pushed viacom out. wortha blockbuster deal $14.6 billion. i was not that familiar with scripps but then i dug into it. scripps owns hdtv and the food

network. with these two cable tv programmers coming together, they are leaders in unscripted programming. a massive deal for the kind of market. david: let's get to the single best chart, showing you the bloomberg dollar index, looking over six years. this 30 michael shaoul, point oversold indicator. you said enjoy the good times. and dollar weakness persist be a sign that a correction may be imminent? michael: the dollar is weakening. it is going to change financial flows. it doesn't mean we have a correction coming, but one of the assumptions had was that the dollar would be a source of positive returns. it hasn't been and i don't think it is going to be. leavingy is going to be u.s. financial markets and moving abroad.

time,on at some point in if you had a disorderly decline in the dollar, that is something the markets could start to worry about. the most important thing to realize is the dollar is no longer going up. will it be slow or abrupt, this decline michael:? so far -- decline? michael: so far, it has been slow. it has been a fairly orderly decline. bounce in thea short-term, but we will have a period of more abrupt withdrawal of capital in the next 12 months. david: thank you very much. michael shaoul is the chairman, ceo and portfolio manager of marketfield asset management. discovery communications are going to buy scripps network for

$14.6 billion. michael shaoul is going to join me on bloomberg radio, francine lacqua as well. we are speaking with senator jeff blake from arizona. a lot to talk about, including health care, tax reform and the legislative agenda in washington, d.c. after that health care vote. at 9:30ersation begins a.m. in new york. futures, up at slightly. watching crude throughout the day. this is bloomberg. ♪

joanathan: there is not a major

policy achievement. the president wants obamacare repealed. to president moves closer rewriting the venezuelan constitution. delivers quarterly growth. the turnaround plan finally gathers momentum. from new york city, good warning. a warm welcome to bloomberg daybreak. i am jonathan pharaoh. david westin is off. alix: if anybody listens on the radio on thursday, and heirs in london. jonathan: it ceases to be my show and then you to get together. we look f