Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170620

Why . Because of comments out of the delayed speech. Mark carney seemingly talking of holding off weight kite rate and weaknesses in domestic inflation pressure. This affects the u. K. Yield, so bonds are rallying. Up about. 1, but not seeing that correlation we usually see with the british pound. That seems to have broken down and barclays, down. 25. Four former executives charged of conspiracy to commit fraud. We will be taken that further as we go on. We have had a weaker day for the pound. This is on the back of england government saying they are worried about the impact of brexit on the economy and mark carney signaled they will not be rushing to raise Interest Rates. Given the mixed signals on Business Investment and Consumer Spending, and the inflationary pressures that are subdued and anemic wage growth, now is not yet a time to begin that adjustment. Francine joining us is , and they willr give us their take, simon, it seems as though from philip view,ds points of finances really matter. Beenthink that has always the case, whether he has been. Ble to voice it as he did ultimately, it might not be for him to decide. Certainly, another take from Philip Hammond over the past week on the softer brexit emerging from the treasury if he gets his way if it gets its way within the government. Francine talk to us about the ongoing caroline talk about this on coming direct this oncoming diversity. How much will the key negotiator be listening this time . It is probably not leadership by Philip Hammond but a display of strength. It is hard to explain why because as hammond would say, he is only saying what is in the manifesto. Everyone has always said they want brexit to be good for the economy, but there is an internal shift, so in theresa may was running the show on her own, it was about immigration and hammond was locked in the cupboard. He is found the key, and saying, you have got to think about jobs, thinking, investment banking, investments, and that brexit is because they are worried that if you get brexit wrong and it costs and that is because they are worried that if you get brexit wrong, that will hurt the party. Simon, explain who was in charge of the brexit negotiations. I listen to what mr. Hammond had to say, and i did not hear him refer to theresa may or the government. They sounded like he was in charge. Simon this is what you hear as a complaint. Who is in charge of the government . Was davidthe problem davis might be the first to negotiate to identify is the and the othersr have a freelance on brexit. After the election, theresa may not quite the powerful Prime Minister she was thought to be before the election, and they all seem to be chipping in with their view of what brexit should be. Reason towe have any believe david davis is shifting away more toward growth, more toward jobs, and more toward the Financial Community over london . Simon this is all in the manifesto, which is a piece of work where everything can come from brexit, this great deal of promise. It is which sends the focus on within that document . David davis has played what we call a straight that at the moment straight ba att the moment. And endallents points to a hard brexit. Those of the negotiation stick with forll a wild. This would not be a thing that changed overnight. It will be a matter of time. Caroline a little bit of cricket analogy from the british. Thank you rob hutton and simon kennedy. David thank you. Markets have reacted strongly after mr. Carney spoke to read the pound weekend to spoke. The pound weakened. Ning us now when you absorb or try to absorb what is going on , how does it affect your decisions on whether to invest in europe, england, what are the likely ramifications of the marketplace . I think the most important thing is to try to identify what the bigger factors pushing things are going to be and while brexit has to be hammered out, the truth is the u. K. Unemployment rate is the lowest it has been in over 40 years, the inflation rate has been rising, and even though we were hearing this Forward Guidance that no, it is in time to raise rates, we will not be tightening, the dividends show was not goingit on, that would be something on the table given where we are and i think we cannot avoid those fundamentals much longer while this continues to get worked out. David michael, where are you on this . Listening to these speeches, you hear about to get investment going. Is this something new or hasnt been going on but not much has been done about it . Michael this has been going on for a wild. The numbers are shocking. Now, we are around. 25 and they say this is the product growth do notice you normally associate with the economy and people are keeping an eye on the bank of england and how that might frame the introductory of Interest Rates. Problem. K. , it is a big and determines how fast the care grow. Y could the problem is we have had this external shockva significanti shot via Significant Exchange rate and this is pushing on the u. K. Economy. It seems strange to me that the bank of england got the numbers wrong on the way down and looks like they are getting their numbers wrong on the back 9, as well. They have this 2 growth rate, which they have trend. They moved a little bit in may for those to converge to some extent, but if you look at incoming data, it is posting a stagnation rate picture. Caroline all the sporting analogies. Is the focusesting on Financial Services. At the same time, we have another cloud being surrounded around the nikkei Financial System when you have barclays in the headlines. Stories,henomenal ripples does that send across the Financial Services in the u. K. . They save the u. K. Is in danger of becoming the Hong Kong Office shores of europe. I think the reality of the situation is if you look at institutions better gold plating a lot of those legislation and emanating out of the European Union, and many regulators, we know post u. K. Referendum, are lobbying hard the city of london and saying, you would not have to labor under those ranks if howwould shift them, but you played that in the public sphere, it doesnt look good. Postcgfe, lots of regulations have been rolled out, but the timing is horrible. Caroline timing is horrible. I want to get your take on some tanks we have got. This chart is on the correlation of ftse and the pound. I want to take you back to equities, not just barclays, and how we have seen the british pound take another leg lower. Why are we seeing that . We are seeing four year lows when you look at correlations. If you look at how you would arrive at those numbers one of the things, if you decide you seee ftse if them a six have regained the brand they lost post u. K. Referendum, which, if you think about how these macro numbers are coming in to where the consumer is and where they might be headed, that is a surprise. I take on markets globally have risen from 12 months ago, so this is a manager of relative value trading, but i think that looks punchy. Basketld into the export rally up roughly 30 , that is why you have seen the ftse reach successive alltime highs. I think you are now in a situation where you had before double bubble and now you might not get anything at all, so some of these cyclical plays, resource plays look vulnerable. And we know the consumer into u. K. Is looking formidable. We make it a declining pound. We may get a declining pound. David you will both be staying with us. Coming up, david gura will speak with Steve Mnuchin. This is bloomberg. David i am david westin. I am in new york. Caroline hyde is in london today. Two said president s spoke yesterday and gave two different takes. Charlie evans said he would like to see more data showing inflation before the fed continues on their rate hike path. If we took the next six months to look at how the data role in, maybe make an action on the Balance Sheet, get to the end of the year, then we see, three,wo rate increases, maybe four if things are better. I do not want to see inflation move up. I would not want to continue going backwards. David the same day, will dudley said he was confident inflation dudley said hell was confident inflation is coming. Saying inflation is lower than we would like but it the labor market continues to tighten, wages so gradually pick up and we will see inflation get back to 2 . Marketith us is strategist for bcg partners. Michael, we have this disagreement, forget within the fed, but particularly the two the markets on the one hand in the fed on the other. Agree incally 2017, but the market is not fine with the fed is selling in 2018. What is going on . The proof is in the pudding and data for inflation is not there yet. Other Economic Data we have seen for the month of may have been disappointing, so those things are really what is behind this next set of expectations. While the fed is saying they will raise rates further, forthing it has been saying a long time, it has been slow to do so and the numbers on forecast that been lower. Last week, the fed members own forecast, the mean of the expectations for 2017, 2018 and 2019 come all three were that were, so the meeting expectations they have for the fed funds rate for the and were all lower. For the end worked all lower and it is hard to be hawkish at this point given the fact other Central Banks are likely to be tightening their Monetary Policy, as well, and the fact that fed has a cautiously optimistic view on where theyre going to push rates. David doesnt depend on part with the fed is trying to do . They are so david dependent. They are so they dont dependent. On the other hand, we may be really affecting allocation of capital. Is it possible they are worried about Financial Stability and not just inflation . Jason i think both statements are true. On one hand, i think winfax change, they changed their mind when facts change, they change their mind. On the other side of the coin, you have this situation where they are trying to respond but not too much. I think they are trying to strike that balance that if the data is not there, they do not want to go to early. They do not want to be behind the curve either, but it is difficult to make the argument that there is a lot of inflation out there and this has been some sort of reinflation trade. There isote, i think also the reason you have seen responses in the equity market is there is still a lot of money out there sloshing around and Monetary Policy is quite loose, and this has been affecting Financial Markets and will continue to affect Financial Markets as they try to get out and extricate themselves from a rare situation. Caroline monday sloshing around money sloshing around and im looking at the lack of stress indicators. They are at record lows. Is that going to continue while we see a continuation of Monetary Policy . As long as markets do not believe the fed rhetoric, we will continue to see risk measures greater. It is across assets. From the move index u. S. Treasury that worries me because that is the epicenter of the debate. Going back to what your colleagues say back in the u. S. , i agree with that, but i think the reaction function of the fed has changed. If you look at the surprise indices in terms of the broader macro and inflation, there is no reason for them to be coming out with this hawkish rhetoric. It is not only about rate hikes but Balance Sheet reduction. It is clear to me they are worried about the impact that all this base money is having on the Global Economy, u. S. Economy. I argued two years ago on this show that they should be hiking rates than in order to deal with that and i think the chickens are coming home to roost now. We have these seven years of inflation famine, if you like, it is understandable. The market takes it with a piece of salts, but if the reaction function has changed, the market is horribly unprepared for that. Caroline maybe they are listening this time. Thank you. Gentlemen, you are staying with us. Coming up, and into buick Sheryl Sandberg. How the an exclusive interview with Sheryl Sandberg. This is bloomberg. Caroline you are watching daybreak america is, and some of the biggest names in tech gathered at the white house on monday. Missing from action was facebook but i managed to speak with Sheryl Sandberg in an exclusive interview. Sandberg says facebook has a duty to help create new jobs, which means reaching out to new businesses is a priority. The social network now highs almost 2 billion users. About the we talked lot. Humanare making a big resource investment, we are the have researchers and experts who work and facebook, but we are ouring that, as well as human review capacity. We have about 4500 people around the world to remove inappropriate content, so we are growing that by a significant investment. We are working with nonprofits, governments, other companies around the world to make sure we all Work Together to make sure that this content is not on our platforms for brand platforms. Tools tos, we offer make sure they know that facebook is a Safe Community for them. Caroline you say that you are working with nonprofits and governments, how have you in europe been talking with governments . Are you worried about the talk about encryption and some of the fines that have been raised . We are in constant conversation with governments on issues of security and on issues that affect all of us working together. We have worked with governments to talk about initiatives, so online content initiatives, where governments cannot just make sure terrorism is prevented , but try to get positive measures out there that stop people from doing things that obviously hurt so many people. We also work with Law Enforcement officials all over the world to make sure that if there is anything we can do to support their work on, we are able to do it in this area. Caroline that was Sheryl Sandberg, facebook coo. Quite amazing we are hearing them speak out about what they need to be able to do to tackle this global problem. David their platform is so universal and it could be used for ill and good, and let the responsibility they have to governments and advertisers because advertisers get nervous about this. Caroline they do, so that is why when they are all gathered this week, Sheryl Sandberg is going out to talk to friends to show how they can remain safe on the platform. David she has done a remarkable job. Coming up, the European Union says President Trump could be ning up a pandoras box could be opening up pandoras box. York, london and washington, this is bloomberg. David this is bloomberg daybreak. I am david westin. Caroline hyde quote bring gusts up to speed on markets. Will bring gusts up to speed on markets. Caroline heavy gains today, Risk Appetite remaining. It seems to have been the tech leading the search in the u. S. On the laggard, it is oil and lower, 5100 turning flat. It was higher after we saw a drop down in the pound, but barclays up by. 4. Why . The bank and four former executives charged with conspiracy to commit fraud. Look at the next set of assets. I am looking at a story continuing, the pound continuing to go lower. The reason, brexit in the concerns of mark carney speaking , weaknesses in the economy, which growth, and domestic inflation pressures. Saying, now is not the time to begin that rate adjustment. We are looking at the u. K. 10 year yield. Meanwhile, oil on the downside. Lets get an update on headlines outside the business world. Here is emma chandra. Emma in georgia, it makes her out to be the most expensive race ever. They will decide today between jon ossoff and karen handel in a race that could preview the Midterm Elections with handel maintaining distance from President Trump. The campaign could end up costing more than 50 million. Student died after being evacuated from north korea last week. He spent more than one year in prison there and returned with severe brain damage. Three other americans are still in jail in north korea. Has putammond protecting Financial Services at the heart of his plan for brexit. He said breaking up Financial Services would hurt the u. K. And the eu. This marks a shift in the brexit government focus. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. David thanks. Talked with wilbur ross about the ongoing review of whether imports pose a National Security threat. 161 trade placed cases, which have put either antidumping or ailing duties on Steel Products from about 37 different countries, so this has been a big problem. The problem of global overcapacity. More importantly, global overproduction. So, the report will address those issues, will address them in the context of national section, to find a way 232 defines it, which is a pretty broad definition, including very strong reference to the needs of the economy. David after interview, Bloomberg News talked with the European Union trade commissioner for her views. She was emphatic. She said that is opening a pandoras box. Many other countries with may be referred to security and because of that, do a lot of protectionist measures. We will retaliate, of course. Joining us now is the managing director of the asia society d. C. Office, wendy cutler. Explain to us this proceeding because it is different. We have heard about dumping, but this is something that has not been used much. How powerful is it . Wendy section 232 of our trade thought is about 55 years old, so it has been in place for 55 years and we have only taken to trade actions to date, but this respect to petroleum imports. There have been investigations over the years, including the last time on steel in 2001. In the others, the conclusion was we did not have the legitimate grounds to restrict imports due to National Security concerns. David if the president were to take a decision under 232 and act on steel imports, what are possible ramifications . Is it saying too much to say this of the retaliation with respect to trade . Wendy that is one of our key trading partners is saying publicly now. This would give the green light to our trading partners to also restrict imports on National Security grounds. They could say, our military, they need to fly in planes, they need to eat food. You can see it provision like this could be abused and could lead to a trade war is not used judiciously. Caroline of course, all this pushes potentially the cost of steel higher. What sectors would we see hit the most by their own policy . Wendy there are so Many Industries within the United States that use steel including auto,s, steel, including to theairplanes, so extent you would see that import duties are placed on steel, then the Industries Using these inputs would pass on increasing prices to u. S. Consumers. On top of that, exports of the products would become less competitive and this could have adverse effects on the millions of people who are employed in these industries that use steel. Caroline you just mentioned potential retaliation from asia, europe. Who, in terms of sectors, could be heard in that respect . You are my two pushback from this parts of the world . Wendy trading partners are skilled in trying to figure out us to urt us with hurt with the territory measures, so one could see them in key export sectors, such as aircraft and agriculture. David we also talked to wilbur ross about nafta, another big issue pending. We had deadlines coming up. He told us august 18 this by which they have the starting negotiation and one month before that, he has to come out to congress with his detailed plan. What do you expect with the negotiation with respect to canada and mexico . Wendy we will have to see. There are important deadlines coming up, including providing negotiating objectives. Administration is trying to figure out what do we ask canada and mexico to do in these negotiations . Do we limit them to know modernizing nafta or include the provisions to bring down the trade deficit, one of the objectives stated by this ministrations return negotiations . This is a busy period for those working on trade in the white house at the Commerce Department and at the office of the u. S. Trade representative. David we will find out soon enough. To your point in talking to mr. Ross yesterday, he did not mention totally redoing after that. What do you talk about, including digital services, including rules of portugals that you have said need to be updated, natural resources, he did not refer to a redo of nafta, do you take some heart to that . Wendy i do, and i know this administration wants to do it quickly would canada and mexico and try to conclude talks by the end of the year. In order to reach an ambitious deadline like that, the ministrations is going to have to take into consideration the administration is going to have to take into consideration how extensive the conversation should be in relation to canada and mexico. David many thanks. Still with us is Jason Schenker and michael ingram. Specifically,a because you are down in texas, austin, how concerned are businesses along the southern border with what happens to nafta . Jason they are very concerned because nafta is a good deal for states like texas. It creates a 12 billion annual surplus for the state of texas and creates about 460,000 jobs. For texas, it is a good deal. Be negative for the texas economy if it goes away. We are worried about it. I think it is important that some things are nafta are revisited, but as we look at do we want to wipe the table claim 2. 0, wherent nafta it needs updating, i think the updated part is more reasonable given the job creation nationally and regionally that we see, as well as the economic value. David do you take some encouragement from the fact the rhetoric seems to have cooled some . In the early days of the transition, the writer was pretty high coming out of donald trump end surrounding him, now, it seems more measured. Do you see a shift in their attitude towards negotiating nafta . Jason i think we have seen a lot of shifts. Be in thes to campaign trail and with what running in administration looks like. That is a pretty consistent theme across most administrations big what you tend to get is more mild been wild and i think that is what we are likely to see here. Caroline more wild been more mild than wild. I like that. In terms of what might happen with trade in the United States, how much does it affect the disintegration of tpp and what does it mean with their own trade negotiations and partnerships with the u. S. . Michael one, it is exhausting, so you never know when the next tweet will hit you. I think really, it is solidarity reinforced within the eu. I would say they have political mojo back to a certain extent. The european economy seems to be firing on all cylinders at the moment in terms of Economic Performance greatly well see how long that lasts, but right now, they feel performance. We will see how long that lasts. Right now, they clearly voiced displeasure at some of Donald Trumps actions, but it is not a dealbreaker. Caroline what about sectorial picks when were looking that where we might put money into Asset Classes . What do you think in terms of key exporters as we are starting to see more of an all about america policy . Michael economic momentum is outside of the u. S. The fact that the Trump Administration very quickly voice trade in the u. S. , it was and emergingkly markets outside of china are the ones performing, so to some extent, we do not need the u. S. To do that heavy lifting. Enough, if you were to see those reflationary policies, particularly in the absence of reform if the feds narrative is consistent, that is an inflation shock and they should be running harder on that. David many thanks to Jason Schenker and michael ingram. Coming up, bloombergs david gura speaks with Steve Mnuchin. Live from new york, london and washington, this is bloomberg. Caroline this is bloomberg daybreak. Coming up, an exclusive interview with larry summers, the former u. S. Treasury secretary. Caroline looking forward to that. Lets have a quick check of the markets. Equity, you remember, lets check in on futures, how do we stand . It looks as though we could be holding on to goes gains. We are up half a point, but it was a tech that led to gains. Will tech continue to outperform . , the oil,of the bank the gas, all on the downside. On the upside, stoxx 600 resolutely flat. Down is our clays. Parkways. That news coming out that the bank and four, executives will be charged with conspiracy to commit fraud. That, there are the allegations. Thats have a look at some of the other commodities this morning. We are seeing the pound up by. 6. Why . That delayed speech we heard mark carney and Philip Hammond to be out, it seems weaknesses in wage growth, saying a rate hike is off the table. David lets go to the investment summit, where david gura is with a special guest. David . David welcome. Joined by the 77th secretary of the treasury, Steve Mnuchin. Thank you for being here. About six months now, you have become familiar with the strange customs of this town and you are about to become accustomed to another. It . Are we going to hit is ado not think it debate. I think everybody realizes we need to raise the debt ceiling. The Government Debt is the most important in the world and this is a process of how we go about changing the things is this process, it should be once we have spent the money, the debt limit goes along with the commitment to spend. David is it the beginning of september when we get that limit, do you have a specific dates . Secretary mnuchin we constantly review these numbers internally. I do not want to get the exact projections great i have encouraged congress to act before they leave for the summer, but we do have enough money to get this through september in case they do not. Debt you spoke against payments. Now that you are familiar with the job in washington, do you still feel that way, are you against reprioritization . Secretary mnuchin i should say that the congress should raise the debt ceiling so we do not have to focus on departure is a should. We should not put the government at risk. Readprivatization we should not put the government at risk. David are there things you are talking about that are tethered to spending cuts, what will it take within the administration . Secretary mnuchin we have a general understanding and we are working with congress. This is up to congress to raise the debt limit. It is something i am confident they will do before we get to a point that is critical. David is the white house saying there is a date by which we will have a tax reform proposal from the white house . Secretary mnuchin i think we have been consistent in saying we are working every week very closely with the house and senate to have a joint plan when we cannot. The idea is to get us all on the same page, so when we release the combined plan, it will get past by the house and senate and the present will sign it. It is our focus to get that done this year. It is critical to the economy and we are working every day to get that done. David what is your relationship like with capitol hill . Secretary mnuchin i think we have good relationships. I think it is a team effort and the good news is we understand what we want to do. We want to get growth in the country, we want to get tax reform. It is critical. We want to simplify personal taxes, create a middle income tax cut, and we have one of the highest tax rates in the worlds , and deferral, which leads to trillions of dollars left offshore. David you bring up growth, i talked to maybe half a dozen economists every day and they disagree with your projections. What are you seeing that they are not . Secretary mnuchin i just want to put this in perspective. When obama came into office, he was projected number 4 economic growth. We have not had that. We have had one of the lowest growth rates in modern history. We are just not going to be satisfied with 2 growth. We are going to work every day this everything we can in administration to unlock the economic capital to create jobs, better wages and get growth above 3 . We are committed to doing that. David you are talking to core investors. On have said your decisions investments are based largely on National Security. Would you be in favor of an economic reinvestment of the u. S. . Secretary mnuchin theyresecretary mnuchin not largely an economic security, theyre completely on National Security. I favor city is to be favor it to be for National Security. There are other things you can do to make sure we are economically competitive. The u. S. Is one of the prettiest investment markets in the world, we welcome Foreign Investors to invest year. We want to make sure we get treated the same way a broad. That is our focus. David you have talked about a strong and dependable dollar. What is the difference, how do you define a dependable dollar . Secretary mnuchin the dollar is the reserved currency of the world. It is not our focus where the dollar is in the short term. There is obviously negative aspects of a strong dollar as it relates to our exports, it on the other hand, a strong dollar is a vote of confidence in the u. S. Economy and Trump Administration, similar to what is going on with the stock market. This is one of the most important Economic Investment opportunities for the u. S. , and we are seeing a lot of attractions and that is a lot about what this conference is today. David you were talking to a colleague of mine in l. A. , do you still believe that or are you walking faster . Secretary mnuchin i am not walking back. It is something we are seriously considering. I do think it is a tool the government should strongly consider, and we are reaching out to the Foreign Committee and investors to see what the demand is. What we do not want to do is create a program that is a oneoff program. We want to see if it would be an important part of our farming capabilities. David in the past, people in your decision have been advisers to the president. Has the president solicited your advice . Secretary mnuchin on all of and ipositions, gary cohn are working closely together in making recommendations to the president. Allnd i have interviewed the people and have made current recommendations to the president. David what do you think constitutes a great fed chair . What do you think the president and you should be looking for . Secretary mnuchin we have not made any decisions yet on the fed chair, whether we will have a new one or not. We will be working closely together with the president as we considered the issues. David what is your relationship like with mr. Gary cohn . We hear so much about discord within the white house trade what is your sense of how the Economic Team is working together . Secretary mnuchin i think the economic game could not be working better together, and that is a combination of myself, gary cohn, wilbur ross, Mick Mulvaney on budget. We meet constantly. We will be working together. Gary and i have worked together very closely in the past. David a 22yearold student passed away in north korea. The president has pass along his condolences has passed along his condolences but what more can you do . We have seen sanctions near north korea. Are there more tools in the Treasury Department when it comes to sanctions . Secretary mnuchin let me first say, it is an unfortunate situation and i also pass on my condolences to his family. He was treated very poorly and nobody should be treated like that. As he has said before, we are committed at treasury to use all of our powers to put sanctions on north korea and work with our allies to stop what they are doing. The is the missile testing, nuclear testing. This is something we working closely with our allies on. David i spoke with your predecessor about sanctions. It was something he was interested in and worked hard to raise the status of that and implement sanctions in the realm of National Security. Do you see your sanction policy as an extension of that, are you doing anything different from secretary le . Secretary mnuchin sanctions secretary lew . Secretary mnuchin sanctions have been around for a long time. They are an important tool for policymakers, so we will continue to use sanctions to the maximum amount that we can. I constantly meet with secretary tillerson and secretary mattis. This is one of the tools we talk about in all of our foreignpolicy objectives. David yesterday, a number of congressmen wrote you about potential investing, raising concerns about what that might mean for sanctions with the company having so much infrastructure. Are you concerned about that . Secretary mnuchin first, i do read my mail. David i know it came late yesterday. Secretary mnuchin i cannot comment on specific cases, but i can assure them and others, i take my role as chair very seriously. We will use it solely for the purposes of protecting our National Security, and any transactions within our jurisdiction, he will look at carefully. Written in the wall street journal on the arena, seeing the World Community as less of a community where countries compete against each other, in that space, what is the role of multilateral institutions . Secretary mnuchin i think there is a significant role. I think there are a lot of common objectives we have. Whether it is the world bank. Avid making brexit work britains top i can cap david making brexit work. The fed speaks and the dollar listens, reaching a threeweek high. Rally on, there may be noise and conflict in washington, but Global Equities continue up after nasdaqs best day of 2017. Welcome to bloomberg daybreak on this tuesday, june 20. Hearyn, we just got to this fascinating interview with Steve Mnuchin. What stood out for you . Carolyn . Overall, carolyn the Trump Administration really trying to dine out on the back that we are seeing a rally in. S. Assets coo of facebook as she heads out to talk to all the brands and the key Advertising Community, trying to set out her store when it comes to building businesses on facebook, but notably how you can keep your business safe and how they react to the hate speech that has become such a focal point for businesses and government. Fascinating conversations. We will be speaking to larry simmons. Larry summers. I am in britain and i will look at u. K. Assets because look at that pal move. You can see this is the big mover in the leaves ond who they are both citing concerns, weaknesses in the economy and wage growth. Down goes the pound, up go bonds. Yields down for basis points. It does not seem to be having that correlation with the pound anymore. 1 . Lays, down 4 10 of four former executives charged with conspiracy to commit fraud. David one of them was the former ceo. It was several years ago, right . Carolyn 2008 was when it happened. It seems as though it came in exchange for a bit of a loan and some fees paid. The question is whether we will see how barclays will react. David in the meantime, lets talk about the u. S. Treasury secretary. Isning us with more on this our Senior Executive editor for global economics. About we could start with the debt ceiling because that was the worst thing david asked him about. It is coming up pretty quickly in washington, this suppose it crisis. There was little doubt in his mind we will get this done. I think everyone realizes we need to raise the debt ceiling. The Government Debt is the most important credit in the world with a reserve currency. It is a government process of how we go about and one of the things we should think about overtime is changing this process. It should be once weve spent the money that the debt limit goes along with the commitment to spend. In the past, we have come up to the brink and it has hurt the federal government, but is this just going to slide on through the debt ceiling . There are both republicans and him a control this process, who say a simple increase in the debt limit is in everybodys interest and Steve Mnuchin endorses that. Voices,e some dissident including the president who said maybe this is a great time to break the debt ceiling and have a battle over it. The odds are that will actually happen, the one is interested in a government shutdown. David he said he has enough money to get us through september. Congress goes on its recess thathe summer, july 4 and does not leave them a lot of time once they get back in september. David another thing we talked with mnuchin about was where we are on the tax reform package. He said they are working every single day with the house and senate to come up with one bill that everyone agrees to so they get past the end of this year get it passed by the end of this year. It is a very different it is very difficult to assess where that is. Initially, the thought was they are going to have a great tax plan within weeks. That slipped back to july and now its by the end of the year. Our reporting shows there is very little progress on a consensus tax plan and certainly as the taxambitious reform of 1986. Everybody does think we need to lower business taxes and we might have something coalesce over that. David thank you so much for joining us from washington. Now we will turn to Chris Watling, longview economics ceo and megan greene of Manulife Asset Management. He hopes wen says going to get tax reform by the end of this year. He hopes to get past the debt ceiling problems and we have paid we Pay Attention to the dollar but not in the short term. Do you think markets would take encouragement from what they are hearing . Megan i dont think they will take encouragement, but i do think it is asymmetric. I do think the markets would actually care all that much. They would continue on their way up. For what its worth, i think it is incredibly unlikely. We might get tax cuts, but i would question how much of a difference that would make. A tax cut would be the 15 for Corporate Taxes but the average effective tax rate that Companies Pay is 50 per is 15 . What would affect the markets is if we did have a government shutdown, but i think that is pretty unlikely. Carolyn and chris, i want to itur take because seems as though Steve Mnuchin is saying any asset rise we are seeing, stock market and the Dollar Strength is a vote of confidence in our economy. Do you stand by that overweight call . Chris i side with megan and a lot of that. Investors will be discounted it and are not talking it not thinking about it, anymore. The economy is going to continue to motor on without they reform or any real expectation. Markets go up because of liquidity and there is a reasonable chance this could strengthen the dollar, all of which favors u. S. Equities over other parts of the world. Europe has been a sexy thing, and i think europe is now starting to outperform the u. S. And that relative trade has played out. They both can go up. Carolyn lets have a quick recap of what Steve Mnuchin talked about spoke about in terms of Dollar Strength. Its not our focus where the dollar is in the shortterm. There are certain negative aspects of a strong dollar as it relates to our exports, but on the other hand, a strong dollar is a vote of confidence in the u. S. Economy and the Trump Administration, similarly to what is going on in the stock market. Carolyn i want to take it back to megan because where do investors look . Are they focused on what is happening in government and whether it is a vote of strength indeed, or is it more about that policy and the lack thereof . It is a mix, certainly. It is interesting to hear janet yellen say that she fully believes in the curve, even though we are not seeing any evidence that it happens and she does admit it is pretty flat. While the fed is saying no inflation is coming in, we are on the right half, there is little evidence to show that is true. What we are seeing is a fed that is not driven by fundamentals. They want to normalize rates and that is affecting market. Hopes aboutpolicy, tax reform and deregulation were certainly driving forces. There is more of an exception more of an acceptance that these things may not happen as quickly as everyone expected. David chris, to what it what extent is this a fed issue but ultimately a trump issue in the sense that he has three hope three openings now in the fed . They may be more inclined or less inclined to raise rates. Chris the composition of the fed is really the key. The types of people he puts in our key and we have had discussions about potential that she a potential new chair who sounds fairly dovish compared to what we could have had Free Campaign or during the campaign if you listen to the rhetoric from then. David i want to come back to one thing you said, megan which was tough cuts rather than reform. Is there a difference between those two in terms of inflation . Will cuts be more likely to lead to inflation and might that have a backend affect . Backhand affect . Megan that could show that the feds preferred path is justified and i think what is more likely is the cuts wont be as deep as they are hoping and i think ultimately the fed is going to have to adjust its forecast for its own rate half downward. Chris watling from longview economics and megan greene from manulife, you are staying with us. Live from new york, london and washington, this is bloomberg. Emma this is bloomberg daybreak. Tesla is close to an agreement to make some of its electric cars in china for the first time. According to people familiar with the matter, the deal would allow to has led the bill facilities in shanghai. That would get it that would give elon musks Company Better access to the largest automobile market. Barclays has been charged with conspiracy to commit fraud. The case involved millions of pounds and fees during the financial crisis in 2008. Among those charged, the former ceo. Has put chancellor protecting Financial Services at the heart of his plan for brexit. He said breaking up Financial Services such as derivatives and lending would hurt both the u. K. And the eu. That is your Bloomberg Business flash. Nextyn for more on the steps in brexit, we come back to our guest, Chris Watling of longview economics and megan greene of Manulife Asset Management. Im looking at the market reaction. You get to see that the Great British power was not so great the Great British pound was not so great performing, today. It seems as though mark carney comes in, concerns about brexit, now is not get the time to begin and adjust and in terms of raising rates. Do we shrug off the vote to raise rates . Chris he is the most important person on the committee and that is quite a signal from carney. I am one of the three that i heard one of the three that is voting for hiking is retiring. Im not surprised the currency moved because three votes for a hike was a shock to the markets. It push the currency higher and we have really taken that out overnight as a result of carneys more dovish comments. Carolyn lets listen to some of those comments. From my perspective, given the mixed signals of Consumer Spending and Business Investment, and given the still subdued anemic wage growth, now is not yet the time to begin that adjust adjustment. Carolyn do inflationary pressures from a domestic perspective, the you agree with the views of mark carney . We are starting to see some Economic Indicators turnover while we are seeing inflation come in, pretty quickly. The bank of england is in a tough position and its only going to get tougher when they have to choose between price stability and growth. Back then, they chose to support growth and we will probably see them do that again at this time. I think i think the bank of england will continue to be accommodative. David price stability versus growth starts to sound like stagflation. What could fiscal authorities do . Chris you could always do a little bit of fiscal pump priming. As megan was just suggesting, indicators have really deteriorated in the last month. A great second half of the year, but it has been really poor and inflation surprise to the upside growth to the downside. It is not an easy job. Carolyn not easy at the fed, either. , adiscussed some headlines day of fed speak and currently saying that low inflation targets contribute to low Interest Rates. He says low rates pose Financial Stability concerns. This is a global issue. Megan, how much are you seeing this continued rampup in stock markets . We sawtek regain its life once again cap we saw tech regain its life force once again. Think incredibly accommodative Monetary Policy is the thing and equity markets in particular. In the u. S. , we have a weak dollar, relatively and a soaring equity market. It is giving the fed the perfect opportunity to hike into that. I think the fed will continue to try to normalize rates so that they can start drinking their Balance Sheet before yellens term is up in february. Were to adjust and i think the markets to adjust would be the equities market, the fed would have to back off. Chris that is a important point. Across a whole host of global assets are significantly higher because of all this liquidity. It is a real challenge for the fed and all Central Banks. We go back to the u. K. , our Housing Markets as expensive as it was in 07 at the peak. Liquidity, this is the challenge of Monetary Policy today in a think it will be a real challenge for policymakers, going forward. David is there also a opportunity in there, from the feds point of view . Yield has stayed down because of ecb being so low. They have an opportunity to address things like investment misallocation because of too much liquidity in the marketplace. Chris it seems like an opportunity and we have a fed that is more confident in hiking. The market has not been bothered, so they are more confident they will keep going. You can look at valuations and see there is a bubble element to it. Bubbles always burst when you tighten money, it is just a question of when. Iwould say these markets like them, but they are getting dangerous. Carolyn do you think they have to burst . Chris in economics, we love to talk about liquidity. Carolyn Chris Watling of longview economics and megan greene of manulife, you are staying with us. Coming up, an exclusive interview with facebooks cielo coo. Carolyn this is bloomberg daybreak. David westin is in is in new york. Lets have a recap of some of the headlines coming out of the head of the Federal Reserve bank of office of boston. More hawkish comments coming out. Low rates are making fighter future recessions even tougher. He is making making a presentation in amsterdam. Supervisors must factor in greater risk management, so says the chief of bostons that bank and the low rates could leave cut leave economies at risk. David it sounds like the bill dudley camp right now. We want to turn to oil. It has fallen to a ninemonth aw as investors weigh forecast decline in u. S. Inventories against a revival in libya. Commoditynergy and research or and still with us is Chris Watling of longview economics. Welcome. You are still very positive rarely positive on oil. Absolutely. Fairly positive on oil. Absolutely. I think it all stems from or started with the opec meeting which underwhelmed the market. You had some buyers of the expectation, maybe a bit of people expecting a larger cut then was announced, which is a ninemonth extension of the current deal. David also the rig count going United States and inventories are not coming down the way it is predicted. You see you have seen libya and nigeria recover. You have seen this relentless rig count in the u. S. That just keeps adding. Weak q1 had a pretty for demand. I dont know how much of the market is focused on that, but when we look over to the second half of the year, we see that recovering. The demand growth is expected to increase. David sitting in this chair, i keep hearing its going to come, but it never quite comes. Is it finally going to come . , and i haveld agree to say that in the press sessions, it has been deeply disappointing in oil, but not just on the opec deal. A lot of supply coming back from nigeria as well is quite a swing factor and we hear all this stuff in tanks and tankers. I am bullish oil, but im really struggling to have conviction in it is of the way the price action is valued. Carolyn how much is this fundamentally driven . Does the u. S. Dollar factor in at all . There is a bit of movement there, but not quite as connected as it has been in the past. When you look at whats happening in the investors face, i think people are genuinely getting disinterested in this market and that has been one of the issues of trying to get the market excited about whats coming. Chris the market was very long oil three months ago. It has come down quite a bit. It is a bit more neutral now, and i think that will be some in up for as set things constructive second half. David is anything going to stop shale . Thats a good question. Below 45, a lot of the producers that have laid out reduction guidance early on, this year probably going to see a bit of tinkering to that. David shale seems to be able to adapt to lower and lower prices as they get more efficient. The other thing about shale is has productivity peaked . It has been terrific recently. That tould expect deteriorate a bit as you bring back lesser quality crudes, some of the lower quality equipment. We would expect that to filter down to lower productivity overall. In general, it is a difficult question to answer and i think the market is still testing the limits of that, and that is why we are where we are, today. Alix steel particularly sorry she is not here with two oil bulls. This is bloomberg. Carolyn this is bloomberg daybreak. Another scorching day london. David dont talk about scorching. Come to new york and you will get scorching here. Carolyn i need to get over my temperatures. We dont know hed like you guys do but we are getting used to it this current week. Lets have a look at the heat on the markets because equities currently, s p 500 futures could lose some of those record highs. Overall, risk on is still the flavor of the day. Of off by a 10th. Barclays concerned about litigation. Meanwhile, the pound up by a sick sense of 1 . Meanwhile, 10 year yield, we are seeing a rally in guilt in gilt. 2. 5 asude oil down by you see the dollar continuing on its rally street. Lets get on to some of the headlines outside the business world. Emma President Trump is blaming what he calls north koreas brutal regime for the death of an American College student. He died in cincinnati after being evacuated from north korea last week. He spent more than a year in a prison there and returned with of your brain damage. Three other Americans Still in jail, in north korea. Democrat and republican in a race that could be a preview of the 2018 Midterm Elections. The campaign could end up costing more than 50 million. The man accused in the London Mosque attack is described by his mother as disturbed. There and osborne is being held on suspicion of terrorism. His mother told the newspaper he is no terrorism that he is no terrorist. He had been on medication. Global news 24 hours a day. I am emma chandra, this is bloomberg. David new york fed president bill dudley spoke monday and said he was confident that inflation is coming. Whatever softness we have we may have seen in the numbers. Inflation is a little bit lower than what we would like, but we think if the labor market continues to tighten, wages will gradually pick up and with that, we will see inflation get back to 2 . Following that statement by dudley, the dollar hit session highs, spiking to its highest level in three weeks, but the rally was shortlived and now the boston that president spoke and said low rates will be less capable of writing future shocks and recessions and the dollar still moved lower. With us now is megan greene, Manulife Asset Management chief economist and Chris Watling, longview economics ceo. Is this all about Wage Inflation . Given what you just saw bill dudley said, this was pretty close to all employment. Shouldnt we be seeing more of a spike in wages . Megan i wondered what year we were in because i have been hearing that market that comment for years now, that the market is tightening and we are not seeing Wage Inflation for two main reasons. 50 years ago, two thirds of what we consume for goods and goods jobs are high wage high our jobs. One third was services. Now it is a flip. Two third of what we consume is services, taking downward pressure out of Wage Inflation. We have a massive global glut of cheap labor. I think that is taking some of the pressure out of Wage Inflation. If you think the labor market is tightening, it is just not feeding into Wage Inflation. Chris it was certainly true around 2005. Anecdotalvidence that Wage Inflation is coming. Increasing. Is now look at the 45 states that do study wage oil, a inflation uptrend since 2014. Its coming and we are just so board of talking about it. This is how markets work. We start to early and we give up. David this is not just a u. S. Phenomenon. We see this in europe, the u. K. , we are not seeing Wage Inflation. Chris europes Business Cycle started later because of the european crisis. I would accept the you ks is a strange one. Japan is another example that has been around for longer without Wage Inflation. I kind of feel you can find it if you look at the u. S. Data. Megan even the fed admits that the philip curve might be flat and a lot of our equations and economics are based on scarcity. Chris i would agree with you on the philips scale, that is definitely a dead concept. You are running out of labor in the u. S. , temporarily. Carolyn do you believe that who comes out on top . The bulls and the bears because we are hearing both sides of the equation and it seems that the hawkish tones are wringing out louder. Megan they will continue through this year, that i think starting next year, when china has to withdraw some of its stimulus, that could cause some slow growth in europe and japan, feeding on to the u. S. And i think the fed is would have to back off their rate path. Currently, the dots are far too optimistic. Medium to longterm, the doves will win out, but shortterm, it will be the hawks. Chris there have been 7 trillion of housing wealth created in this cycle which is pretty much what you created in the last cycle. Consumer spending has a bit of a boost as well and i think the that needs to speak to that and that is part of this rising story. Carolyn looking at Sovereign Rating drift, while emerging markets have continued to show an areag fundamentals, of great opportunity, the view held the our next guest from Morgan Stanley who also sites fundamentals and the return of structural demand for emerging markets and fixed income. He joins us now from new york, gordian kemen. Chris and megan still sticking with us. Dian, talk us through this. The money should be moving widely across wisely across to the emerging markets. Gordian we are pretty constructive on emerging markets and currencies alike. The fundamental backdrop is very inportive, a lot of stress 2014 we were looking at commodity week this. We are looking at the same driver now, just coming off of much a much worse turning point and e. M. Is very nicely adjusted to that. Now we are seeing e. M. Growing. We think that e. M. X china debt growth has a certain element that is sustaining and its also very well synchronized with developed market growth. Those are fundamental factors. Valuations are still quite attractive. We would argue that em fixed income is one of the cheapest Asset Classes around. As you mentioned, our view is Global Fixed Income portfolios are quite long and they are actually under weighted in emerging markets and that has only recently started to correct, so despite does record inflows, we are just barely moving back to the longterm average in terms of e. M. Fixed income allocations. Carolyn you are liking mexico, poland, argentina but you are not liking dollardenominated assets. Taylor we have a gordian we have a slight preference. E. M. Has become the better cause, so the whole market has rallied in tandem on the hard currency side. We see a little more upside, currently. We see a lot of stories in the local market where we still have very high real yield and the potential for Central Banks to go in, to use the turnaround in inflation dynamics and cut rates quite aggressively and we think that is going to be a key driver on the market side. David you refer to it as a beta call across e. M. What is the alpha if it is if there is a alpha . You can get burned on some of the betas if something go sideways in a particular country. Gordian we are constructive, so we are not particularly focusing on a lot of hedges, but i think there will be a time where we need to look a little bit closer in opportunities to get efficient hedges. Creditre a lot of stories, you mentioned mexico, coming at the beginning of the year, minor for the election. Now we are close to 18, so those are good opportunities that i think generate a lot of alpha. Argentina is a longterm favorite of ours, still has a lot of momentum and we are waiting for opportunities where the market backs up and investors can go in and add exposure at cheaper levels. This sort of quantitative tightening as i see it that came out of china, i think it had a domestic qe program that they are tightening up on and there was a bit of a shot across the bow. Does that not concern you, most emerging markets feed off of gordian we like to consider it as a pair. Our view on china is quite constructive. We are looking at a growth slowdown later this year and into next year. We also think it is going to be relatively muted. What is important about china from a debt perspective is we are seeing efforts being made to decrease the leverage or stop the growth and leverage. We think that is good news for e. M. Investors and i think this sort of managed growth slowdown is important to give us Downside Protection from commodity prices. This is really about the starting point, which is quite lower now than before. Carolyn all eyes once again on whether or not the domestic shares in china will ever enter that benchmark. Thank you very much, gordian kemen. ,egan greene and Chris Watling what a dream team to have with us. Ofing up, tom leighton akamai. Emma this is bloomberg daybreak. Coming up, we have an exclusive interview with larry summers, the former u. S. Treasury secretary. Carolyn this is bloomberg daybreak. Another exclusive you dont want to miss, they shift to mobile. Coocently spoke to facebook , Sheryl Sandberg. Our biggest message is that the small screen is big. People have moved to mobile and businesses are catching up. It is now the case that the average u. S. Consumer and these numbers are duplicated all over the world, spending about four hours a day on tv and five and three quarters on digital, the majority of which is mobile. It is a exciting time to be a marketer because people are carrying around this device that lets you reach them all of the time and Product Services have always been part of our daily life, from the toothpaste we brush our teeth with to the shampoo use to the car services or the cars we drive. All of this is part of our daily lives, but now marketers can reach us with messages we want to hear, as part of our daily experience. That is pretty amazing. , thexplosion of creativity advertising festival is about the creative community. How do we create messages that resonate with people, and that want them to be part of their daily lives . Carolyn this is almost playing into a discussion that Mark Zuckerberg started of Community Building offline and online, but how our brands going to be able to play into that . Communities are so important and we are focused on how we build communities that provide support for people, offline and online. Brands are a huge part of that. Carolyn that is exactly what she will be speaking about. She jets over to france to discuss with the Advertising Community how they can better deploy as book tools. That was see coo Sheryl Sandberg. David we will stay with tech. Executives from many of the Worlds Largest Technology Companies to meet with President Donald Trump and senior advisors for a summit aimed at modernizing the federal government. Leighton,scuss is tom Akamai Technologies ceo. It is fascinating. We talked about this before the meeting. As i understand, they are really trying to get the federal government into the 21st century, on to the cloud and into the modern world. How did the summit go . Tom i think it went very well. There is a lot of work to be done. In some cases, you have decadesold technology that we need to modernize and there was a chance to save a lot of money, maybe up to 1 trillion over the next decade to provide Better Services to users. David the federal government does not have a reputation for being able to do big projects quickly. Is there something that would help drive this much more quickly . You work at akamai. There were things that can be done on the near term that can see shortterm benefits. Every application you see online, every area you modernize delivers the benefit right away. If you can get good security procedures and defenses in place, it spares you from something very bad happening. David who is going to get this done . The president cannot drop everything and make sure this task gets done. Tom i think chris lindel is taking point. I think the Tech Community is willing to help. I think we are willing to invest resources, provide advice to help make this happen, but you are right. This is a big problem and a lot of work. David are they constructing chart . Hart a gantt tom i dont know the details, but i think that would be a logical next step. David the way you would do it. Tom sure. At akamai, we are helping the government secure itself. We defend a lot of the government websites and we are happy to help in this effort. David tom leighton of akamai, thank you very much for being here. Coming up, a live interview with larry summers, former u. S. Treasury secretary. Carolyn this is bloomberg daybreak. Tax reform continues to be a high priority for President Trumps administration, that the timeline remains unclear. Steven mnuchin sat down with bloomberg tv earlier today to discuss the status of the tax reform agenda. We have been pretty consistent in saying we are working every week very closely with the house and the senate to have a joint plan when we come out. The idea is to get us all on the same page so when we release the combined plan, it is going to get past and passed. It is our focus to get that done this year. It is critical to the economy. David joining us now from washington is Kevin Cirilli and isombergs own mike mckee here with me in new york. Kevin, let me start with you. Mr. Mnuchin says they are meeting every day with the house and the senate and they have something they thinking get passed by the end of this year. Kevin House Speaker paul ryan is set to give an address about tax policy reform. He says this is a onceinalifetime opportunity in order to enact the type of tax reform that he has been pushing for for quite some time. There are some differences amongst the republican caucus, including revenue neutrality and the border adjustment tax. Last week, i interviewed the has freedom chairman, leader of the ultraconservative wing of the Republican Party in the house and they are putting together their own plan that they hope to release as a sort of principle plan to negotiate with people like speaker ryan. They all want to get this done sometime within the summer, but it remains to be seen in the house whether or not can get this done ahead of the august recess. They insist they can do that. David mike mckee, maybe this is the way washington works, but those issues were kicking around three months ago, the border adjustment tax, revenue neutrality. Is there a way to make Real Progress on those . Do we see whether they are coming to an answer is to mark mike somebody has to decide what is going to be in the bill and that is what is not happening. The white house is out of it. They have produced nothing so far. Spkr. Ryan s gone to the various Committee Members and said start working on your own bill, you guys come up with something and that puts the onus on kevin brady who has to Work Together with the Freedom Caucus to try and craft a bill, but they had not even answered some of the most basic questions, starting with is this going to be revenue neutral. Bill,n craft a tax cut but republicans have not wanted to do that. Carolyn lets take it back to kevin because this is meant to be the socalled sales pitch from paul ryan, and is it one that Companies Want to hear . How much consistency and agreement is there about the territorial angle of the cut tax rates . Kevin a lot. In terms of the Corporate Tax rate and territorial and whether or not they are going to market it. You are seeing speaker ryan again to lay the groundwork. The white house has not put out a plan. Lets pause for a second and that great energy with steven mnuchin, we saw secretary mnuchin continue to make the case that this is all going to be done, try to build consensus, but you have to wonder, we have covered tax policy for several years now and this is a very different approach coming from this in administration with a lack of engagement, with Interest Groups and also with a lack of policy proposals that are circulating all stop there is no question that speaker ryan is the one driving the ship on this and really the driving force behind this, much more so than the white house. David in a word, are we going to have a tax bill by the end of this calendar year . Mike i would bet no. As megan greene said, tax cuts maybe. What you want going into 2018 is something to offer the voters. David many thanks to Michael Mckee and Kevin Cirilli, joining us from washington. Coming up, we will have a exclusive interview with former u. S. Treasury secretary larry summers. Carolyn weve got to be focusing in on how the markets are continuing to perform. 500 a close eye on the s p futures, down a 10th of a percent after that record day, yesterday. This is0 bloomberg. David stay calm and rally on. There may be noise and conflict in washington but Global Equities continue to move up. The dow and the s p said at record highs. The fed speaks and the dollar listens. A roller coaster session for the greenback after treasury secretary Steve Mnuchin and a slew of fed speak leaves investors looking for directions. Tech is back in favor. The markets Top Performing is back on track after its worst twoweek line since november. Welcome to bloomberg daybreak on this tuesday, june 20. I am david westin in new york. I am delighted to say, joining us from london is Caroline Hyde. We have already heard from the ofsident treasury secretary the United States and we are about to hear from the former one, larry summers. What more can you want . Caroline how many more exclusives can we cram in . It has been a feast if you want to get some of the key decision out there in the u. S. Today. Lets also focus in on when you make decision on Asset Classes. Ive got a british feast for you. The pound down 7 10 of 1 . The big move is happening because mark carney, head of the bank of englands happy today. Weaknesses in the economy, but there is no time yet to begin an adjustment. I hear you have some breaking news out there. David out of the auto sector, this is ford motor who has a new ceo. They have Just Announced they are going to end the north end production of the focus model. This is part of a shift in their product mix. They are going away from smaller cars and into suvs. We have heard they will be relocating a plant from mexico over to china who are seeing big shifts already. The new ceo has been there only three weeks and he is already making changes which is what they said they wanted. They wanted things to move faster. Lets go over to Abigail Doolittle for the movers. Indeed, many movers this morning in the premarket. Shares of the Homebuilding Company or more than two and a half percent after they beat secondquarter estimates over the top and the bottom line. The top by 12 . Thert miller is saying Housing Market is finally returning to normal after years of very slow pace, however, as for that stock, it is up more than 1400 since 2008 lows. The Housing Market might be slow in recent years but not that stock. Theing to a takeover stock, Drug Testing Company is trading higher on the news that cap own , capital has find the company so we do see the shares at a little bit of a premium but the stock is actually up more than 20 since our reports of this potential takeover surfaced in late may. It looks like the company may becoming may be coming to some pressure. Down in Mexican Grill the market. The analysts there, bret leavy, said he believes the Company Remains under pressure due to food costs. In earnings estimates, he is reiterating the stock is up ahead of this drop. So it will be interesting to see how this plays out. Caroline not enough to wet the appetite today but thank you much. Now, one market taking record highs. It seems like it is far from investor minds. The bank of america stress indicator, get this, dropped to its lowest level since september 2014 and a negative reading that signals there is less market stress the normal. Joining me now is the director of global macro, live from boston with us. Thank you for joining us. And a state of calm, will it continue . Are certainly in the ultimate goldilocks environment where earnings are growing, valuations are a little high but earnings have very good momentum. Though it iseven normalizing policies in a do no harm mode where it is not raising rates faster than the markets can bear, that has allowed the dollar to come down and Interest Rates to stay stable. The important transmission mechanism you just inferred was its financial conditions which are very benign. Financial conditions being so done so benign are the driver for volatility. Investort say it is complacency. I speak to a lot of investors and i think there is a sense of unease about the markets. People are not jumping with both feet at all. I wouldnt necessarily think we are at an overly complacent level but certainly, the ball has been as low it thats as low as it ever gets. It usually doesnt last forever. The question is, when will that end and what will be the cause . David so you put your finger on benign financial conditions. The fed has raised for three times in a row, and conditions have eased rather than tightening. The fed says we are going to keep raising the rates in the market doesnt believe them. What if the market is wrong and actually we will get great raises right through 2018 into 2019 . That is exactly one of the things that could cause this very goldilocks best of both worlds environment to get a little bit disruptive because, as you indicated, the market is expecting the fed to raise rates another one or two times over the next two years after the for that we have seen. But the fed through its dots is in for an we are going to see another seven rate hikes over the next two years. Maybe three of those will be in the form of Balance Sheet reduction and not actually hikes in rates but two versus seven is a very large disconnect. Generally speaking, the markets have been on the right side where the fed has been lowering their stocks as they get closer to the actual meetings where they would pull the trigger with last december being an exception where the dots actually went up slightly. But that doesnt happen and rates to rise faster than the market expects and the dollar could go up, the 10 year yield could go up, the curve could invert at some point which historically has been a leading indicator for recessions. It is very easy to see how in 2018, this very sweet spot for the market can be upset, assuming the fed is right and the market is wrong. Caroline not just the fed that we look at. Eyeing up Dollar Strength in particular. The dollar could go up. We spoke with the treasury secretary earlier and he talked about his view of the dollar. Have a listen. It is not our focus where the dollar is in the shortterm. There is obviously certain negative aspects of a strong dollar as it relates to our exports. But on the other hand, a strong dollar is a vote of confidence in the u. S. Economy and the Trump Administration, simpler to what is going on with the stock market. Caroline a vote of confidence in the Trump Administration. That is what the stock market is signaling. You agree . Mr. Timmer i think the dollar is in a very gradual downtrend, after a very strong push higher in 2014 and 2015. That push higher was very damaging, really for the Global Financial market. That is what caused financial traditions financial conditions to heat up. It led to the chinese devaluation of their currency in august of 2015 so a very strong dollar is not really a good thing for the markets. Obviously, a weak dollar can be seen as a negative as well because of the vote of confidence as we heard but a gradually declining dollar is generally very positive. It tends to lead to more combing financial conditions. It takes the pressure off of chinese policymakers to devalue their currency and that is important for the global picture. I think the way things are right now are really pretty ideal. The is how long will it last . David specifically, let me ask about the ecb. We tend to focus on the fed, but the ecb has a lot to say, it seems to me right now about what is happening with the 10 year yield in this country because as long as there is lows, euros are going to be seeking bonds back here. Turns aroundcb and starts tightening . Mr. Timmer that is one of the Big Questions over the next few years that we have to grapple with. If you believe that Interest Rates around the world are much lower than they really otherwise would be because of all of this very interventionist Monetary Policy where the bank of japan and until recently, the fed, were buying basically tens of billions of dollars or euros or yen of security every month and the Balance Sheet at the top, five or six Central Banks, is now 16 or 17 trillion. When those securities role of the Balance Sheet, will that cause a large reset in Interest Rates and if that is the case, that will be very significant because low Interest Rates directly or indirectly speed into every other asset class. If you value equities or corporate bonds, they all are derived from the riskfree rate plus the spread. Or 200 rate goes up 100 basis points, that has implications. But i think the fed is being very careful. They have these caps in place and it is going to be very gradual and even the ecb, when they announced their taper to 60 billion they also extended qe by a fair amount time so i think the Central Banks should be very careful not to upset things too much in terms of what the impact will be on Interest Rates because with debt levels as high as they are, the world cant afford very high Interest Rates because then debt service would become expensive. David you say that serves a lot of different Asset Classes, one of which is equities. We have a high value of stocks in the United States if you look at the quarter priceearnings ratio. How much of that is supported by the loose monetary conditions coming out of the fed and the ecb . That, what might that due to the value of stocks . Mr. Timmer if you think about it from a discounted cash flow model, which i think most fundamental investors would use to value equities, we are trading at a 21 trailing show and what you are doing is taking expected cash flows and discounting them by a discount rate. That discount rate is the riskfree rate which is the 10 year treasury plus the equity risk premium. And what we saw postelection in november was that the equity risk premium fell very sharply from about 3. 5 to about 2. 3 , more than offsetting the rise in the riskfree rate of the 10 year treasury going from about 1. 7 before the election to 2. 6 if you weeks after. A few weeks after. Those components set the discount rates. The good news is when Earnings Growth is robust as it is right up, q2 earnings of seven or 8 , you can extend a rise in the discount rate and not have it really upset valuations. One of the problems we had over the last couple of years was that the fed was raising rates or was trying to raise rates and it increased the discount rate in the absence of Earnings Growth. It would have taken hit off of valuations but we are not seeing that. Caroline one extraordinary area has to be about tech. I was discussing what we are looking at, type in your bloomberg g btv 245. Yesterday was very much back on the agenda. The s p 500 gauge posted its biggest rally of the year in the tech industry. You are looking at membership weightings. Apple and amazon and facebook dominate the leaderboards when it comes to the s p 500. I want to get your take on sectors. Is tech where it is that . We continue to see this or could it remain overweight . Mr. Timmer i would just clarify that the tech in general has had a large move of the last few months but a lot of people have been talking about deja vu of the tech bubble in 2000 or even in era of the early 70s but 2000, the pd for tech was 70. Today, it is 19. Press of sales was seven, today it is three and a half. 21 , when waiting is back then it was 45 . So we are nowhere close to the bubble valuation levels. To answer your question, i view the market as three different spaces or themes. One is, what we can call the trump trade, small caps values, financials, those parts of the markets that response to the process of deregulation, tax reform, etc. Then there is the bond proxy, that was a big trend of the last couple of years, and then there are secular growers. These are stocks that grow regardless of what the economy does. Those have been very much in favor, but one of those three or maybe two of those three will always be at or underperforming. That with the prospect of fiscal priced out, we are looking at the chance of any renewal at all could bring that trade act to life. Which is fine, because i dont want to see these big bubbles. I would rather see healthy rotation. David he is going to be thing with us. We just heard from treasury secretary Steve Mnuchin on the dollar, the debt ceiling and the u. S. Economy. An exclusiveur, interview with larry summers, the former u. S. Treasury secretary. Live to our viewers worldwide, this is bloomberg. David this is bloomberg. I am david westin. Big news out of dearborn. For disinvesting 900 million in its truck factory in kentucky to sportutility vehicles while canceling controversial plans to build its small cars at an existing mesko site. It will not create any new jobs. Joining us is david welch and still with us is jury in timmer of fidelity. Ford is canceling their plans to build that factory in mexico that drew so much ire from President Trump. Both during the campaign and after he was elected. They are not building cars in china so trump is not giving the jobs here and they are going to import some from europe. Meanwhile, they are investing a lot of money in a large suv plant. You see where the market in the u. S. Is. Big suvs, stuff that makes a lot of money. They will make the largest addition and Lincoln Navigator in kentucky and then you see passenger cars which americans dont want our imported from china. David we have a map on the bloomberg where ford has manufacturing plants all around the world. You see quite a few in north america. Ande or four over in mexico china and we have some over into europe as well. Wheres an extension of they were headed already or could this be attributed to the new ceo . We got a new ceo in the last months. Is this part of shaking things up or was this in the works . It is a bit of both. They have been moving production of small cars and passenger cars that dont make a lot of money out of the u. S. To where they get cheaper labor costs and it has typically been mexico. But they have to have invested a lot of money. We are talking close to a billion dollars to build that plant in mexico. It was going to be more expensive. Mark fields, the former ceo, had pulled back that investment. What hackett has done is he has said, small cars dont make money. Why are we putting new investments to owners there . Why dont we just build them in europe where we already have production and in china where we get them as well and not spend any money so the billion dollars of savings are spent building new plants. David im not inspecting you to know the intricacies of Ford Motor Company and how they produce cars, but more broadly, to what extent are you concerned if companies are making decisions based on things like trade and worker adjustment tax as opposed to where the best place is to build the car . I was asking you actually,. Mr. Timmer so i would imagine that companies are ultimately going to do what serve their shareholders. So if this did not make any sense for ford or any other company, i doubt they would be doing it. I would guess a transaction of this magnitude was probably in the works for a while. I dont have particular knowledge but i would imagine these things are not on the dime. The Global Economy is expanding so cars need to be built and it is just a question of where they will be built. Ultimately, capital and labor were the hallmarks of globalization and obviously, globalization has probably or at least been undermined a little bit with brexit and our election. The Global Economy is growing. China is growing very fast right now. People need cars and where they make them and where they ship them to, ultimately, is what companies will decide on in terms of what makes sense for them. Caroline do you think the Investor Base needs to factor in the higher cost base when we look at sectors such as auto in the u. S. Not only are they looking at new policies but they also have to tackle the trade issue, notably the steel rally in the United States at the moment and whether their costs will start to rise for import. Mr. Timmer yes, because if globalization has peaked im not saying it has gone away or been reversed but if it has , that holy grail of faster than normal growth and lower which isal inflation, what globalization ultimately produced as labor and capital moved freely around the world, if that has peaked we should get less growth and more inflation. The cost of production, whether you are here or china or anywhere else should theoretically go higher. How much higher and how fast is a different question but some form of stat inflation or inflationary growth, we see that in england for instance, is likely a part of the deal. Caroline that was bloombergs david welch, bringing everything on forwards for us, sticking with us. Thank you very much. Coming up, and interview, as if you havent had enough excuses today, with larry summers, former u. S. Treasury secretary. This is bloomberg. Caroline it is decision time. Chinas fourth attempt at cracking into the msci benchmark share. It comes with its best chance of success and the least at stake. Previous efforts have found it on concern over repatriation limits. Still with us, of fidelity, and joining us is bloombergs economics and cortisol in and correspondent mike mckee. 6. 9 trillion market, if you are looking at the yuan denomination. Michael the market is a very confusing market and it is not one people can invest indirectly. A lot of etfs investec in china on an indexed basis. That is what we are talking about. 3 trillion in the emerging market index, that is a big number. It people are rooting for them to get in there to buy a lot more chinese stocks. Caroline talk to us as you look at the portfolio and whether you will be forced to buy more stocks. It will only be very small for the yuan denomination. Mr. Timmer it is small so i dont know that it is an earth moving event on its own but i think it does speak to the larger story here which is that chinas economy is a very big systemic importance. More so it is happening on the fiscal side of the u. S. Into pumps a lot of money its economy, about a year ago it had a credit impulse, 30 of gdp. It is currently growing at around 8 by internal measures and how china handles the aftermath of this credit reflation is really one of the key things that we need to look at as we going to the second half of the year. Fascinating perspective. Both from mr. Timmer and Michael Mckee. Is it fourth time lucky for chinas can tell on domestic sharemarket. Now, the opening bell is up next on bloomberg daybreak. Lets have a quick look at how they perform ahead of that. Futures are flat, off by just one point. Record highs yesterday, apple and microsoft meeting those gains and tech was backing for this. Back in focus. In focus. Till i want to remind you there are concerns about former executives charged with conspiracy to commit fraud. This is bloomberg. Caroline this is bloomberg daybreak. I am Caroline Hyde in london. David westin is in new york. Just moments away from the opening bell in the u. S. , lets take a look at where the markets currently stand. Dow jones futures up six points. Heady records for the dow industrial average estimate. Record high for the s p 500 yesterday, futures down by 1. 5 points. Nasdaq futures, a push higher. Key areas to keep an eye on, dollar index currently up by 1 10 of 1 . Hawkish tones from a number of the Federal Reserve today. U. S. 10 year with the yields, just 41 basis points, kind of a rally in the 10 year. Oil off by a percentage point, dragged by a point about 2. 4 . That has dragged european stocks lower. Keep an eye out on today. Moving in the early market and premarket trading, that is what people say the electric carmakers faced in china. Ford is also eyeing of china much more, deciding not to be making its ford focus in mexico anymore. They are going to be going primarily from china. Lets dig into individual movers and keep an eye out with Abigail Doolittle. Have a look at how stocks have opened. Abigail after yesterdays big rally, we are looking at small declines for the dow, s p 500, and nasdaq. We have no records at this time but the big story was the nasdaq had its best day of the year. That tech rally, again, now we are consolidating those gains. Not clear as to how the day will trade out but we will be watching. One clue could be oil as they grab already here on the open. , for out of the last five days, seeing 11 months low. This as rising libyan production is the news today. The big story overall is the Global Supply glut and whether or not opec cuts can offset u. S. Inventories, rising u. S. Inventories. Investors need to take that into account. Moments ago, i spoke to an Energy Trader over at seaport and he says with oil putting a low in here, he sees oil dropping to 38. That the put pressure that could put pressure on major revenues. Lets see how that pays out. Rally,ng to the tech after the selloff we had in the btvs before, this is the going back to 1971. In blue, we have the nasdaq and in white, the number of days the nasdaq has not dropped 5 from a record high. Days, 15086, those six days without making that 5 drop. And yesterday, this is pretty amazing, even though we had that pullback about a week and a half ago, 154. Today, we are on day 155. This chart may go slightly higher but overall, the trend could suggest the nasdaq is do a 5 pullback. David lets find out. Joining us now is wells fargo Investor Institute president and welcome back to the program. Tell us the story about tech. Tech was going down for a while. Now it has come back. The nasdaq is back up. What is the future of tech stocks . Tech stocks have gotten a little bit narrow at this point. It is accounting for almost 45 of this years s p return so far. The five largest tech stocks marketake up the same cap as the bottom 250 stocks in the s p 500. It is getting narrow on that. We are, as abigail pointed out, overdue for a correction so we are taking a little bit of profit here, holding a little bit of dry powder. What do the technical show us . One of the points daryle brings up is to what degree this terms ofeffect is, in the moves in those top five, top 10 companies. And, indeed, i will just point to some of the stuff we have done recently to address this happens a lot of the time. We have that sort of leadership as the market returns breakdown, to where there is that readership. When you have that weakness that has happened in the past couple monday, the friday, the what we have, the amount of this version dispersion that has propped up in the market, when you look at it sector by sector in breakdown how correlations have been falling apart, i think that is a pretty interesting opportunity for investors, in the postelection moment where stocks were all going in different directions. A lot of people managed money. Caroline quite fascinating, just talking there about the dominance of the certain key top stocks. Looking at the s p 500, and remember waiting who was on the top five leaderboard. Number one is apple and then comes out of that and then comes microsoft, amazon, and facebook. We are dominated by technology here. The valuations are phenomenal but when youre looking at fundamentals, many say, the growth is there to support it, particularly looking at companies such as facebook. Mr. Cronk you are right. When you look at q2 earnings, the Top Performing sector you show is energy in Earnings Growth is technology. In stretch valuations, we think there are other sectors like financials in the short side of the yield curve, like industrials, Like Health Care that just closed better evaluation here. Tech is up 34 year over year as a sector. That looks a little bit hot to us as far as getting ahead of the fundamentals. Caroline talk to us a little bit more about the correlations breaking down. We are looking at the u. K. Today and the correlation you usually saw was down when the british pound, out went the ftse largely. Meltdown we seeing a in these correlations . Is it in oil and dollar as well . Recently, everywhere. Across the board, we have seen correlations come down with the tech sector. Even as far down as energy companies, which moves together very closely with oil. We have seen it breakaway in some variation. What is kind of happening is this continual shift from rotation, rotation. I think we had a rotation at the beginning of the year which basically was the trump trade stopping. And then, this in between trade where people came back to Growth Stocks and Tech Companies and then about a week ago, we started to get a little bit dicey. Some of those Companies Sold off and now the question is, what is going to rotate. The bounce back from those few days of selling, it is a solid breath. It is interesting looking across the market, not necessarily for the benchmark index but all companies and it never really dies down. There is still some Companies Trading above that. Darrell cronk of Wells Fargo Investment Institute and oliver renick, thank you for letting tech to me. Tax reform now. President riority for trump that ministration but when i we going to get it . We spoke to commerce secretary wilbur ross who said it is still important it is an ministration. I think cutting the tax rich hugely, as we have, plans to do, is a very big benefit. Tax structure used to be a major disadvantage. Similarly, our regulatory structure has been a huge disadvantage. We david also sat down with secretary of treasury Steve Mnuchin earlier today who says he is trying to make sure it happens this year. I think weve been pretty consistent in saying we are working every week, very closely, with the house and the senate to have a joint plan when we come out. The idea is to get us all on the same page so when we release the combined plan it is going to get past and it is going to get passed by the house and the senate and the president will sign it and that is our focus this year. It is critical to the economy and we are working to get that done. David this is what the administration is saying even as Speaker Paul Ryan attempts to sell his own plan. Douglasus now is holtzeakin, head of the cbo. Welcome to the program. Is this going to happen . Tax reform, not cuts, reform. That is the key. Can we get something that is permanent which will give better incentives, reduces the profits we see which have been slow growth and wages, and m production offshore. If that is the set of problems everyone agrees on, can we get to a plan that cuts rates, moves towards the more territorial neutral . D is revenue david that is a big sticking point, as you know. You would have to score it in your old job. You cant find anybody in washington who isnt for tax reform here at getting there is something different, even within the Republican Party. Can they bring together the house and the senate and the Freedom Caucus, which are particularly conservative in the republican group, and though white house to get something they can all agree on which would be tax reform. I think it is simple. Ofald trumps president United States and the republicans control the house and senate because the public once better Economic Reforms and they will be judged on whether they deliver it. This is the ground jewel. Tax reform hits the quickest, has the most lexington , and it will have to coalesce on a plan. That is always hard but it can be done. Caroline great to see you. I just want to get your view on how key success is to the sales pitch that kicks off today. Paul ryan has many thinking the viewpoint will miss. Will he address any issues at the disagreements of the Republican Party . I think he will avoid details today. He will talk about the problems and he will talk about the things that need to be done in terms of better investment, incentives, an Lower Corporation rate to get the u. S. Back in the game internationally, avoidance of losing had orders, and staying out of the places where they disagree, the house, the senate and the white house. They are continuing to talk as secretary mnuchin said and he will make a call for action without saying exactly on what. David so is it possible the delay could help in this sense . Would numbers of the house becomes about going back to reelection if they had not delivered something substantial on taxes. That would be a terrible thing for them and they know two things. They have to deliver and they cant deliver without the white house being all in. What we are seeing now is some coalescence around some ideas and never be on the same page. Secretary ross, secretary mnuchin, speaker ryan all talking on the same script. They need that because tax reform can be divisive. One couple in case this, another company likes this, they need the American People saying, hey, you got to do this. David somebody got to drive the bus. Is the white house driving the bus . Are they exerting leadership on this issue . Plan . You a havent seen a plan, i havent seen a plan so until they have a plan, we can judge that but it is the key to getting it done. So are you optimistic for tax reform . Time. Give them some more are you optimistic something fundamental will be done or will they trim around the edges and have some here and there. Tax reform actnk in 1986, 86 was a Midterm Election year. So you can do big tax laws in an Election Year so i am not worried about that. It is imperative that they do something substantive, permanence, transformative. If they do something around the edges, the Business Community is going to be disappointed. David are you saying border adjustment tax . Because how can you pay . 1. 2 trillion . Can you get the revenue neutral and therefore permanent without a border adjustment tax . Certainly but you cant the as aggressive. You could probably get the rate to 25 , house expensing and get to revenue neutrality. What they do need to settle on is tax cuts versus tax reform. Reform is far better. What kind of test form do we pursue . David where is the leadership coming up on the hill . The house side . From house ways and means . Is it from hatch on the finance committee . Who is in a position to put this together . I think chairman brady has on a spectacular job thus far of nurturing tax reform and making the case for tax reform. The constitution says the house has to go first so all eyes are on determined brady and speaker ryan on the floor and then the senate will take it up. David on health care, Something Else you know about, they are trying to meet this deadline of the july 4 recess to have the senate votes out. It was in the news today and they will push on this. Is it essential they get something done on health care in order to get to tax reform . We heard it from the president a couple of months ago. David number one, mechanically, the special procedural, using the reconciliation procedures, they need the Health Care Reconciliation before they get a new one for tax reform or otherwise health care expires. But the more important thing is the American Health care act contains a trillion dollars in tax cuts and of those dont go through, they will come back onto the tax reform effort, most likely, that is a trillion dollar hole that you have to fill. David so they have to know how much they have to spend before they can spend it. That is exactly what theyve got. David ok, thank you so much. That is douglas holtzeakin of the American Action forum. And caroline . Caroline lets turn our attention now to how the markets are heating up this morning. With just a few minutes into the market open, the s p 500 off. We have fresh record highs yesterday, with tech leading the charge. Today, some tech on the green with nvidia still driving and the green for us. The stoxx 600 off by 2 10 of 1 . Crippling some enthusiasm today, pulling down the sector in europe. Barclays also lower. Concerns, of course, of a potential conspiracy to commit fraud charges being aimed at barclays. Lets look at the pound. It keeps plumbing the depths. We hear from mark carney. Yields on the u. K. Are falling lower, u. S. Yields also down by one basis point. 2. 18 is where we trade on the 10 year benchmark. Erie crude oil, down 2. 8 it is really pulling down most of the stock market. The Dow Jones Industrial average could hit new highs today. This is bloomberg. This is bloomberg daybreak. I am emma chandra. Heres the fuel enterprise greenroom. Jeff terry of goldman sachs. Say with us. Stay with us. David this is bloomberg daybreak. I am david westin in new york and my partner and friend Caroline Hyde is in london. Airline . Caroline the partner in crime for today, and we have another exclusive interview for you on bloomberg daybreak. Facebook coo Sheryl Sandberg spoke about the opportunities in technology and what it means to jobs or businesses. Heres what she had to say to me earlier. What we are seeing is more adoption of the mobile platforms. There are 70 million Small Businesses that are using facebook on a monthly basis. That is our free product, 5 million advertisers. In facebook we have 8 million instagram profiles of which a Million People are advertisers. With the Smallest Company and the largest company, they are investing in mobile because that is where people are spending the time. Caroline do you feel optimistic about what these show you about the u. S. Economy and the Global Economy in general . Are we seeing jobs being created . Are we seeing brands spending money . Can you give us a gauge of what we see . Our goal is to make sure businesses spend money and get a return. What matters to marketers is when they spend on marketing, it brings the Cash Register both online and off. That is what we are working on. We also see Small Businesses play an Important Role in the Global Economy. The majority of job creation around the world is actually Small Businesses. Even the most offline Small Business can use the power of technology. When i was last in europe, i went to berlin and got to visit a Company Called hold connections. They are a furniture manufacturer, a manufacturer of wooden furniture. That is a traditional business. On didnt change anything about manufacturing but started marketing on facebook and mobile and now they have open five more locations. Including outside of germany, creating jobs and growing their business. So technology can power innovation both in the core of the business but also can support any business out there. Caroline so when people worry eroding jobs out there, are you seeing the other point of view . Theechnology is changing economy, technology is certainly replacing jobs and technology can also be used to grow jobs. It is our response ability to help Small Business and Large Businesses around the world use technology to grow their businesses so that they can grow jobs. Caroline interestingly, when we are seeing, perhaps, a drive towards job growth, we are also seeing valuations, for example, of Technology Companies going through volatile times. Does that affect the way in which you look at the world . My job, every day, is to work on growing facebook, helping more people use facebook and instagram and messenger. More people get value from the products and services and more businesses. I feel like, as a business leader, if i focus on our business, that is where my focus needs to stay. Caroline that was Sheryl Sandberg, facebook coo. Fascinating that technology is feeling that they do understand jobs are eroded by tech and automation but also it is their responsibility to feed the consumer with new jobs and the world with new jobs. David we hope that comes to pass. I am glad you asked about this, because i think that is one of the most pressing issues of our day. You are seeing it in Wage Inflation and unemployment. There are jobs coming along but they are not paying as well as those manufacturing jobs used to so it is not just a matter of creating new jobs but creating new jobs for the uppermiddleclass who are trained in coding and things like that . What about a guy on an Assembly Line with just a High School Diploma . That is one of the big issues for our time and i hope that tech will help us sort that through. The question of inequality ranges from the u. S. Political debate all the way to the United Kingdom as well. We were hearing from megan greene earlier that maybe this is why we are not seeing wage and nation because it is the lower paying jobs that are at the moment fueling the growth and we are not seeing the productivity in the higherpaying jobs. Smallterestingly, we have businesses that seemingly facebook wants to try to help steer as well as Mark Zuckerberg wanting to build a community there. Theyre also saying, come on to our platforms and keep on building this. Have somethingwe that she used to work with. David we are now going over to berlin where the Germany Bureau chief is staying with us, with a very special guest who used to work with Sheryl Sandberg. Hello, david. I am at the American Academy in berlin. Willn finance minister receive the Henry Kissinger prize later this evening for his international work. Among the attendees at tonights ,vent is a special guest harvard economics Professor Larry summers, position numbers is joining us here now. Inc. You for being with us this afternoon. With the g20. The summit is coming up in a couple of weeks in germany, in hamburg. There are considerable differences between the u. S. And germany on trade. How is this going to play out . I know how i hope it plays out. I hope there will be a recognition by the Trump Administration of the importance open Global Trading system. I hope there will be a recognition of the mutual interest in trade. There is nothing wrong with the art of the deal but the right and the best deals are not win lose where somebody wins and some of the else loses. They are win win. That is what we need to aspire to. Chancellor merkel said this morning that she is hoping there will be some sort of a deal, a communication out of the summit but it is going to be difficult. What are your expectations . Thesummers i am sure negotiations wont be easy and they will go to the last moment. I have negotiated my fair share and usuallyes people are up all night before they are released. This will go down to the wire. I am guardedly optimistic that at the end of the day, reason will out and language will be found that reflects the Trump Administrations legitimate concerns about American National interests but also reflects the rest of the worlds concerns with there being a global community. I do think that after the last g7, after the withdrawal from the paris agreement, the Trump Administration is on the back foot and this could be a very toortant moment for them send a signal of their different approach but of a continuing u. S. Commitment to global cooperation. I suspect this is a kind of pregnant moment where, in terms of international relations, things could be significantly improved with the right signals from the administration but if those signals are not a difficult situation could become substantially more difficult. David this is david westin back in new york. When you talk about global cooperation, one thing brought to mind is the paris accords. You have an oped out with the former secretary of state where you are proposing a different approach to getting our arms around Climate Control and what you call a carbon dividend. It sounds like attacks but why do you think this is doable it sounds like a tax that why do you think it is doable . Mr. Summers it is in every but his interest because by using prices, we address Climate Change in a way that is better for business. Look. How can a proposal that taxes fossil fuels and is endorsed by exxon and British Petroleum possibly really be doing great damage to the Energy Economy . The truth is it will help the Energy Economy by moving away from the kind of command and control regulation that we have relied on for too long. At the same time, this builds in a constituency because every american is going to share in equal proportion in the revenue and is going to receive a kind of dividend. Much like the citizens in alaska receive a dividend as a result of alaskas oil wealth. So this is, by creating the dividend, it is providing an entitlement for all americans and it is removing the regulation that has been most worrisome for business. It seems to me this is a win win approach, and crucially, unlike the current approach that stands up for u. S. Interests through border adjustments and makes sure that u. S. Producers wont be any kind of competitive disadvantage because of the step we are taking. David so for those in our audience that might not have read the piece, as i understand, the theory you have is a certain tax per ton of coal. That would be distributed to the populace overall. How would this be distributed . It is progressive because it is the same amount for people with every income. Mr. Summers so if their income is 40,000, it is going to be a higher fraction than if your income is 80,000 and higher than if your income is 200,000 or 2 million. This is about the most progressive approach you can policy while at the same time being very good for business. Because of the regulations to be removed and the very good for competitiveness because of the border adjustment. David as an economist, are you worried about this border adjustment notion . You say this will help us competitively around the world. As i understand, there has never been a border adjustment tax imposed anywhere. We dont know how it would be worked. We are going someplace we havent been before. Mr. Summers i dont think so. David, look. It is the essence of progress to go where you have never been before. I have talked to any number of experts. The basic idea of putting taxes on things that come through an international border, that goes back to well before our constitution. In a sense, taxes at the border are the oldest and most traditional kind of tax and it turns out that most of the energy embodied in what the United States imports is embodied in a relatively limited number of products. World withs Information Technology making it possible, i think it is a way for people who dont want this for other reasons to suggest this is somehow infeasible. David lets come back to broad topics of International Cooperations that you started off on, beyond the approach to carbon. One of the negative effects on the u. S. Economy on growth if we dont find a way to cooperate internationally better than we have in the last two or three months. Mr. Summers look, ultimately, it is about war and peace. The United States didnt find a way to cooperate after the first world war. We withdrew from the league of nations, we insisted on tentative debt repayments for others. After some years, we enacted a terrorist and ultimately a arriff and it was one of the darkest years we have known. We stood for the global community, that is what the