francine: inflation expectations. the markets got it wrong and 2% levinsohn. we look ahead to friday's crucial figures. north korea threatens actions of crucial justice. trumpesident's move tells issues must be resolved peacefully. paris will be the big winner from brexit. >> we will win the race. >> we will win the race.

because we are making the right decisions. francine: we will have plenty more from our exclusive interview with the economic minister of france, le maire. this is "bloomberg surveillance" and i'm francine lacqua in london. there is quite a lot going on and quite a lot of things we need to keep an eye on. european stocks are edging higher, bolstered by resource companies after iron ore surged. friday's data seem to lead to gains. amongst the biggest gainers, i andooking at bhp billiton anglo america. oil, $39.43. let's get straight to the bloomberg first word news with taylor riggs. reporter: north korea is threatening to take action of justice in response to u.n.

sanctions imposed over intercontinental ballistic missile tests. that is according to the korean central news agency. south korea's foreign minister briefly spoke with his northern counterpart yesterday, urging him to respond to the offer to resume talks. +++ group of mercenaries attacked

during the early hours of yesterday morning. speaking on television, maduras said this was an assault on a ford in valenc venezuela. >> i have asked for the maxim sentence for those involved. there will be lonely and see under the circumstances. -- there will be of no leniency -- they will be no leniency under the circumstances. reporter: market share in europe will be grabbed at the expense of the continent's phone companies. the french finance minister said his country will propose simpler rules for taxation at the meeting of eu officials next month. >> the first step will be a tax normalization between france and germany. i'm quite convinced that after 2018 we should have a common corporate tax, which should be for auto parts taxes of the 19 member states of the eurozone. reporter: u.k. consumers cut back on spending for a third month in july, putting them i nthe worst slump in four years. of 1% wasays 8/10 broad ranging with clothing, has

a good, food, and transport among the worst hits. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs and this is bloomberg. francine: thank you, taylor riggs. payrolls report was not strong enough to rattle the bonds, but this week's inflation data could do the trick. the jobless rate matched the 16 year low. the dollar rallied from its lowest point before paring some of the gains. we have two titans of the bond market, clinging to the idea that it will make a comeback. the senior manager at vanguard

says the underlying trends in core inflation will be higher. allen andg in david athanasios vamvakidis. both of you, thank you for coming in. david, do you believe inflation does drop? the job market is so tight that at some point it will feed through which growth and therefore, inflation. >> it will feed through, but we don't know the timing of that. the u.k. inflation reports were published last week. at some point, wages will accelerate. we are not really there yet. francine: do you think it is three months, six months, or longer? >> we really don't know. the fed will carry on tightening with this focus on shrinking the balance sheet. core inflation in the u.s., actually, inflation is below that of the eurozone in the u.s.

francine: are you more optimistic that inflation will start to take hold? >> if you look at the position of the u.s. economy on the business side, yes, indeed. inflation should be higher. however, inflation has been very low, not only recently but in the last couple of years. the phillips curve is flat throughout the world. this is not the justification for the central banks to follow loose policies. financial conditions are very loose. so, the answer to what the fed is going to do is not so much on inflation, but on overall asset prices and to what extent the fed is concerned about them. francine: is the phillips curve completely broken? do any to stop looking at it? let's bring you over to the thanos charley made. -- thanos chart we made. >> the phillips curve is flatter

than it used to be. this is not sustainable, but nobody knows when it will go back. before the global crisis, monetary conditions were very loose, but we did not have inflation. we had asset price bubbles. from this point of view, the central banks are focusing on the broader picture of inflation. this is what the market might be getting wrong, because focusing only on inflation you can justify the euro-dollar move we have seen. francine: what makes sense to you right now? do you look at the phillips curve anymore? >> yes, we do. we don't quite know when inflation will break out. inflation keeps picking up. the growth we see in some of these countries -- world trade

seems to be synchronizing. that continues. we can see inter-eurozne trade flows kicking into the game. i can see reasons why central banks are thinking about either starting to taper in the case of ecb, or in the process of exiting their unusual policies. buckets, something unusual has been happening. there's little in the inflation bundles. it's true in europe and in japan. francine: we are calling this chart the unqualified america and on the back of the jobs report, it means when you look at the small business hiring plans, so they continue to climb. can you point to actually the labor market and say the structural beeper issue? >> possibly so. we have a structural change occurring. inve got ongoing growing use

central economies. central banks are underestimating how strong economies are. but that brings with them low inflation price discovery is now much easier. price seeing more discovery areas, such as services, which we never saw b efore. these things all changed. francine: we will be back with david allen and athanasios vamvakidis. alex get straight to the bloomberg business flash. reporter: volkswagen's saudi unit has been made party to the munich prosecutors. the country made profits from selling engines. an administrative probe is the tool prosecutors can use. spentutheast asian bank

$3.7 billion u.s. in technology over the last five years. it is now tryin starting to seee investment paint off. singapore's biggest bank sees improvement on the expense side of the business. however, online rivals, such as alibaba, are formidable rivals. >> i have to say, there are still very formidable competitors. one of the advantages they have the customer acquisition cost is very low. they are sitting on a massive full of hundreds of millions of customers that they can sell financial products to very quickly. reporter: google's new diversity chief has pushed back that the company has a politically correct model that ignores

differences between the sexes. the engineer provided a detailed list of nonbiased causes for the underrepresented women in the industry. he says the company's left-leaning workplace culture prevents honest discussion of the issue. tomorrow on "bloomberg technology" sheryl sandberg in an exclusive interview to discuss the social network's global impact. that is tomorrow at 10:30 pm.m. u.k. time. that is your bloomberg business flash. francine: france's changing, the message from the economic minister, bruno le maire. he gave us his first international television interview since the election. she started by asking him about the row with italy. an exception. with the a direct link defense interest.

look at the decisions made by the united states, for instance. they have been exactly the same. when their defense interests are at stake, when your defense interests are at stake. i think this is normal and everybody can understand that we defend economic and strategic interests. reporter: how can you reassure investors that think france is going to block every foreign volveser as soon as it in some strategic interest? >> just have a look at our latest decisions with president macron. we have decided to reduce taxes. this is good news for foreign investors. we have decided to simplify the labor markets, and we have taken very deep decisions to simplify the labor market. these are very good decisions for foreign investors.

so, just have a look at our decisions and i think that all the decisions that we have taken with president macron send a very clear signal to the in foreign investors. you are welcome in france. no majorfrom hsbc, international bank has chosen paris to relocate. why do you think paris is already losing the race to frankfurt? >> we will win the race. we will win the race of attractiveness because we are making the right decisions and because we are standing firm. that arose questions during the last month is, will we stand firm? we will stand firm. we will make the difficult decisions. we will over the french taxes.

we will make our country more attractive. we will take the structural reforms and the structural decisions that are needed. for instance, we will simplify the labor market. and i think that many banks, many investors should be aware that france is changing. somethings ntot fake. this is true. things are changing deeply in france. that is why we will win the battle of attractiveness. francine: still with us are athanasios vamvakidis and david owen. are you confident that france wants to be reformed? and if yes, what does this mean for european investment? an economy that

has a competitive problem. however, he has to deliver. we have to see actually the reforms. and it is not going to be easy. on the fiscal side, i agree that low taxes will help the economy. but he has to tell us how he will reduce spending. spending and france is the highest in europe. we are just at the beginning of this process and france's promising, but we have to see results. francine: will we see the results? >> well, it will take up to 70 years to see these results on a macro level. thead reforms in germany in late 1990's that did not show for 10 years. there is a very long lag for the reforms to show through, not just on a macro level, but on a micro level.

structural reforms bring benefit, but you need a strong, growing economy to provide the backdrop to push those reforms through. growing, butleast it is far from booming. we will see what stronger growth can push those points through. francine: what are you looking for in that of once? eurozone trade is really important. trade between france, italy, and germany stopped growing. now it is going 10% year on year, which gives me encouragement. if world trade carries on growing, that is quite positive, but the strength of the euro could be a problem. we have got elections coming through in italy, as well as germany, of course.

eurozone, at the moment, is on the upside. francine: at what point is the euro a problem? >> the long-term equilibrium is 5, depending and 1.2 on the model you are using. given the eurozone output gap remains a, and inflation is well below the target, the euro-dol lar is strong where it is. the projections of the ecb have shown the euro-dollar will be at 1.07. we are more than 10% above this level. francine: when do you buy euro again? people are buying the euro against everything right now, yet we see fragility at the corners. >> that is part of the problem. investors have become too excited about the euro. it would be better for them to buy the euro at these levels. the eurosterling is very close

to an all-time high. i do believe the strong euro and the mixed data will start affecting the eurozone data as well. it might be time to start selling the euro values. francine: will stay with us. former four star general is already making his mark in the white house. plus, we talk about president trump's chief of staff. this is bloomberg. ♪ francine: you are watching

"bloomberg surveillance in london.e lacqua he has only had the job for a few weeks, but john kelly is already kicking back and taking names, sacking two national security council aides. then, he gathered 200 white house staff for a meeting, telling them they all act as one team for the president. he has also tried to rein in some of the president's tweets. the president has shown a willingness to consult with kelly before hitting send. let's get more now with our u.s. congress reporter, kathleen hunter. still with us, david owen and athanasios vamvakidis. kathleen, welcome to the program. another day and another piece of information to get our head around. is john kelly the right man for the job. >> it seems like he is off to a strong start.

he seems to have the confidence of the president. the president talked very glowingly about him in public. that from a president who has been very willing to go out on his own and say his own thing, the fact he is showing public at least difference to kelly, and it looks like that extends behind-the-scenes, those are all good indications for those republicans that are looking for a more streamlined message from the white house. the real challenge will get underway as time goes by. this week we have the president on vacation. there were already some tweets that emerged on saturday on social media of the president crashing a wedding that happened at his bedminster golf club. that is not necessarily problematic in and of itself, but it just demonstrates the challenges potentially that are ahead for kelly as he tries to keep the white house under wraps. francine: so, he wants to keep the white house under wraps. his priority is what? to stop the president from

tweeting, but at the same time also stopping the leaks? >> that is the thing. it is a game of whack-a-mole, you know when you go to the carnival. he has somebody different problems going on simultaneously. there are the leaks that are happening. there is the president going out and tweeting whatever he thinks at a given moment. there's a lot of multilevel's of problems. he can call the staff together and say, we need to work as one team, but that is only a successful strategy if the president is willing. it seems the president has given some deference to kelly to review some of his controversial tweets. that is a good sign, but time will tell if they are able to keep that up. tweetse: thanas, do impact the dollar levels? >> not anymore. we used to read them every

single day, but not anymore. it's too much noise. the market is focusing on whether we will see any policies getting done. the strong consensus that this point is nothing will be done. the market was very excited after the elections in the u.s. but now after the failure to reform the health care sector, the market does not expect anything on tax reform. francine: the are getting breaking news out of china. the quarter is ending in july and the reserves are at $3.08 trillion. that is for the month of july. do you still worry about a china-u.s. trade war? or is that now postponed? >> we just don't know. it is certainly out there as a risk. brexit is all part of that story to some degree. we live in a world where we worry about certain things. if we have a strong global economy and world trade

accelerates, then all these issues disappear. if we have a situation where the rolls over again, these problems will come back to the forefront. francine: thank you very much. up next, we talk a little bit about china, north korea. an action of justice in response to u.s. sanctions. we are live in manila, where foreign diplomats try to get the regime to talk. again, we did have these reserves out of china for the end of july quarter. they are pretty much in line with expectations. the will have more on that, and north korea. this is bloomberg. ♪ who knew that phones would start doing everything?

entertaining us, getting us back on track and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited.

no one else lets you do that. see how much you can save when you choose by the gig or unlimited. call or go to xfinitymobile.com. xfinity mobile. it's a new kind of network, designed to save you money. francine: you are watching "bloomberg surveillance" and i'm francine lacqua in london. reporter: venezuela's president said a group of 20 mercenaries

attacked a military base in yesterday morning. two attackers were killed, one injured and seven detained. >> i have asked for the maximum sentence for those involved in this attack. the maximum penalty and there will be no leniency under the circumstances, civilians and deserters. reporter: france is working with likeny to help companies google, facebook, and amazon to minimize taxes and grab market share in europe. speaking exclusively to bloomberg, bruno le maire said his country will propose simpler tax rules at a meeting next month of eu officials. >> there will be a text normalization between france and germany. and i am quite convinced that no later than 2018 we should be

able with germany to have a common corporate tax. odde taxes.onize reporter: u.k. consumers cut back on spending for the third month in july, putting them in the worst slump in four years. theport from visa said drop in spending was broad ranging, but clothing and transport were among the worst hit. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs and this is bloomberg. hascine: north korea threatened what it called an action of justice after the u.n. approves sanctions on pyongyang. un's regime is

violating the sovereignty. we are live from manlia. you --a, good morning to good afternoon where you are. how are these developments going down there? reporter: this is the first time that north korea is reacting to the sanctions. what action of justice really means we don't know, but it does sound like retaliation. noth korea said it will negotiate the nuclear deterrence. over the weekend, china expressed a lot of optimism that they might be encouraged to talk down those sanctions, the toughest set of sanctions imposed by the u.s. security counsel. china has played a crucial role in pushing through the range sanctions. without its agreement, francine, the sanctions would not be effective. after all, china is the largest

trading partner for north korea. it's north korea's biggest ally. that optimism that north korea will come to the table to negotiate may now dissipate. francine: thank you so much, haslinda, our bloomberg news anchor from the asian summit in manila. still with us, david owen and athanasios vamvakidis. we were talking about the chinese reserves. what does geopolitics and the risk regarding geopolitics mean for the economy right now? >> in terms of the world's recovery, it is not such an issue. we are in a world of huge uncertainty. if you break down the world trade accelerating story, parts of the world where geopolitical risk might be heightened, we are seeing growth picking up, which is encouraging.

but consumer spending, right, how sensitive is it to geopolitics concerns? get the currencies biggest boost when there is a geopolitical event. even that goes back to normal fairly quickly. >> it is not so sensitive that whenever something happens. north korea is an accident waiting to happen, but we don't know if it happens tomorrow or five years from now. it is not priced in the market. otherwise, indicators would not have been that low. china will put more leverage on north korea to stop the nuclear ambitions -- that has not worked. north korea believes that getting nuclear weapons is a way to go. this is their strong incentive. what can trump do? they are no good options

here. francine: the new vix indexes the dollar. is there any truth in that? >> good point. i don't know. they have been correlated this year because both of them are set for a collapse. if we do get the risk off market, in particlar if the a geopolitical risk theurs in north korea, both t vix and dollar are driven by the same factors. uknowns.lways the something might well happen that nobody has predicted, which o sour.tings things to g global, financial point of view, this massive

recycling of capital out of the eurozone and ecb's quantitative easing policy. what happens as the ecb tapirs is a strong story for markets. the ecb's policy has been underwriting u.s. yields and uk. .k. yields. i think that's a major risk. francine: i am looking at the balance sheet. 'm trying -- i'm trying to make of these charts. you are talking about the risk to central-bank policy normalization. we are 23.3%. you have european central bank at 32%. the bank of japan, 96 present. -- 96%. where does the biggest risk come from for the world economy? >> the ecb. francine: but they seem so cautious. >> 45% of all be bonds have been purchased by residents outside of the eurozone.

that has been recycled into the u.s. and u.k. fixed income. recently, also into u.s. and u.k. equity. as they withdraw stimulus going forwards, there will be a capital shift. another gain could undermine markets. francine: do you believe the ecb wants to start raining in all this accommodative easing because there are not enough buy, orunds to because they believe the economy is not strong enough? >> well, the economy has recovered. will run out of foreign bonds to buy. the ecb is trying to address the inflation risk and the policy rate. that theyct remains will be tightening policies too early. they will be very slow about it, very gradual, but you cannot

justify what they are doing based on the inflation data. francine: what is the one thing you would be buying right now? i don't know if there is some obscure currency pairing you think is worthwhile. >> first, i would be looking at fx volatility in general because i believe central banks are normalizing policies and the market is underpricing risks, the numbery ahead of of risks we have. on the euro-dollar, i would be short. and actually, in the short term at least, towards the end of this year, i would be short on cable. i believe an appreciation's will be very slow -- i believe the negotiations will be very slow. francine: i have been asking us to most of my market participants, people to look at currencies and equities. do you believe the markets are strange because of passive investment?

which means there are fewer players in the markets, meeting everything is distorted, including currencies. >> this is a major concern that i have. passive investments suggest buying without thinking, without looking at the momentums. if you get a market panic, these investors will be sailing without thinking. -- will be selling without thinking. and we are talking about massive flows. francine: athanasios vamvakidis and david allen both stay with us. up next, what theresa may has said. this is bloomberg. ♪

francine: you are watching

"bloomberg surveillance" and i'm francine lacqua in london. mark: basic resources gaining. most industry groups lower, down by 0.1%. since july 2, weekly rises. lots to tell you about. the euro's nominal exchange rate has surged to a 32 month high. the euro's moves echo what happened in japan. a fascinating chart this because back in 1998, japan's main chair gauge fell. there is no guarantee that these two will continue mirroring each other, but it is a wonderful chart comparing the two periods a. some caution about the common currencies are warranted, considering the current phase of the region's economic growth. alsoging population

indicates the structurally weak demand and persistent disinflationary pressures could weigh on asset prices. that is a scenario japan knows all too well. leverage reaching the most bullish in four years on the commodity currencies for australia and canada. even as the bloomberg commodity index, the white line, is down almost 5% since december, the sixth a novel decline in seven years. -- the sixth annual decline in seven years. wonderfulthe interview with the french finance minister bruno le maire, just a very simple chart showing the cac 40 versus the stoxx 600, how they have faired sense of the giving of the year. that was the first round, when

it was le pen versus macron. that was the peak, when french stocks hit a more than decade high. as you can see, year to date, 7% for france. france's learning, for now. -- france is winning, for now. the brexit -- the figure has caused an outcry from some conservative mp's who believe the u.k. should not pay that much, or anything at all. still with us, athanasios vamvakidis and david owen. david, it seems a lot of things are a surprise to people in the cabinet. what do you think? >> i believe the government will be producing more briefing papers on the subject of brexit, but we have to wait until those press conferences kick in.

obviously, nothing will be decided until everything is decided. in october, the eu has to start meeting. francine: does the currency move on the back of the brexit negotiations, or the back of boe, which that looks of brexit negotiations? >> it is primarily based on the brexit negotiations. although it is possible the weakening, is a believe there is strength this year because of market expectations that we are going to get the transition period, which might happen. but i think the market is running ahead of itself. actually, i am very concerned. has no strategy and the are making it up as they go. eu would be a mess, but they have a very clear strategy and have approach this in a very professional way, allowing the

job to be done without the unnecessary disagreements. francine: what does that mean for the pound? >> i do believe it will weaken. we need a shock for the u.k. to pull their act together. they don't know what they want to achieve, particularly after the elections. it makes sense to agree to a transition period, at least until 2020, which will help address the budget contributions and will buy time. but we don't have an agreement within the u.k. francine: if they pay this divorce bill, or agree to the principle of paying it -- >> the trade negotiations will only kick off until we agree to the principal. francine: if we have an agreement in principle, does that mean there will be softer negotiations? is this a net positive for the u.k. economy? >> yes and no. again, if the figure is true,

what does it consist of? we will pay for access during that transitional phase. also, the eu is running scared about what will happen after 2020 because they have a seven year time frame in terms of their own budgets. germany will end up paying 5 billion euros. it will still be contributing to the eu budget during this transitional phase. the devil is in the details. what does that 36 billion euros actually consist of? is it part of the transitional bill? u.k.lso know that the would also pay for access for some sectors. whether that's a great -- whether that is agreed by the rest of the eu is another conversation. francine: thank you, athanasios vamvakidis and david owen. up next, closing the loophole. how france is working with germany to crack down on tax

avoidance by companies like google and facebook. we have the exclusive interview with the french finance minister, bruno le maire. this is bloomberg. ♪ francine: you are watching

"bloomberg surveillance" and i'm francine lacqua in london. here's taylor riggs. reporter: volkswagen's unit has been made part of a probe by munich prosecutors. allowgermany does not prosecution under criminal law, administered a probe is the tool prosecutors can use to sanction firms. of has sent $3.7 billion technology over the last five years and they are now saying the investment pay off. singapore's biggest bank sees significant improvement on the expense side of the business. he admits that online rivals, such as alibaba, are from little competition. >> we are becoming a little more startup-like. i have to say theirre are

from the double competitors. one of the advantages they have is the cost of acquisition is very low. they are always sitting on a massive pool of hundreds of millions of customers, who they can cross sell into financial products very quickly. reporter: google's new diversity chief has pushed up against a male worker's argument that the company has a politically correct culture that ignores differences between the sexes. the engineer provided a detailed list of what he called possible nonbiased causes for the underrepresentation of women in the industry. he says the company's left-leaning workplace culture prevents honest discussion of the issue. tomorrow on "bloomberg technology" sheryl sandberg in an exclusive interview to discuss the company's leadership, and the global impact. that is tomorrow at 10:30 p.m. u.k. time. francine: thank you.

france is working with germany and others to plug loopholes that have allowed companies like facebook and .oogle to >> it is always the same strategy based on playing fields, based on the same rules for everybody. when you're doing business in france and europe you have to pay taxes. you cannot take the benefit of doing business in france or in europe without taking the taxes that other companies are paying in europe, or in france. the same rules for all the companies and all the states. reporter: does that mean you want to lower the company tax to 25% everywhere in the eurozone? >> we will lower the corporate

tax from 33% to 25% until 2022. then, there is a second step. we want to have the tax harmonization among the members of the eurozone. you have 19 members of the eurozone. you have one currency, the euro. and you have 19 levels of taxes. and you have 19 different economic policies. we cannot go this way anymore. that's why we are advocating for tax harmonization. the first step on the european level will be a tax harmonization between france and germany. and i'm quite convinced that no later than 2018 we should be able, with germany, to have a common corporate tax, which should be the basis for harmonization of all corporate taxes at the level of the 19

member states of the eurozone. reporter: what concession do you expect from the germans to further this european integration? in exchange, would you accept a german as the head of the ecb, for example? >> be a little patient. we are in 2017. so, we still have some time before deciding who will be the next chair of the ecb. but, we should not wait before making decisions, as far as the integration of the eurozone is concerned. i would think we should be able at the end of 2017 to make a first step towards more integration within the eurozone. francine: "bloomberg surveillance" continues within the next hour. you will get plenty more from bruno le maire, the french economic kind as -- the

french economic finance minister. now, i am looking at what the market is bringing. first of all, we had german industry data. it was worse than expected, but the euro is still gaining. i'm also looking at crude oil, a decline before opec members meet to discuss production. we're looking at that, and u.s. politics of course with john kelly regrouping the white house. we have a lot to talk about in the next hour of "surveillance." look and new york, gorgeous. this is bloomberg. ♪ ♪

francine: inflation

expectations. blank rock and vanguard think the market -- black rock and vanguard think the architect it wrong. making his mark, donald trump's new chief of staff, john kelly. -- viva lafronts france. this is "bloomberg surveillance ." i am francine lacqua in london and david gura in new york. david: monday after monday, it is a regular thing it seems like. francine: we are looking at opec and crude oil and all the market inflation. and then the world of politics. it: the white house moving up to western new jersey. continues toe flow. francine: we will go through that. let's get to bloomberg first word news. taylor: north korea is vowing

harsh retaliation over the united nations sanctions. kim jong-un plus regime "thousandfold revenge" attacks against the united states. down in venezuela, president nicolas maduro is claiming victory after what a -- he on ad a terrorist attack military base. the military says attackers confessed they were working on opposition -- backed by foreign governments. theresa may's office is dismissing a report that come -- the country will pay to leave the e.u. a government official calls the speculation -- calls it "speculation." new chief ofmp's staff is trying to put an end to the chaos of the white house. john kelly has blocked casual walk-ins to the oval office.

he also told staffers to the country first, the president second and their own needs last. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. so much. thank you this is what i am looking at. when i look at market movements, we're looking at vix and also the inflation gauges. what i am interested in is europe. -- euro. the euro is gaining, but we had discouraging news out of germany. production unexpectedly falling, but the euro is gaining and also looking out for crude because there is a meaning of opec and non-opec in abu dhabi and they are meeting to discuss why some of them are following behind decreasing production. david: interesting watching the euro. futures are up this morning in the u.s. over a 10th of a percent. looking at dollar-yen and the focus is on asia as conversations about north korea

continue. looking at the bloomberg dollar index, up about .75 and look at the 10 year -- two-year 10 year, 92 -- francine: this is what i am looking at in terms of your movements. i know we had a lot of charts showing that maybe it is the dollar taking a lot of the brunt when it comes to volatility, replacing the vix index. i am looking at the moment it hits parity. currently at just above 0.90. that is a key technical level. a little bit of euro talk when you look at some of the data. for radio listeners, we will push it on social media. david: setting the conversation about hans and inflation, looking at the 10 year-yields,

looking at the u.s. 10 year and german changend all negative and a last week. i know this is something we will talk about with our next guest in just a moment. of the bondo titans market are clinging to the idea that inflation will make a comeback. for vanguard and black rock its own long -- only a matter of months before inflation is back to 2%. we are joined by the head of wealth management investment office. they give for joining us. inflation. a lot of money managers believe it is coming and in the next two to three months and the bond market does not think so. >> i think it is a combination of where policy expectations are and the forward investment indications that are soft as well. want to push your luck where euro is right now, it's a combination of everything.

holger: there is a better that --francine: there is a bet inflation will go up because -- will go up? holger: in the u.s. we will probably see a bit of that shortly and we will have to wait a while to see much of that. francine: this is what i am looking at. in terms of what you are seeing, euro pound one of the things we're looking at for inflation, it's very clear that depending on how you look at it longer-term, who has it right? if you look at the difference between the ecb and the fed, mario draghi says it's it -- it will touch when we get -- ey: you need to look at where the marginal change is. where you are more likely to see things unleashed is in europe and that is what markets are pricing right now whereas in the u.s. we have had good job gains and earnings gains for a while. inflation hasn't come through. francine: they both stay with

us. offrey and holder state -- holger stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. -- resumed preliminary talks about a merger with t-mobile. they are facing increasing top addition in the u.s. wireless market. the biggest shareholder is softbank and softbank ceo is

pursuing all options for industry consolidation. there is a takeover in the home health care business. -- medical care has agreed to buy next stage medical. it will allow the world's largest dialysis provider to expand in the u.s.. usede and germany -- taxes -- critics say the american companies used loopholes to minimize taxes and grab market share at the expense of european rivals. europe must defend its economic interest more firmly. that is your bloomberg business flash. david: thank you so much good let's get back to our guest host, geoffrey yu and holger schmieding both with us from london could let me start with you, geoffrey, and ask you about the ways investors are pricing what is happening with the fed in the u.s.. you mentioned the jobs report last week another is speculation

about when the fed will unwind the balance sheet if that will be september are later. how are investors preparing themselves for when that occurs and the ramifications? geoffrey: what i am surprised by lack ofisk -- or the risk being priced into markets. things are much better in the u.s.. justems like investors are steady as she goes and not much going to change. what is the threshold for when u.s. data starts to surprise on the upside? especially when wage growth translates into consumption growth? are we braced for that? i don't think we are. david: you are saying steady as she goes. let me ask with regard to -- doion and jobs, we had you see anything that could change the course of the downward trajectory? not.r: probably

we will have more people coming back onto the labor market in the u.s. the unemployment rate looks likely to be climbing modestly over time. the real story in the u.s. remains that the economy is not overheating yet. steady gains in the labor market and this steady outlook for consumption growth at around 2% probably trends late into only a very modest up drift in inflation, hence the fed can take its time. they will take their time and as much as they can, they will try to not rock markets too much. david: on the issue of the fed taking its time, i wonder if there might be reevaluation of the members of the fm and see -- mnc?see -- f geoffrey: the market seems to be well prepared, so i think it is highly likely that they will tell us in september that they

let a few bonds roll off their balance sheet. many think the balance sheet is bloated and that is probably right. in the situation we are now, inflation is not much of a problem. steady growth at a good 2%, i think the fed is likely to just go ahead. francine: let me bring you over .o my bloomberg chart this is a simple break even 10 year rate compared to u.s. break even 30 year rate. it just shows you the bond market is a little bit too pessimistic if what holger is saying is true and that inflation expectations are fading. if they are wrong, what happens to bond markets? holger: i think that will depend on the repricing. are they wrong to the extent that the fed will need to reassess their output? breakeven ono the

the u.s. savings rate. david: that's take it to u.s. politics. the new chief of staff, john kelly is making a big impact on the oval office. he fired anthony scaramucci and sacked two national security council aides. for a meetingaff and told them they have to act as one team and he will try to rein in some of the president's tweets. kathleen hunter is bloomberg's congressional hunter and joins us for more. our colleagues talked to 12 people inside and outside the white house about what john kelly had to say. how big a departure is this to change the prioritization structure and say they are working at -- for the country

above all else and not just the president and certainly not for themselves. kathleen: the most surprising thing of this meeting is it is coming in august of the administration. this is the type of the meeting that needs to happen on week one or week to its surprising that we are eight months, seven months in and getting a new chief of staff making this proclamation at this point in time. it seems like kelly's word thus far carries a bit of gravitas within the white house. trump seems to be deferring to kelly, which is unusual and we haven't seen that before. we certainly didn't see it with reince priebus. it will be interesting to see whether this carries weight and what extent it does carry weight and whether that is able to keep some of the white house staffers -- message user myselfwitter knows the media can be distracting. the president seems to be prone

to distraction. how big an issue was that for this president and how high a bar is it here for john kelly to write the ship and make things run in a more formal way in the white house? kathleen: i think it is a pretty high bar john kelly is facing. one of the major things he mentioned was the open-door policy. apparently one of the things margaret and jennifer wrote in their story is that basically the president was easily distracted because people could readingwandering in and -- it is not hard to imagine how this could happen. it is interesting that people would come in and put printed out copy of news stories on his desk and/or suggest tweets to him. you could imagine anyone of us if we were at work in this was happening constantly all the time it would be a distraction. for someone with the president's temperament, and it certainly seems like it was a distraction.

it seems as though this is a smart strategy. how effective it is in the wrong term -- long-term remains to be seen. francine: is this a game changer? when you look at how the president even tweets policy. if the chief of staff can rein it in and regroup, does it make a big difference on how you perceive economics in the u.s.? geoffrey: for the -- holger: for the entertainment value, it may be a game changer. on economic policy, we need to see whether the republicans in congress get their act together. if, perhaps, the president tweets a little less that the markets may be helpful for that. it's really the republicans -- francine: doesn't this go back to the chief of staff? do you have a chief of staff back and refocus a president and get political support from congress and that's when he gets stuff done, but it has to start

with the white house? holger: i think that given that the bar is so low in terms of market expectations, maybe we surprises.pside that is gone, which i think it's for the best. at this point, even a -- if even a modicum -- francine: the president is on holiday question mark kathleen: correct. francine: is this a good thing or a bad thing so kelly can regroup the white house or is it more difficult to keep control of the president? moreeen: i think it is difficult. they are calling it a working vacation. there is a precedent for this sort of thing, i think that -- i think it is a little more difficult because the white house is kind of a fortress onto itself and has a specific way of

working and when you take the president outside of that, it's a little more difficult because you are in a whole different environment. ways, -- , so thatlower time might make it a little bit easier to implement some of these changes. david: you say it's a working vacation, we saw the president last week in west virginia and he seems comfortable on the big stage as he did on the campaign stage. is he going to get out more to talk about his agenda amidst all of the intractability in washington over the last few months? kathleen: i think august is certainly a time for the president and members of to be out talking about policy issues. i don't think there is a clear sense of how heavy a schedule the president will have in terms of talking about things, but there is an opportunity ahead of

september, when congress and the president gets back to work at the end of the month. they only have about three or four weeks in which to fund the government, raise the debt ceiling, make progress on tax reform and maybe revive health care. there is a whole slew of things they need to do. august is a time where they would have the opportunity to do preparation for that. david: thank you so much. that is bloomberg's kathleen hunter. geoffrey yu and holger schmieding stay with us. a conversation with adam post, the president of a think tank at 9:00 a.m. in new york and 2:00 p.m. in london. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." let's talk about brexit. every day we must talk about brexit. dismissedy's office accusations they are paring to pay a bill to leave the european union . the figure surfaced in the sunday telegraph which cited three government officials they did not identify. still with us is geoffrey yu and holger schmieding. there was this report citing government officials. time in threeird

weeks that he and others have never heard of such figures. who do you listen to, geoffrey, to understand what form the exit is taking shape -- brexit is taking shape? geoffrey: i think the market is starting to move away from a hard exit or soft brexit and they are focusing on the transition, which the cabinet seems to have coalesced around. i think at this point, it's important to not make final determinations or listen to anything until people sign on the dotted line, but these things are progressing. francine: give me a sense of what happens to europe pound. are we going to see parity? geoffrey: i think that is a tough call at this point. euro is looking a bit topic. we focus on the manufacturing pessimism of the industry, i think they need to keep it trade weighted. francine: let's go to our morning must read.

i want -- you but the boe as well, but this is what we picked from "the guardian," basically saying there should be a party inclined to less government taxation and fiscal conservativism. this is matthew saying the challenge for the tories is whether they have the necessary power of recovery to scrutinize and learn from the social landscape as it took -- as it really is. do they? holger: that's a very tough question as brexit is the big issue for the time being and will be for the next few years. i don't think the tories will have much time are focused on many other issues and for most of the country, the brexit question simply is crucial. whether or not there is money or whether the fiscal problem is this bad depends on brexit. in a way, that the discussion we should have once the tories have settled their brexit debate, but it's a bit early for that now. david: geoffrey yu and holger

londoning joining us in will stay with us. coming up later i will be to steve joining me at 1:00 p.m. here in new york and we will talk about politics and what kathleen was talking about a few moments away, what congress and the president face when they come back from a kitchen at the end of the month. a number of things on the -- come back from vacation at the end of the month. a quick check of the futures come up three looking at 91.55. 49.03.rude at this is bloomberg. ♪

got you outnumbered. the dinosaurs' extinction... don't listen to them. not appropriate. now i'm mashing these potatoes with my stick of butter...

why don't you sit over here. find your awesome with the xfinity stream app. included with xfinity tv. more to stream to every screen. ♪ david: "bloomberg surveillance" on a monday. david gura in new york. francine lacqua in london. tom keene off today. taylor: democratic senator elizabeth warren is blocking

president trump's picked to run the antitrust division. warren has described the sign the white house will put corporations ahead of the american people. new chief ofmp's staff is trying to put an end to the chaos at the white house. john kelly blocked casual walk-ins to the oval office and warned against leaks. he also told staffers to but the country first, the president second, and their own needs last. in venezuela, president nicolas maduro is claiming victory after what he called a terrorist attack on a military base. he says they detained seven attackers and killed the scope. they were working with opposition act by -- backed by foreign governments.

spending fell .8% a year ago. one problem, inflation has been running faster than wage growth good in south korea, prosecutors are demanding a 12 year prison term for the heir to the samsung fortune. j lee is accused of bribing a presidential confidant. they have been in -- he has been in detention since february. global news -- global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. david: thank you so much. china says it is confident new u.n. sanctions on north korea will bring the rogue state back to the negotiating tables. -- is on the ground. what has been the reaction to the sanctions decided upon in new york just a couple days ago? >> there seems to be a lot of

confidence the sanctions will work. if you take a look at how china has reacted, they said the shank since would put a lid on the nuclear -- said of the sanctions would put a lid on the nuclear capability. they also said they are confident north korea will come to the negotiating table, but they just reacted to the sanctions moments ago for the andt time, condemning them calling them a violation of sovereignty and also a promise of action of justice. what that really means, we don't know. we just know it is probably a retaliation now. they are believed to be capable of hitting the u.s. we don't know if they will do that. the community has been trying to get pyongyang to negotiate, but that has been to know avail. over the weekend, we heard from australianf the

foreign minister and she says perhaps that could be a change of heart. francine: talk me through globalization and how it has lived in asia. after the talk of populist and the threats, we saw trade bonds rebound because of strong global performance and that is benefiting asian countries. how long was that talked about? haslinda: politics pretty much took over all of the discussion. touched on trade or globalization assets. i brought it up with australia's foreign minister julie bishop and she said that was actually her biggest concern. she says that is the biggest risk to the global community and that could impact political stability. as far as diplomats are concerned, very little was talked about on trade. francine: thank you so much, haslinda amin there in manila. geoffrey yu is still with us and

holger schmieding. when you look at trade and populism and all of this under a cloud of geopolitics concerned, how do you rate the global economy ? holger: >> it is in pretty good shape. we have seen -- not seen synchronized recovery for over 10 years, which is pretty good. developed economies are growing nicely at or closely above their rates without overeating. there are lots of risks out there, you name some of the big labors for them, but by and large, this year so far is in a way as good as it gets. francine: geoffrey, does it get any better or is this it? geoffrey: i think for it to get better is a bit of a stretch. the concern is the brace for a downturn because when you peak, there will be a recession next or at least a massive

disinflation. just slow and steady, the central banks is not doing too much and accounts on earning growths. david: what sense do you have about the u.s. trade policy? there were reports they were looking into investigating chinese intellectual property, file that on to the other investigations ongoing with china. do you have a good sense of direction from wilbur ross, or the u.s. trade advisor? a way, the good news is the u.s. does not have much of a trade policy at the moment. at the moment, it is not breaking anything. we probably have to brace ourselves for a little small-scale protectionism. the really big thread that the u.s. could disrupt international trade relations big-time, the big threats have receded and

what we will have to watch over time is whether the u.s. in the future will abide by wta rules and rulings. we hope they do. david: we saw rex tillerson meeting with his russian counterpart on the sidelines of the meeting with sergei lavrov and there were new sanctions on venezuela. rex tillerson saying the relationship with russia is at a real low. how do you rate the efficacy of sanctions? ilger: i think -- geoffrey: think we need to be specific about the markets. the disruptive nature of such sanctions will be less compared to any sort of major trade escalation between u.s. and china. with venezuela and areas like that, it depends on the second verse they hit and the end game. while we have bilateral relationships with -- even

donald trump -- there is still space for cooperation here and there. david: let's focus on russia. we are seeing a real effect on the russia economy -- the u.s. sanctions on russia? holger: the effect on the russian economy is not their short-term. it depends on oil prices and the development of new oil and gas. what we really see in russia is a gradual decline over time. they are losing technology, which they have and losing their into theo develop future. they are not an immediate big hit, but they will weaken russia over time and we have seen that to some extent over recent years. holgere: geoffrey and stay with us. don't forget to check out the new issue of business week.

it is a lovely story and heartwarming. visit businessweek.com and subscribe to stay ahead of the competition. this is bloomberg. ♪

♪ >> france is not a protectionist country. france believes in free trade based on equal rules for everybody, but we are not a

protectionist country. we are just defending our strategic interests. lamere -- leno maire there. also talked about france working with a germany and other partners to plug loopholes that allow u.s. tech giants like apple and facebook to minimize taxes. we are joined from paris to talk about an extensive interview. what i picked up from the interview, a great interview was about tax and loopholes and he talked about brexit and the fact there is could still win and talked about protectionism. what did he want to focus on? doclearly what he wanted to after what happened with the of the shipyard 10 years ago, he wanted to say that france is not protectionist even though this was badly

perceived by italians because that meant blocking an italian takeover. he said this was an exception because this shipyard represents military interest, strategic interest, but this does not mean that france will go down the road of protectionism in the future. to saye: what it he has about these loopholes? this is something his predecessor was trying to work on. how does he's a just loopholes get stopped when it comes to taxes? caroline: his view is that france needs to team up with germany in order to find a solution with these tax loopholes that make companies such as google, facebook, amazon pay their taxes elsewhere. for example, in ireland where the taxes are only 12%. he wants france to show the way by lowering the corporate tax from 33% to 25%, but he wants to team up with germany so his goal

is to achieve a common corporate tax between france and germany as next year and he said he will make proposals in that direction as soon as september at the european meeting in estonia. francine: what does he say about brexit? he aims to overtake frankford in the race for brexit talks. this seems little bit crazy given the big banks and him saying they want to move to frankfurt. caroline: if you look at the big banks such as morgan stanley, citigroup, they have already all chosen frankfurt over paris. only hsbc said they would relocate 1000 jobs from london to paris. the french finance minister believes the race is not over and that paris can still attract some financial companies to france. he believes that the response put in place over the next few

months, the labor reform that we expect by september will also lower the corporate -- and lowering the corporate tax and turning ittax by into real estate tax, all of this should attract more companies to choose paris over the next few months. he says that tomorrow, france will be the place to be not only for the brazilian soccer player, but for all investors. david: you talked a bit about the role of france and europe and the future of the ecb. what's did he have to say about his government's vision for the -- what did he have to say about the role his government's will play going forward? caroline: in the french president's program you have the federalist approach. he wants the eurozone budget with better eurozone parliament implemented by the eurozone finance minister. this is very ambitious. faces elections in

germany in september, said a couple of months ago she was open to the idea of eurozone finance under certain conditions. this le maire told me condition would not include who ecb.the job as the head of you know that mario draghi's term expires in 2019 and the bundesbank president has been picked to replace draghi. this should not be a bargaining chip for le maire. francine: still with us is geoffrey yu and holger schmieding. we have all of your market checks and analysis and some great charts looking at trade and tech. on to france and we were talking about the need for reform in france. geoffrey yu and holger

schmieding were listening to the interview. is france were formidable? do they want to be reformed? holger: france is definitely reformable. when there is no other way to go, a country reforms. france has a population which has voted for reform. it has a de facto consensus between the center-right and centerleft that things need to change, so yes, we are expecting france to deliver the kind of reforms that will make france as wrong and probably stronger over time -- as strong and probably stronger over time than germany is now. david: when it comes to want to carry policy, it focuses on what is going to happen when janet yellen's term expires. how radical a change is the ecb

poised to make here in 2019? geoffrey: two things. there is still quite a bit of time until then, so probably not as urgent a reappraisal as in the u.s. and secondly, probably wiser to say it is probably less personality driven as part as the ecb is -- as far as the ecb is concerned. there is no greater scope because of the nature -- the imperfect nature of the eurozone . you actually need consensus, not just set policy on an extreme racist for one side over the other. they need perhaps ultimately to find a compromise candidate. francine: thank you so much, geoffrey yu of ubs wealth management and holger schmieding stick around. if you are a bloomberg customer, load up tv . you can click underneath the video where it says ask the guests a question and talk about

differentials quadratic equations with holger and geoffrey. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." for the first time this year, german production has fallen. the figure fell 1.1%. it's unlikely to be a turning point for the german economy. strong orders turn -- point to a likely pick up in manufacturing. -- forippi looks for a the new factory toyota and mazda will build. building the factory near the existing plant would allow it to use a fire network already in place. an internal battle over diversity at google has gone public. he began when a male employee sent a memo arguing google has a politically correct culture that ignores differences between the sexes. now the diversity chief weighed in and said the employee made

incorrect assumptions about gender and his views are not endorsed by the company. that is your bit -- bloomberg business flash. francine: thank you so much. -- risk surrounding u.s. politics prompt traders to cut short positions according to the asset management. we are back with geoffrey yu and holger schmieding. when you look at yen, i don't -- what the is central bank will do or whether now politics and economics are coming into play as the prime minister loses popularity. on one hand, you can see an argument saying the abenomics have been in place for so long and a lot of the things are generating enough momentum such that it can be immune to broader political trend and knowing japanese politics and changes in the prime minister. rebecca have quit a market shift as well. trading dollar-yen especially

how it is going right now -- look at the big picture rising. stronger domestic underpinnings. that is a good story to follow. what does the bank of japan, looking at the percentage of the balance sheet as a percentage of gdp. we will push this out on bloomberg radio. 96.7%. this is not the concern. the concern is more yen and bond buying and capping of the 10-year yield. see whatt's hard to the concern in japan is printed be a company is not doing too badly at the moment. japan has a huge debt problem, at the central bank with heavy bloated balance sheet has helped to keep the debt problem under control for the time being in a way -- for the time being. in a way, japan is part of the big global story. the developed world is having

growth at or above trend without inflation moving up significantly and whatever the bank of japan does above its balance sheet, this is unlikely to change and they are not going to have 2% inflation a year or year and a half from now whether or not they step up for slow down. david: we were talking with kathleen hunter about the theyed legislative agenda are going to face when they come back in september. how is that affecting currencies around the world right now? geoffrey: i think it can only affect currencies more than they are doing so right now. i think the one mistake markets could make is let's start ignoring the seats and ignoring -- it's -- let's start ignoring s and ignoring capitol hill. that can actually push markets to a correction. i think we need to focus more right now. david: what are you seeing when

you look at sterling right now? what is your sense of where sterling is headed right now? a brexithat is question. sterling is headed sideways as we probably would not have a resolution of the brexit debate between hard and soft exit -- brexit. my guess is we would stay in limbo as far as the outlook is concerned and that means that sterling in my view would move sideways for the year rather than down. francine: the you agree? geoffrey: broadly speaking, yes. from these levels, probably a bit of a downside against the euro. badt now, valuations, any brexit headlines will push the sellers back in now. now onjoining us

bloomberg surveillance. coming up, we speak with kevin logan, the chief u.s. economist. looking forward to talking about him on inflation.

♪ francine: inflation expectations.

blackrock end guard think the markets got it wrong. we look ahead to friday's crucial figures. john kelly demands white house aides but the country first, the president second, and their own priorities last. north korea threatens actions of justice. good morning, this is "bloomberg surveillance." i am francine lacqua in london. david gura is in new york. there's a little bit of market movement and looking at metals and oil and we look at geopolitics and politics, inflation on friday. interestedicularly in the meeting between rex tillerson and sergey lavrov in terms of political risk coming continues to play a prominent role. francine: we will get the markets in a moment. let's get to bloomberg first word news. here is taylor riggs.

taylor: north korea is bowing harsh retaliation over the new united nations sanctions. kim jong-un's regime threatens to launch what it called "thousandfold revenge attacks against the united states." north korea says they will not enter negotiations until the u.s. ends what they call "hostile policies." president maduro is claiming victory after what he called a terrorist attack. as a terrorist attack. of the military says the attackers confessed they were working with opposition backed by foreign government. in the u.k., prime minister theresa may's office is dips -- dismissing a report the company will pay 47 million dollars to leave the e.u.. a government official called the -- called it speculation. francine, as you were mentioning in the open, the chief of staff is trying to put an end to chaos

at the white house. john kelly blocked casual walk-ins to the openoffice and warned against leaks -- to the oval office and warned against leaks. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. this is what we are looking at in the markets. every day it seems we need to look at volatility. remember it is august, so volumes are a little bit thin. what i am concerned about is the movement -- what i am looking at is the euro receiving cash games from the dollar. even if we had data from germany that shows industrial production falling in june. the other thing i am looking at is crude dropping as opec nations meet with allies to talk about compliance. --t has brought on companies

david: we see u.s. futures up two points. dollar-yen at 100 1094. up almost one point and the two-year-10 year spread up almost a percent. have also -- actually changed my terminal in the last couple of minutes. i was going to show you euro pound parity and whether we were going to look at the possible parity. what i am looking at now is a straight up balance sheet as a percentage of gdp. this is probably my favorite chart of the year and you can see this is national bank, but it is all to do with the federal reserve. you can see 22 .2% all about inflation data on friday. officehe has been in about a week, but john kelly is already making a big impact on the white house. the retired four-star marine general gathered staffers for a meeting and told them they all work for the president and must

act as one team. he is also said to be trying to rein in some of the president's tweets. -- joinsilli joins me us from washington. let me ask you what the president is working on over the president -- over the weekend. .this is not a vacation meetings and calls." what is the president up to and what is the white house saying we can expect from the white house? kevin: there were big development over the weekend regarding north korea as nikki haley announcing a unanimous vote at the un security council and china and russia agreeing -- thee united states president and the administration -- they look to have increased economic sanctions against north korea for the past for a nuclear weapons program and they are testing in concert -- ballisticnental

missiles. president trump feels this is a policy victory for him and something he discussed with the leader of south korea yesterday. evolutionhave seen an from god country core beliefs of john kelly to something different in this white house. what has changed over the last week? kevin: the sources i talked with suggest general kelly is someone that wants to keep a tighter ship and shift in terms of the culture and get rid of these leaks the president has really grown frustrated with. that said, this is also someone who fired anthony scaramucci within day one, his first full day as white house chief of staff it is about to begin on week 2. the question becomes whether or not he will be able to help accomplish the president's policy agenda when it comes -- come september. the senate finishing with lawmakers in recess, the senate likely to have another health care vote in september. really it will be all about tax reform and the debt limit and

whether or not he is able to a car but policy goals, we will have to wait and see. david: tom keene often talks about the zeitgeist. there was a piece in the new -- talking about 75 different people the republican party might be trying to encourage vice president pence to run in 2020 and he responded via in a special statement -- an official statement saying "article is disgraceful and offensive to my team and my entire family. the allegations are categorically false and represent just the latest attempted by the media to divide this administration." kevin: when you take a step back, there is no question that every time these russia investigations increase and ramp up, there is speculation about who would potentially fill the

president trump not seek to run again or be able to run again and mike pence would be a natural choice. vice president mike pence is not jockeying to challenge president trump in a primary in 2020. we aretrying --francine: trying to figure out how nuclear war with korea could start and how it whatever end if it starts. what would be the administration's next move? kevin: i think it is a big win for a global geopolitical standpoint china and russia working with the united states in order to increase economic sanctions against this dictator in north korea. i think you have to look at the relationship economically speaking between the u.s. -- the chinese and north korea. mining and -- in particular is a key part of its economy. you have nikki haley

specifically saying in her statement over the weekend that this dictator is pretty much enslaving his people. 80% of exports and imports of north korea are directly coming from china. that is why you saw treasury secretary steven mnuchin directly target china. there is no question china has a key role to play in this dictator's quest for a brazen nuclear weapons program. francine: what do we know -- because of these sanctions, it does seem the president of china and president trump of the u.s. are closer than they have ever been. -- cannot relationship hold? tevin coleman: in terms of foreign policy, the white house says we are sanctioning north korea and we have the global community behind us hurried if you are going to pull this, china, with regard to north korea, we are going to continue to poke at you and that's why you saw secretary mnuchin

specifically target -- the other week and there are rumblings their potential he would be more should china not step up to the plate cleared -- to the plate. david: we will go from one kevin to the other and bring in our guest host, kevin logan in new york. let me start by asking you about drop fromns we can the jobs report. let me pull up a chart. this is 7162 looking at dissipation rates. there is an amazing divergence. when you look at those with less than a high school degree and that is in blue. what does that tell us about the types of jobs being created in this u.s. economy today? kevin: a lot of the jobs are relatively low wage. this economy is expanding health care, leisure activities, education to some agree --

degree, there are a lot of low-paying jobs. what we are seeing is a lot of expansion of people who are on the edge of the workforce now being drawn in. people whose education was a bit lower. there has been a lot of talk over the past few years about how a lot of people are overqualified for their job and the economy has been growing so slowly. a lot of college-educated people are going down the ladder rather than up the ladder. the economy has expanded so much that we are at a point that as the labor force continues to grow and job demand increases, we are pulling back in people who can compete with highly educated people and that's what we are beginning to see. what's interesting about this is the chain is most -- changes is mostlythe change happening with women. they are coming back into the labor force in large numbers and it is the college-educated women , their participation is going down a little bit. there is some social logical

thing going -- social logical -- socialogical thing going on. sociological thing going on. francine: this is basically hiring plans, looking at small isinesses continuing to climb will push this out on social media. the number of jobs that are hard to fill are climbing. is the problem basically qualifications? kevin: both mines tend to move tend to move up simultaneously. that is more or less a measure of what is going on in the economy in general terms. as hiring demand goes up and people are entering the labor force, we see the economy expand and both numbers go up. i think it is telling us the same thing the unemployment rate

is telling us, that the labor market is strong and the available number of workers is diminishing. that the likelihood of demand increasing continues and we are likely to see healthy expansion in the economy for the rest of this year. david: kevin logan is going to stay with us. coming up, we have a .onversation with adam posen that interview begins at 9:00 in new york and 2:00 p.m. in london. this is bloomberg. ♪

taylor: this is "bloomberg

surveillance." france resume preliminary talks on a merger with team -- sprint resumed preliminary talks on a merger with t-mobile. the company's biggest shareholder is softbank and the ceo is pursuing all options for industry consolidation. france and germany want to plug tax loopholes used by u.s. tech giants like apple, facebook, and amazon. critics say the american companies used loopholes to minimize taxes at the expense of european rivals. of the fran it's -- finance minister of france says europe must defend economic interest. that is your bloomberg business flash. bond: two titans of the market are clinging to the idea that inflation is going to make a comeback. it is only a matter of months before inflation is back at 2% regardless of what happens in washington, d.c. still with us is kevin logan.

let me start with you. we see the optimism and the rejection of the pessimism. where do you fall? the you have any optimism we could get to 2% in any short-term way? >> the long-term trend is going to be subdued inflation and there is a lot of reasons for that. it's very simple. until economic growth really starts picking up, it's hard to see an environment where you see sustained inflationary rise. you can see spikes in oil markets and other commodities and wage data out there. overall, the trend continues to be subdued and i have a hard time seeing an environment where the fundamentally -- where that fundamentally changes over the long-term. david: what are you seeing when you look at the data? kevin: the oil sector represents commodities in general and we saw the super cycle and now we have seen them rebound. it's no longer driving inflation

. i agree inflation is likely to be low for sometimes. you mentioned some major investment hauser's -- houses come inflation getting back to 2%. now the claim is the inflation -- that is not much of a danger. i should mention this is worldwide, not just in the .nited states when we look at the g20 countries, inflation is at the lowest point now since inflation in 2009. there is not enough demand growth in the global economy to push inflation higher. francine: let me bring up my chart for radio. it's another way of tracking inflation. we are going to have the 10 year here at the bottom and a 30 rate -- 30 year rate here above. in the markettion changes, it means bonds will change significantly.

what is your take? is inflation going to pick up or not? exceptional decline in the first three months of this year. suddene is aware of the and large drop in the cost of telephone wireless services, a few prescription drugs going off patent. we are back on trend, i believe. over the next six months, we see the inflation rate which is 1.5% and about 1.4% or that will move back up to 1.8% and closer to 2%. >> it is not going to reach that 2% level, not for the pce that the fed follows and consequently, i don't think the breakevens, if they do pick up a bit, are going to/dangerous signals. we are out and moving up a little bit. we are not going to experience sustained inflation pressure that will really infect -- affect the markets.

francine: do you agree with that? blackrock and vanguard say the markets have this wrong. agree.solutely i have a hard time, as i said before, seeing an environment where all of a sudden demand picks up and global demand except so much that that will drive inflation. as you pointed out, 2% is not exactly a big number. 10 years, 15 years ago we are being tooout 3%, 3.5% much. we are very much in the safety zone here. francine: we will be back with all of her porsche -- oliver pursche and kevin logan. coming up, a conversation with st. louis fed president, james fuller. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i am francine lacqua with david gura. there haven't been any better investment this year than hong kong. -- oliver pursche and kevin logan are still with us. oliver, that me talk to you

about passive investment. how much does that disrupted the markets because there are few players out there can market there is a big movement, this can get exacerbated plea. oliver: that speaks to the narrow leadership in the stock market around the world. a lot of indexing, a lot of dps with money flowing in the same direction as it pertains to hong kong, the same story. for investors, you want to be careful and understand that just because something lead over the past six months or 12 months, fundamentals matter in the long term and you want to stay away from trying to chase those things because when they correct, they tend to correct sharply and quickly. francine: what to be a catalyst for that correction? oliver: anything. it could be a data point, a geopolitical event, the same story everywhere. if you are thinking about hong kong, it is in a geopolitical hot zone between china and north korea and everything else going on.

incidentally, it could also change where it ends up flattening out. i remember sitting down with clients and i remember it was the croatian stock market or one of the baltic countries that had the best return of the year and it was like ok, so what? you probably will not have more than 2% or 3% i think that is smart for investors to keep in mind. david: what role is washington playing now? what is going on or not going on in congress and the federal reserve? >> i think the role is diminishing. i think you are seeing very much in terms of congress and world leaders paying less and less attention to kind of the political turmoil and the tweets and all the other things. the news-ness is wearing -- new-ness is wearing off. it's important to look at what

policy changes are being impacted and the one thing you have to say about donald trump and his policies, he has moved ahead significantly in terms of deregulation and that has helped several industries and had a positive impact on markets. it's not that it has been utter failure across the board good health care has not passed and tax reform is a question, but there has been positive developments for industries and markets to keep in mind. purschehat is oliver and kevin logan. they will stay with us. coming up later, i sit down with steven ratner. that interview will be at 1:00 p.m. in new york and six a cockpit and in london. london and 6:00 p.m. in this is bloomberg. ♪ we check our phones 85 times a day.

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i'm david gura. >> north korea is threatening to retaliate against the u.s. the un security council voted for sanctions. south korean prosecutors are demanded a 12 year prison term for the air to the samsung fortune. he has been in detention since february. scandal.awn into the another blow to the u.k. economy. british consumers cut back on spending for a third month in a row in july. spending fell .8% from a year ago. inflation has been running faster than wage growth. is blockingrren president trump's pick to run the justice department's antitrust division. that's according to people

familiar with the matter. she has described the nomination as a sign the white house will put the interests of corporations ahead of the american people. he is a former lobbyist for anthem, the health insurer. global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. i'm taylor riggs. this is bloomberg. u.s. health care legislation may be stalled or dad but republicans are increasingly confident about a 2017 tax bill. the house ways and means committee agreed to work on tax legislation. here we are in the middle of august recess. the house is gone. to what degree are the wheels of policy still turning on capitol hill? >> we are still hearing a lot of talk about tax reform that seems certain they want to do it

definitely by september. they want to have something by the end of the year. i'm pretty optimistic they are working on it even today. is thehow palpable frustration in washington with the fact that we haven't gotten more information? a couple of months back we got this one page document from the white house. killing the border adjustment text seems like it's off the table. do you wish there was more on the bone? absolutely. we have been optimistic since january thinking the republicans would get behind tax reform. this is when they can actually do all the tax cutting and reform ideas they have been talking about for years and it's very frustrating to see one idea after another get not -- knocked .own

i was in favor of border adjustment and now that is off the table as well. we spoke exclusively to the french finance minister and he says france and germany are planning to crack down on finance loopholes. how will the u.s. take that? one of the ideas when we look at tax reform, and the problems we are looking at is the base erosion thing that's happening in the u.s., multinationals overseas are taxed in a manner that encourages a lot of the profit shifting. a lot of the dollars are stored overseas. we would love to see some action coming out of the u.s. where we say this is how we address it. i thought the border adjustment would address all of these issues. unfortunately that looks to be out. goworries me where do we from here, how do we keep our u.s. companies actively

producing and profitable in the u.s. and not lose dollars overseas? if the president decides to work on that instead of health care how quickly can it redone? >> they seem to want to do it this year. they're saying they have a plan by september and want to do text reform by december. definitely happening this year. a lot of the agenda is not clear. taxthey're talking about policy. for a lot of us it's very confusing. what will we see coming out of the administration in september? logan at hsbc, the rhetoric is tax reform is going to be the catalyst to kickstart growth in this country. how cogently have they made that case? are they able to make a lucid

honest way? >> the leadership made a very cogent appeal. they had a comprehensive plan that was meant to encourage business investment spending by allowing businesses to expense all their capital expenditures right away. eliminating the tax-deductible the of interest payments so they would shift toward equity financing. and the border adjustment would discourage imports and encourage exports. to push more business investment in the united states. now it seems like it's falling what'snd it's not clear going to replace it. this is a comprehensive plan. start taking pieces out, now that border adjustment is gone the next thing might be the deductibility of net interest. you're losing a lot of revenue. you make the cuts that are meant to encourage more investment spending? there was a cogent plan but they didn't build the support for it

so now it's falling apart and i don't see where we are going to go next. ask you about the cacophony in washington about a timetable. to should we be listening to get some guidance on when this may happen? to workall have together. we need the white house, the house and the senate to come together and say this is what we want to do on tax reform. we see ideas coming out of the house side. president trump talking about a different plan than what the house to erp is talking about. we need all of them to work together. if they get there we will see something happen in the fall. thank you for the time. kevin logan of hsbc will stay with us. don't forget to check out the

new issue of bloomberg business week. acquisitions coming under increasing scrutiny. go to bloomberg businessweek.com and subscribe. this is bloomberg. ♪

>> this is bloomberg surveillance. let's get to the bloomberg business flash. prosecutors in germany have added volkswagen's unit to the

diesel emissions investigation. that may allow the government to seize profits it made from selling cars with rate engines. rigged engines. -- -- would allow it to use a supplier network already in place. an internal battle over diversity at google has gone public. it began when a male employee sent out a memo arguing that google has a politically correct culture that ignores differences between the sexes. google's diversity team -- chief has weighed in. she said the employee's views are not endorsed by the company. economy: france's minister says france is working with germany to bridge tax loopholes across europe.

he also weighed in on france's position to track financial business post-brexit. race ofwin the attractiveness because we are taking the right decisions and standing firm. i think the questions that arose during the last month is will they stand firm? we will stand firm. we will take the difficult decisions. we will lower the french taxes. we will make our country more attractive. we will take the structural reforms and decisions that are needed. we will simplify the labor market. banks, many many investors should be aware that france is changing.

and that is not something fake. this is something true. things are changing deeply in france and that's why we will win the battle of attractiveness. francine: theresa may's office thedismissed a report that u.k. is prepared to pay 40 billion euros to leave the union. gilbert on this, mark joins us. still with us, kevin logan, hsbc chief. they are divorcing and they are now saying 36 billion may be. david davis is saying, i have never seen anything like it. who do you believe? idea that we get to choose what our bill is. we have effectively asked for divorce. we have left the family home. we have left all of the assets

behind. we are going to have to pay something. we oh civilclear service obligations. without liability stretching into the future and the idea that the u.k. will actually be able to choose what figure it pays rather than negotiate as part of -- i find ridiculous. francine: are a lot of people saying why should we pay anything at all? one? doesk to square it mean they are softening? i will pay something even if it doesn't know what it means? we have enjoyed the benefits of the civil service ever since we have been members. we signed up as members of the eu for projects going forward. we still own money for those projects. i think there's a question that

we oh something. it's a negotiation. that theyline stance can whistle for their money, that's not helpful attitude. that the eunowledge needs this for its own credibility. we need this to meet our obligations otherwise the whole broth becomes a bit of a charade. we may as well except there's a bill and get on with negotiating how big the bill is. really attracthe jobs? the u.k. stole that business. london had a european currency in a treasury bill program. they had accu bond futures. the common currency introduction was the opportunity for france to become the financial center of the eu. it's not going to miss that this time. it's going to do everything it

can to win back business, attract as many financial fans as it can. people don't want to put employees into paris if they there will be flexibility in the future to deal with changes in the business environment. he's making it attractive for banks and finance firms. france is not going to miss the second opportunity. they will be fighting hard to become the future financial capital of the eu wants london goes away. david: we heard the cabinet confusion. are we getting any more certainty out of the cabinet? i think while the cats away the mice are playing. depending who's been talking to the newspapers on a particular day. we are the weaker partner in this negotiation.

huge periodent a time and we need to get our act focusing on start the transition that is going to be needed otherwise business is going to fall off that cliff. david: kevin logan with hsbc, let me talk to you. to what degree is all of this weighing on the u.s. economy or that trading relationship? >> i don't think there's much affect at all. there are just negotiating. there's been little change so far. there has been a pickup because of decline and currency. incomes are down a bit and that has slowed the growth of consumption spending.

there's hardly been any impact in the united states. indicationhat is the in the next couple of months that things are going better than expected? what if they are delayed? >> that's bad. i think this brexit bill is the first order of business. foras made this a condition carrying on with the talks. we need to address the issue of eu nationals living in the u.k. and the right they have going forward. that looks like it's not too difficult to fix. going back to the country and owe,, that is going to be very difficult to sell to a population who was told they would save money for leaving the eu. an acceptance of the rights of eu nationals and then the talks can start in earnest.

otherwise that fall at the first few handles. david: mark gilbert joining us from london. kevin logan of hsbc stays with us in new york. check out tv on the bloomberg. all of the added functionality on the right-hand side. this is bloomberg. ♪

francine: mrs. bloomberg surveillance. i'm francine lacqua in london. , bloomberghortly daybreak: americas. what are you looking forward to? >> a favorite of surveillance. adam posen. we will talk to him about central banks. we have jobs numbers out in the united states on friday. robust jobs numbers. the question is what happened to inflation? are the economic models broken? we have been good blackrock

saying we just haven't seen the markets yet. time for the single best chart of the day. kevin logan is still with us. let me pull up this chart. , thee top of this chart u.s. unemployment in light loop. -- blue. still at one point 5% which is much lower than the fed wants it to be. here they are with another good read on jobs last week coming from the labor department. what are they waiting to see happen? >> the natural unemployment rate is not a fixed figure. it changes. we have seen fed officials lowering their chances. we don't really know. we haven't tested the real bounds yet.

inflation is tapering off right now. a globalcause of excess supply. there is ample supply of goods throughout the world. is no longern determined by economic conditions in the states. it's determined by global conditions. when we focus on the u.s. unemployment rate we think that's going to be the signal. it's not. if you were to look at unemployment on the average for betterd that's a determinant of inflation in the united states than just the u.s. unemployment rate. david: i'm going to speculate this is something that's going to come up around the chuckwagon. theook at the importance of ecb form a couple weeks back. >> the topic is fostering a dynamic global economy. suggests they are going to be

examining some of these questions. nowhe experience we have really a global experience and if so is there an argument for coordination? most central banks have always argued its best to take care of your own knitting. look at conditions in your country and everything will take care of itself. it will be interesting to see if that theme changes a little bit. are they going to start talking about coordination across countries? francine: do you believe there was coordination? a lot of people have refuted that. there was a lot of hawkishness from all central banks around the world. >> yes. we often get that sort of conspiracy talk. that there's hidden coordination. we are really talking about the theory of economic policy and is there an argument to pull things together?

often argued that flexible exchange rates insulate economies. a country that has a , ineciating exchange rate fact it hurts their financial conditions. countries with a depreciating exchange rate are tied into the financial global economy. these are the things they will probably discuss at jackson hole. they might take small steps in that direction. if they do, financial markets should pay attention. francine: should we be much more worried about china after the people's conference? it was very interesting. the meeting took place just after the brexit vote. where still talking about brexit a year later. the fact that this shift had taken place in europe made the policymakers hesitant as to what

their next move would be. even though janet yellen said the case for tightening have strengthened they skipped september. outlook for monetary policy in the united states is much more clear. we can be quite certain the fed is going to move to reducing its balance sheet. starting the disinvestment program and september. that's already on schedule. the big question is what happens in december. that's where they are moving. their moving to clarity on the disinvestment and then we will wait for the next move in december. david: bloomberg surveillance on radio is coming up. this is bloomberg. ♪

david: jobs are up, but

inflation isn't. some of the biggest players think they may be wrong. china agrees toward with president trump on north korea. will that be enough to keep the administration from playing hard all on chinese trade? and opec meets with other oil producers trying to plug the leaks in their agreement as crude prices head back down. welcome to bloomberg daybreak. i'm david westin. jonathan ferro and alix steel are both off. caroline hyde is joining us from london. it's a rather grey london at the moment. let's look at was warming up on the market. we are starting to see real movement in the s&p 500. adding tentatively close to the record high we hit last week. shaking off the german industrial production number. we will be digging into