Of leaked diplomatic memos. In the memos, he called the president inept and incompetent. Johnson and jeremy hunt, btw look and jeremy hunt, the two contenders to replace theresa may, will meet in their only headtohead to have debate in the campaign. Comes after numerous events around the country in which the candidates to questions individually from conservative party members. Global news 24 hours a day, onair, and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im Mark Crumpton. This is bloomberg. Vonnie it is 1 00 p. M. In new york, 6 00 p. M. In london, 1 00 a. M. In hong kong. Im vonnie quinn. Welcome to bloomberg markets. From bloomberg World Headquarters in new york, here are the top stories on the bloomberg and around the world we are following. Clues on awaiting more the path for u. S. Monetary policy. We will preview jay powells testimony to capitol hill tomorrow. Deutsche banks execution risk. Shares slumped and bonds sinking as wall street looks at the Restructuring Plan with skepticism. And the latest threat to obamacare looms in new orleans where a federal Appeals Court panel is hearing arguments to date whether a federal judge in texas was correct in striking down the Affordable Care act. Health care for millions of americans at stake. Have the mexican peso moving after the finance minister resigning abruptly in the last few minutes. Apart from that, halfway into the trading day. Abigail doolittle is looking at stocks. Abigail we are looking at a mixed market. The dow and s p 500 lower for most of the day. The nasdaq had also been lower but now climbing out of that hole. Investors waiting for those clues from jay powell tomorrow from congressional testimony, what it could mean for monetary policy, will there be fewer rate cuts, will they be later than expected . Where we do have direct clues on the treasury market, take a look at the threeyear yield. Bonds are selling off. After an auction, 38 billion, threeyear note auction. The rate coming in at 1. 85 1. 6 . Prior, if we compare the threeyear yield to the 10year yield, because everyone is talking about the threemonth note inverted to the 10year yield, we dont have an inversion, but we do have this part of the yield curve flattening. Something to keep in mind there. The big one that everyone watches, the twoyear to the 10 year. One area weakness for the markets, dragging more so on the dow, the reason it is underperforming. Take a look at these material stocks. Freeport maccmoran down with copper declining. We also have some of the other material stocks trading lower, particularly dupont, in sympathy with basf which lowered its profit forecast. Plunging earlier in the day, taking a bite out of the materials sector, explaining why the dow is underperforming. Vonnie thank you. Markets pricing for key testimony this week from jay powell. Banister in very Barry Banister joining us from baltimore. Where do you stand now on rate cuts . I do believe the fed will cut rates july 30 one, taking back that december rate hike in 2018 which was clearly overdone. The question before the market is whether they do another 25 basis points in september, taking back one year later the september 2018 rate hike which the market really did begin to peek out after that if you 2920 ande peaked at2 they raised rates soon after. The question is what happens to the data in august to convince the fed to move in september again. If you look at todays numbers, fridays nonfarm payrolls, you may ask yourself why the fed needs to put in insurance cut in place at all. Barry you have five reasons. Very low inflation. We have a low forecast into next year. Second, full employment. Underserved, disenfranchised people are finally being included and are seeing wage gains. That is something the fed knows they have to continue. Third, we have an 80 basis point positive real rate in the u. S. In the rest of the world, it is to type. The fed knows that. It is too tight. Fourth, i would say the yield curve is an issue. The yield curve does matter, and inversion does have got to answer is. Last but not least, this summer, we will have a debt healing showdown in washington. The fed is a little bit leery of that, if the government runs out of money by the first week of september. So theres enough reason for the july rate cut. We will see about september. It is binary beyond july, the fed either goes again or does not, what is the trade for that . Futures already reflect september and possibly one more. I think the market would be disappointed if the fed comes up hawkish in august in speeches and does not seem to indicate it is going to move again in september. That would be bearish for the s p. You would see the high beta trades tradeoff. We are more concerned with the postjuly 31 world. Vonnie exactly. We also have the next quarter of earnings to contend with, alongside that question of whether the fed cuts a second time, assuming it cuts for the first time. Given what we have heard about the trade conflict, hurting some companies already, what kind of estimates do you have for Second Quarter earnings . Barry we are pretty much in line with the street, almost no growth in the Second Quarter, but we have a much lower estimate or the back half. We think the cfos will bring back the back cap guidance. 157 using the s p feed for s p earnings. 164 andt is at about coming down. We have been six dollars to eight dollars below the street since last year. Inyou recall a year ago, june, the consensus for 2019 was 177. As estimates come down, the fed is signaling lower rates, the market is signaling lower rates. That keeps your p e up. That has been our call, pretty flat here. Vonnie is there an area that you are telling clients is not fully valued . Barry almost everything looks overvalued right now. We have been proponents of the view of a yield curve inversion. 1. 75 downside target by the end of the Third Quarter on disappointing inflation and fed moving toward the rate cuts, Global Growth being fairly weak. As i said, low inflation is a big deal. We have a 1. 75 target for the 10year yield by the end of the Third Quarter. Im going to squeeze the last bit out of these utilities, reits, consumer staples, defensive trade that we have been positive on since last september. After that, i will reassess whether the oversold Growth Stocks are worth a bounce into yearend. Right now, im sticking with the ves iproxy defensi mentioned. Vonnie thank you, barry bannister, coming to us from baltimore. Some breaking news. Coming the mexican peso back a little bit, weaker now by 1. 3 versus the u. S. Dollar. It has spiked earlier after the abrupt resignation of the finance chief. We have a new finance chief that has just been appointed, arturo herrera. He was the deputy finance minister and now amlo has upped his stature to finance minister. If you were trading dollar pay so, you have had an interesting 20 minutes or so. Extending losses on investor doubts that the chief executive can provide the lender by shrinking the Investment Bank and returning its roots as a banker to germany. This is bloomberg. Vonnie this is bloomberg markets. Im vonnie quinn. Investors are becoming increasingly skeptical that the Deutsche Bank chief christian sewing can pull up the biggest overhaul in the banks history. That pessimism being reflected in the stock price. Another selloff today. Christian sewing must be saying, what do you want from me . he has had since sunday night, have patience. It will be until 2022 that we see real results. It will be costly and painful. That said, remember the initial reaction. People like the plant because it was drastic, but now they are saying it is too drastic. It is a tough thing to swallow. Saying, this is better for the long term. The hard thing about swallowing the long term for these investors is you dont know what will happen between now and then, especially with the state of the german economy, where yields are right now. Vonnie is it that there is not beugh visibility that may the number of years it will take two and a this plan, maybe too long for shareholders . Is that a problem, or is the plan on bible . Sonali it is a problem that it took so long. The other things they are committing to are also competitive areas to compete. What is the Investment Case when the u. S. Is delivering a record payouts . Compare that to other banks, european banks. Barclays right now has a bigger return the Deutsche Bank says it will have in a few years. Tangentially, but also not, an office in florida. Employees had relocated therefore Deutsche Bank. For Deutsche Bank. Sonali it is another sad reality of the job cuts. They did not just cut 18,000 jobs yesterday. It will happen in waves. We have a huge employer in jacksonville, florida, and outpost where they asked their employees to move to in good faith, and now their careers are in limbo. The other reason it is scary, Deutsche Bank is not the only bank that asked their employees to near shore, which is what they call it. Vonnie plenty of Financial Firms have moved their folks to nashville, other places, but in florida, where salaries dont need to be anywhere near they need to be in an urban hub, those employees are more stuck potentially. Sonali not just those employees. With the 18,000 that may not work there anymore, where do they go in general . If you are working in jacksonville, it will be much harder to find a job elsewhere. It is not like everyone Major Global Bank has a hub there. Vonnie sonali bassett, thank you. Basak, thank you. Ibm finished its merger of red hat. Spokem and red hat ceo with david westin about the two companies. Its really important not just to the people that work at red hat but to our commercial success. We are a capability driven company. Our capability around open source allows us to be involved in these communities and have durable success, whether lennox, inux or open containers. It is integral to our success. Ibm recognizes that. It is about bringing our two cultures together to create unique value, not integrate to create one culture. Vonnie at the same time, if they are truly independent, how did you get two plus two equals five . Remember, we have been open source 20 years along with red hat. When jim says both believe its important for the right reasons. What red hat has done is built that ecosystem, and in open source, with its terms and conditions and ecosystem. That issay preserve it, what we are preserving, but we will help them extend their reach into 175 countries. On the other hand, the synergy with our products, youll be seeing a lot of announcements this summer. They will work the best on the red hat platform, which is number one around the world. Synergy,the word maintaining independence at the same time. I not only go to new countries but i also go across all of the other clouds. So atns the best on it, the end of the day, you only have two multiCloud Platform out there. We think these things work better with the platform. We are working to build the best hybrid cloud plant or, but nobody buys a hybrid Cloud Platform to look at it. You buy it to build or move applications. The capabilities that ibm brings , whether their own software stack, one of the largest, systems integration, Applications Development capabilities, it is how you put workloads on that hybrid cloud plant form. Platform. Coming together allows us to accelerate our business and dramatically accelerate our clients business, which creates value throughout that chain. Vonnie that was the red hat ceo along with the ibm ceo. Still ahead, obamacare hanging in the balance. Three judges will weigh the fate of the health care law. This is bloomberg. Vonnie this is bloomberg markets. Im vonnie quinn. Time for a look at the biggest business stories in the news right now. Agreed to by has sailor oneill for 485 million in cash and talk. Sandler oneill best business is known for advising Community Lenders and issuing debt. Richard bransons Virgin Galactic will become the first Space Tourism company to go public. To a shellsold company that already trades on the new york stock exchange. That deal will allow branson company to go public bransons company to go public. Be lower earnings will this year because of trade conflicts. The company also cited a deepening economic slowdown and weaker auto market. That is your latest business flash update. The fate of the Affordable Care act, the Health Care PlanPresident Trump campaigned on replacing is in the hot seat. Three appellate judges in texas will consider arguments on the aca. Whatever they rule could land in the Supreme Court again. Ourmore, lets Welcome Health policy reporter from capitol hill. How in danger is this law of being overturned . Thinkot of lawyers dont this argument is solid, but there is still concern that the law could be overturned, that it could go to the Supreme Court, and the entire law could be struck down. Vonnie explain what the current appeal is on. It has to do with california and 19 other states that challenged the lawsuit, right . Other state of texas and general torneys is the penalty that people pay if they dont have insurance. Do we have any idea as to how this particular Appeals Court might rule . Can we tell by the hue of the judges . We are not sure but we tend to think it will be rolled 21 in favor of the District Court ruling, and then the case will go to the Supreme Court. Vonnie if it does go to the Supreme Court, what our expert saying . Will they find that striking down the individual mandate means that the whole thing is moot . It is really uncertain. This lawsuit is so unprecedented in many ways. Law experts are not sure what to make of it and what will happen in the end. You constantly hear democrats a presst had conference 10 minutes ago about how concerned they were. Republicans talking about how they still want to protect preexisting conditions. Vonnie lets not forget obamacare has been in place for 10 years now, all the parts of it are gone. Congress no longer has power in the sense that democrats are in control, so the only place where it could be struck down right now is in the legal system. Is that correct . Exactly. Democrats are talking about potential bills they would bring to try and keep some or all the provisions of the Affordable Care act. We will have to see if they are willing to work with republicans. The problem with all of this, if it goes to the Supreme Court, the argument will likely be in 2020. Know roughly 20 Million People are insured under their Affordable Care act. What about the American Public more broadly . Are they for this law staying in place . Place for has been in 10 years, so yes, the American Public wants this to stay in place. Beyond the 20 Million People who could become uninsured as a result of this, it could also impact regular american people. Things related to drug pricing included in the Affordable Care act. That could affect markets and pricing. In the Supreme Court in 2012. That decision upheld most of the law. Take us through today and what we anticipate. We will get about 45 minutes of arguments from each side and then there will be a press conference. We will not get any decision today. We expect to see a decision from Circuit Court judges in the fall. After today, it is anyones guess as to what the judges will decide to do. Thank you. New orleans is where that hearing is about to get underway. Fromarning a top seat morningstar is about to become a lot harder. Joins us next. Eo this is bloomberg. Wanna take your xfi to the next level . Now you can with xfi advantage. Giving you enhanced performance and protection. When devices are connected to your homes wifi, theyre protected. Helping keep outsiders from getting inside. And if someone tries, well let you know. So you can stream, surf and game all you want, with confidence you can get coverage where you need it most. Thats xfi advantage. Make your xfi even better. Upgrade today. Call, click or visit a store. Mark im Mark Crumpton with bloomberg first word news. Labor secretary alex acosta has responded to the controversial plea agreement he brokered with accused sexual trafficker Jeffrey Epstein. Brokered a plea agreement in secret with epstein that allowed them to escape serious punishment for earlier allegations of sexual misconduct. Acosta was a u. S. Attorney in south florida in 2008. The secretary issued a statement which he said in part, now that new evidence an additional testimony is available, the new york prosecution offers an important opportunity to more fully bring him to justice. The president also responded to the recent revelations. Has been a really great secretary of labor. The rest of it we will have to look at it very carefully. You are talking about a long time ago. It was a decision made, i think, not by him but a lot of people. Mark secretary acosta also said epsteins crimes are horrific. Israeli Prime MinisterBenjamin Netanyahu is giving a firm warning to iran one day afte