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What are the parts of a dissertation pasco capstone summer institute for money awwal number movie review [Music] bed shake up Gary Cohen is said to be the frontrunner to replace Yellen next year as the Fed chair gets ready to face Congress proceed with caution UK unemployment hitting a 42-year low but wage growth is weak vo is Ben Broadbent says he isn't ready to raise rates and VC drama political uncertainty is back Donald Trump jr. and Russia stand-up spotlight as PEMCO warns the controversy could dim u.s. economic outlook welcome to bloomberg daybreak on this Wednesday July 12 I'm David Westin right here with Alex Steele Jonathan Farrow is off today Alex here's where we stand in the markets it's about two and a half hours until the cash open here in the US the S&P futures relatively flat although on the highs of the session sterling getting a teeny bit of a boost it was lower earlier then we got the solid job numbers out of the UK you do some buying in a ten-year Treasury market that's very interesting because we get 20 billion dollars worth of supply later today so see how the market handles that as yields move lower by 1 basis point and crude getting a big relief rally here up by over one and a half percent AIA lowers its estimate for production here in the US next year but nonetheless it just feels like a calm before potential more storms David may be waiting for Yellen so time now for the morning brief and it is indeed a big day for the Federal Reserve at 8:30 this morning Eastern Time we're going to get prepared remarks from chair Yellen ahead of her much-anticipated semiannual monetary policy report so the House Financial Services Committee Yellen will appear in front of Congress at 10:00 a.m. to deliver those remarks and answer questions we'll be watching for any indications on how fast they will raise rates or when they will start reducing the Fed's balance sheet at 2 o'clock this afternoon chair Yellen Fed will release its beige book then at 2:15 in the afternoon we'll hear from Kansas City Fed president Esther George she speaks in Denver on the economic outlook and the balance sheet and with all the Fed news today the drama of the Trump family's relationship with Russia will continue to play out down in Washington last night Donald Trump jr. went on Fox News to explain why his meeting with a Russian lawyer in the 10th get negative information on Hillary Clinton's campaign was really no big deal I think it's a little bit kindig Ulis and overplayed and I think people are getting that I think the media has really done themselves a disservice by picking sides so flagrantly they've really driven people to actually have to think about it because it's just a tough game Trump jr. did say that he quote probably would have done things differently if you had it all to do over again joining us now is our chief Washington correspondent Kevin's really who's on Capitol Hill so was this a big deal or not Kevin well lawmakers here on Capitol Hill think it was a big deal David and in fact several Republicans that I spoke with yesterday including house freedom caucus chairman mark Metta suggested that Special Counsel Robert Muller should be looking into these emails as well as other conversations then there also have been increasing calls for Donald Trump jr. as well as Jared Kushner and Paul Manafort the campaign manager at the time to testify publicly now I spoke with the top Democrat on the Senate Intelligence Committee yesterday evening Senator Mark Warner a Democrat from Virginia to try to make some sense of all of this take a listen to what he told me I've never seen an example where an agent of a foreign government and no particular foreign government a foreign government that's an adversary who has been massively trying to interfere in our elections and that's when the consensus of the whole intelligence community has reached out in this way and then to have a campaign responded with any legitimate campaign official would know you don't take this kind of help from a foreign editor now file Federal Reserve chairwoman Janet Yellen will testify today we should also note that Christopher R a president Trump's nominee to replace now former FBI director James Comey will have his testimony before the Senate Judiciary Committee to be the FBI director at the same time and I'm hearing that he could face questions on the latest developments within the last 24 hours pertaining to these emails so Kevin this reaction of a Capitol Hill what about out of the White House what's the White House doing to handle the situation and particularly do we know what the president thinks about his son well two things first and foremost yesterday White House deputy press secretary Sarah Huckabee Sanders saying publicly that the sends his son saying that he is a quote unquote high quality person then the second point that I would raise is when you take a look at the president's Twitter account typically we've seen in the past the president go after the US intelligence community whether it's now former director Comey or others but in this case he is largely kept quiet in terms of tweeting about this controversy he did tweet just before Don jr. went on Sean Hannity show last night but aside from that we haven't seen much now it's 7:00 a.m. David you know since we've done this for several months who knows what will sweep this morning well we know you'll be there to cover so thanks very much appreciate it very much okay whether Donald Trump jr. thinks his Russian meeting was a big deal or not as we've just heard people on Capitol Hill are taking it seriously here's a sample of what we heard yesterday from both Republicans and from Democrats any legitimate campaign official would know you don't take this kind of help from a foreign adversary cannot allow foreign governments to reach out to anybody's campaigns they would like to help you that is a non-starter but first of all for Paul Manafort campaign manager to let that happen that's anything how to quit campaign manager that can let that happen I can assure you but I can't say this is interference in elections whether it be Russians or the Chinese or anybody else is inappropriate and so we've got to get to the bottom of that whatever the political fallout of the Trump jr. emails in meeting there's the underlying question of whether he broke any laws and to help us sort out the law we're joined by a man who was himself an independent counsel charged with investigating President Bill Clinton as part of the Whitewater investigation earlier he had served as a federal prosecutor and today he's a partner in the law firm of Thompson and night Robert ray is with us now on the set welcome to the program thanks so answer the question about if there were a law broken here what would it have been a little hard to figure that out at the moment although there has at least with regard to the meeting itself it raises as others have mentioned the specter of whether or not you could consider what was being offered a form of an in-kind campaign contribution from a prohibited source ie a foreign national it should be clear as I said there's a criminal statute that makes it a crime foreign national to contribute to a u.s. campaign political campaign correct and it's a felony so it's serious and do we know does the law tell us whether information is was the cash can be something of value this contribution well technically the answer is that yes it's not limited to cash so therefore it would contemplate that it could also be an in-kind contribution however generally speaking prosecutors have been careful and reluctant to prosecute cases based upon what this sort of thing information because generally speaking it's limited to the types of encamp in-kind campaign contributions that would be deemed to be cash equivalents for example if somebody offered you office you're a candidate for office somebody offers you office space that would be a prohibited campaign contribution no different really than cash why because it's a cash equivalent you can figure out what the fair market value is of the square footage of office space and say to yourself well wait a second if foreign national can't contribute a bundle of cash a foreign national also can't contribute free office space that would be a prohibited campaign contribution right so in this instance Donald Trump jr. says and we have no reason to believe otherwise that in fact he did not get value of information that you took the meeting had the meeting she showed up she didn't give me anything does that take care of it from a prosecutor's point of view does that answer the question well it doesn't completely take care of it obviously if things had followed through and you know again part of the investigation which you would expect Bob Moore to investigate is to look for evidence of collusion not limited to just simply this meeting but whether there was any follow-up and it raises the question about whether or not possibly other violations of law may have occurred more significantly if this conduct contended and there was further contact by Russian nationals with the campaign through the election and into the transition obviously you have more significant questions that arise relative to collusion ie if there were promises made by the transition about what the administration would do once it took office in exchange for certain information that would present obviously a very serious question under as people have mentioned the Logan Act which prohibits foreign policy conducted by someone other than the current administration of the current president United State Robert if you're a market participant and you don't know anything about the law necessarily right and you're making bets um what's going to happen in Washington what's like the one headline we need to watch for well I think you have to begin to think about whether it is true as Donald Trump jr. contends that this was it and this was the full extent of his contact with Russian officials or people who have contacts or acting on behalf of Russian officials I think you want to particularly focus on whether or not any of this sort of activity continued on to a more significant period of time which is the period after the president-elect was elected that would present I think a more serious question this one yes you could draw out technically a case where the solicitation itself is a violation of law doesn't require a completed acts but I think it's probably fairly certain at this point on the assumption that there's not more that no responsible prosecutor would bring a case under those circumstances so I don't think Donald Trump jr. is in legal jeopardy honestly it obviously represents a political problem and he understands himself that it represents a political problem or II wouldn't have said what he said already which is you know in retrospect that the benefit of hindsight perhaps I would have done something differently so finally just give us a moment on process presumably Bob Muller will be taking a look at this there are reports that he will be looking into this sure if in fact there were more there or he decided to proceed how would it go would he go to a grand jury how does that happen what would be the next step people think about you know grand juries as being you know at the moment that there's anything there you go immediately to a grand jury and air all this out and sometimes you do I suspect the first call will be made to lawyers for the participants in the meeting to say that investigators want to talk with those individuals so that would include Paul manna for the president's son-in-law of the president's son there may or may not agree to speak voluntarily with FBI agents there may be some consideration given to whether or not to bring them before a grand jury the lawyers don't have to make a decision about whether their clients will assert the Fifth Amendment much of which you know obviously will happen behind closed stores and the public won't see much in the way of a manifestation of what's actually going on that ultimately decisions are made by prosecutors in this case Bob Muller about whether or not anyone should be charged but remember the charging decision isn't about technically drawing out a case a responsible prosecutor doesn't bring a charge unless a prosecutor fully believes not that a grand jury would return an indictment but that you had a good-faith basis to believe that a case that should be prosecuted is prosecuted and that you expect to be able to prove beyond a reasonable doubt to a jury unanimously that the person is guilty of a crime remember we're talking about a federal felony here so though you know you don't you don't talk about that idly I know a lot of people you know in the fashion right now / yeah well there's a crime that was committed we're going to just run off of the grand jury and bring a case or that these are treasonable offenses and that you know goal the parade of horribles that's not you know how we conduct investigations that's not how Bob Muller will conduct this investigation and it will take some time and I'm going to happen tomorrow just the perspective we needed than any thanks it was really terrific former whitewater independent counsel Robert Ray Alex we just in breaking news regarding oil so OPEC coming out and saying that demand for their crude in 2018 is going to be below what they're producing and also lower than 2017 net net OPEC still pumping too much interestingly enough oil really doesn't go anywhere on that news still up by over one percent on the day watching that headline as we head into the open well come out fill Gavin former FBI assistant director will be joining us plus Republican congressman French Hill House Financial Services Committee member one of the members will be asking Fed chair Janet Yellen questions today live from New York and Washington this is Bloomberg [Music] you Marcus care about political risk again here's how the Russia headlines played out yesterday stock dip trading volume spiked when news broke then it recovered after Lyle Brainerd was speaking but the controversy over Russia was enough for PIMCO cio dan i've extend to raise the red flag on his economic outlook he said we're becoming a bit more cautious about the possibility of meaningful legislation these types of distractions are just going to make it even more difficult to gain consensus well joining us now Neil Dwayne Allianz Global Investors global strategist and Josh Fineman joy - asset chief economist guys great to see you thanks for being here good morning good to be here Josh do you agree are we starting to see a dimmer a US economic outlook because of this well I was always a little skeptical about some of the more grandiose expectations that were being bandied about particularly in the immediate aftermath of the election but having said that I don't think we should you know throw in the towel completely I think there is still a better than even chance that we get something on the tax reform side before the end of the year but again I don't think it's going to be revolutionary I don't think it's going to move the needle all that much what I'm trying to get a handle on Neil is what are the headlines that market participants care about well I think just to pick up on on where we started we've actually felt the last two or three months that the headline narrative of a global synchronized economic period we think that's over and has been over for some time the u.s. is stalling and without any stimulus from anything that trump can put together through to the Washington swamp we think the u.s. is going to remain dull at best the UK is clearly now headed for a recession Japan is going nowhere so we think this sort of general rising tide that has supported risk assets for the last 12 months we think that's over and certainly bagina looking to be stable ahead of the party congress in november we can't see anything coming from significant coming from there either so we think it's as good as it gets economically at the moment so Josh clearly the equity market risk asset uses term have been really Boyd I mean they really have done extremely well what assumptions are there underlying if any about what goes on in Washington and those equity valuation I think there is an element in there that they've been anticipating some come out of Washington something at least a corporate tax cut something tax reform II I think they have been scaling that back a little bit I don't think they've jettisoned it completely and I think that's right I think there is still as I said you know a better than even chance that something gets done simply because I think the Republicans will look at it and say hey if we don't get anything done this year at all that's going to be tough to take back to the voters in 18 so I think that will concentrate minds and get something done but it's going to be you know very pared back not revolutionary you know it seems like your college regardless of what happens out of DC so is it a buy Treasuries search for yield story - I mean how do you position for a turn that many are sort of positioned against well I think I mean the the way we would look at it is the clients who are nervous of the headlines the Russian you know event that the threats around because some companies policies we think the hunt for income is the safer way to play so whether that's your own US high-yield market or maybe move and take a bit more risk in Asian or emerging market debt we think the markets have been quite consistent that that's where there are some returns I think for equity investors as I said the last time I was on it we think the values just outside the US you know just historically the US market is now expensive it's done well it's rightly done well the Fed fix the banks the economy's done a lot better than elsewhere so we just think you should be looking at either Europe or or Asia as a relative value trade if nothing else sure but you make the argument that the global synchronized recovery is kind of rolling over that was one of the reasons why many investors wanted to buy you're in the first place aside from valuation so how do you factor that in fact in that basically Europe has is about five years behind the u.s. in terms of this economic cycle has taken them so long to fix the eurozone banks and to get some policy traction with the ECB that I would I'll give you US and UK a very late cycle and Europe is mid cycle so in theory it can continue to travel on in a very European trundling type of fashion GDP of two percent or something whereas I think the u.s. is now staring into is the recession in 18 or 19 or 20 but we know it's coming because this is been the weakest and longest economic expansion we've we've seen in the last hundred years Neil do any of allianz global and Josh Hyman of Deutsche asset and wealth management will both be staying the trundle work they make trundle work it like 7:20 in the morning SS presents no question about it okay coming up it's day one of Fed chair Yellen semiannual monetary policy report to Congress will be joined by Matthew Hornbacher's Morgan Stanley head of global interest rate strategy live from New York this year's Bloomberg [Music] it was a birthday great time Alex feel a little softer an amputee market up but only slightly you're also taking a look at Euro stocks rebounding off of the lowest level since April in the other asset classes though I was watching sterling did get a bit earlier on some better employment data although real wages was still weak but now we're off the highs of the session I wanted to highlight euro pound as well I did have a big break here hit the highest of the year now a little bit off those levels as well watch yield here in the US as we get here with a lot of supply and oil my fav up by almost one-and-a-half percent even though OPEC keeps pumping I don't know if doesn't make any sense to me Emma help me with Bloomberg business flash thanks Alex let's get you caught up with those headlines the Bank of Canada makes this latest interest rate decision today an economist said Canada will likely be the first group of seven countries to join the u.s. in raising rates an increase would be the first by the Bank of Canada since 2010 investors are watching closely should it be a sign of tighter monetary policy globally the European Union's chief grexit negotiators set up tough conditions for Britain before the two sides and start looking as a future relationship we have reached 9 EU positions papers so far the different issues and the new positions are clear we now need to know the UK's position on each of these issues in order to make progress Pommier said Britain needs to make sufficient progress on citizens rights payment of the exit bill and Irish border issues before trade talks can begin and sales at Burberry topped estimates calm sales were up 4% ahead of projections of 2.5 percent Burberry said its results were boosted by strength in mainland China the UK LED gains in Europe while the Americas remained weak the low single-digit decline and that's a Bloomberg business fash Alec thank you so much i'ma take a look at a pound still around the height of the session after reports show that employee unemployment in a UK fell to a 42-year low however you did see some kind of issues with real wages they did not rise because of inflation and Bangladeshi governor Ben broad Brent said he is not ready to support an increase in interest rates so so with us to break it down is bright Neil Dwayne allianz global investors and global strategist and Josh Hyman joy - Bank asset and wealth management chief economist Josh in the previous segment Neil said look it's pretty clear UK's headed for a recession do you agree I don't know that it's so clear I mean they're struggling growth is slow there's a lot of cloud of uncertainty about how the Briggs's situation is going to work that cloud is not going to lift anytime soon I don't know about recession but I think you know continued sluggish growth Josh why is it done so much better than most economists thought it would at this point because there are predictions they'd be in recession within two quarters yeah it's true I think there were some folks who thought the brig's that thing was just going to be you know the knife's edge or cliff and things were going to fall off but I think you know people are sort of getting on with their lives you know they know there's the break the thing is is it going to be a difficult negotiation we're not going to have clarity on that for a while I think it's inhibiting investment spending to a certain extent but I think people are also recognizing you know it's not the end of the world they're going to resolve this and you know it's still a cloud but it's not a disaster like we're a break that thing is now over after that as well you know unemployment I tend to wind up lagging GDP right so sure 42 year high headline looks awesome Oh headline looks awesome but what's your forecast well I suppose our forecast is probably in the next couple months as we go through the breakfast in negotiations you could see at the margin that unemployment will start to rise again simply because of the uncertainty that josh has been talking about but what I would say really the UK's done very well in the short term because the UK consumer has borrowed and spent savings rates in the UK have now collapsed to the lowest level possible and your headline yes there's now a wage squeeze you know inflation is rising because of the weakness of sterling Post brexit we think that will constrain the spending inside the UK they the UK consumers as financially illiterate as the US one if money's cheap they borrow and spend they have now borrowed and spent the Bank of England is worried about the amount of debt that's been put through the system in auto loans and all the other things that we've seen here in the US so I question everything's been pulled for in the UK that's why I'm more nervous that we see a slowdown even if we get that the government being more fiscally supportive I still don't think in the next 18 months it it it's a good good prognosis and one where Josh to the Hawks are dubs win in the next VOA meeting I don't think they're going to raise rates no I just don't think of this environment they will all right sir stuff all right Neil suena male on global investors and Josh Hyman of Deutsche Bank asset and wealth management thanks so much guys you're sticking with us up next we're going to talk the future of the Fed Gary Cohn as the head we'll discuss this is Bloomberg I'm David Westin well chair Janet Yellen of the Fed will be testifying the way up in Capitol Hill and now we're go to Kevin so really up on the hill with the man of the hour Kevin thanks David yes the men of the hour house financial services committee chairman jeb Hensarling all right we're just a couple of hours away from Fed chair Janet Yellen testimony what are you going to be asking her well I hope that we are on some type of track for policy normalization because keeping rates too low too long was a huge contributing factor to our last financial crisis I want to make sure it's not a contributing factor to the next so we've seen race creep upward I think that gives the Fed a little bit more room to operate with their open market operations I think this is a good thing but we also have a balance sheet that's huge the feds footprint and our economy is so huge and that's troublesome in the composition to have a lot of mortgage-backed securities it's very worrisome to have a Fed that intervenes selectively in particular credit markets as opposed to a more holistic macroeconomic impact on our economy so I want to ask her about what they are doing as far as winding down this balance sheet to get to a more normal policy rate and a more normal balance sheet mr. chairman this is something that you've pressed on for quite some time now in terms of trying to figure out a timeline for when this will all happen the Federal Reserve has signaled that it will be by the end of the year but how will you go about I guess pressing her for more of a concrete timeline and well I ask the questions and I hope she answers but you know quite seriously we need a monetary policy that is still less opaque than the one we have what we need is for the Federal Reserve to set out what it set out what is their policy what is the rules that they use what are the variables how do those variables react to each other because in some respects I mean I'm very happy to be being interviewed by you now but there shouldn't be so much hanging upon the words of the Fed Chairman she herself has said that she hopes the wind-down of the balance sheet essentially operates silently in the background I would say all of monetary policy needs to be operating silently in the background and that means people ought to be able to know what the Fed is going to do it shouldn't be that the entire financial sector of America has to hang on every word of chair Yellen but unfortunately they do and that's why these hearings are necessary because there's not enough known about the monetary policy path of the Fed also not a lot known about the future of Federal Reserve chairwoman Janet Yellen herself have you heard anything about her jobs future no heaven God listen that that's the president's call he's got a little while to make that call I think listen I have a lot of respect for chair Yellen we don't agree on every single issue but she's a very bright lady a very capable public servant but there's a lot of people who could serve well as is Fed chair House Financial Services Committee Chairman Jeff Hanson you know you have a meeting to get to so we'll let you get to it but thank you very much for coming on Bloomberg and we'll talk to you after the hearing great thank you back to you David thanks so much that was terrific to have him just before those hearings as we've been mentioning later this morning Fed chair Janet Yellen will begin her two days of testimony before Congress and specifically in front of Jeb hem join and whether it's asked explicitly as hearings or not one of the questions in the air is the one that Kevin's really just asked and that is whether she's going to be keeping her job when her term expires next February yesterday political reported that it looks increasingly likely the president Trump will name his National Economic Council director Gary Cohn to replace dr. Yellen recently we asked mr. Cohn about this possibility you'll have to talk to Janet Yellen about monetary policy that's her for her prerogative and she's an independent agency of the government you give you favor her staying in that role again we're not at a time where we're going to even be thinking about that her term runs in the next year and Janet Yellen is running the Federal Reserve right now would you want to what I want to get they can use it hey Gary would you want to do this would you I have a I have a great job running the NEC right now I get to come in and work in the White House every day it's a dream come true job working as advisor to the president I'm very happy that is Alex still cutting right to the core of the matter and it's in advance to pull held on Alex joining us now is Bloomberg intelligence chief US economist Carl Rekha Donna still with us is Neal Duane of Allianz Global Investors and Deutsche asset and wealth management Josh Lyman so we want to talk about monetary policy car but we have to talk about Gary Cohen and what's going on with Janet Yellen will this be asked explicitly or how will it affect if at all these hearings today it has been asked repeatedly in the post meeting press conferences and she has continually deferred her opinions on that matter this is probably her last humphrey-hawkins testimony as a Fed chair assuming her term ends in early February so what now is as good a time as ever to finally deliver her intentions whether she wants to stay on for another term or not how much were doing would a Gary Cohn make as a practical matter do we have any sense of that I think that you know president Trump has said he's a low interest rate guy just like Janet Yellen I think Cohn would be of a similar ilk trying to support the administration by keeping an accommodative stance of monetary policy Janet Yellen has taken a slight turn in a more hawkish direction as of late so I don't think there'd be a huge disruption cone may be a bigger dump in Yellen and then it's bigger job than Yellen okay interesting yeah oh no I'm thought that before um but talk about Doug's Lael Brainard speaking yesterday shocker right she was dubbed but here's what she said that I feel like got the markets attention that the neutral level of the Fed Funds rate is likely to remain close to zero in real terms over the medium term if that is the case we would not have much more additional work to do on moving to a neutral stance Carl how pervasive is that kind of opinion of the Fed well they're getting closer and closer to the neutral rate I'll tell you the quotation that I thought was most interesting oh yeah and that was a good rotation because she's suggesting neutral Fed Funds is not too far from where the Fed currently stands but also in the speech she said most prominently the exchange rate may be more sensitive to the passive short term rates than the balance sheet adjustment so the Fed is now pivoting towards balance sheet policy because they have the belief whether it's correct or not we'll see right this is all this is all uncharted territory that this would have less of an impact on the exchange rate right back two to three years ago when the dollar was dramatically appreciating it was a contingent led by governor Brainard that was convincing chair Yellen hold off on the on the path of policy normalization this is telling you watch the exchange rate if we have a big adjustment as the balance sheet program commences this could significantly change the feds intentions with respect to a policy normalization they could have to scale back the QE exit and they could also was significantly pull back on on the rate hikes if you have a big move in the currency that could push core inflation even lower still and really jeopardize what the Fed is doing in the earlier segment you said well how did the UK avoid recession post brexit major currency depreciation helps to support the economy we could have exactly the opposite if we have significant dollar appreciation on the balance sheet unwind anything about that well it's true but I don't know that we will you know actually one of the interesting things is that says raise raised four times and actually overall financial conditions equities the dollar credit spreads and all that having tightened it although they've actually you know remained quite you know supportive and and that's the market is anticipating the balance sheet is going to start to roll off so I don't think that's going to come as a surprise so I don't suspect that when that happens it necessarily people are going to wake up and you know suddenly the dollars going to kind of you know soar on that so you know to the point of we've got a lower neutral interest rate I think most people think that's true and that is one of the factors that will likely limit how high the you know the funds rate goes in the cycle but it's also true that we've had 100 basis points of tightening and anticipations of the balance sheet and it hasn't tightened financial kitchens at all so Neil I suspect that Janet yellen's goal in just go to the tune of hours or now is going to be not to make any news at all yes right but let's just what you can pay try exactly exactly let's just complete it they're executing at 10:00 a.m. if she were to make news despite her desire would it be by indicating more dovish nassif editor said we're going to hike we're gonna keep hiking basically that's where we're going that's where intent of that even when the inflation numbers softened a bit they said we're looking through those yeah how would the markets react if she today said well we're starting to have some second thoughts if that was to happen my guess would be the dollar would would we I think many people forget the dollars over owned we think on a fundamental basis the US dollars about 20% overvalued and so we think that a lot of people are looking maybe to move out of the dollar and I think the the money flows around the world have very much been governed by the ECB and the Bank of Japan quantitative easing and any sign of tapering and more natural interest rates in say Europe would stop the huge flows we've seen into in the u.s. us assets particularly treasure ISM the high-yield so I think that you know that the Fed policy is is one that we're interested I think you're absolutely right about the financial conditions we therefore think the market is quite complacent we think you can see more rate rises until the market gets the message that financial conditions are supposed to be tightening the last thing I would add with our political hats on is I think there's also a trade-off if you get Trump or more Trump you get more Yellin I think they will use his fiscal stimulus as a way of getting getting rates to more of the neutral level faster so again I think for a lot of us we're going to have to watch you know we're trump dependent as ever because we need to see the policy that he comes out with well the ramification over the last few weeks has been really interesting in the bond market take a look at a chart here you're seeing the amount of bonds and the Bloomberg Barclays aggregate index that have negative yields that's been falling it's now about 14% of the overall index Neil what kind of trade you put on to deal with that when it's not only the dollar it sounded a said it's also ECB what's the play well I would say it on a on a six month view you want to be short the bund it feels like anywhere in the u.s. now no it doesn't but I thought eyes again I think the u.s. is in a different different perspective different position there's no sign of ECB actually raising rates or or doing anything that isn't supported for the European economy the Fed is in a different different position and so I but I I would also argue tactically there's huge redemptions from the from the government bond markets in in July in Europe so it's very odd that we've seen this huge setback in the bond when in fact the government's aren't printing any any bonds so I would expect to see a bit of a rally in the bun but longer-term feels like we're going to see the long you know that the bun starts to head towards 1% korekado you've looked at these for many years now right what is the proper role of Congress as they have chaired and come before them I mean specifically is it appropriate for them to say you have a theory about what happens with wages depending on unemployment it doesn't seem to working out what's wrong with that and why aren't you following I think it's absolutely appropriate for them to be questioning chair Yellen not on these issues her obligation is to report back to Congress she'll be speaking on behalf of the committee so it's not necessarily her own personal views but in the interview with that Hensarling he said that Fed policy is opaque and we don't understand the path of the rules I disagree heartily with those assessments so the Fed is telling us what they're doing over the next three years what their intentions are they have very clear mandates of full employment and price stability so this is not an opaque Fed it's just not a Fed that happens to be ascribing to a Taylor rule or some type of modified Taylor rule and I think that's going to be a key component of chair yellen's remarks which are released at 8:30 before she starts speaking at 10:00 based on the monetary policy report which was released last Friday this is going to be a hearty defense of the Fed preserving and defending discretion and not simply hewing to some sort of automated policy response and part of the reason why some argue that you haven't seen that flattening in the last couple weeks in the curve is because of that because the front end is already baked in because if it has been so transparent Josh what do you think about going forward though if you have Quarles in the said if you get a cone are you beginning to see a rules-based Fed or as Carl pointed out still a dovish said well I don't think it's a question of rules verse dove I think its rules verse discretion and I think the Fed will I agree absolutely the Fed will you know go to the mat to defend the discretion for sure every cycle of different I have to have the human element of absolute and to say that there's uncertainty about fit well of course there's uncertainty about the economy and how it's going to evolve so you're never going to be able to remove that completely but the Fed has been incredibly transparent in telling us what they intend to do if the economy evolves in the way that they expect economy doesn't always cooperate but I don't think that's a lack of said transparency nobody likes a boss even if it's a everyone's discretion well okay many thanks the car working down of Bloomberg intelligence Neil Dwayne of Allianz Global Investors and Josh Hyman of Deutsche asset and wealth management will both be staying with us coming up as we've been talking about Fed chair Yellen kicks off day one of her semiannual monetary policy report to Congress we're going to be joined by Republican congressman French Hill House Financial Services Committee member one of the people who will be asking chair Yellen the questions and next we're going to head out the Sun Valley doesn't that look nice we're leaders in finance politics and Technology gara gather for the Allen and company annual conference for all of our viewers worldwide including those out in Sun Valley I know this is Bloomberg this is Bloomberg debrief I'm Emma Chandra here in the hewlett-packard enterprise green room coming up and later today Darko's Rocha here the Expedia CEO has a 2:30 p.m. Eastern Time [Music] this is Bloomberg I'm David Westin Allen company's annual gathering of media moguls is getting underway in Sun Valley Idaho and our colleague David Kerr is out there to mingle with the moguls we go to him now out in Sun Valley Idaho great to see you out there even in the sort of chilly cold dark so David tell us first of all who you seeing out there we want to at the bold-faced names but secondly what really are the themes that you expect to really be discussed at this conference yeah so you have a lot of people from media and Technology the citizens you know fundamentally a media and Technology conference it's grown it's growing bigger over the years and brought in more sectors and companies into into the mix but look we've had Mary Barra here of GM we've seen leaders in Silicon Valley come as well executives from small companies bigger companies the themes vary year by year there's always a big focus on political risk and foreign policy David Petraeus General David Petraeus is here ambassador Richard Haass at the Council on Foreign Relations there's a focus on AI this year a big focus on AI I talked with throwing a bovitz of magic leap he's here to talk about the future of AI a lot of people we talked to yesterday as they arrived at the lodge said that's going to be something that all kinds of companies are going to be interested in going forward in healthcare as you might imagine a big issue here they're big executives some big health insurers here the head of the Mayo Clinic they had the Cleveland Clinic Toby cosgrove is here and I took an opportunity yesterday I'd sit down with him to talk a bit about the GOP health care bill and the prospects for getting passage in the Senate here's what he had to say first of all I think the bill has to fail and I think it will fail in but and then I think we need to go back and address what the problems are interestingly David what dr. Cosgrove was saying is that there hasn't really been a conversation in Washington about policy it's been entirely driven by politics he's here to participate in a panel on the opioid crisis here in the US this is a place where deals or Hach deals are discussed but it's also an opportunity for executives across the spectrum of business to learn about other things and he's hoping to get more people interested in solving that opioid crisis here in the US so whether Washington is going to really fix the healthcare thing or not Washington really is a big player and a lot of these companies businesses when Donald Trump came to office it was in part on the promise of deregulation so the people out there see that coming hot what's their attitude to a regulation these days yeah I caught up with ken Langone yesterday's he arrived he said the president is doing what he said he'd do in doing it at the right pace I spoke with Michael Eisner formerly of Disney he said that later regulation is a good and a bad thing I talked to David zasloff they had two Discovery Communications he said that he sees the regulatory landscape the burden of regulation becoming lighter here's what he had to say about that the overall focus is it looks like there's a there's it's more likely to be lighter in the focus of how you handle antitrust and so I think overall there's less regulation it's more positive so I'm from so from that perspective I think it's likely to be a favorable environment for business here I was struck talking to people yesterday David that here five six months into this administration's tenure in Washington a lot of executives still saying they're taking a wait-and-see approach they're cheered by what they've seen but still there's a lot of uncertainty that exists so so finally David one of the things that every waiting for coming out of the Allen & Company conference is what big deals we announced I have to say a few years back my company cap cities got bought by Michael Eisner and Disney at Allen and company essentially so are there any deals kicking around out there yeah there's a lot of talk about content and who's going to be controlling content data dadlab among others talking about what the cable company the telecom companies the future are going to look like I was struck by what he had to say about the long term approach he's taken to content that let's hear what he had to say about that more and more you're going to see the big dish trying to make a determination did they meet can they get exclusive content from from program platforms or do they need to by CBS still very much front and center here at this conference les Moonves arrived yesterday we asked him if there was any interest in CVS buying lionsgate the film studio he said unequivocally no so we'll continue to watch here what looks like it may be shaping up here at Sun Valley David okay they always deny before they do it David in my experience okay thanks very much the Blue Ridge David Gura it was seeing you later in the program checking back in with you when you sit down with o'the CEO Tim Armstrong we used to think of as AOL bibs now it's o'the still with us is Neil Dwayne of Allianz Global Investors and Josh Hyman of Deutsche asset so Josh let's turn to you and talk about deals and and what were you are right now on mergers and acquisitions where the market is is this a particularly opportune time to put together some of these big deals well I mean financial conditions are good they're favorable right so from the macro perspective they are I don't get into the weeds in terms of the you know specific sectors you know or companies but I think the macro and financial environment is still love you know still okay what I find really interesting Neil is that yesterday when we had sort of the the Russia drama play out you would stock dip and then recover on fed comments we didn't see that happen with the dollar it dipped and it stayed low it's a little of today but has not yet recovered what does that mean that the driver of the dollar is well as I said I think I think a lot of the driving of the dollar is about the uncertainty around the politics but also the the fact that I think there are better stories emerging around the rest of the world and I feel very betrayed yes or I think it's a gross story outside the rest of the world and I just think that at the margin I think a lot of people own the dollar and now marginal flows are moving moving to more attractive asset classes to the M&A though I think the important thing is even when you go back to the bid for Unilever I think we're going to see a lot of US companies that have effectively been you know that their margins are at record highs they can borrow almost for free in the in the market I think they're going to look around the world for assets to buy because they've generally under invested in in their own businesses so I think you're going to look at the value trade the dollars strong the p/e ratios of the of the equity markets are high they can buy a lot of cheap assets so I would expect to see a lot of M&A come out of the u.s. into the rest of the world but are they cheap assets or evaluations you are so hive it is not as attractive go and buy things right well I think valuation in the u.s. are practically factor than they are in other parts of the world so I agree you know people may look to other parts of the world as a value or at least relative value okay good stuff guys great to see you thank you so much for joining us Neal Duane Allianz Global Investors global strategist and Josh Hyman Deutsche asset and wealth chief management chief economist thank you for joining us exciting day plan out here in the markets AP of a Bloomberg terminal check out TV go you can watch this online click on our charts and graphics interact with us directly just go to TV go on your terminal if you missed anything of the conversations that we've had you can go back click on it and re-watch this is Bloomberg you you SAT features marginally higher following the European stock tire here's where the movers that were paying attention to you to European oil stocks BP Shell hotel all slightly higher on the day you do have some API inventory numbers that came out yesterday that were positive with the do-e numbers at 10:30 today that could also be positive plus the EIA says they're revising their US shale outlooks down for 2018 potentially good for those European majors also Burberry that stock up over two percent here's a retail story that's actually not terrible you cue on Comm sales grew by 4% high single digits in Europe Middle East as well as Asia American sales though did decline ever so slightly but nonetheless and Morgan Stanley predicts a good quarter for leather goods so a retail story that's not bad that's my takeaway from Burberry and talking about retail you got Amazon Prime day sales set to be the biggest ever echo sales tripled from last year sales could reach two billion dollars that we had 21% increase year on year TV I gotta be honest though I was on it last night and there was like a gallon of Elmer's glue that you could buy on Amazon Prime to a group who needs to know what other way your two year olds would have a little riot with a gallon gallon of Elmer's glue what's going to do with that anyway well coming up Matt Hornbeck Morgan Stanley's head of global interest rate strategy will be joining us and Bill Gavin he's a former FBI assistant director much more coming up this is Bloomberg [Music] [Music] bed shake up Gary Cohen is said to be the frontrunner to replace Yellen next year as the Fed chair gets ready to face Congress proceed with caution you can employment hits a 42-year low but wage growth real wage growth is weak vo he's been Broadbent says he is not ready to raise rates NBC drama political uncertainty is back Donald Trump jr. and Russia stay in the spotlight as PIMCO warns the controversy could dim the US economic outlook welcome to Bloomberg daybreak on this Wednesday July 12th I'm David Westin sitting alongside Alex Steele Jonathan Farrow is off today Alex well here's where we stand half an hour before the testimony is released from the Fed SP future is pretty much flat on the day you have the pound the best-performing second best performing g10 currency against the dollar of 2/10 of 1% after you got that better UK data for employment as well as wages you do have some buying in the bond market which is interesting because you get twenty billion dollars a 10 year supply later on today so see how the market behaves as yields back down by about one basis point and I don't get this guy screwed up over 1% despite the fact that OPEC comes out and says we're still producing too much but go figure I say that's positioning not fundamentals but what do I know Navin yeah one goes down sooner or later must come up and it's gone down goodness knows so maybe that's it ok time now for your morning brief it's a big day today for the Federal Reserve at 8:30 this morning Eastern Time we're going to get for the prepared remarks from chair Yellen ahead of her much-anticipated semiannual monetary policy report to the House Financial Services Committee Yellen will appear in front of Congress at 10 a.m. to deliver those remarks and to answer questions we'll be watching for any indications on how fast they will raise rates or when they will start reducing the Fed's balance sheet at 2:00 p.m. this afternoon chair yellen's Fed will issue its beige book then at 2:15 in the afternoon we'll hear from Kansas City Fed president Esther George when she speaks in Denver on the economic outlook and the balance sheet but it's not only the Fed that we're going to be watching a DC today as we continue to see the legal and political aftermath of Donald Trump Jr's revelations about how he came to meet with that Russian lawyer in the middle of the campaign last night the president's son went on Fox News where he said it was really much ado about nothing I think it's a little bit ridiculous and overplayed and I think people are getting that I think the media has really done themselves a disservice by picking sides so flagrantly they've really driven people to actually have to think about it because it's just a tough game in the same interview Donald Trump jr. admitted that you might have done things a little differently if you had it all to do over again our chief Washington correspondent joins us now for a report on how big a deal this really is Kevin Sarah Lee is back with us so Kevin give us reactions from Capitol Hill but maybe even more important from the father of Donald Trump jr. the president United States well did the White House is standing by Donald Trump jr. even after the interview last night the president tweeted actually earlier this morning my son Donald did a good job last night he was open transparent and innocent this is the greatest witch hunt in political history dad so clearly the White House doubling down I'm hearing that they are about to try to flip the strip so to speak and push back against Democrats and the relationship between the previous Obama administration and Russia but there's no question that there are several questions not just something from Democrats but even Republicans there's this angst and there's this feeling of let's get to the bottom of this when will this drip drip drip of information finally stop and that's the frustration as they look to so to work on their policy agenda so Kevin this is playing out in all sorts of investigations up in the hill with the Senate Intelligence Committee Bob Miller's investigation things like that there's also some more immediate perhaps practical effects that could happen there is a bill right on sanctions increasing the sanctions against Russia that passed by the Senate how might this affect the dynamics on Capitol Hill for those sanctions yeah this is where we can get into the weeds the Senate nearly unanimously passed this legislation that's increasing in Russia sanctions now it's in limbo so to speak in the house the White House is trying to tweak it a bit not necessarily Democrats are accusing to get in line with Russia but the tweak of provisions that some folks in the energy sector have some issues with that said there is intense pressure David for the house to get some type of sanctions bill done and Chairman Ed Royce is someone who is working very carefully on this I spoke yesterday with house freedom caucus chairman Mark meadows about this he's in the the committee working on the sanctions bill take a listen to what he had to say about the timeline for sanction I think the frustration is is trying to make sure that we we target those sanctions and with the overwhelming vote that we saw in the Senate I think you'll see an overwhelming vote here on the house more in the coming days so a lot of pressure right now for the House of Representatives in the coming days according to chairman meadows to get something done okay Kevin's really up on Capitol Hill thank you so much as Kevin just suggested politicians from both sides of the aisle were quick to say how important they think the revelations about the president's son are here's a sample of what they had to say yesterday any legitimate campaign official would know you don't take this kind of help from a foreign adversary but we cannot allow foreign governments to reach out to anybody's campaigns they would like to help you that is a non-starter but first of all for poll man for campaign manager to let that happen that's an adequate campaign manager that can let that happen I can assure you but I can't say this is interference in elections whether it be Russians or the Chinese or anybody else is inappropriate and so we've got to get to the bottom of that and the markets reacted yesterday as well although they were bounded shortly after the underlying question is whether this is simply drama or whether any laws may actually have been broken and how we will learn the truth with us now as a man who has conducted many important criminal investigations during his career he is former FBI assistant director bill Gavin and he joins us today from Boston bill welcome back to the program good to have you here good morning David good to be here okay so put yourself back in your investigative role here and now in all likelihood this will probably not go to the FBI it will go to Bob Muller but the same idea given this information what do you do with it do you investigate it at all and if so how do you go about investigating it I think probably right now David will you stand depends upon where you're sit but I'm sure that the information is information that Bob Muller is going to have to do something with the whole problem is right now it just has a horrible optic of not reporting this to begin with it we can say that it was only a 15 minute meeting is what Donald Trump jr. is saying was only a 15 minute meeting and therefore he really didn't remember because it didn't go anyplace but the same token one would put a question mark up there and say if it didn't go anyplace but it was from a Russian attorney there's all kinds of questions it may be totally innocent who the heck knows he has released a lot of emails that are pertinent to the to the facts but it should all go over to blob malla so that he takes a careful look at it and see where it fits in to this whole investigation as you say bill as far as we know he didn't actually get any useful information from this meeting with the Russian lawyer but from your experience investigating things for the FBI how does it work when somebody doesn't actually follow through on doing something that may be criminal but has the intent of doing it or talk so there's even conspires to do something even though it doesn't come to fruition how do you investigate that well it all depends upon you know can you prove conspiracy and I think in this particular case there's a giant leap to go to reach the conspiracy side of things and with a actual violation of the law you really have to be careful there there are certain constrictions and there are certain things that have to be accomplished in order to show the violation occurred so this is this is amorphous it's a cloudy messy affair right now that doesn't sound good but it really has to be teased out to see what is in the in the details of the devil always resides and bill to go to another subject that's at least tangential relevant there's a confirmation hearing that starts this morning and Capitol Hill and to Christopher ray the man has been nominated to replace James Comey as the director of the FBI what will Congress be looking for what should they be looking for as they question mr. Ray I think based on what has happened with Jim Comey and the the conflict that existed between the president and the in the head of the FBI and he fired him what they're going to be looking for in Christopher Ray they want a moderate person who doesn't stand up in the spotlight who conducts the business of the greatest investigative organization of the world I'm a little bit biased in saying that but who conducts that business on a day to day basis and hopes that nobody really gets to know his name that well that's who that's what they're going to look for and what's his temperament in the past I'm sure they'll tee some of those things out as well what has he said about somebody who is eventually going to get into waterboarding at some darn thing like that but they're going to see what his his prosecutor temperament was because he was associate attorney general on the criminal side of the of the house for prosecutions in in the Department of Justice enemies initial returns out of Capitol Hill from congressmen senators have been favorable on his temperament and in his expertise his competence his professionalism but how does Congress reassure itself that he can be as independent as an FBI director needs to be given what happened with his predecessor I don't think there's any you can't ensure any of that I think that just by looking at the individual listen to his remarks seeing what his temperament is I I think that in any case all of these cases David you have to take a little bit of a chance on some of these things but I think with the Christopher Rea you're not going to take much of a chance I think he'll he'll be an individual who will assume the role of Director of the FBI and have the acceptance both outside with Congress in inside with the employees of the FBI as well bill thank you so very much that's Bill Gavin he's the former assistant director of the FBI coming to us from Boston now coming up Republican congressman French Hill he's a member of the House Financial Services Committee and he's gonna be questioning Fed chair Janet Yellen a short time from now live from New York and from Washington this is Bloomberg [Music] you this is bloomberg daybreak I'm Emma Chandra with your Bloomberg business flash OPEC is still pumping too much oil despite cutting output that's the assessment of the cartel itself the group says 2018 demand for its crude will fall below current production level oil prices have slumped into a bear market the concern that the production cuts OPEC implement at the beginning of this year aren't deep enough to clear a global glut and Twitter has a new chief financial officer his goldman sachs veteran ned beagle he's the second time the social media company has turned to an investment bank for an executive to help revive its fortunes CBO is due to start next month you'll succeed Anthony no tooth will remain chief operating officer and that simply big business / thank you so much Emma so mark is finally paying attention to political risk in DC here's how those Russia headlines unfolded on Tuesday US Cox did take a sharp leg lower following the session lows as trading volume spikes then recovered but that was thanks to the Fed safe havens also caught a bid you had 10-year Treasury yields moving lower the VIX shot up however you had equities recover but yields on the dollar did not well joining us for more is Matt Hornbeck Morgan Stanley head of global interest rate strategy and Cristie Mitchum Wells Fargo asset management CEO Cristie let's start with equities sure um what headlines do you decide to pay attention to and which ones do you not if you want to put a portfolio together yes so I mean I think the headlines around Trump you know they're probably a little bit more drama than they are real market impact and I think that's why you really saw equity markets take that sort of immediate dip down but then sort of gradually recover and I think what was really being priced in there is sort of a rotation to what really matters which is really today and yellen's testimony and then obviously towards the end of the week earnings so we're going to start kicking off really in earnest earnings season and I think that's where stock pickers are really going to put most of their energy and intellect over the course of the next several weeks what's usually know as a Neil Dwayne of Allianz was on earlier and he's went to the opposite view more negative you here's what he had to say the u.s. is now staring into is the recession in 18 or 19 or 20 but we know it's coming because this is thin the weakest and longer economic expansion we've we've seen in the last hundred years so basically arguing that the dip was actually more on a fundamental basis not necessarily on headlines Matt it seems like the dollar and yield would agree with that assessment what's your take well the reality is is that yields haven't really been moving all that much outside of a couple weeks over the you know since intra and so look I think what we're seeing here is that government bond yields settle into a nice range ahead of Yellen one of the things that I paid attention to yesterday outside of the Trump headlines was some quotes from Philadelphia Fed president Harker talking a little bit about how inflation may start to weigh on his mind as we move into the end of the year remember the Fed is still expected to hike rates in December and if inflation doesn't start moving back to their 2% target they're going to have a pretty healthy debate about that Christian I wonder whether there's a short term long term issue also with the headlines when it comes to the equity markets in this sense each you said this is just a hypothesis the news about Donald Trump jr. and Donald Trump reduced by 15% the likelihood of tax reform coming this year what kind of long-term effect might that have on equity markets apart from what happens just on a day to day trading basis yeah I guess my view would be that I don't think equity markets are actually pricing it a lot of tax reform out of the truck especially zero now I think it's pretty close to zero now I think what we escalate markets would like to see it's obviously some movement on the debt ceiling they'd also like to see basically an outline or a schematic of tax reform and at least tax reduction but I don't think there's a lot built into the equity markets which is again why I think the potential disruption of a reform initiative on the basis of the Donald Trump jr. news is probably not that significant for me so Matthew reconcile for me at least the difference is the equity markets that came right back but as we showed the graph the dollar didn't so what's going on the foreign exchange rate that is not doing reflecting the equity or vice-versa well again I think if you look at what the reaction of government bonds yesterday right we sort of initially rallied on the headlines we came back and then we ground back lower to towards lower yields look the government bond market is waiting for Yellen we've got about a fifty five percent probability in the price of the market today for the December hike and depending on what Yellen tells us today that is what is going to end up moving government bond markets by and large so we've had the move after sintra and now we're just waiting for the Fed to opine on what's going on so what is your forecast for a ten-year into the end of the year we have a ten-year just below two and a half percent you know that is a forecast I'm very comfortable with at this point it's below consensus but I think appropriately so so that means it's a risk for yield is still on Chrystie in your world yeah I I think so I mean I think the trade is still on but people are going to still look to equity markets to actually pick up because a week ago all of a sudden the question was is that trade off have we seen I'm rereading in the sovereign bond market that now makes you not want to go buy high yields and make you not want to go buy equities oh if what you're asking is do I think we're going to see a large-scale move out of high yield out of emerging markets I don't think so I mean I think the markets going to calm a bit and again our expectation very similar to yours is that we're kind of range bound you know as it as it with respect to race and also with respect to equities sorry typically Matt doesn't say what weird is where does it the bond market get its cue funds is it in Europe is it dragging isn't Yellin well for the past two weeks it certainly has been but I think looking forward most market participants I think generally understand what the ECB is about there's a little bit more question about how the Bank of England will approach things the Bank of Japan of course is way off in less field they're the only central bank that's really pushed back against the rise that we've seen in government bond yields and sintra so in look the Fed is obviously going to be important and if we don't get that hike at the end of the year not what we're expecting but if we don't get it that will have a pretty big impact on government bond markets as well so so question when you talk about equities how much of it is because money is cheap as opposed to people want to buy stuff there are two very different things one is this a supply issue one's a demand issue is the demand there globally or in the United States as opposed to just it's really easy to get you financing I mean I think this is a lot of supply issue right I mean I think people are willing to move into equities because they have nowhere else to go and I guess my point is I don't really see that changing but the central bank's pictures are supporting the equity well they are and that's why what is important to equity markets is how that trade actually gets unwound how does the Fed actually go about shrinking it and sheet how do we begin to see recalibration playing out with the ucv those things are really important and we'll be discussing that in just the next few moments good stuff Matt Hornbeck and Morgan Stanley and Christine Mitchum of Wells Fargo Asset Management both of you will be sticking with us and next we're going to talk the future of the Fed political reporting NEC director Gary Cohen is leading candidate to replace Janet Yellen it's been chair I asked him if he'd be willing to do the job I have a great job running the NEC right now I get to come in and work in the White House every day it's a dream come true job working as advisor to the president I'm very happy [Music] this is Bloomberg I'm David Westin which is about a little over an hour and a half from now chair Janet Yellen is going to be appearing before Congress to testify and one of the questions is going to be is she going to keep her job come February because there's a report in Politico now that maybe Gary cone is in line from the president to be nominated to replace Janet Yellen we talked to Gary cone about the possibility and my partner Alex Steele really pinned him down on the question of the moment you'll have to talk to Janet Yellen about monetary policy that's her for her prerogative and she's an independent agency of the government do you favor her staying in that role again we're not at a time where we're going to even be thinking about that her term runs in the next year and Janet Yellen is running the Federal Reserve right now would you want to what I want to get they can't you said hey Gary would you want to do this would you I have a I have a great job running the NEC right now I get to come in and work in the White House every day it's a dream come true job working as advisor to the president I'm very happy so there you have it for those who remember the Mike Wallace of today Alex Steel pinning it down the sensitive journalists issues okay Carly I have to say something here now with the latest on Janet Yellen Gary Cohen and perhaps as important how the Fed now is looking at rate hikes the balance sheet and exchange rates is bloomberg intelligence chief US economist Carl wicked Donna so Carl take us into that delicate question about exactly what's going to drive the strength of the dollar right so obviously the dollar has significant feedback mechanisms into the economy it's not just the export sector that's impacted its domestic production competing against the flood of cheap imports it's US workers competing against the cost of other foreign workers so what the dollar matters this was a key factor when QE was initially launched the dollar basically fell to a three decade low and trade weighted terms and each round of QE in fact the dollar was lower at the end of the round than it was at the start of the round so yesterday we heard from governor Brainard who was saying well the dollar is more sensitive to short in term short term interest rates than balance sheet policy so as we pivot the balance sheet policy maybe we can avoid some undue appreciation of the dollar I'm not so sure that that will be the case in fact normally short term straights are the main driver of the dollar but if we look at what's been happening recently we can affect see that longer-term yields have been a bigger determinant than short-term yield so there's what works in the long run and what works in theory and there's what works at the moment and I suspect that the Fed could be caught off guard based on governor Brainard's comments if we see a significantly stronger dollar once the balance sheet runoff commences right well and then let's look at that because we have a chart that kind of shows the two divergence so on the one hand you have a chart that shows a euro dollar and then the short-term differential that's two year right so here we use every year yield differential between us and German government securities versus the dollar euro exchange rate and it works reasonably well over the course of the last eight years or so but we can see this divergence on the far right hand side if we switch to the next chart which shows the difference in that 10-year yield differential look how tightly they're aligned right that's telling you if the Fed is running off the balance sheet potentially there could be a backup and yields now some of the recent backup has been driven by what's happening in Germany and that the Draghi taper tantrum if you will but if balance sheet runoff results in higher longer-term yields you'll see a stronger dollar as a result and that's a significant drag on financial conditions and on the broader economy so Matthew is this correlation of the ten year a coincidence or is there something underlying that's driving this well look I think the reality is that action on said balance sheet is inextricably linked with the rate policy itself remember the Fed said they're not going to start on the balance sheet until their rate normalization is well underway so there's a timing linkage there and I think that's primarily why we're seeing the long end of the curves dictate what's going on in currencies is because again before you get to the balance sheet you had to get another rate hike in you had another rate hike we do the balance sheet in September and the Fed will continue to hike rate so the two are linked very closely and of course that's meant Hornbeck of Morgan Stanley also Christine Mitchum of Wells Fargo Asset Management CEO here as well but met the it seems like conventional wisdom is that we're going to see the balance sheet discussion on why in September in the next hike in December if a Carl's talking about it's true and the balance sheet action is going to have a much more dramatic impact on yield in the dollar do we have to rethink the order that we're preparing for well from my perspective I think a lot of the balance sheet wind down that the Fed is about to embark on is already in the price of government securities you know usually when the Fed hikes interest rates the yield curve flattens but since the middle of last year what we haven't seen is the yield curve flatten we've seen the yield curve steep and up a lot and then it flattened back a lot but on net the yield curve is actually not flattened over the past three rate hikes and bear in mind the markets also pricing in half of the next one so in effect we've had three and a half rate hikes from the Fed and the yield curve has not flattened and financial conditions haven't actually tightened well I guess I would push back a little bit on that I know it's a popular narrative that financial conditions have been tightened at all but remember financial conditions affect more than just growth they also affect inflation and what we have not seen in the United States is inflation why haven't we seen inflation the dollars 20 percent stronger than it was three years ago and it's causing downward pressure on goods prices so of course they have financial conditions tightened or not because it is generally received wisdom they have not and Mathieu Singh maybe not so quickly well I mean I don't think financial conditions have tightened to the point that it's really impacting you know where we see equity markets going so I you know I hear what you're saying in terms of a little bit of tightening being seen in inflation numbers but I just don't think it's Deb sent it at this point but what about real rates as we've seen them sort of creep up 60 basis points it has been a move I mean at what point is that start to crimp yeah I'm not using I think that's a you know I think that's a very valid question I don't think we really know the answer and I think that's why it's so important that the Fed be so careful with this equation that we're talking about you know how do they think about shrinking the balance sheet how do they think about you know really giving the market really good cues and signals for where they're going to go rate wise haven't they done that well they're giving I mean juice we still don't get our jog in July is it left ember will they announce in July will they announcement September will the program start October and will they be able to stick to the program and if we see this moving the dollar the Fed is caught off guard and that means they rethink interest rate policy for sure and simply balance sheet well I think the commentary that we heard yesterday also created a little bit of sort of broom and uncertainty in the marketplace a little bit more dovish after what we would have thought looking at the minute alone there's a growing camp that's questioning whether the interest rate prescription is appropriate given the balance sheet runoff and remember this is uncharted territory so we can talk all we want about in theory what should happen what matters is what happens in actuality and it's a relative value trade as you highlighted if yields are higher on US 10-year securities or on the u.s. yield curve then there will be a global capital flow into the u.s. to chase that yield and that results in a stronger dollar but Matthew doesn't go to the essence of this rule versus discretion discussion with record monetary policy it's fine it's a lot of discretion but the more discretion you have the less predictability you have and the more rules you have the more predictability we want to know exactly how it's working for example maybe we want the Fed to say we're going to alternate interest rate hikes and balance Chevron's we're going to go back and forth on them so we know exactly we're going but that limits them it absolutely does and the funny thing is like I spend most of my time reading through Fed language parsing words trying to figure out the meaning of this and that I still can't figure out the Fed half the time right so it's you know the Fed is very transparent the messaging I think could probably be more obvious to people who spend most of their day looking at the Fed but the reality is is if they are bound to a rule that things are going to change pretty dramatically and any insight maybe in the next ten seconds we'll see kristymatt and Carl you guys are sticking with us we're just about a few seconds away from a Fed chair Janet yellen's testimony released at 8:30 here's where we stack up in the market it's pretty much flat across the board although the bias to the upside Michael McKee has Fed chair Janet Yellen testimony might break it down well you're going to have to wait until the Q&A really for any news Janet yellen's testimony just to over five pages about his bland as it could possibly be the economy is growing at a moderate pace so far this year she says picking up a little bit in the second quarter after a slow first quarter growth will continue to expand at a moderate pace in coming years she says creating more jobs in pushing inflation towards the feds 2% target inflation when it will rise in by how much is the one uncertainty for the Fed it is higher than it was at this time last year but lower than earlier this year speaking for her colleagues Yellen blames a few unusual reductions in certain categories of prices that will hold down the calculations of the annual rate until they drop out she doesn't elaborate but in the past she's blamed falling oil and cellphone prices so what does it all mean well more gradual in her words rate increases until the Fed gets to a rate that neither constricts nor expands the economy where's that she doesn't say but it's not far from where we are right now as for the balance sheet nothing new they expect to begin this year reducing the balance sheet on by adjusting their caps and they hope to reduce it not to an ultimate size that you can particularly tell but it will be smaller than it is now larger than it was at the beginning of the financial crisis fodder for discussion later there is a defense of the feds aversion to monetary policy rules she may get asked about that lots of rules she says the Fed consults but no one rule gives you the answer there is nothing on bank regulation or comings and goings from the Fed including her own status so bottom line is until the Q&A maybe there is no reason to adjust your trading positions on the Fed guy I gotta say Mike as your ingredient these people are laughing around the table and joking it's like it's like a cocktail party here in the morning car although you have some enzyme not laughing Alex I know I am but tell me two things that I beg to differ within the initial pass of the headlines here one she says FOMC does not intend to use balance sheet as policy this will have huge implications on policy so I think that maybe that headline is maybe parsing the issue of the balance sheet operating quietly in the background I'm not so sure it will be quietly in the background time will tell if they're as gradual as they hope to be and the other point is the Fed that continuing to emphasize this notion of just a few factors driving inflation lower we have no wage pressures in the economy or very little wage pressures yes the cell phone contract price war as a factor impacting inflation and yes drug prices are but if we look through the details of the inflation data it is not being run by just a couple of idiosyncratic factors as the feds been highlighting it you're seeing it across the board you see it in goods prices you're seeing some cooling or stabilization and rents and if you look through CPI services you see dis inflation in an array of category so the Fed is missing the boat here thinking that this is just a couple of factors now I don't think we're heading into deflation unless we have a significant appreciation of the dollar but I think that the Fed is going to reassess what's happening on the inflation front later the summer when they see it's not just a couple of factors and wage pressures still are not picking up I absolutely agree you know there are measures of inflation that are designed to deal with idiosyncratic one-off prints they're called trim means and they're called median measures if you look at the median measures that are coming out of the Dallas Fed if you look at the trim mean measures that are coming out of the Cleveland fed they are also going down and it's not just base effects so something else is going on here I wish the Fed would pay attention the Fed has missed its inflation mandate continually and it's going to ramp up the pace of hike that hiking well inflation is back so let's get to equities in Kristi how disappointed our equities that we're not seeing more inflation because traditionally companies alike so inflation yeah listen I think all else equal we'd like to see a little bit of inflation and I think I would agree it's concerning to think about the Fed actually missing this trade on inflation actually not putting enough emphasis on where the economy is from a lack of overheating perspective as I say that it seems like the markets are agreeing with all of you at this point you're seeing a futures jump up you're seeing yields coming lower the dollar coming lower on that if you were going to be a dovish theme that's how exactly I was playing out in the markets David exactly so many thanks to car working down at Bloomberg intelligence Matthew horn back of Morgan Stanley and Wells Fargo Asset Management's Christy mitchum will be staying with us we're joined now by one of the members of the House Financial Services Committee who will be asking chair Yellen questions about her testimony just under 90 minutes from he's representative French Hill he represents the second District of Arkansas in the House of Representatives and before coming to Congress he was actually chairman of the board of a bank in Little Rock Arkansas he comes to us today from Capitol Hill welcome to program mr. representative thank you for being here thanks David so we just heard a summary of what the prepared remarks of Janet Leland war and we're characterized by and large not entirely by largest being fairly banal fairly neutral you you've seen these I'm sure are you getting enough information from your point of view from oversight to understand what the Fed is doing well I think these are typical remarks submitted by Fed Chairman the real work is done in the committee and questions and answers as your panel described I'm very interested to hear from Janet Yellen this relationship between raising short-term rates and shrinking the balance sheet when she appeared before us before she said that she would not shrink the balance sheet until she got the short-term rate up a little bit more I think was the way she testified she didn't identify how much more to give herself more optionality and the level of short-term rates but since then governor Powell has outlined how the balance sheet will shrink over time so I think we ought to have discussion today between rate raising and the feds view on that and how they'll normalize the balance sheet and get it down as a percentage of our GDP so is it the appropriate role for you as you see as sitting in the house role is to really pin her down on what the timing will be on the balance sheet when will you get as specific as when are you going to start it well we'd like to know really the philosophy behind it we'd like to know the time frame governor Powell outlined basic a basic time frame but how is she going to go about it how did they set the ratio between reductions in the Treasury portfolio and reductions in the collateralized mortgage obligation this CMBS type NBS part of the portfolio so you know this is where I'm a big believer that the Fed should be only buying Treasuries so when you allocate assets at the Fed to other asset classes like mortgage-backed securities you're really doing credit allocation which is not a neutral territory for the Fed so I'd like to see the mix and then I'd like to hear her say will she limit the Fed in the future to a Treasuries only policy when it comes to open market operations as I say you served as the chair of a bank in Little Rock so you know banking as a representative are you more concerned about the rate and the level of interest rate increases or how they handle that balance sheet well for me it's we want to see where the market is on rates and see what their rules based the process is for raising rates but I think the big impact one of the biggest questions in economic policy today around the world is how are we going to reduce this very large fed balance sheet some 24% of GDP up from around 6% of GDP before the recession to me it's the biggest economic puzzle and the policymakers of the Fed have never faced this challenge before so I think Congress should perform its oversight operation in monitoring how that takes place and do you come into this misrepresent with a view about how they should be doing that a general philosophy of what you're doing in particular how it might affect the underlying economy right well first and foremost I think Chairman Bernanke lowered rates to zero during the crisis that's absolutely the right policy move for the Fed he put liquidity in the market they took a lot of extraordinary measures during the recession as a banker and a person engaged in the markets I did not support qe1 qe2 the qyz because I felt it was distorting the price mechanism in our economy and actually getting into credit allocation a role I don't believe the Fed should have okay many thanks to represent a French Hill of Arkansas best wishes thank you very much my feeling is mr. congressman Alex Pearson breaking news I think yeah here we're looking at a World Bank of Scotland here that stopped jumping in London trading here's the deal the bank is going to pay a five and a half billion dollar settlement to settle mortgage-backed security claims in the US they did hold provisions of about eight point three billion against those claims at the end of the first quarter the incremental charge about 196 million is going to be recorded in the second quarter so the cost is largely covered by what they set aside they will pay the AHSAA five and a half billion dollars of settled sigh relief stuck up in London trading all right coming up in the next hour so Walter BNP part of the US equity and derivative the strategist who is kissing the weeds we love that and coming up in Sun Valley Tim Armstrong Oh CEO and former AOL CEO this is Bloomberg [Music] you this is bloomberg daybreak I'm Emma Chandra and this is the hewlett-packard enterprise green room coming up in the next hour Tim Armstrong o'the CEO and former AOL see you that's at 9:00 a.m. Eastern [Music] now to your Bloomberg business flash OPEC is still pumping too much oil is quite cutting output that's the assessment of the cartel itself the group says 2018 demand for crude will fall below current production levels oil prices have slumped into a bear market I'm concerned that the production cuts OPEC implemented the beginning of this year aren't deep enough to clear a global blood uber is trying to ease investors concerns after a series of scandals that have hit the company on a conference call with investors uber executives that gross bookings increased more than 10 percent last quarter while losses continue to shrink ubers attorney also said a legal battle with alphabet over self-driving car technology could be settled before a scheduled court date in October and the European Union's chief brexit negotiator has set out some tough conditions for Britain before the two sides can start looking at a future relationship we asked published 9 EU positions papers so far and the different issues and the new positions are clear we now need to know the UK's position on each of these issues in order to make progress Pommier said Britain needs to make sufficient progress on citizens rights payments of the exit bill an Irish border issue ahead of any trade deal talks and let's go Bloomberg business / thank you so much em I mean you've got a lot of it's plate here okay the pan is high dresses and you did have unemployment in the UK falling to a 42-year low B got real wages really klimt crisp by inflation Bank of England deputy governor Ben Broadbent said he is not ready to support an interest rate increase so with us as Matt Hornbeck Morgan Stanley head of global interest rate strategy and Christie Mitchum Wells Fargo Asset Management CEO now how do you understand the BOE right now was a 5-3 decision and then all of a sudden now you have a little hawkish a little double shredder ik what's your base case well you know we don't think they're going to be moving anytime soon but you know the market is too obviously been caught a little bit off guard over the past month or so with the change in communications we now have a market that's pricing more tighter policy in the future and so from our perspective it's not the time to be betting on a Bank of England rate increase at this point in time Christine what about you how does your base case for investing in you can yeah I mean I think our base case would be exactly the same from a rate perspective and I think a lot of that sort of you know wiggle that you're getting from the BOE is a reflection of the fact that we really don't know exactly how brexit is going to take shape you know fascinating to see the news this morning saying that the ECB is going to take a harder line obviously may somewhat weakened by the coalition government which i think does give the ECB the up or hang in so I think there's just a lot of uncertainty in terms of how it's going to play out well let's talk about so the central banks and UK and how it leads over into Europe as well the premium between us keys and guns has really been narrowing right Matt what's the trade with that how much more can it narrow and how do you trade it well we like Treasuries you know the models that we're running and just our general outlook for rates into the end of the year suggests that you want to be looking to buy Treasuries at these levels they're attractive you know based on our forecasts the forwards are a little bit higher so we like Treasuries having said that the ECB is pulling back right we know the ECB is pulling back we expect them to announce the beginning of a tapering in September to start early next year the market is obviously buying into that story after the sintra ECB forum so look we don't like boons necessarily we much prefer Treasuries and that's how we're in telling investors to position themselves as a Christian when it comes to the UK specifically if the issue is really writing a check the EU to really make things go away how much is the GDP of the UK being affected by this uncertainty yes I mean we could write you should write a check that said just take this money and we'll get the money back on the GDP you know I mean I think that's unlikely you know in terms of how I think this is going to play out you know I think it's very interesting when we think about really the bifurcation here it's first divorce and then sort of negotiate you know what the playbook looks like going forward and I would say the playbook going forward probably has the biggest potential to impact the UK GDP and growth prospects you know across the European Union it's saying you've got the growth in across the channel you do and that's what I assume is driving your call wound that's that that's right we're seeing great growth data we think the ECB is gradually going to remove stimulus again they're not in a rush to the exit by any means but by those are the growth the ECB will feel more inclined to remove some of the stimulus absolutely similar to what we've been hearing from the Fed for the past couple of months we're also hearing similar tones with respect to inflation out of the ECB look as long as growth is above trend as long as the labor market continues to tighten eventually inflation will show up that's the bet that central bankers are making I hope they're right but it's a big risk to take well but the reflection trade in the US was going equities go along dollar in short Treasuries like kind of sort of pared out with the US equities are you convinced that that trade will play out in Europe and that well I think it has been playing out very effectively that way and if we look at excellent work not the US like why would that reflation trade play out across the pond well I would say because it really started from a very different place right so we had you know European you know economy's really stalled for quite some time for a long time the US was actually the leading growth so I do think we're in a little bit of a catch-up phase here and I think you've seen that in equity markets look at the you know returns in European equity markets so far this year relative to the US by peripheries in a word we like owning peripheral debt here that's what we've been recommending guys really great love to have you both of you of Christine Mishima Wells Fargo asset management Matt Hornbeck of Morgan Stanley and we have a Bloomberg terminal you can check out TV go watch this online click on our charts and graphics interact with us directly and if you want to actually get the question you can do so in the segment this is Bloomberg [Music] you this is Bloomberg I'm David Westin the CFPB has proposed a new regulation that would make sure consumers get to sue financial institutions in court and not be limited to private arbitration the regulation would apply to much of the nation affecting credit card transactions brokerage relationships a host of other business relationships some have estimated the potential costs the banks could run into the billions of dollars here to take us through the proposal and what it could mean is Jonas arrow one of the deans may be Dean of business journalism and a Bloomberg view contributor welcome to program great to have you Jeff I think for having me but I don't know about the Dean thing well okay if I say it has to be true right absolutely so Joe tell us about this regulation why are they doing this now well they're doing it now because regulations take a long time honestly and because the guy who runs the CFPB Richard Cordray the former democratic Ohio Attorney General is you know kind of on a mission and he is not going to be deterred by the comp administration even though they would love to get rid of them so we'll get to that in a second what it does very simply is it says banks anybody who's regulated by this agency cannot simply say our customers have to deal with us in private arbitration if they don't like if something goes wrong if they feel like they've gotten burned by by a banker or so on that they have the right to bring a class-action lawsuit and that is a big deal I don't think it's a giant I don't think it's billions and billions and billions but it's something like the Wells Fargo situation right you know a class-action lawsuit that that would have cost Wells Fargo a lot of money but it's nothing we'll throw back because the whole tendency in litigation has been to permit more arbitration I mean for 30 40 50 years it's to say you can have an alternative to court business really well throwback to the 1950s it's good for throwback to the 1980s I would say when when class-action suits really hit their height but in this particular case there was a lengthy series of stories in 2015 in the New York Times which I think may have triggered some of this that basically showed that most people because of the sums involved $1,500 $3,000 $4,000 they didn't arbitrate they just gave up and I think that may have spurred this and and although it is true that it's great to have an alternative to court I think what the agency is saying is you know you know the arbitration system is really basically crow Bank and the customer really doesn't have a good shot at it so take us to the politics here this is the the CFPB is Elizabeth Warren's baby right now she only likes things like this a lot absolutely much your favorite is regulation and the administration's come in without at least being dubious about the very existence of the CFPB absolutely true how does this play out in Washington right so you got to remember that this is an agency that was created out of dodd-frank and the whole thrust in Washington is the pair back it's not getting rid of much of dodd-frank in addition you have this guy running it Richard Cordray who Trump can't fire he he's in there for at least another year it's not a kind of agency where it's a five person you know Commission is one guy and he is just hell-bent on getting as much through as you can in the next year and he's not going to let them he's not going to resign or anything like that so we're going to have they're going to be congressional hearings about this it's kind of going to be a mess once this goes in because Republicans running Congress are really anti this agency in anti this world what about that statute that says you can pull back regulations at the end of an administration could they invoke that to just sort of cancel the regulation a can and they and they may well and I think you're going to have a big fight over that yes I that that administrative vehicle which really hadn't been used much for this administration has now become the go-to vehicle to pare back regulation so I would I think there's a really good bet that that could happen who's leading the charge over the hill I as always on financial matters jeb Hensarling the Republican from Texas who runs the House Financial Services Committee and it's about as anti cfpb as you can get well is there any possible backlash from constituents because you say this is everybody this is moms and pops this is out in the hinterlands of that $1,500 here $50 there is there a possibility that they actually get this reversed that they're gonna have to pay a price back with their constituent I think it depends on whether the Democrat can make a big deal out of this I mean I don't think this is on the radar of most consumers even most people who have bank accounts and if the Democrats could say here's another great example how the Trump administration is you know stepping on the little guy and you know once again doing the bidding of the big banks I think it could be but you know there's so much else going on you have to wonder if that would really be their time I don't think it's going on if they get to Paris okay thanks to Jonas there really great to get you on thank you very much we're view columnist Alex great stuff right well coming up a conversation with Tim Armstrong Oh CEO and former AOL CEO we're going to go live to Sun Valley Idaho for that is that live as the Sun really up or was still dark it is live the Sun is coming up in Idaho this is Bloomberg [Music] you [Music] bedchair shows her Jewish side Jenny Yellen is monitoring inflation the 10-year yield falls below its 50-day moving average all is Gary Cohen is said to be the frontrunner to replace her NBC drama political uncertainty is back Donald Trump jr. and Russia stay in the spotlight as PIMCO warns the controversy could dim US economic outlook and proceed with caution UK unemployment does hit a 42-year low but real wage growth is weak vo is Ben Broadbent says he is ready to raise rates soon welcome to Bloomberg daybreak on this Wednesday July 12 I'm David Westin here sitting alongside calyx Steele Jonathan Farrow is off today and will be headed to Sun Valley Idaho in just a few minutes and hear from a CEO and former AOL CEO Kim Armstrong in a Bloomberg exclusive interview but first we're less than 30 minutes away now from the open and Alex has a check of the markets out this is what it looks like when doves cry a little bit so you have S&P futures right around the highs of the session the dollar lower all turning lower after you had Fed chair Janet yellen's testimony released at 8:30 where it appeared to be a little bit more dovish than the market was expecting you do have vine coming into the bond market despite a ton of supply coming online yield back and down by about 6 basis points so significant buying happening there and as the dollar gets a little weaker crew gets another uptick you have now oil up by 2% there really interesting move when you take a look at that David when it will basically have a little bit more hawkish enos out of the market and the market reacts immediately so the Fed very relevant as we head into our testimony and QA at Tennessee really dramatically actually a little fun stuff all right now let's go over to Abigail Doolittle who is taking a look at some of the movers in the market abigail morning Alex well we do have the shares of PayPal holdings trading higher popping higher in the pre-market on the news that PayPal users will be able to use PayPal to purchase both iPhone apps and iPhone iTunes music using their PayPal account this is available in both Canada and Mexico currently spoon in the US but David Ritter a Bloomberg intelligence analyst he thinks that the pop is probably more psychological less likely to impact numbers all that much he thinks that Apple users probably or probably already have a card stored it is worth noting those shares are up more than 50 percent from the spin out of from eBay about two years ago not so bad creating lower in the pre-market harley-davidson is after goldman lowered its second quarter retail sales estimate citing channel check now this is a familiar theme back on June 23rd UBS echoed similar sentiments and before this drop the shares were already down 10% year today's with some bearish expectations there and then finally Fastenal shares of the industrial construction supply company higher on a better than expected quarter beating both top and bottom lines both of showed more than 10 percent year-over-year growth the big surprise here though gross margins coming in much better than expected out and B shares right now if they hold these games on pace for their best day since the election of last year pretty good alright great stuff thanks so much Abigale now for an update on was making headlines outside of the business world and michonne ruth here with first word news Emma thank you Alex the president's son Donald Trump jr. said he never told his father about the meeting he took last year for the person he was told with a Russian government lawyer with potentially damaging information on Hillary Clinton speaking on Fox News he attacked the media's handling of the story I think it's a little bit ridiculous and overplayed and I think people are getting that I think the media has really done themselves a disservice by picking sides so flagrantly they've really driven people to actually have to think about it because it's just a tough game this morning the president tweeted my son Donald Jr did a good job last night he was open transparent and innocent this is the greatest witch hunt in political history sad Senate Majority Leader Mitch McConnell says he's ready to reveal his latest bill repealing much of President Barack Obama's health care law another top Republican says the measure will likely keep a pair of tax hikes on wealthier Americans that Obamacare imposed to help finance expanded coverage McConnell says a new bill will be introduced tomorrow and he'll begin trying to muscle it through the Senate next week and RBF has agreed to pay five and a half billion dollars to settle claims regarding residential mortgage-backed securities in the u.s. RBS is one of seventeen financial institutions settling claims filed by the Federal Housing Finance Agency the conservator of Fannie Mae and Freddie Mac global needs 24 hours a day powered by more than 2,700 journalists and analysts in more than 120 countries I'm a match and release is Bloomberg David thanks so much Emma the Allen company conference known as the billionaire's conference is underway in Sun Valley Idaho over the years some pretty big deals have come together at Sun value and that's why where my colleague David gur is now with a very special guest David David thanks very much I'm here with the CEO of oath that's Tim Armstrong former CEO available now this hybrid of AOL and Yahoo assets great to have you with this video and our regular here let me ask you where things stand the deal has been finalized you've been traveling an awful lot what does it look like now where do you see it headed sure so first thanks for having us on again and good to see you out here Oh tha's you know 50 brands it has about a billion consumers month that use those properties it ranges from Yahoo to AOL to TechCrunch to HuffPost plus all of our ad systems we touch about a billion unique consumers every 24 hours with our video syndication business so it's a significantly sized internet mobile company that's global and something that we're excited about the deal closed a few weeks ago and we've been bringing kind of those assets together underneath the oath oath is a brand that fits underneath our portfolio so you can think of it as a b2b holding company for those consumer brands and really what we're focused on is three super simple things one is to build brands people love for their phones two is to build platforms other companies love so if you look at like the deal we did with the NFL or companies like a Procter & Gamble overall there's a lot of global companies that use our systems to help build brands and the third is to build a company that talent loves and we have a big advantage there because you know we have a billion consumers we have a limited size company from an employee standpoint so our employees can have a big impact so we feel good about where we're situated right now and now now it's miss our job to make it a great company and really for the future so that's what we're focused on right through all of those yahoo assets are you finding any diamonds in the rough I think a tumbler I think it's liquor are there things there are stamping you are now discovering as you go to old me yeah I think you know the first the first asset which I think you know Marissa did a really great job of is talent so I think there's a lot of talented people at Yahoo and the second thing is I think on some of those assets if you look at you know tumblr or flurry or even things that people really know about like Yahoo Finance or Yahoo Sports you know there's a lot of assets within those assets that we're really excited about overall so I think our teams are highly organized when the process I'm flying around globally to see all 12,000 team members in person but at the same time we have our executive team really honing the strategy down and one of things I'm excited about Sun Valley this week is to spend a lot of time with other CEOs and alow McAdams and Monte Walden from Verizon are here as well so you know I think we're going to spend a lot of time thinking about how do we innovate all the assets we have you know with partners and partnerships going to be important part of our future it's you're mixing and mingling here or there things you'd like to add to the company or their deficits that you see in the company now that you could add anyone to you know I think there's a few areas that we believe that where we have strengthened that we could be a lot stronger in the next couple years you know one is in video I think that as the world and the goes more and more mobile video you know we happen to have assets that will work well there the second piece is really in the advertising business you know the Google and Facebook have done an amazing job at Amazon's doing a good job in advertising you know but we have a differentiated approach and I think over the next year or two you'll see us come out with a whole bunch of products that will come out that will be differentiated in those spaces so I think those those two spaces are big and then the third is you know trusted content you know Bloomberg you guys do an unbelievable job of that we're big investors in content and I think what you hear the world saying right now is look we want high level of transparency trust so you look at assets like the Huffington Post or TechCrunch or some of the other things that we have they're great content assets you know we really want to build those out and then you lean all the way forward in content we of assets like riot studios which is one of the hottest a RvR companies on the planet and we put bigger and bigger investments into that studio capability so you know I don't know if you zoom back and look at 20/20 right now you have an industry that you know 73% of digital advertising is going to be mobile you know 80 90 percent of the traffic is going to be video on mobile so we've been kind of building our assets against that base and then we have super powerful human connections with people through our you know a great male products and communication products so we're we're in touch with consumers every single day and the trick for us is to turn those those touchpoint into a real you know business opportunity to those billion consumers and and you know that I think we have a clear plan and real focus team on it and we just we're going to make all the merger changes we've been making and get through those but you know I think people really want to play offense inside the company and that's that's good sign statute that regulation there's a lot of focus on net neutrality today in particular we've seen a lot of regulatory change in Washington what does that landscape look like to you from your vantage now yeah I think you know one is at a at a macro level for the industry I think there's a lot of energy around making net neutrality work overall I think when you zoom in to Verizon Verizon's put out you know william johnson put out a really clear statement at a company which basically said look we're verizon supports net neutrality it's been penciled in you know let Congress should pass real laws around it and cement it and I so I think that it's great there's a day of action you know that that's been organized and I think all of those things are really positive and you know the US government and the companies involved and consumers involved have a real chance to like really cement a net neutrality situation that people like and I think it'll go from kind of you know something that was sort of crafted quickly years ago into something that will hopefully give the you know country and our industry a big advantage if it's done correctly and you know I feel good about our stance on it and all of our brands have their own stances on it which I think everyone's leaning towards net neutrality so that that's the good news and now it's up to Congress and the government to really make sure that it gets cemented some great seeing it I'm the CEO of oats David back to you in New York our very own David Gura thanks so much David from Sun Valley Idaho coming up next the NP parva us equity and derivatives strategist Stewart were there he reacts to yesterday's moves and the political pressure being put on the markets live from New York this is Bloomberg [Music] welcome back to Bloomberg daybreak I'm Alex Steele the move this morning came from Fed chair Janet yellen's released testimony at 8:30 here's how S&P futures will end up reacting a jump higher as the Fed chair senator touch more dovish than the market had been expecting saying that the central bank is on alert about prices remaining below the central bank's 2% target in fact in her list of concerns about the Fed outlook the number one concern was inflation while joining us now is to why the BNP parva US equity and derivatives strategist so how do you wonder where are we in the central bank's bed dilemma are we more hawkish now are you more dovish is Janet Yellen testimony a game-changer here I think what it does mean for markets especially given the change in Treasury futures positioning from positive as in long duration of short duration in the last few weeks this essentially signals to the market that that is not interested in increasing the markets pricing of the Fed until we see some pick up an inflation so it really puts the onus on this Friday's CPI report puts the onus on PPI and Thursday and then also retail sales because we really have yet to see any type of inflation pick up however other economic data as we've seen economic surprise has ticked up in the last few months and I feel like a debate is starting to brew of whether you're like a raitis Taurus or a balance sheet unwind disk and sort of which is going to impact the market more which is going to impact the curve more and which is going to impact FX more where you stand so I think Brainard pointed this out and rosin greens also pointed this out in the past is that you know FX is most influenced by short end short end rates so from that perspective a change in the feds target rate is actually going to have potentially a more pronounced impact on FX and potentially more spill overs to other economies however if we look at the balance sheet that is probably going to have a larger impact on the price of equities as we've seen QE has had such an impact on the price of equities through the portfolio rebalancing mechanism so I think from from my perspective mechanism 915 ding-ding-ding-ding you know I I think from from the perspective of equity is really the balance sheet is the juggernaut that we have yet to fully be able to price and comprehend explain this to me I'm a little confused this morning on the one hand we hear that the markets really don't believe what Janet yellen's feds been telling them about particularly what's going on in 2018 how many hikes are going to be on the other hand Jen Yellen just says I'm a little bit concerned about inflation a little look at survival Asian and the markets react so understand do they believe it or not believe it because the markets really were discounting what she was having to say anyway about inflation then they shouldn't be reacting the you know I think this has been kind of throughout the history of the global sorry the post financial crisis period the mark is always under price was fed and insulated and the Fed usage exactly and so on this basis you know the real kind of concern I think that that is having is about inflation which is probably most likely to have an impact on their radar look as opposed to their balance sheet outlook and even Brainard who is very dovish on the scale of Devesh to talk ish yesterday said that you know she would like to see balance she normalization happening soon which would you know potentially keep July on the table but probably likely you know a reference towards September but did you read Lael Brainard is saying basically it's very different whether you raise rates or you relieve some of your balance sheets in fact we can do that without having nearly as much effect for example in the strength of the dollar and so it's almost like a free shot to take some of the balance sheet off but rates may be a different matter so I think there's something to do with a signaling effect and if you tell the market it's not a big deal hopefully it won't be a big deal especially because it really is an unprecedented territory no other major central bank has got undergone such a significant tapering after such a long period so they're setting up the market to not react however at the end of the day we'll see where that goes you know I think the key concern would be something like a taper tantrum although if you look at the ESPY overall the impact wasn't that great it was really on emerging market equities on some of the growth of your equities not necessarily you know the large cap stocks in the US so what is the level on the ten-year that gets the search for yield to unwind I would say anything over 250 you know it keeps going lower and lower and lower but really we've seen the market becoming increasingly reactive to these changes and it might not necessarily even be the level nominal expec nominal GDP expectations have declined over the last ten years you know on a on a four or ten year looking basis so it's not necessarily an absolute level at this point it's more of what's the next change in a number of basis points that's going to cause equities reacting I should point out yields dropping like a stone today the 10-year yield I now below that 50-day moving average is to two point three so definitely a fork right there from two and a half right Sir Walter of BNP paribas thanks so much you're going to be sticking with us Davis coming up later today on Bloomberg Markets Alexis Ohanian reddit chairman and co-founder live from New York this is Bloomberg [Music] you this is Bloomberg I'm David Westin well the drama that the family's relationship with Russia has become is continue to play out in Washington last night Donald Trump jr. went on Fox News to explain why he thought his meeting with the Russian lawyer and attempt to get negative information on Hillary Clinton's campaign was really in the end no big deal at the same time he did admit that he quote probably would have things done things differently if he had it all to do over again joining us now is chief Washington correspondent Kevin surly he's up on Capitol Hill so Kevin yesterday this was coming fast and furious take us through this morning are people more focused on Janet yellen's testimony up there and for that matter the confirmation area of mr. rakers for ray for FBI director or is there further development on this Donald Trump jr. story the Republicans have largely been quiet on the fallout in the aftermath following the Donald Trump jr. email release the White House is defending him but you haven't seen many Republicans speaking out forcefully in his favor with the exception of saying that they need to get to the bottom of this now the president has tweeted out since the last time we spoke an attack against Democrats regarding their relationship with the Russians but I spoke with Senator Mark Warner the top Democrat on the US Senate Intelligence Committee about the type of questions he would like Donald Trump jr. Paul Manafort and Jared Kushner to answer when and if they decide to publicly testify before his committee before their committee take a listen to what he had to say those questions are going to be why was he so excited to and why didn't he understand that having this kind of outreach from a Russian national who was acting it appeared on behalf of the Russian government to provide this kind of information to tear down Clinton and bring up his father I think anyone even if they were a rookie would realize that was inappropriate and I think the bottom line David is that while the White House is urging that Republicans move on Republicans on Capitol Hill are saying they're not criticizing Donald Trump jr. but they're saying they need to get to the bottom of this okay many thanks to Kevin strahle down in Capitol Hill so there was a lot of turmoil down in Washington a little bit of turmoil in the markets yesterday it was really interesting you to them the SP come down and then it wonderful recovering its losses do the Fed but the 10-year yield and the dollar just kind of kept getting pummeled after Walter BNP part of the US equity and derivatives strategist still with us how do you know which headlines to look at the commodity see so it's really hard to tell however what we tend to look at is the media market reaction and really what it means for the probability of tax reform and I think that's what the market was telling you yesterday so we had the headline at 11:10 a.m. regarding you know Russia etc S&P futures sold off dramatically came back a little bit but then it wasn't until McConnell announced that they would be breaking that recess for another two weeks that the market came back and it's funny with all the intraday volatility the market actually ended up unchanged on the day so zero of all when you're looking at close to close measure but what's really the key thing related to really the key market driver for equities related to these developments is the implications for tax reform so I think what's interesting is that what McConnell's released yesterday taught us is that the market believes ACA repeal is actually if that happens then tax reform now a number of other commentators have said actually this is an impediment to you know the odds of tax reform because it's actually just delaying the legislative agenda so I think that gave us a very interesting piece of information yesterday so if we do get a vote on health care what the next week or so or something and it doesn't go through and then you have Senate can actually move on to tax reform or they'll say so is that risk positive where's that risk negative so at this point it's somewhat unclear and I think it's unclear because we don't really know what the nature of tax reform will be if it's revenue neutral then actually that's not necessarily a positive for the S&P if it is revenue neutral plus some type of repatriation well that's a rotation within equities to those companies with a high proportion of overseas cash so I I think we were of the assumption at some time earlier this year and last year the market believed that tax reform is a positive for large-cap equities now it's a little less clear especially because the potential to actually induce more growth from a revenue-neutral reform is unlikely so in the meantime what's an investor to do I mean particularly for example an investor in healthcare stocks what do you do with all this going on and then more broadly as you say Lex with a large cap some people will really benefit from the tax cuts or reform what do you do what do you bake into your investment decisions well I think from the perspective of corporate boards this may actually be a net negative you know when we look back on this and this in the sense that it's very difficult to do you know both investment and financial planning from a corporate level if you don't know what your tax code will be and you may be the same or maybe dramatically different from the perspective of institutional investors I think it's interesting to you know take a long-term view but know that you know and in some ways markets suffer from a availability bias you can only really price what is right in front of you or what is somewhat obvious some of these things there's no way to price them so you just have to ignore them in the mean time so then when you take a look at intraday rotation when you have the intraday volatility what kind of sector rotations you see you know I think the key rotation has really been between financials between health care between also you know related to the Fed some of the more defensive sectors so what's interesting is that you know health care is there sorry Nasdaq overall so some of the growth your stocks health care tech for instance have exhibited very high volatility in recent weeks and that's actually kind of driven some of the volatility in S&P but as of last Friday it was actually the defensive names interesting all right Sir Walter a BMP part about you are sticking with us we're four minutes until they open here in the US you're seeing equity futures on the highs of the session as yields move lower dollar moves lower the Fed dubs are out this is Bloomberg [Music] this is bloomberg daybreak I'm Alec Steele just moments away from the opening bell here is where we're stacked up it's a Yellen induced rally the Dow Jones futures up by 98 points S&P futures up by almost half a point Nasdaq the best of the lot up by 42 points had a more cautious Janet Yellen in her testimony you could say highlighting inflation is number one risk saying that they will have to assess where it head that gets the market very excited piggle what's happening in the bond market as well as the dollar the dollar it will now flat on the day it had been moving lower but you are continuing to see buying coming into the bond market yields down by 5 basis points now so off of the lows of the session but nonetheless a big move lower in the bond market and crew kind of move into its own drum up by almost two and a half percent despite the fact that OPEC says own admission that it was producing more oil next year than it needs to let's see where stocks open now for trading abigail Doolittle has the latest Abigail hey Alex well the bolts are out on the open we have the dow S&P 500 in the Nasdaq all solidly higher up between four tenths of 1% and 3/4 of 1% the tech-heavy Nasdaq really leading the way this of course being induced by that - commentary from Fed chair Janet Yellen in fact been Emmons over intellectus Partners he says this risk on tone is also supported by other data such as credit expansion in China and all of this it's acting as a bit of a shield to that DC drama around Trump jr. celestia the day plays out helping these gains of course we do have some of the big oil companies trading higher ExxonMobil Chevron ConocoPhillips Phillips and slumber J all rallying this was the top sector for the S&P 500 yesterday today of course we have oil higher once again ahead of the inventories report on the year though this is one of the worst sectors when we hop into the Bloomberg and take a look at gee hashtag BTV tu-134 this is a year-to-date chart in blue we have oil down on paper its worst year since 2015 and the oil crash in white we have the S&P 500 energy sector earnings estimates we see that they're declining the sector is expected to earn 15.10 sentence the second quarter amazingly this is closer to 50 dollars just a few years ago the decline is really good story but check out that divergence between oil and earnings it's going to be interesting to see as the earnings season gets underway Alex which way that's all because everything has to do with oil and keep telling you guys thanks so much Abigail Sir Walter BNP paribas is joining us now as well as Stephen to Sanctus Jeffries a small and mid-cap equity strategist I just want to start with you because you're one of the firm that actually recently downgraded or to market weight from overweight in terms of energy stocks talk to us about the call yes oh you know what I think this is a very humbling business where you kind of learn everyday sort of where you go wrong and you get the scorecard here but the upgrade in early March was the fact that we had a lot of interest in energy and the sector was down double digits year-to-date at that point still like there was sentiment looked like our forecast of $60 on Brent 57 on WT I was going to be met and then obviously it shifted pretty dramatically and that sentiment has been really bad and I think it's just one of those things where you just go to the sidelines because it's a group that you does have quite a bit of volatility especially go down cap you're kind of dependent on global macro factors that don't go into the fundamentals you have the chart of the revision trend well that's not really driving it right it's all about sentiment and trying to figure out where people are lined up just gets a little bit more challenging and so I think was just a lot easier to go to the sidelines and so you know what I could do better in other groups yeah and the small and mid-cap would be getting hit even harder I mean in goldman sachs made a distinction that IG names investment grade names are still adding rigs Lyle to stop but the mom and pops have actually pulled back there is a peer rating to be made what kind of oil price do you feel like is still embedded in market expectations for energy names you know I you know again are we have a great energy team led by Jason gamo Jason recently had a no doubt talking about oil prices and the potential for you know a little bit more challenging to get to a target at the end of the year of 57 60 bucks depending on which one you're looking at and so I think you know again it's not necessarily oil as opposed to the centum in the group we continue to see outflows from ETFs we still see no one wants to step up and own end here it's such a small part of the small cap benchmark you make a good point on on high-yield if you have a little bit of a pick up of high yield spread widening out that's bad for the mom and pops because their balance you can't fill in correction motor getting thick and so you still have the downside risk therefore the smaller names time to perform the larger names nonetheless OPEC chief is still pan on the table he's still optimistic OPEC Secretary General Mohammad bartender spoke earlier to Bloomberg the fundamentals at the moment continue to show us that we are on the right course that we are on the path to achieving our objectives of drawing down stocks from these unsustainable high levels into the five year industry average Stewart do you buy it you know it's not for me to decide but I think if you look at dividend futures which is a key derivative instruments that we follow they have actually showed a slowdown in growth expectations so the market is not buying it and from that you know I look earlier in the year when oil was was rallying a bit the 2018 versus 2017 implied growth rate was more than 8% now it's back below seven so on that basis you know energy is a key contributor to the espys dividend over ten percent of the dividend is from just the energy sector even though it's only about 6% of market cap so if you look at dividends underperforming the SP broadly which they have in the last few months I think the markets telling you they don't buy it but we haven't had much of as volatility in equity markets if probably comes back really exactly so if also he comes back what is so likely it'll come actually out of energy out of oil now that's a good point I think there are two key kind of fulcrum assets for the SP one is the tech sector the other is energy now from the tech sector that I think that's really central bank driven but we can get into that later from energy you know at this at this point above $40 a barrel and WTI it's really both the direction and magnitude of the moves and energy that will potentially drive a spill over to the SP however I don't think it will become a systemic issue until we get you know break down maybe another three to five dollars a barrel so you pull back a bit think it's fair to say energy yeah is there a point at which you come back in you know what I've tried this for a number of years trying to and I've gotten burned each and every time that we've done that obviously you know we've got to start to think about also global demand and start talking about global GDP part of our story was around consumer driving more drivers picking up the economy is doing well consumer wants to spend to getting into cars or traveling more and so with them going to see it better to demand balance and we just haven't seen that kind of you know play out and again you look at the fundamentals and revision numbers are coming down you talk about balance sheets you know I just I think valuations and just because the stocks are going down doesn't necessarily mean that that's the time to step up and I kind of learned my lesson at this point I hope no Jeff riding out to small captain-general we've seen small caps rally over 5% in the second quarter our earnings going to live up to this kind of sentiment know in the small cap space earnings look to be down about one and a half percent so there's a big dichotomy between earnings growth between the larger companies and the smaller companies and a lot of that is actually driven and the fact that the larger cap companies have the global exposure and the global economy is doing better have really driven the multinationals and their earnings growth small cap being a little bit more domestically oriented has not gotten that bump up and so we've had a pretty big spread between earnings growth between large and small for the last three or four quarters and that's going to continue in the second quarter and that drives our concern on small cap versus large cap and small cap in general in question for you Stewart in broader sense we'll earnings matchup valuation so I think there's at least this quarter or something to do with a kind of narrowing of a spread that took place in q1 which was the sense that you know into what Stephen said earnings from abroad if you look at GDP earnings we're actually very strong but overall the actual S&P earnings did not match up with GDP earnings so if you look at corporate earnings from the GDP report those are very weak S&P was very strong this time around you see that expectations are coming down so roughly six and a half percent year-over-year for S&P and I think that if you look at valuations they're based off 2017 and 2018 numbers that are still too high at least when you're looking at the large gaps one of the things that I keep asking is the relationship between growth and the underlying economy GDP growth and earnings growth because at some point the money has to come from somewhere either the top line which is presumably overall growth of the economy or cutting costs there's a limit on which you can cut costs so if you're looking at projections for future earnings growth how much do you look at what the GDP is doing well you know I think our chief economist Paul moon really was actually on surveillance this morning you brought up a really interesting point in this one shameless plugs related to to earnings growth and this is actually part of the issue I think we're seeing between unemployment and inflation in the US which is that labor substitution especially with multinationals two foreign sources of labor to lower cost sources of labor has increased thus I think without domestic GDP ramping up we can still get that continued earnings growth okay Alex we want to take a look at Washington just for a moment because Christopher ray is the nominated to be the next director of the FBI it's going to be just starting your hearings on there and from the Senate Judiciary Committee I don't remember a time when there's been this dramatic a situation for a new FBI director given the fact that his predecessor Jim Comey was fired reportedly for not killing an investigation down there and now yesterday eve of this Alex we have this revelation about the Donald Trump jr. it's a lot of drama but mean less or anything or not we'll see but a lot of drama a lot of drama and will that be reflected in the markets even a Sanctus of Jeffrey so I call Jeff like four times I'm sorry I said like nine more come on guys and sewer water of EMP Farva you're sticking with us thanks guys I really appreciate it thank you very much all right here's where respective just about ten minutes in to the open we do have a modest rally underway here and equities you have the dow up i 131 points triple digit rally S&P up by fifteen following the rally that we've seen over in Europe as well as in the footsie but also helped by less hawkish comments from Fed chair Janet Yellen energy real estate utilities industrials all letting the SP on the upside as oil also gets a pretty strong bridge this is Newburgh [Music] this is bloomberg daybreak I'm Emma Chandra here in the hewlett-packard enterprise greenroom coming up later today live from Sun Valley speed palooka co-chairman of private equity house Bain Capital [Music] this is Bloomberg I'm David Westin the recent momentum and the market has been tied to tech which meant a rocky a few days last month when the nasdaq-100 sold off but now the momentum trade has reemerged and in full force for more on the return of momentum we're joined by Bloomberg's Danny Berger Stuart water of BNP parva is still with us so Danny explained this momentum trade and why it's been working right now right so quick gist of momentum it means that you bet on the stocks that have gone up the most in the past 12 months so as you mentioned we had that tech sell-off and of course anything of stocks that have done the best in the past 12 months that is tech stocks so trend has been pretty hard to find in the market when you look across the spectrum and assets in the one place where we're seeing trend following doing very well is in equities so momentum when you look over the past four days since the July fourth holiday it's done the best in over a year so again it's that strategy of going long the stocks have done the best over the past 12 months and then shorting the stock they've done the worst over the past not just buying the ones they're doing well it's also selling ones that are not been doing so well right and so conveniently for these strategies the ones that have not done the best over the past year a lot of retailers so Under Armour's when that with Macy's on that list so if you're if you were short those stocks over the past couple days you did pretty well again that's just sort of a a fluke like you don't necessarily when you do this strategy pick specific companies again you're just looking for the ones that have done the worst it's an automated strategy a lot of quants use this type of strategy in their portfolio somewhere I should point out the Dow rises to a new record closing high so talking about momentum after when you hear things like that momentum trade back the last four days down another record closing high what you think well one thing's for sure momentum and low volatility or to equity equity factors that historically have done well late in the investment and economic cycle so I think that kind of makes sense from that perspective one thing that we're actually looking at and this is tied into the tech sector issue is if you actually look at the tech sectors as in Nasdaq's own VIX vxn Index and you look at the spread of that to VIX for the SP that spread over five points is the widest since before QE began and I think that's really indicative of something that we put out last week which was the note called overriding growth in the sense that if the Fed is potentially interested they were concerned about asset valuations in the context of financial conditions then the companies that have done the best the momentum stocks no growth has been one of the best performing factors over the last few years that will be hardest hit well how does that value growth to trade play out in earnings we get banks reporting on Friday you can make an argument institute's financials versus tech at the same time so that that's very fair I think one thing's for sure and if you look at that what we mentioned before is even mentioned was that earnings for earnings estimates for the energy sector have gone down the most of any sector earn investments for tech over the last month have gone up the most of any sector nonetheless if you look at value year-to-date it's been a underperforming equity factor but it has done well in the last few weeks I think what Danny mentioned about the last few days is potentially indicative of something that we might see in the next week or so but I still think the longer-term trend is a little bit of a value rebound so today I'm curious about like antics you said since July 4 it hasn't been that long ago they're very well remenham can change it can I turn around how do you not get burned right when it turns one way or the other so this is certainly a quickly reversing strategy so I do want to point out Stewart mentioned that the nasdaq-100 volatility index moving above the Vic so one of the sort of theories of that tech saw fell off we had when you look at what stocks that sold off they were pure momentum names so a theory was floating out there that hey maybe a fund with momentum best was unwinding so something like that to your point it's easy to get hurt when you're in this sort of trade but the thing is is if you are in the middle of that and you decide I'm going to cut risk I'm going to do some sort of stop-loss because my momentum trade is feeling pain then you're going to miss the upside you're going to miss the upside that we've had since July 4th so I think a lot of it takes a strong stomach and if you believe this late in the cycle overall momentum they're going to do well then you kind of have to stick to it to see those gains out interesting conversation that fascinating to see how it plays out over inning season also Bloomberg Danny burger thank you very much and do it Walter of being P Baba you are sticking with us if you're Bloomberg terminal check out T V go you can watch this online click on our charts and graphics interact with us directly just put a TV go on your terminal feel free to go back click on something if you've missed it and re-watch this is Bloomberg [Music] all right earlier we got the release statement from Fed chair Janet Yellen 'she will deliver to the House Financial Committee in about ten minutes time it was the shortest I should say it was just about a page and a half and offer no specific announcements on timing for the balance sheets reduction but it did offer some context on inflation saying that stronger growth of incomes and jobs should increase resource utilization somewhat further thereby fostering a stronger pace of wage and price increases of course considerable uncertainty always attends the economic outlook there is for example uncertainty about when and how much inflation will respond to tightening resource utilization joining us now Bloomberg chief economics and policy correspondent Michael McKee and Sir Walter of BNP parva Mike it feels like the market took it as a more dovish yelling is it or she just left dismissive of weaker inflation I think the market overdid it this point that Janet Yellen just repeated what the Fed has been saying in just about every area for quite some time people are pointing to that line about inflation uncertainty but the feds been uncertain about the response of inflation and they have said they're watching it closely that was an issue at the last meeting and they put that into the statement which she repeated again today everything else her assessment of the economy is almost word-for-word what we got out of the feds last statement so no real changes heed the statement she came in trying to make no news and did a very good job of it yep it was interesting to see the uncertainty in sort of ranking them right it was inflation fiscal policy and then global economic challenges what can we read about her list and what came first well inflation is obviously a concern for the Fed it is supposed to be going up it is not the Fed view is that there are these unusual one-off circumstances like cell phone prices and of course the overhang of falling oil prices that's pushing down on inflation and as those fade will see prices move higher other people argue that no we're not seeing any kind of price pressure there's been a secular change but that's an argument that's not settled at the Fed yet so they're keeping an eye on it if we don't see a movement in the inflation by the end of the year maybe they hold off but at this point it's way too early to say in the meantime the dow edge is an intraday record high o yet another hi Stuart you're the market participant what's the one thing you need to hear to stay really bullish and equities I think well I'll give you two things all right one potential for a real meaningful and similar tax reform and that's with Janet Yellen in ten minutes Oh from Janet Yellen well then I'll give you I'll give you one thing I think she just needs to reaffirm that the Fed will be gradual and the Fed is concerned about inflation with respect to its path of policy rate hikes because you know what the markets most concerned about is the Fed you know potentially having a more hawkish than expected 2018 path of rates and I think if she can put the quash on that then the market will respond favorably so Mike you said when you're first to talk to us about this prepared remarks that there isn't a lot that's surprising in those prepared remarks take us into the questioning are the members on that Financial Services Committee going to be satisfied with I don't know I mean we're going to do it gradually whatever it is but we're not sure exactly we're do are they going to press her and in your experience has the Congress by asking questions ever really moved a Fed chair no I don't think Congress has ever really moved a Fed chair it's it's worked the other way around and the prime example was when Alan Greenspan said we could afford tax cuts because we had a surplus but really nothing much comes out of these meetings you get a lot of sound and fury particularly on the house side where we are today as members try to posture for the cameras and have some sort of clip of themselves talking to the Fed chair some members do pay attention to economics and you could have the potential for some interesting questions about the neutral rate where is it why has it come down what might push it higher and how fast do you think you need to get there also she did some preemptive comments on the idea of monetary policy rules we know that we're going to have a new vice chair who favors monetary policy rules and she could go into detail about why she thinks those don't work and of course names first somebody will ask her about her own tenure and I will expect her to respectfully decline to comment yeah exactly given that reporter a politico that maybe maybe Gary Cohen might be in line for her job coming next every so so Stewart is the real audience for what these questioners will be doing not Janet Yellen at all but actually 1600 Pennsylvania Avenue is this reinforcing perhaps things like rules versus discretion things like do we want Gary Cohen versus we want your Jenny on issues like that is that really what we're seeing today I think the issue of rules versus discretion obviously the independence of the Fed is not necessarily something that is on the table yet you know I think central bank independence is paramount and it's unlikely to change anytime soon but the idea of you know what kind of questions these you know members ask the chair could actually inform the White House's own view of economic policy and monetary policy and see what types of things are important to the committee members well it's going to be a really fascinating cue a really looking forward to thank you so much limbers michael mckean stuart walter of BNP great to spend time with you thank you very much all right so here's where we stack up we're 25 minutes into this session here is where the markets stand you have the Dow hitting an intraday record high the SPS on the front foot up by 16 points you also the Nasdaq higher the Russell actually hitting up potentially a high so watch those stocks as well Europe and the footsies still getting some kind of juice over there that rally picking up steam to the upside up over 1% in the other asset classes is a story of a modest dollar it was lower on a Janet yellen's testimony release now it's modestly higher and the move in the bond market relatively similar a lot of buying yields down six basis points now some buying yields just down by about four basis points the 210 spread that goes narrower as the day goes on in oil just catching a huge bid up over 2% and we are four minutes away from Fed chair Janet Yellen testifying before the House Financial Services Committee are looking at a live shot where is everybody they're getting snacks that's coming right up very good day to you it's Limburg dissertation method order City University of New York.