francine: powell back in the spotlight. the key question: the strong jobs report. the controversial extradition bill is dead. demonstrators val to fight on. -- vow to fight on. what was deutsche bank's exit actually mean? -- what will deutsche bank exit actually mean? morning, everyone, welcome to "bloomberg surveillance,"

good afternoon from asia. i'm francine lacqua in london. stoxx 600 down. we are expecting more choppy trading on the back of the testimony this week from jay powell. prospects after we had conflicting signals from the world economy. 1.12.ollar coming up, paul the fx calls -- all the fx calls with david bloom. tensions between japan and south korea are threatening to wallop

much now depends on whether shinzo abe and moon jae-in can work out a compromise. >> a cycle of measures and countermeasures would not be ideal for both countries but if south korean companies begin experiencing actual damage, the government would have no choice but to respond as necessary. i hope it does not come to that and we urge japan to withdraw its measures. greece primenew minister has a new finance minister. one of the first tasks will be to renegotiate. epstein being held at a correctional center in new york as he awaits a bail hearing on charges of sex trafficking and conspiracy. the charges include sex acts 14, girls as young as

carrying a minimum of 10 years in prison, if he is convicted. --leted not guilty in court he pled not guilty in court on monday. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. francine: markets gearing up for jay powell's testimony to the house and senate banking committee this week. many are wondering how he will react to the jobs reports. in bond market pricing nearly 50 basis points of comps over the next two meetings suggesting policymakers are relying on the wisdom. larry hathaway, great to have you on the program. what are you watching out for?

larry: he has a tough job made more difficult by the friday employment report. he could have reinforced expectations that the fed would ease, maybe 50 basis points at the end of the month. the strength of the report, along with strength and air is a final demand and consumer spending in the u.s., puts him in a tricky position. he is only the chairman. he doesn't decide. he cannot presage what the committee will do. he will lay the case for why risk management is. -- is prudent. he will leave things open. he want to keep his options open. francine: if you look at the 6, 7 weeks we had, we heard from richard clarida. we are data dependent, let's see how it goes. the market got ahead of themselves. they're going to cut. why the dichotomy? larry: the atlanta fed's measure

of gdp is below trend. the fed could argue that with below trend growth recent order, concerns around global manufacturing, protectionism, geopolitics and core pce below target, that easing is justified. however, against that, we are looking at employment growth above trend and wages that are growing above 3%. the fed would like to keep options open but importantly, what it does not want to do is to disappoint markets. it does not want to be the source. francine: is it worried it will be dictated by markets? larry: the hall of mirrors analogy is appropriate. the fed is beginning to shift toward this kind of insurance type approach to risk management, consistent with easing in a message they have a bias. the challenges, that is ok to say.

well it still be enough to assuage the markets? the fed does not want to be the source of any big market turbulence. francine: when will we see real inflation tickled? larry: elusive as ever. friday will be closely watched. 0.3 on the core measure above consensus would surely come as a shock to markets, to everyone, including policymakers who would compound the challenges we are talking about. does not seem to be in the cards. unit labor costs appear to have rolled over. some sources of inflation don't seem to have the same impotence in recent months that they had earlier in the year. francine: market functioning in liquid assets, something gam has had to deal with. why have they begun to explode now? larry: there is an idiosyncratic element. it is a reminder that across different structured funds,

mandates as well, mostly linked back into fixed income but not exquisitely. there could be certain areas of equity that investors have to be cognizant that in certain circumstances, particularly in large-scale redemptions, it may be difficult to liquidate positions without impairing the underlying position. therefore, i think it will draw scrutiny from clients, regulators, firms themselves about how to manage that risk. francine: we have more oversight on regulation. what should investors be wary of? larry: they have to open up the tin and look what is inside of it. they have to understand what the or the etf is engaged, not only think about the base case about how liquid securities may be but under stress as well. in some ways this has to be done

beyond just the areas that have been directly affected thus far. from my point of view, capital market pricing, broadest arena of credit, investment-grade credit, i ask myself, about etf exposure, for example, in certain circumstances those two could prove to be far less impaired than most people recognize. there has to be a broader recognition. francine: is there anything we can learn from gam's own experience of liquid? larry: it is more idiosyncratic. the key message that comes out is when you find yourself in a isategy when there impairment possible if there is a disorderly type of liquidation or a liquidation meant to meet a certain timetable, you have to think about that in terms of the ultimate investor interest about recouping what they have invested in the instrument and that may take time. our experience has been the judicious way to approach. francine: thanks.

you are staying with us. chief may have pronounced her controversial bill dead but lawmakers and protesters think it could rise from the grave. we are live from hong kong. this is bloomberg. ♪

francine: economics, finance and politics, this is "bloomberg surveillance," i'm francine lacqua in london. the hong kong leader says her bill is dead. the announcement follows weeks of protest including the ransacking of the council building. >> there are still lingering doubts about the governments sincerity, worries whether the

government will restart the process in a legislative council. i reiterate here, there is no such plan. the bill is dead. francine: joining us now, karen lee, power greater china government leader. give us the implications. this is something she has said before. today she said it stronger. bill,d not withdraw the which is important to remember. a key demand of the protests has been for the bill to be formally taken off the table. she did not do that. she stopped short. it is unlikely the bill will continue. what effect that will have on continue,hey will protest leaders came out today and said they would continue with large-scale rallies until she takes it off the table formally. . francine: how did protesters

react? karen: they are saying they will keep coming out until she makes a legal effort to take it off the table. they are saying this is just words. they do not trust her. they do not trust that this may not make an appearance in a different form. they want real proof this is gone before they back down. francine: thank you for joining us. cutting the full-year sales now and profit forecast, hit by a deepening slowdown, a weakening auto market and the fallout from the u.s.-china trade war, with a disappointing second quarter, saying earnings will be 30% lower this year than last are. larry, we are jumping around a little. supply chains being moved around. where are we in the trade war? is it something investors need

to get used to? larry: i wish i could answer that. that is beyond anyone's brief these days, to understand that dynamic. policies play in. things we cannot control will be in. should the dollar strengthened, trade comes back on the table --? thising these stories is, has been a chilling effect on production and trade and the investments in those supply chains. those who make those sorts of decisions, faced with capacity constraints, after almost -- they're doing so in an incremental way. in the trade investment story globally, the slowdown of a significant driver for global growth in the last decade, which was investment in supply chains. that is slowing and beginning to

ripple through the data we see, some of which is manufacturing, trade and. d capex. francine: does it change supply chains permanent? larry: many companies are not ready to make that decision. much rests on the election outcomes of 2020 in the u.s. this is a u.s. inspired initiative, leave aside brexit, which has its own dynamic, but a smaller one in this particular case. delay. not decide. francine: if there was a --ocratic president, wit would they be just as tough on china? larry: most initiatives don't die when presidents leave office. there is support for this approach, tough on china. we will probably go back to an environment where certainty is

restored in how we approach these issues. continuity in process is more likely even if we see a shift toward a less globalized world. francine: let's say the traits back continues. china were the u.s.? pat continues. china or the u.s.? china is now deploying credit totimulus from fiscal policy and infrastructure. it has a toolkit to deploy. everybody loses in this. perhaps china more but everybody loses. francine: the u.s. said china was manipulating currency. renmiimbiens if o touches second?

larry: maybe not in the narrow sense that trade disputes are discussed. china uses its currency for different purpose. francine: thanks. staying with us, larry. breaking news out of a french court. the chief executive being cleared in the french fraud trial. this goes back to decade old allegations of fraud. the paris court has decided he is not guilty of helping a businessman cheat the government out of 403 million euros, back in 2008 when he was chief of staff to the finance minister. in the same trial we found out -- this isthinks

what we have so far. this french fraud trial. orange down. disinvited after leak comments of disparagement, trump tells the u.k. ambassador, your name is not down for dinner. this is bloomberg. ♪

francine: this is "bloomberg surveillance," i'm francine lacqua in london. the latest on the u.k.-u.s. ambassador. disinvited from a dinner that steve mnuchin hosted with president trump. this follows the publication of a leaked memo in which the ambassador called trump inept and incompetent. the abbasid or sound a more ambassadorte -- the sounded a more positive note. >> extremely good, extremely warm, lots of consultation. it is a very good field. francine: let's speak to the senior international editor, jodi snyder.

trying to dosa may to contain the follow? reporter: she is first starting an investigation into the leaks. is cabinet office investigating right away. she is trying to smooth it over. she does not necessarily agree with the contents, they are still standing by the ambassador. they have not apologized but certainly they are trying to distance, theresa may, really at the end of her time in office as prime minister, is trying to contain this diplomatically as much as she can. the question is, how significant could this be? how significantly could this damage the relationship? given it has been good, that the president's visit to the u.k. was viewed as a success, certainly by president

trump. francine: what are the implications of this escalating? the ambassador was disinvited to a dinner held by steve mnuchin. does his post get changed? point, the prime minister is standing by him. that could change quickly. often that is what happens in these situations. everyone at first says, he will continue to serve. we stand by him. if things escalate and they become real tensions between the countries over this, obviously at that point it would be hard for him to continue to serve, especially if he is disinvited two things. it makes it hard to be effective if you are not able to go to the kinds of events, having the kinds of meetings you would ordinarily need to have. francine: thanks so much.

larry, does a policy tweet by the president change or economic outlook when it comes to anything -- your economic outlook when it comes to anything? i don't know how you view these events that flare up quite quickly. larry: this one wouldn't have any impact. from a political perspective, whoever the new leader is of the tory party, the new head of government, will now have an opportunity to make the switch. in some ways, it may work to that person's favor. i think it is not material from a point of view of markets. tweets surely matter. e suddenlyer to tweet about tariffs, we would take that seriously. francine: he tweeted about mario

draghi and nafta. what have we learned? cognizant ito be can change on a moments notice. the areas we would be focused on would be trade disputes and increasingly, the criticism of the fed. the fed is independent. we would all be concerned if he tried to move forward with the idea of demoting the chairman of the fed. francine: we will talk more about central bank independence. deutsche bank windows. the stock continues to drop. turnaround sign gets a thumbs down. this is bloomberg. ♪

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how will back in the spotlight as the fed chairman

testimony to congress with questions of how he will factor in the strong jobs report. chief executive says the controversial extradition bill is dead but she does not withdraw it entirely as demonstrators will fight on the. deutsche bank with a thumbs down from investors but what does the exit from equities mean for other banks? this is "bloomberg surveillance." i am francine lacqua in london. let's see what is moving markets. >> biggest mover in the stoxx theis a cotto, up 5.5% with maintaining of the full-year forecast because they had to cut revenue by 50 million pounds in the first half because of a fire at their warehouse in february that a large part of the reason they maintained is because a lot of their profit is from licensing their technology and investors clearly pleasantly surprised by the readings.

loserse of the biggest with other materials of chemical makers, they had two/there 2019 the 2019-- to slash forecast with a poori read acrossr from the entirety of the sector and we see other stocks move lower.basf down 5.5%. theco, unicredit selling remainder of their 18% stake in him a lawn-based lender, selling you a couple of days ago at around 9.8 euros. shares are not quite that weak but trending that way with the big selling pressure in the market. francine: thank you. thesche bank tumbles after turnaround plan falls flat with investors. analysts say the ceo profit goals are too ambitious with concerns the back is focusing on

a competitive home market and low margin financing. for more, our banking reporter joins us. investors like the plan when it was first announced yesterday morning but now we have had a reversal. what are they not happy about? ambitious, ate step deutsche bank they maybe should have taken a long time ago and the worry is that the revenue assumptions are too optimistic. they say they are conservative but if they pull out of businesses, losing revenue from the business but maybe second order effect as well. whichs decline in revenue would stop the bank from reaching is profitability goal 2022, to close to the wind on capital and that is why people are skeptical. next for thet

chief executive? how much time do shareholders give him and what happens from now to the bank? >> good question. get -- it gets shorter with every ceo, they asked for a honeymoon at it is just a matter of quarters, the second quarter was a washout and it missed estimates according to the information they put out on sunday and people will be looking for improvement on some metrics this year, on cost, for example, they want him to deliver in the reduction in jobs. 2020 is when people are looking for them to turn a page. it may not be good that at least moving ahead. then it is a question of how revenues in the other businesses old up. nicholas thank you,

comfort. let's get to the first word news in new york city. >> hong kong leader carrie lam says her controversial bill is dead which would allow extradition to china but she stopped short of saying she would withdraw the bill entirely . this following weeks of mass protests organizers will keep planning major new rallies. >> there are still lingering doubts about the government. worries whether the government will stop the protests in a legislative council. i reiterate here that there is no such plan. the bill is dead. >> the u.k. opposition labor party has taken another step towards opposing brexit, the trade unions agree to back a second referendum funding the party and had set the policy --

help set the policy as unique you say it most opposed of leaving the eu on any negotiations by the conservative government. they say they are factoring a hard downturn into their macroeconomic outlook and that is the market overdid it that on the federal reserve, cutting by 50 basis points this month. >> the market got to dovish on the fed, the idea 50 basis points in terms of easing in july was too optimistic. fed sees low-inflation and slowing growth, the prudent thing to do is 25 basis points. >> global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. francine? francine: thank you. the past 12 months have been a roller coaster for bitcoin

investors, that two-putted percent but if you bought -- to an 40% but if you bought it 2017 when it traded above 18 -- their company bills platform for the peer-to-peer, and stay with us is larry hatheway. "surveillance." what do you do? you work for the financial services and it is building blockchain for different uses. >> that is correct. we are not a cryptocurrency company. we work with peer-to-peer technology and cryptographic protocols, distributed systems for the next generation of market infrastructure. francine: is it used a cryptocurrency? and will itare they

change the way you operate and we all pay? >> they are an interesting case because they are what the community calls and asset-backed stable coin where bitcoin at other cryptocurrencies are digital assets that are not any issue with liability. more like a commodity. projects theyr surround the financial value are liability of the issuer. that brings them closer to existing market infrastructures/ . francine: so much political pushback on libra, will it get off the ground? >> i do not know. is pushback from regulators real. plans for the timing

of go live will be very difficult to achieve. at the same time this is a very smart team with a powerful company. and a moral imperative behind 1.7a, addressing the billion people ethnically disenfranchised by financial services. that is a story that has been insufficiently addressed by the legacy financial system and regulators. i would fully expect libra to use that moral imperative as a galvanizing force for engaging with regulators and trying to get them. francine: given you are a blockchain builder, how will blockchain be used in financial services in five years? piece is onlykchain

one part. what is happening in financial market infrastructure on the technology side revolves around a move away from the legacy client/server architecture we have in the internet. o peer-to-peer architecture and the blockchain piece is a key part of that but there are other elements the technology that are equally important but get less attention, mainly the use of new cryptographic protocols and peer-to-peer networking protocols which are equally important. is upwards ando, onwards? >> picking up on a few comments we can think about these things with different economic justifications. one which is clearly mention and hardly endorsed is providing access to the payment system. from there more probably to

financial services for those who do not currently enjoy them. -- anrly mover in this early mover in this direction and africa going back a decade ago and a blockchain and perhaps crypto will be part of that story going forward. and the security where blockchain innovation will be important for all sorts of transactions to keep them in a secure fashion. what elsearea is, would drive the demand for something to substitute from what we normally use as a medium for exchange? i think there is an element of it being a way to disguise payments from authorities. that has always been something put out there around cryptocurrency. francine: can you regulate that? vonnie: there can be attempts -- >> there can be attempts but not clear it can keep up with the technology and the spread of the networks which would allow that to happen. >> if we are talking about a digital asset, you can regulate

it and it will be regulated. one of the most interesting things without as much coverage about libra was the projects approach to digital is entities. eirther thing was th commitment to a roadmap of moving from a permission system to a non-permission system and with the logic of it, an asset with legal value is a liability of an issuer cannot really be a permission-less system as the side effect like you have with community that the can disagree about the evolution of the protocol and it creates new forms of digital value, which is fine if they are not the issuer liability. what that means is that the center of the system, whether libra foundation or libra

--erve, will have to have have to be the locus of the centralization of the protocol governance. the libra people are smart and know this. but i would suspect that their tactic is to try to redefine what permission-less means. francine: you were a hedge fund manager. you managed the laws of risk. are you comfortable that the regulators have a clear idea of what they are regulating? libra,ink in the case of a lot that is underspecified and the regulars will ask questions and tell them how the system works. they will try to ascertain which regulatory regime it needs to apply to and so on. of -- a discovery process that will happen. in terms of the regulators

understanding of distributed technology, we have been in dialogue with multiple central banks for several years and the degree of education and understanding with the regulators is quite high. i think they will ask the right questions. i do think the degree of understanding from the regulatory side is probably higher than in the private sector. francine: thank you, larry hatheway stays with us. looking at live pictures for arrivals for the swearing-in with the cabinet for the new greek prime minister with the swearing-in ceremony yesterday at it is the cabinet now. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. pound is at the lowest since 2017 and the u.k. main opposition labor party has taken another step towards formally opposing brexit. the unions have agreed labor's policy must be able to put any brexit deal to voters in the second referendum and a former conservative attorney general has put forward a motion to parliament which seeks to block the next prime minister from forcing through a no deal brexit. joining us is our opinion reporter. what is pound seeing right now? >> with fluctuations in the pound we have to assume there are judgments being made about

the prospect of a no deal brexit and with boris johnson looking likely to become the next prime minister with his statement he will do brexit on october 31, do or die, i think that is pretty much what traders -- currency traders are looking at and they will be looking today at whether there is a possibility parliament could stop johnson from suspending parliament to do on october 31 brexit date. that is what the currency markets are telling us. francine: what are the steps to get to a no deal brexit? what boris johnson, seems like a done deal if he becomes from mr., given the latest polling, does he need to make a government policy he wants no deal? larry: he could, but i think it is unlikely. given the votes we saw the spring. in theory, he could suspend parliament. that seems closer to a

constitutional crisis because the will of parliament has been expressed to avoid a hard brexit. if the deadline comes and goes and the eu does not extend, it happens, i. it will be down to the wire. francine: what are the chances of a general election and how would the pound take that? larry: general election, the annd, they would see at his opportunity to break the deadlock and most people in the markets believe there is a consensus in the population and in the political establishment to avoid hard brexit. it could be something else, like what theresa may negotiated or a second referendum, it could be a customs union, but something softer and more pound favorable than the hard brexit option which is increasingly swaying the market price. francine: do we know how far ahead of boris johnson is in becoming prime minister? the latest poll had him at 74%.

to pullnk it is hard the tory party membership, the assumption is he is well ahead and i do not think the debate tonight between boris johnson and jeremy hunt will make a big difference as most conservative party members will have made up their mind and many have already submitted ballot but interesting to watch. the widespread assumption is he becomes the next prime and mr. nextt would take a bit -- prime minister and it would take a major surprise to not make that happen. francine: if jeremy corbyn was prime minister, what would happen to pound? >> it would unleash its own forms of concerns given historic policy stances outside of brexit the labour party has advocated. some concerns about other ways in which investment would slow into the country and people would be concerned about capital erosion around those who may

feel they would be subject to new and higher taxes. we will call it the antibusiness sentiment and pounds negative. the country is looking for stability around the consensus in the middle which is elusive in british politics at the moment. it can only be found through new elections. francine: click boris johnson reversed brexit and say we will not have brexit? larry: in theory that is right but he has to find a mechanism in parliament that is agreeable to the eu for that to happen. they could withdraw article 50 which is still possible but unlikely. francine: thank you both for joining us. larry hatheway, head of investment at gam. deutsche bank shares unveiled a big strategy yesterday with 18,000 job cuts. day,rday was a difficult losing 10.5% over two days.

next, how traders are attempting to work their magic in the bond markets. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." robot revolution headed for fixed income with sorting equities by market beating characteristics but as a credit super cycle reaches its peak, outdoor them traders are unleashing their arts onto the fed bond market and they hope it will make them billions. dani burger is here to explain. >> a long moneymaker in equities at this time around the giants figure they can revolutionize the bond market. the idea is to use data and find those and take advantage. you buy boring companies because investors underprice them and this is called factor investing and it is huge in equities but the bond market is far behind. u.s. etf smart beta market as a proxy with a similar strategy,

90% -- 97% of assets in equities but big players are betting their next billions will be made by cracking into the less crowded bond market. a company is one of the first two offer bond factor funds and i spoke with their manager at the firm and he first wrote about the idea in a 1998 thesis paper. we have seen others follow soon after. aqr launched a fixed income mutual fund in 2018 and northern trust also raising money for a fund based on credit factors. the strategy is a similar one to what we see in stocks. it will seek securities that fit rules of momentum, value, low volatility, kerry, but the problem it is much harder in fixed income which is part of the recent it is behind given the sheer number of lawns the company. -- bonds the company and liquidity issues. pretty timely pitch, super cycle

is a decade old and a reversal could hit traditional investors and they largely outperformed by chasing yield. jpmorgan said that the next backup in spreads, those funds will outperform. performance generally has been basically in line but the hope is over the long-term they will outperform. burgere: thank you, dani with things we need to watch out. bloomberg surveillance continues in the next hour as tom keene joins me from new york and we will get the latest currency calls with the global head of affect strategy for hsbc. this is bloomberg. ♪

jerome powell in the spotlight as investors gear up

for his testimony to congress and the question is how will he factor in friday strong jobs report? theie lam says controversial extradition bill is dead in hong kong but does not withdraw it entirely as demonstrators say they will fight on. deutsche bank with a sweeping turn around with a thumbs down from investors but what will it exit from equities mean from -- four other banks? this is bloomberg surveillance. good afternoon from asia, francine lacqua in london and tom keene in new york. you want to talk about deutsche bank and we will and we will talk about brexit, pound is weak. tom: breaking under 125 and what is the bbc -- what is the immediacy? francine: we were talking to larry hatheway and it seems the market is pricing in a no deal -- try to price in a no deal brexit because the polling is

difficult but it looks like the conservative party will choose horace johnson by a landslide -- boris johnson by a landslide and he is going to do it know the -- we will come back to deutsche bank in a moment. francine: let's get to the first word news. >> in hong kong, chief executive carrie lam says the extradition bill that sparked protests is dead. she stopped short of saying she would withdraw the bill, it would allow extradition to china for the first time. opponents are skeptical of fight is over and planning more protests. france is sending is top diplomatic advisor to iran to say the 2015 nuclear accord, the french president warning iran to dialback violations of the agreement. iran says it is abandoning its limits for uranium enrichment and warned it will scale back

compliance with the accord until europe finds ways to make sure iran can keep selling oil. donald trump firing back at the british ambassador to the u.s. in a dispute over a leaked memo, this inviting kim darroch from a dinner last night which included the president and the nomura qatar. he called him and that an incompetent and president trump said the u.s. will no longer deal with kim darroch. arrested jeffrey epstein on sex trafficking charges as they say he has the motive to fully as he owns multiple homes and private planes, he is awaiting a bail hearing in new york. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: thanks. equities, bonds, currency, deutsche bank.

dow is -14. -- negative 107 rather. urve flattening with 15 basis points, not near inversion. euro under 112. sterling 124.71. 10 year yield comes up and deutsche bank is a mess. francine: it is similar data check to yours, markets have to look at what jay powell says and does. chemical maker leading stoxx europe 600 after a profit warning because of trade conflicts and trading is choppy ahead of the key testimony from jay powell. tom: maybe mr. saving will be important, deutsche bank is

fascinating. let's go to the chart. killing it with the chart in london. here is where we were end of the weekend. jump up peak and now down 14% from the peak to a 6.4 euro. that gives you a picture of the enthusiasm for this announcement and flat out huge disappointment over the last 12 hours. francine: i have a simple chart looking at bigger cut being too optimistic and the fed and what the market is pricing in for a july cut. sure -- it should be around 30. i am not sure my chart is 100% correct but we will get it fixed. i will work on it. tom: a debate about july, you can work on it, go to chart

camp. , globaloom is with hsbc head of foreign-exchange strategy and has been very good about we will not see dollar gloom, dollar stability, even dollar strength. there is a with of dollar stability. why do the dollar bears have it wrong so far? think they just dollar is overvalued. they think if they do not like something politically it has repercussions in the currency. pick up interest rates 135 million taxpayers in the u.s. on one your money will pay me close .o 2%, beautiful i do not know what they are on the they say the euro is going up and the european economy is about a recover, i do not know what they are on but they need help. tom: give us your best pair that indicates dollar stability as we go to the jerome powell testimony.

david: euro-dollar, look at a chart and put it in the context, a month it has moved up 15 points overnight, it will not move, in a bundle of nerves and mixed emotions, it is paralyzed by fear. fx market is sitting there biting their nails and wondering what will happen on wednesday. until then, nothing happening. francine: what happened in the last seven weeks they were so certain the fed would be so aggressive? david: the markets have tried to bully the fed and sometimes the markets have one and sometimes the fed have won. fed said they would raise rates in 13 and 14, they did not come after the fed said they would raise rates and the markets said they would not but the fed did, a constant battle between the markets and the fed ever since the taper tantrum. francine: the market is trying to convince -- the market thoughts there would be a crash

or by pricing in a cut, the fed would be forcing to do it. david: the market believed the fiscal push would come to an end this year and the fed would have to cut rates but the market got aggressive about it, after one week number, and got a slap in the face on friday with a number that bounced back. i do not see why the fed should cut rates in july. i do not see it. there may be other reasons i do not see and they are privy to with being privy to also its of information own -- information. tom: if they do cut rates, controversial right now, others, you and citigroup are talking about no rate cut in july. what is the efficacy of a rate cut right now? how will that affect the economy? david: zero. the idea of taking the fed so

many years to push rates up directly 2%, it took them years, in case there was an emergency they had the ammunition, you see a tiny bit of a slowdown and they were cut rates by 50 basis points at the next meeting? what are people on? you remember the taper tantrum and how difficult it was for the fed to get rates up, they will willy-nilly throw a rate cut in because there is a mild slowdown. i do not buy it. francine: what is dollar fair value right now? david: there is nothing fair in foreign-exchange rates. valuation does not matter because the euro is cheap. it just gets cheaper in my eyes and going down to 110. is 120lue for the euro and four sterling is 150 there is no resemblance at the moment

to where this currencies are going because the cyclical structure, a lyrical aspects overriding valuation for the moment. tom: what will you listen for from jay powell in his testimony? david: he will tell us. this is what central banks do. the australians cut rates earlier. a few weeks ago. because they told us. central banks are telling us what they will do before they do it, the new central banking with forward guided with the markets pretty sure he will tell us before the meeting what he will do. this is his last chance to back away from a rate cut and if he does not come it will be a huge disappointment. francine: david bloom staying with us. , president trump tells the u.k. ambassador you are no longer invited to dinner. we will discuss how this diplomatic problem will impact

the special relationship. this is bloomberg. ♪

francine: -- >> this is bloomberg surveillance. mergingbranson's galactic plans to become the first space tourism company to go public. this year they will be listed under a deal with social capital, the journal says they will buy 49% of virgin galactic for about $800 million. the world's biggest chemical maker joining others in cutting

sales and profit forecasts, basf says earnings will be as much as 30% lower this year mainly because of trade conflict. they cited a deepening economic slowdown and a weaker auto market. facebook is facing another lock buster court fight in europe over privacy as the eu court of justice hears arguments on the legality of tools used by companies to move commercial data outside the region. opponents say eu citizens data is at risk the moment it is transferred overseas. facebook argues the data is protected. that is the business flash. francine: thank you. kim darroch, the u.k. ambassador to the u.s. was disinvited to a dinner steven mnuchin posted with president trump. this after the u.s. president tweeted his government will no longer deal with kim darroch,

following the publication of memos in which the ambassador called donald trump and that and a competent -- in that and and aetent -- inept competent. disinvited of a just -- david bloom of hsbc is still with us. what does this mean? can you and for from the fact -- can you infer from the attention -- from the tension that no longer will we have a special relationship? >> in some ways what sir kim who was sayingly well applies more to the u.k. when he called the administration incompetent and inept, those phrases could imply to our government if boris johnson wins the election and this is deeply symptomatic with almost 200 years of independent civil

service, highly reputed abroad. and for the civil servants to be dragged into the mud. francine: when i speak to ambassadorial circles, you are briefed because the intelligence, meant to be very private, it informs the government on how to do with government. i do not know if it is a value judgment or a brief. >> it is a brief and this is what most people think of the president of the united states. it would have been not responsible to have a judgment not honest and frank but this was never supposed to see the light of day. this has been put out by people who are in favor of a strong and hard brexit, who are against the civil service, who they think are biased in the favor of eu membership. this institutes a very serious crisis where civil servants can no longer do the job.

best possible independent advice without facing personal consequences. francine: talk about brexit. will we see in no deal brexit? >> i do not think we will see a brexit. i have been fairly clear about that for the past 2.5 years. so far i have been right. i hope i am right and we will all celebrate. i cannot see any formulation where there will be a majority in public opinion and a majority in parliament or any version of brexit. even if the question is, are you for or against brexit? a consistent majority against. the minute the question is more specific, isn't this specific version of brexit, a no deal brexit or theresa may's deal, the minority shrinks more. was thethe real problem

original sin. the question was, is your favorite color blue or pink, red, orange, blue because brexit was what you wanted it to be but when it has to be narrowed down to one tangible form which can be executed, the majority support disappears. i do not think we will see a brexit at all. tom: david bloom, a drop in sterling. you have been brilliant. the intraday chart. longer-term brexit chart, brexit long ago and far away, hsbc, you are modeling where we will go and the recovery and it will over. what is the trend of the rollover? can you a vision under 120 sterling? david: not if this scenario we heard just plays out but with a hard brexit we have argued sterling could fall below 110 and we have argued that you

cancel the whole thing it has been a bad dream, bobby ewing, comes back in the shower and you have 145, 155, you have clear sky above you. you have to choose a political outcome to get a sterling forecast. i am pretty bad at that. i have made horrible political calls and given them up. we think sterling would go under the different scenarios because you can only get three, no brexit deal, hard brexit. sterling wealth reduction for the united kingdom or is that old-style thinking? >> i do not think it is old-style thinking. it,act, the symptoms behind it is not just a weaker sterling in isolation because there you could see positive and negative impacts. it is the reduction in the level

of investment. the reduction and the u.k. slowly being phased out at supply chain. it is basically more and more damage to the city of london and the longer this goes on the more irreversible it becomes an even if the scenario i am described which i'm reasonably confident will play out and this will be a bad dream. it will leave large firm consequences for the u.k. economy and that damage will be done so you must be bullets caused -- >> you must be bullish in sterling? >> i am not in the market so i can speak my mind without being beholden. [laughter] tom: david bloom in the market very much and disinvited is also in the market -- and deutsche bank is also in the market. the lows in june, up we go with the hope and prayer of the redo and the gap down this morning to 6.4. coming up, we consider president

lagarde. this is bloomberg. ♪

francine lacqua in london and i am tom keene in new york. with dollar 109 strength and futures to look over. looking at the market, president lagarde is a phrase we are getting used to. she is running the ecb and with us is david bloom of hsbc on the path toward with the ecb.

politicalefinition a appointment. do you believe she has the staff to do monetary economics as well? >> yes. ecb has added service, a fantastic staff within its research division. on top of that, you had the good fortune of philip lane joining as the chief economist. the problem still remains that, while the head of the imf is more constrained in decision-making, and that is more of a political role, the head of the ecb is both a political and technical role and she will have to in a closed room with her peers, knowing less about the topic than they do, have to make the call and get them together. what she more than except for charisma and political

technical, she lax in expertise. it is still a safe choice. tom: away from the politics the simple idea of carrying forward the mario draghi years. is that a seamless transition to pull him forward or is that naïve and we do not understand? deutsche bank think -- deutsche david: mario draghi thinks he is a passive guy and pulls out the bazooka, but the problem christine lagarde has issues opening the toolbox. i do not see what there is in there. it is imitations of monetary policy and putting the pressure on to the fiscal side. those will be the interesting dynamics because we have argued a big game changer for the euro would be a fiscal push by the germans. we think we are a long way from that. francine: will christine lagarde

push for more fiscal? sony: the tone at the imf, the answer is yes, in that sense you probably will get further in pushing for a physical response ,han mario draghi was able to partly because she has the political experience and the contacts. francine: we will be back with disinvited -- david bloom and sony kapoor. autsche bank unveiled restructuring plan yesterday and the share price reflects skepticism over this overhaul. this is bloomberg. ♪

♪ this is bloomberg "surveillance," tom and francine from london and new york. , butche bank, trade war's

first, the bloomberg first word news. viviana: the euro area is warning greece's new prime minister he needs to stick to post bailout ledges. he campaigned on pledges to cut taxes. fiscalce fails to make targets, relief measures could be suspended. a federal judge shooting down a trump administration rule. the judge says congress did not intend to go the government the power to regulate prescription drug advertising. several states want rules that are consistent and require efficiency improvements. the administration wants to these restrictions. in hong kong, carrie lam

declared the controversial extradition bill dead, but left herself some breathing room. she has not said she will withdraw the bill. critics are skeptical, calling her actions too little, too late, and too fake. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. hurtado.ana this is bloomberg. francine: thank you so much. let's get more on this developing story out of asia. the protests,at we had carrie lam saying this is the bill instead that we cannot 100% revoke it and protesters saying we will keep protesting. how does this end? enda: it is hard to see where it all ends. the chief executive came out today without language but stopped short of saying the bill

will be withdrawn. the immediate reaction from the opposition groups gives you a sense that this has a long way to run. they are promising further protests. they continue to push other anands they have, such as investigation for police action during the protest. all indications are that the weeks of the overwhelming ,ajority protests we have seen the indications are it is not over yet. francine: what does this mean for beijing? we had a great story saying beijing's message to hong kong is basically, get in line and willin line, otherwise you have financial repercussions from investors. enda: there are different ways of looking at it. there is no doubt it is seen by

some as kind of a weak spot in china's armory in the u.s.-china trade negotiations. the u.s. can point to the dislocation as a sign of some of the discontent on china's borders. the bigger conversation is around what is the way out, how does beijing respond, do they meet protesters halfway to try to assuage their fears? what the kind of system that operates in china, that will not be easily done. we are headed for a long going stalemate unless we get an olive branch or circuit breaker. ive branchesnt of oloi or counting them, has there been any visual communication from beijing to hong kong? enda: it is mostly driven by the

hong kong government in terms of the commentary and focus. they are focusing on carrie lam and her administration. briefing,the daily china's foreign minister not add any comments. people are looking to see if beijing can provide a circuit breaker and whether they go hard, or soft and look for a way out. tom: on wednesday you are on the others of the planet. do we have a date calendar for this week? enda: they are talking about protests for this weekend and the weekend after. on this sunday, one of the key takeaways was the surprise factor in terms of the crowds turning up. if the recent sundays are any indication to go by, you can expect at least tens of thousands turning up, or more.

francine: thank you so much, our chief asia correspondent. let's get back to david bloom and sony kapoor. this is also in the middle of this concerning trade spat, whatever you want to call it, that seems to be getting better but at a moments notice could get worse. what does it mean? sony: i think the impact from hong kong into the spat will be limited, partly because beijing cannot be seen to be taking a stance and then losing the battle. decides to -- he will have to be seen as winning, otherwise he will let the crisis play out in the public domain in hong kong. in that sense, china actively getting involved is less likely.

because ofent xi these protests, and president trump because of the constant accusations, are much weaker compared to the strength they would like to project. i have domestic problems, which makes it more likely they will try and thrash out a solution. these make it more likely that some compromise, albeit imperfect, albeit oversold, will be stuck. i am hoping the domestic problems rather than activating the situation -- aggravating the situation will lead to a compromise. tom: what is the call on renminbi? is it possible to make one? david: the call is whether you think there'll be a trade deal or not. we think hopefully by the end of the year there will be and if there is, renminbi will pull

back 75. we have seen the currency move up and down as political tension gets greater and smaller. we are very much hoping and thinking late this year some kind of a deal will be done, and that will be good for risk assets and will see dollar-renminbi settle down. that is the view we have taken. we were talking about brexit and trade war's. you are making a political decision that decides what your currency view is. i like cyclical views, structural views. this is not good because i am not good at it. , davidt us come back bloom and sony kapoor with us. alison williams publishing on deutsche bank as she says jp morgan and morgan stanley will be winners. thet now, maybe a winner,

gentleman from eastern ohio, timothy ryan, congressman, football player, presidential candidate. this is bloomberg. ♪

♪ "surveillance," francine lacqua and tom keene. deutsche bank further south. david bloom with us. i want to take a broader view on pacific rim em. i want to talk more about how i can make money or not lose money on em currency. how do you structure that in the world of the pacific rim extra

pan? we talked about, the trade deal between the united states and china, dollar-renminbi when it headed year,ast year -- up last it caused a blowout. there was no idiosyncratic nothing. that is the problem we have got. if global stamps on local, it does not work, so your strategy must be whether you believe there will be a deal rather than an escalation, which is our view at hsbc. slightly constructive on some of those asian currencies. an 11ithin em, is it constructive, or is there a surgical way to play em? david: there is no surgical way

because it is all about the fed where global meets local. you will have the greatest local idea in the world and if the fed for example is more hawkish, you get blown out of the water. when you have macro themes like fed rates, like the trade situation, it lows your local view out of the water so you have got to think macro. francine: you have a great new note, looking at the fx and trade war and world order. if you bring it back to the plaza accord, what is the most common misunderstanding in the market? 1995: the understanding was the problem was the same in japan supposedly had a huge surplus so they drove the dollar lower. every time the u.s. tariff,ration puts on a

the currency moves to offset it. in the trade deal, there is currency clauses. one with mexico and canada and one with japan. they all change the way we think of currency. you cannot intervene to make your currency and nippy late at the dollar -- manipulate the dollar. francine: that is less volatility? david: less volatility and currencies, which makes me as popular as you would believe on my fx ball. -- vol. euro-dollar, fx markets do not want to move. you cannot do what shinzo abe did, do q. week and your and yourgoes -- qe currency goes up. he cannot get away with that

anymore, and that will change the way currencies behave. currency, not to a strong dollar breakup but nevertheless, the david bloom stability. nearunder 1.12, yen out 109. talk about a litmus paper for troubled united kingdom. brexit in blue, down we go, gloom and doom. what a structural rollover and aw breaking down, going under 1.23 handle, it would be a huge deal, wouldn't it? david: doom and gloom from the bloom, i am afraid. it would be. first of all, the dollar is on a bit of a role because people are scared we will not be as dovish and people are worried about the idea of no deal.

if there is no deal, there is plenty of downside. if you make your political choice and think there is some deal, then sterling is off to the races. you have got to make a political choice and i don't want to do that. it is not what i do, not what i am good at. tom: what are you good at now? money,to make some quick preschool, clothing. where can alpha be made, not just archer -- marginal movements? david: if you take a sensible economic view and believe the central bank will not be as dovish as the market believes, the dollar is headed for another lurch forward. these selling the dollar and looking for faces points could get a lot of slapping tomorrow. i could end up with a lot of egg on my face, but i would rather

go without. this will be very dollar positive. the-- 50 basis points, dollar hardly sold off. the dollar still has legs. tom: congratulations on a dollar strength call. david: thank you very much. tom: david bloom is from hsbc and always orders fancy things for breakfast. david:[laughter] 14% fromsche bank down the peak trading yesterday. a series of opinions from sell side and buy side, really taking a cautious view on execution. coming up, day two. this is bloomberg. ♪

♪ is bloomberg "surveillance." is warning airlines of potential problems with older versions of the jumbo a380, asking carriers to expect wings for possible cracks.

in february, airbus said it would quit making the a380. more problems for u.s. soy farmers hurt by the trade war with china. the agriculture department says soybean fields are in their worst shape since 2012. farms are still recovering from record rainfall that slowed planting. piper jaffray is reportedly close to a deal to buy sandler for 480 $5 million in cash and stock. their best-known business is advising community banks on mergers, equity offerings, and issuing debt. that is bloomberg business flash. francine: deutsche bank continues to tumble after the turnaround plan falls flat. the chief executive's profit goals are too -- they are

focusing on a competitive home market. you know deutsche bank like no one else. is there anything else he could have done to get the share price up? elisa: what he has done and put down on paper looks ambitious, looks new, but unfortunately it has come so late that investors remain incredulous about the prospect of getting to that destination. whether they can execute as they say they can. francine: do they need to raise capital? there is only so much you can do. elisa: what will be key will be over the next few quarters, management showing they are delivering on cost savings on the deleveraging, on the winding down of these assets they have set aside.

quarterwill be to show after quarter that that is what they are able to do. tom: i want to go to your mmr yesterday. here is elisa martinuzzi with the announcement -- the morning must read, thank you, jason. jason adept on his feet. deutsche bank, the destruction of shareholder value to date has been so grave they are unlikely to give this reboot a second chance. no because exited the equities business on this scale before. this is a huge deal. to be blunt, it has never been done, right? elisa: that is correct, and investors are questioning how that exit will sell the other

businesses that deutsche bank wants to keep. wealth management clients look elsewhere? will you be able to establish a relationship with entrepreneurs who come to you for an ipo and give you their cash to look after? these questions remain unanswered and we will have to see in the coming months. chart is soncy bar smart, we will do it in both hours. jp morgan four years ago, and they have improved. citigroup four years ago, they have improved. deutsche bank four years ago, they have declined. morganstanley and jp improving in equities. .rend is in place trend is in place already where they are losing market share, right? elisa: absolutely, but they are still in that business.

distancing themselves from those businesses, it is unclear how it will affect their transaction banking business. they have given investors some comfort that they have made assumptions of this but have not given what their assumptions look like. investors are worried they will not be able to reach those. francine: if this is about execution risk, how many quarters do we need to see for shareholders to take solace? elisa: i think it will be quarter by quarter. this has been more than 10 years after the financial crisis and their -- they are still significantly hobbled by their model. investors will not have patience. francine: they are doing a capital relief movement. how important but that is done

orderly? elisa: one thing to keep an eye on is this preliminary agreement with bnp paribas which is supposed to be assuming some of these assets and the employees and the businesses. we will have to see how that agreement unfolds. tom: if revenues come in on plan, up 2% or whatever the number is, if revenues come in on plan, how many quarters do they have that they have to get a cash call at whatever price it is? elisa: it is more complicated than that, more than just revenue. at the moment, they are comfortable but by easing into their capital buffers they will need -- not need to tap shareholders. it remains an open question as to one of the key worries investors have. investors have given them more

than $30 billion over the last decade alone and do not want to do that anymore, considering where the share price is. tom: 6.45 this morning. think you so much, elisa martinuzzi. -- thank you so much, elisa martinuzzi. littleaordinary story, a bit of bounce in deutsche bank shares. francine: a little bit of bounce , a two day share move, it is still down some 10%. coming up, lindsey bell and mickey levy. andill talk powell treasuries. ♪

♪ tom: this morning, jp morgan says deutsche bank's redo is

"not half-baked." client losses should be anticipated, shares slide, just now finding a bid. testify.powell will it is so far gone since mickey leavy and its gun power plot, how will the fed react if the dust they run out of ammo? lindsey bell is with us. sterling under 1.25. manned the boats. terrible. francine: this is my chart of the day. if you look at the pound, within touching distance of this two-year low and a market that is increasing betting that policymakers will have to put out borrowing costs. at looks like boris johnson will be the prime minister and

yesterday's poll suggested he would win by a landslide. july 31,rman powell's the election of the government's july 23? francine: on july 23 we will know who the prime minister is. tom: they do it differently over there. kong, chiefhong executive carrie lam says the controversial extradition bill that sparked historic protests is dead, but stopped short of saying she would withdraw it. the bell what allow extradition to china for the first time. opponents are skeptical. france is sending its top up o-matic advisors to iran -- diplomatic advisors to iran. emmanuel macron wants them to dial back their violations of the agreement.

they warned they will keep scaling back compliance with the accord until europe can assure they can seep selling oil. back, doesp firing inviting kim derek from a dinner . in those videos he called the president inept and incompetent. he tweeted the u.s. will no longer deal with him. grantingwarns against bail to jeffrey epstein who was arrested on sex trafficking charges. he has the means and mode -- motive to fully. flee.ly -- global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. tom: thank you. pepsi out with earnings and the

basic idea is a little bit every affirmation. we will get more on that in a bit. it is an interesting risk off feel with equities down and yields up. how odd. screen, the idea of the vix well above 50 -- 14. sterling, 1.2464. deutsche bank, its own story. francine: i have a fairly similar data check but it -- pound is moving quite a lot. stocks are sliding with u.s. futures, dollars strengthening a third day. trading continues to be choppy ahead of testimony from jay powell, and the pound moving close to a two-year low. tom: pepsi co., organic revenue

growth appears to beat as well. let me go to a chart on deutsche bank, a 14% chart. i did not expect that. over the weekend and to sip a, and amp up, the peak -- step up, the jump up, the peak. francine: breaking on virgin galactic, branson's virgin galactic, space business. they wanted to go public but they also emerged with social capital. merging withic social capital to be publicly traded, so they are just a little bit bigger and getting more traction. pound is getting more traction. fund managers see it slipping toward post-brexit lows. if you look at what is priced

in, the pound hobbled by concerns over the political risk is the contest for prime minister approaches its endpoint. tom: chairman powell speaking and testifying as well. mickey levy has been a great student of the market and always more cautious against some of the trends, and the discourse of our monetary policy. lindsey bell has to deal with the. -- deal with it. can you buy shares this morning? is there enthusiasm? lindsey: we are in a wait and see mode. tom: i knew she was going to say that. lindsey: we are waiting to hear what jerome howell has to say. tom: we are waiting to hear what dr. levy has to say. you have aged in the past six weeks.

chairman powell is caught in a vice. his press conferences are getting better. how do you feel about the ramifications of a punch bowl to the brim? mickey: the market loves when central bank sees. will it help -- central banks ease. will it help the economy? no. ease going monetary to help? from thedo we get away institutional crunch that only ourcentral bank can solve social and fiscal ills? mickey: it is incumbent upon jay powell, mario draghi, kuroda, to say this is the popular scope and limitation of monetary policy. draghi should say, we have created our own problems and it is up to the policymakers to clean up the mess.

he has been saying that for the past seven years, just no one listens. mickey: fair enough. we know the ecb is the financial backstop for europe, but let's take the u.s. the rates are low and the system is awash with excess reserves. bond yields, 2%, bond spreads have narrowed. tell me how easing will stimulate the economy. if you think about the channels through which it works and you come to the reality at without work. lindsey: janet yellen has said in the past, if you look at the last two recessions, you need a five prevent -- percent adduction in the fed funds rate fundsreduction in the fed rate, that will not give us much ammo. mickey: the zero lower bound is

a legitimate problem, but now you have 2.5 percentage points between now and zero. why use it up now? tom: citigroup coming out with the same argument. mickey: why use it now? tom: let's go to francine. francine: do you expect the new ecb president lagarde to replace fiscal? because she was a finance minister, will heads of state listen to her more? lindsey: she has a very good reputation in europe and around the world, so she is well respected. athink she will take different approach to monetary policy than mario draghi did. he is famous for being very articulate about he is going to save the market in the future, and she might approach it from a

different angle i think. francine: do you think she will approach it from a different angle and does that lead to currency volatility? mickey: i don't think she will take a different angle because she knows the ecb is the financial backstop for europe. she could push more on fiscal stimulus out of germany. let's think about europe. you have negative rates, negative yields. yesterday morning when i came in, 10 year greek bond yields more the same as u.s. treasury 10 year. tom: makes sense. mickey: if you think about what is implicit in that, do they need to ease more what's will rates more- push negative? tom: what do we do in the real world of investment? what do we do, given the cacophony of economics, including negative rates? lindsey: it is a difficult

position to be in, particularly with all the uncertainty from the fed to trade to what earnings will be and how companies will continue to operate over the next six to 12 months. you need to be more defensive than you have probably been in the past. we raised health care to overweight for market weight. we brought consumer staples up. tom: what about banks? lindsey: we are underweight financials. if the fed is going to ease like the market expects come up that is not a good operating environment. competition for the banks has increased precipitously and loan growth has been ok but has not taken off. tom: i am not going to ask her about deutsche bank. mickey levy and lindsey bell with us to get us started and a spirited conversation with central-bank coverage coming up.

which a bank, we have got to look at this chart, extraordinary day two actions -- deutsche bank, we have got to look at this chart, extraordinary day. worldwide, this is bloomberg. ♪

♪ bloomberg "surveillance," from london, francine lacqua, tom keene in new york. there are four or five or eight things we could speak about with kevin cirilli. we have got to go into the amazing news flow we have seen, mr. epstein the last few days, and its affect on washington. mike allen leads ask eos with a

carefully phrased statement for president clinton. president clinton will need to adapt. how does washington see this dichotomy between washing -- president trump and the former president? epstein wasr. operating in terms of politicians on both sides of the aisle is evident. this story reaches both sides of the aisle. the current dynamic within the next 24 hours with regard to labor secretary acosta directly in the political crosshairs of this scandal, he is someone who by all accounts gave a sweetheart deal, to put it nicely, to mr. epstein and as a result is having to face the tumult of this political

scandal. tom: i want to get away from the uproar that all in america are movingand talk about forward out of this uproar over the next months in the campaign. i cannot fathom this will be any kind of an issue. is that correct? kevin: i will politely disagree. i think it will be an issue. when you look at the labor department, you are hearing on calls for the labor secretary to address this. some are suggesting he might have to stop down. as it plays out on the campaign trail, whomever epstein was in contact with or donating to, i think those candidates are going to have to answer for that, as former president bill clinton had to, and as mike allen is covering this morning. i think as this progresses and

develops, it is a classic situation where you have someone of great prominence, great wealth, great influence, with allegedly a criminal history. thatine: this was a person was associated with high profile figures and also the president. do we know how much the president is worried about this? kevin: in terms of how the president's communicative circle and surrogates, they have been distancing themselves from him. to be candid, if you go back to the 2016 cycle from some within the republican circles, they sought to link democrats to epstein for quite some time. it was a political minefield, so to speak, and everyone is distancing themselves from him. that is where we stand. tom: very informative, kevin

cirilli, chief washington correspondent on the uproar that has transfixed washington. we will drive forward the conversation on the election. for tim ryan of youngstown, he is a democratic candidate for president getting to the second debate. futures at -13, this is bloomberg. ♪

♪ viviana: this is bloomberg

"surveillance." richard branson's virgin galactic will become the first space tourism company to go public. it will be sold to a shell company that sells on the new york stock exchange, social capital. that would allow them to go public without an ipo. the world's biggest chemical maker cutting sales and profit forecasts. -- as much asas 30% lower this year, citing a deepening economic slowdown and a weaker auto market. facebook facing a block was to over the privacy legality of tools used to move commercial data outside of the region. 'pponents say e.u. citizens data is at risk as soon as it is

transfigured -- transferred. facebook argues the data is protected. tom: mickey levy with us, we have been talking with desh about the fed. -- about the fed. also with us, lindsey bell who writes terse notes about the broad sector. we are going to see a lot of adjustments to earnings and revenues. how will that change the deployment of the use of cash? lindsey: we are looking for a decline of 1.7% in the second quarter and the third quarter, 60 basis points. that would be an earnings recession which is kind of scary, but we saw this in 2016 and 2015. tom: and the use of cash did not change. lindsey: exactly. in the first quarter, we saw

buybacks slowdown and we expect that to continue. we are looking at high valuations for a lot of forwards, 18 times on a pe basis for the s&p 500, quite rich compared to the historical average of 16.5 times. we are in the volatile summer months, a weak period for the market. with a strong june, we could see some of that come off, especially if the reality of earnings comes off with investors. esther mertz dutch estimates are at risk going forward -- estimates are at risk going forward. francine: i am looking at the profit warning and they are saying this is because of trade and a weak auto market. i am not sure what to do with it. is it industry-specific or cut

it affect more companies? lindsey: this could impact many more companies going forward. in a positionare where they need to be conservative. the trade dispute with china has been going on for over a year and they are rethinking their supply chains. this will continue to impact in the second part of the year if there is no red -- resolution. sales come, 8% of from the asian markets, so if they are weakening, and is only a matter of time before we feel it. francine: what does that mean for your exposure? if you look at earnings, do you stay away from the companies that need to move their supply chains? lindsey: i think you need to rethink that, especially for companies like the tech sector and industrial sector. p early looking at the numbers, they have not moved much.

we have heard from semi conductor companies that have issued profit warnings, broadcom being one of them, anticipating tariffs would be put on the remaining portion of 500 billion dollars in trade that has not been impacted yet. expectl see companies tariffs to be fully put in place. i also think financials will be at risk. if you look at the second quarter, they are supposed to have the best earnings growth in the quarter, and given the trajectory for interest rates, we think there is major risk. francine: breaking news out of the u.k. labour party saying they will challenge the new prime minister to hold a brexit referendum. they say they will back the remain referendum on a no deal oratory deal. tory deal.yn -- or a jeremy corbyn less than other

heads of the labour party, was put in by the union and they were trying to put pressure on jeremy corbyn to transfer labour into an anti-brexit party. they agreed to stop -- back a second referendum. it seems the labour party leader has fallen in line with the way they wanted to go. sterling, brexit and 1.2462. please stay with us with mickey levy and lindsey bell. this is bloomberg. ♪

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big overhaul, meaning that 18,000 people will lose their jobs. today, the share price is negative 4.1%. the unitedng news in kingdom on mr. corbin, we do not see sterling moving yet. headlines innging terms of what we do after july 23. challengelabour will the prime minister to hold a referendum on the brexit. theas quite unclear position the labour party and jeremy corbyn took when it came to brexit, are they for it or against it? personally, jeremy corbyn was quite anti-e.u. and yesterday, leadersabour union

pushing jeremy corbyn to back a second referendum, basically transforming the labour party into an anti-brexit party. they say they will challenge the next prime minister to hold a referendum. tom: let's get the first word news. viviana: the euro area is warning greece's new prime minister to stick to bailout pledges. if grace fails to meet fiscal targets, some relief measures could be suspended. a federal judge shooting down a trump administration rule forcing drug companies to include prices in their commercials. the judge said congress did not intend the government the power to regulate prescription drug marketing. governors from 20 states pushing

the trump administration on an auto emissions agreement. they want rules that are efficient and require efficiency improvements. the administration wants to ease requirements. in hong kong, carrie lam declared the controversial extradition bill said but left herself -- dead, but left herself some breathing room. opponents are skeptical, one lawmaker calling her actions too little, too late, and too fake. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. francine: staying with the latest from hong kong, joining caringly. -- caringly. -- karen lee.

protesters saying they will continue to protest. karen: the thing to remember from today is that while she came out with her strongest language to date saying the bill was dead, she did not formally withdraw it or provide any legal framework. this has been the main demand of protesters and this is the thing that triggered the protests. without that formal withdrawal, protests will continue throughout the summer. protesters will continue to call what they call large-scale rallies, including one close to the chinese border. i do not think we will see any slow down in the protests. francine: how much do protests threaten economic development? karen: what they threaten moche -- most is china's concern that

too much democracy could lead to unrest. hong kong'smpact special trading status what the u.s. protesterstinues and in the opposition continue to be in a standoff, that could affect hong kong down the road. in what ways, we do not know. tom: karen, thank you so much. continuing coverage from china. with us are lindsey bell and mickey levy. you were just squirming watching the video from hong kong. how detached is hong kong from beijing when we bring in the united states and the western world with trade? mickey: that is a great question and i don't think it is detached. when we think about the u.s.-china negotiations, it takes on many dimensions and

china's economy is slowing. at desperately needs to keep trade channels open with the u.s. and the u.s. needs to keep trade channels open with china and the world, but there are diplomatic issues vis-a-vis social problems in china. the economy is not responding to stimulus. you have china and that south china sea. proactively we do to jumpstart an agreement, given the realities president xi faces? the easiest way to achieve some kind of agreement or an agreement to agree, is to address the simple trade issues and leave separately some of the much more issues ofand thorny intellectual property and investment costs. francine: even on the trade issue, i love that you think

that is simple. how does it get resolved on the simple trade issues? it can be resolved because both parties need to keep trade channels open. there are clear points where they agree, so what you do when you go into a negotiating room, instead of talking about the negatives you say, let's build the base from where we agree and start from there. tom: how does this fold into earnings? you have two negative numbers. it folds into the idea of goods and manufacturing american equities versus service sector american equities. do you bundle them together or do you have a partition analysis? lindsey: i don't have a specific partition analysis but we are worried about it because we are

starting to see major weakness and china's economy. data is in contraction territory in china and several other asian countries. the auto sector is under severe pressure, we tell sales are weak -- retail sales are weak. you see it leading into europe and germany, because there auto industry is very important. china's auto industry is very important to german manufacturing. german gdping expectations cut this year and they could come down further. it is bleeding into other countries and will come into the u.s. and u.s. earnings. francine: do you worry about the renminbi touching seven? what happens if it does? lindsey: china has been

manipulating their currency to offset tariffs and it is something we have to be aware of. the u.s. dollar impact sales of u.s. goods to other parts of the would so it is a worry we keep our eyes on. trump is against a strong dollar and will seek ways to offset that if possible. an interest rate cut would help bring the dollar down. tom: we don't want to do that right now. lindsey bell with us, mickey levy as well. there will be a vote today on president lagarde -- i love saying that -- president lagarde of the ecb but the number of ideas out there. i love how we did this wag -- flag. will there be less flexibility on a new greece? this is bloomberg. good morning.

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♪ "surveillance, we will give you an update on the challenges of deutsche bank. lacqua,e and francine we are thrilled to have mickey levy with us and also lindsey bell. single best chart, it is a levy chart, five-year, five-year forward in europe, which is massive disinflation in europe on its way to deflation. , ifold into your world believe it means lower nominal gdp and lower revenue growth. that is the new reality.

beeney: inflation has lacking very much so over the last 10 years and seems to be coming down in europe and the u.s. expectations are low and the question becomes, one does this become reality? the small business confidence came out this morning and small business owners are starting to get more nervous about the economy. you are seeing that in ceo sentiment as well and it is only a matter of time before that turns into reality and less capital spending. tom: jonathan ferro mentioned capital spending as well. a log chart. the gamut of disinflation is something to say the least and the second derivative is ugly. what does that signal? in 2012the fed set out

2% as its target. inflation has been below that, so the fed is concerned about this, but i have a question. tom: i ask the questions. you give the answers. mickey: i want to ask a question -- are you seeing any signs that 1.5% inflation rather than 2% is harming the economic performance? tom: are you seeing the emotion of disinflation in the u.s., outright deflation in other countries, is it going into consumer consumption? lindsey: that is what this helping the consumer remain strong and their confidence has remained strong, although it is starting to wane. i do not think this low inflationary environment has harmed economic growth yet. when you compare it to fed funds

markets aredit still being very accommodative. it begs the question, do we need that rate cut in july? francine: let me go back to your question, if the mandate is inflation -- at least in europe it is inflation -- unless we change the mandate that is what they are targeting. mickey: i want to make the simple point that 2%, there is nothing magic about it. it was an arbitrarily picked number. in europe, the critical point to make his it faces a whole host of economic problems, but a lot of them are homegrown. as we have discussed so far this morning, trade problems where haspe, particularly germany more trade exposure than the u.s., faces brexit issues and

uncertainties and italy and greece. these have nothing to do with monetary policy and are beyond the scope of the ecb. ,ven though the ecb knows that it knows at is the financial backstop. the ecb is a very awkward situation. for the u.s., it is important to point out we are in an industrial slump that has happened before. the fundamentals underlying the consumer and housing our firm. the fed is forecasting economic 2%,th of about 2%, 1.9% or in-line with its estimate of potential. inflation is a touch low. why not say, we achieved our dual mandate? why all the extreme angst? levy cann't think dr. never come on again because he keeps asking us questions

instead of giving us answers. francine: maybe he should answer some of the things he is asking. bubbles created by what we were just talking about? lindsey: the one bubble i see that worries me is the amount of debt in small-cap companies. the leverage we see now is i think two to three times higher than it was going into the financial crisis. when we look at the large-cap companies, their leverage has come down and they are more healthy going into the financial crisis than we once saw. francine: thank you both, lindsey bell and mickey levy. deutsche's dwindles, a sweeping turned around gets a touch turn around gets a thumbs down from investors. a total of 7% lower.

this is bloomberg. ♪

♪ this is bloomberg

"surveillance." shares of the philippines largest budget carrier plunging losing $415 million in market value after a local broker made a trading error, the stock falling 38%. the airline expects the stock to recover tomorrow. piper jaffray is reportedly close to a deal to buy sandler 484 million dollars -- 485 million dollars in cash and stock. airlines ofrning potential problems with older versions of this some book -- superjumbo a380 and are instructing carriers to look for cracks in the wings. in february, airbus said it would quit making the a380.

that is the bloomberg business flash. tom: i want to mention on sandler o'neill, thrilled to see jimmy done and his team. their courage on september 11 was extraordinary. chart to show the one global wall street needs to know about deutsche bank. how much has been written in the db, five years on dbk, savings. i am doing this with alison williams and i dove this the dimon-gorman savings chart. in equities, jp morgan better over the last few years. morgan stanley, better over the last four years. suissein wreck of credit and deutsche bank. congratulations on a

phenomenal chart showing the lead for american banks. how do they prosper given the new deutsche bank? alison: banks have had a lot of share games -- gains and given the deutsche's changes, there is more opportunity in equities and fixed. our key worry is potential knock on effect to their core businesses. investment banking is a business that has been very strong. tom: on a type one, type two basis for deutsche bank, we are sitting with a ceo and a cfo, is jp morgan going to take existing business or will they be taking a losing business for deutsche bank where deutsche bank is seeing a subsumed business and even that the margin americans take it? alison: they will be selling the gas that are too leaves behind

-- gaps deutsche bank leaves behind. i think they will whittle down there equities effort. they made a big announcement about exiting global equities but they will make a target out effort to make sure they can compete and other businesses. well that assure them to be competitive in adjacent businesses? francine: one does that get answered, given the amount of the cut in equities? alison: we will have a better sense over the next couple of weeks. what we have seen in terms of cuts, we will get a better idea in the next couple of weeks through their earnings call, in terms of what the equity effort looks like that is still standing. i think one of the points, a chart we showed earlier, there is a lot of talk about the share gains, u.s. versus europe, but

when you look at the specific chart, it shows you there has been a concentration of shares. in fican gaining ian -- and equities. fic. less so in equities. deutsche bank and credit suisse through the changes of the past few years have fueled those gains. francine: how much do we know about the correlation between tech spending and revenue? alison: that is what we referred to as the virtuous cycle for the u.s. banks. if you look at the absolute numbers, the dollars spent by u.s. banks significantly outweighs their peers. run the bank versus invest in the bank, the u.s. is spending more.

if you think about a digital battleground for global banks and financials worldwide, it is being fought on a tech landscape . money doesn't necessarily equal an advantage, but it helps. tom: sell side getting a lot of opinions. what is the by signed opinion? side opinion? alison: we can only guess. tom: you are here. it is tv. we guess. alison: investors i have spoken to, the businesses they are emphasizing are the businesses they wanted to emphasize as a result of the transaction backing and revenue. my guess is for new holders to come in, he will perhaps have to see more evidence to get them interested -- you will perhaps have to see more evidence to get them interested.

they have perhaps made the best -- thatecisions, but was another question on the call. whichpital to bottom out, is not expected until 2020, that might be needed to get investors more interested. extraordinary, the forecast out to 2022. an extraordinary chart, i will try to get that out on social. a focus in london on a weaker pound sterling. this is bloomberg. ♪

y95óóo alix: dovish central bank slide. european sovereign debt turns

negative, the ecb returning to is thehile jay powell opening act at a boston fed conference. basf, the latest trade war victim. the chemical maker cut due to trade conflict. deutsche bank's execution risk. meetssink as wall street skepticism and doubt about its profitability goals. welcome to "bloomberg daybreak" on this tuesday, july 9. david westin is off. the white house, things aren't going as smoothly as downing street in london. --sident trump firing back the dinner included the memos,nt and -- in the they called the presi