Yellen testimony, this time to Banking Committee. At 11 00, the u. S. Congressional Budget Office will announce the fiscal year 2018 urgent in washington. President trump will hold a joint News Conference with president macron in paris. Jonathan from talk to dove. Hawk to dove. Committeden we are to obtaining our 2 objective and are aware for a number of years we have been running under that and recognize there are dangers that would be associated with persistent undershoots of our inflation objective. It is 2 is not a ceiling, it is a metric objective. The msci old country index and douse it at record highs. The stoxx 600 following the best day in 11 weeks. The bloomberg dollar index falling to the lowest in 10 months and bond yields a grind flour. Joining us in new york is Jeff Rosenberg the chief income. Trategist at blackrock what did we learn yesterday from chair yellen that we didnt know the day before . That the market was expecting her to shift her tone. The bond markets particularly. We didnt get that. What we are describing as a more is not. Ellen she said the same things she has been saying since march. The difference is post the center speech and the Global Market which excited want americans to the possibility of more aggressive global think actions bond yields have been on the rise of there was a fear there might have been a shift in town. It was not a change and what yellen had to say, it was relative to Market Expectations and disappointing those expectations in the sense of delivering the same message resulted in a decent bond market rally and the equity market took off. Jonathan is at the same testimony . Was a little noise about the fed starting the Balance Sheet roll down as soon as july. If she was going to do that she would have given an indication. That was probably pushed back to september. The equity Market Reaction i was puzzled by. The scenario in which the fed does not raise rates in december is not great necessarily for the equity markets. It means the fed is unable to generate inflation there are looking for, or are unable to forecast inflation. I am not so sure if we are sitting in december and the fed declines to hike it will mean the equity markets have done well in the interim. David we are not sure about inflation. She confirms what we expected, but said we have doubts about what is going on with inflation. Particularly wage pressure. That is bad for equities and earnings. Toon you dont want to see much wage pressure and overheating, but she is only looking for progress towards 2 . She doesnt say the progress she is looking for, stepping mynot raising rates expectation is if they dont raise in december it isnt like they will be looking to raise soon thereafter. They will take time to see what is going on. Other perspective is a lot of what was going on in the market was a fear of policy error. That the fed would recede in normalizing the Balance Sheet irrespective of the progress on inflation. Thatarkets were worried maybe this tentative and temporary nature to the inflation debate would not have shown up in the fed might have been making a mistake. Backing off of that at the. There were other speeches before for letsing a marker skip december. It eases a little bit of concerns around the policy error, positive for equity. Relative tovish expectations. Did we find people under risk out there . I think the bond market had been moving towards the short side because of the global environment. That is what you had an environment where you could have a big reaction. You had a long market before the centra speech which gave us am aggressive an aggressive move higher in Interest Rates. On that side it was clear where positioning was. Effect of immediate what the fed does and the regime change. We have a new nominee for the vice chair. There is open speculation that janet yellen might not be their past february. Untilll stay at least february. Is the bond market trying to price that and to suggest what would happen if there is a regime change . Brian usually you would have an idea of the direction it would go. With this administration, it is hard to understand what he would be looking for if he did not want to renominate janet yellen . Keep ratesnt to lower . He has commented about liking low Interest Rates. Most of the Republican Party would like to see someone more rulesbased, someone who would normalize Interest Rates more quickly. In directionprice when you dont have a sense of where you will go. There is a chance she is openly renominated. There is a history of this of president s of different parties renominated fed chairs. This may not be an area this might be a hornets nest that the president does not want to kick in october and november. Jonathan when you guys Start Talking about gary , what kind of reserve are you thinking about . Jeff no one is waking up to talk about gary cohen. People have been talking about it for a while. The reason we talked about it yesterday was because a politico. A very explicit article. It is not necessarily news. When we talk about with potential change means, almost any potential centralbank nominee that we talk about, everyone is to the hawkish side of where we perceive yellen today. That is one of the conclusions. It is hard to think about a totralbank replacement yellen who would not be a little sh relativeh hawki to how yellen has been operating. Jonathan the Federal Reserve as an institution, does it shaped the individual . Are we to believe youll get a radical shift if gary cohen sits in Janet Yellens seat . Chairs havest two been policycentric. Policycentricry. The possibility of someone outside that extreme focus, to the nextg it level in terms of modeldriven and academically focused is a big change. More towards a greenspan where there will be more balance to policymaking to Financial Market conditions and economic outsidens from inputs of just the academic perspective. David fascinating. They will both be staying with us. Chair janet yellen begins her second day of testimony and 9 30 eastern time. We will be joined by the former acting administrator of medicare and medicaid and the former cbo director as we look forward to a new Health Care Bill and the scoring of the president s budget coming out later today. Live from new york, this is bloomberg. Jonathan from new york city you are watching bloomberg with a focus on u. K. Politics for the moment. Addressing the house of commons as the United Kingdom unveils the withdrawal bill, the repeal bill. The formal title is the European Union withdrawal bill. It will end jurisdiction in the u. K. And convey existing european statutes into british law when the u. K. Leaves the bloc. The u. K. Will also leave the European Court of justice and nuclear agency. The Scottish Parliament will get a separate vote on the bill through a legislative consent motion. Repeal bill has been unveiled. That is the latest from the United Kingdom. Joining us is Jeff Rosenberg and brian nick. Looking at the situation in the u. K. Fragmented, political mess. Compare that to europe, united and politically stable compared to where some people thought we would be a couple of months ago. Jeff there have been dramatic changes. On brexit there is uncertainty in terms of what exactly the form of brexit will look like given the shifts we have seen in politics in the u. K. Across the channel a 180 degree turn around from what we were. Alking about six months ago the rise of populism, fragmentation in europe, the potential for a downside tail risk. What we got was the opposite. The narrative coming out of europe, look at the strength in. He euro it is about the politics helping the economics. The labor reforms for france and germany in terms of their potential partnership. These are major shifts that are positive for the european outlook. You have seen it in Financial Market performance. Jonathan i was trying to make too much of the european stability . Relative to five months ago, the enthusiasm about president macron in france, do you think things have gone too far in terms of the enthusiasm . That is what happens in narratives. We go from one side of the narrative to the other. There is a significant impact. The significance of the impact can be through very small in elector a margins. The fact is that the new president has a mandate. The mandate creates the potential to meaningfully change policy. We have had this conversation around labor market reforms in france for a long time. The difference this time is there is a lot of momentum behind those changes. To the extent that they change policy, they change some of those outcomes. That is a meaningful development. David these geopolitical changes are backdrop for your investment decisions. Where are they turning . This is a twoyear process. By 2019 we will have a better idea of what the trade relations will be like. What relationships with the u. K. Have with Major Trading partners . I like it when stocks and bonds prices are headed in different directions. In europe we have seen the opposite. Interest rates moving up for a lot of the reasons jeff has been. Alking about, positive reasons economic progress, economic strength, political reform, a stronger European Union which has been a problem for markets in the last five to six years. Equity prices stalling or slightly underperform at the end of june. I more encouraged by what im seeing now, europe going ahead and increasing on a stronger earnings outlook and Stronger Political outlook. David the bank of england has a tough time even though they have inflation raising Interest Rates given the state of their economy. Crosswinds have the that the European Central bank doesnt. They probably have an economy doing well enough to normalize Monetary Policy, but this tremendous Political Uncertainty which translates into economic uncertainty. Discretion is the better part. The ecb is moving towards less easing. You saw the bank of canada raise Interest Rates. The bank of canada might be repeatedlys appointment if we are looking at a major move up. They might air on the side of discretion. Jonathan president draghi said to address the jackson hole conference. At thesenberg, looking story in the United Kingdom, a bank of england that might be reluctant to hike. Likesou think about the of canada, a very nordic country with a very similar problem. There i say second tier. Second tier. Is it a case study . A role between economic objectives, stability, inflation, economic growth, and the third mandate which is not embedded in the feds mandate but is part of achieving the other 2 financial stability. The longer you keep these highly accommodative policies to generate goods and Services Inflation reports that we will see later this week, would you generate is acid inflation. Too much, to accommodative for too long, creates the risk of destabilizing market conditions. That is the story of the financial crisis. That is part of what we heard from draghi two weeks ago which was market moving. By not doing anything at all we are becoming more accommodative. The means through which that occurs is economic conditions. There is a narrative that some of us need to get on with it. You didnt hear that from yellen. Were back to the paranormal markets bonds and stock go up because it is easy policy forever, but constraint still lingers out there. Jonathan coming up, the chairman of will it advisers talking about the Investment Climate as he sees it. And President Trumps visit to paris as he meets with president macron ahead of bastille day. You are watching bloomberg tv. Jonathan 30 minutes dedicated to fixed income. What asset rates you youthan from new york city are watching bloomberg tv, i am jonathan ferro. I took three days off and refused to look at market close and follow the Political Drama then to end in yesterday. All time high despite Political Drama. If you have been following the north korea situation, record high politics, no one seems to care. Yields lower by single basis point. 231 on the u. S. 10 year. Yesterday, 113. 19 on the screen. Geopolitics continue. President trump in paris by the invitation of president macron dayattend bastille festivities. We go to our correspondent traveling with the president. The question is why . At the g20. Acron why did they have to get together again . He waspresident says invited and decided to accept. He is here to celebrate the 100th anniversary of the u. S. Partnering with the french and military battles of world war i, something that has continued throughout the last few decades with the u. S. And french fighting sidebyside in a number of different war zones. Even in syria and iraq. Wants to talk to the french president about how to continue that. Understand, these festivities have a fairly military fame. Is part of the message that president macron is trying to send is we are stronger than you think militarily. We will be there with nato and get our spending up the way you have been asking us to do. We know that President Trump likes a good military parade. The french will be able to display some of their military assets and show they have been partnering with the World Community in combating terrorism and fighting on different war fronts. That is something they can find an common when you remember different challenges in the relationship on Climate Change and trade. Reporting from paris, great to have you with us. Stay with us, Jeff Rosenberg and brian nick. A situation in europe. Did the president leave behind the drama in d. C. Or enjoy a trip to paris, or does it follow him . Brian he seems to tweet less when he is a broad. The market has done a good job discounting the political turmoil. Some ofs every day, which impact the president s agenda, some that dont as much. Ive been struck by the substantial economic reform. As wems to be dimming move through the year. Certainly dimmer than on election day or inauguration day. We havent seen a major correction and equity valuations, still high valuation on the s p. For now, this is it bleeding into markets. An obsession with the objects, and obsession with handshakes, with leaders gathering around tables at g20. Do we care if he gets on with Emmanuel Macron or not . Jeff it is pretty secondary to the nearterm focus. What brian mentioned, the market is priced out for a long time. Any fiscal policy shifts. What we are shifting towards, the story under the radar, is the regulatory side. Regulatory reform pieces has been a big support to certain sectors. This is potentially a more negative development to the regulatory piece of it. That is a bit of where markets are more focused. The big things are where we are clearly seeing the debate around health care, much harder to get done, much less likely to get done in Market Participants eyes. David we have the epa director saying we are doing away with regulations. The court said, not so fast. In the meantime the ecb is coming up with more regulations on the banks. It is even harder to get the deregulation done . Jeff this is still the bright spot in fiscal policy for what can get done. A lot can get done and has gotten done. And has gotten done. Jonathan you are watching bloomberg tv. 16 of the 19 groups still in positive territory. 11395. Odollar the back dxy. Treasuries do remain by about eight basis points. Chandra. Mma President Donald Trump is in paris and the first lady. The two leaders look to set aside differences on trade and find other common ground. Bloomberg for the president s News Conference. That would free up 230 billion. Secretary says he is happy to have a transition. If it ensures brexit. If we have to wait a few months as the price for keeping stability, then i would be happy to do that. We are promising new Health Care Bill today. Us on was coming up, our chief washington correspondent. Talk about the budget and health care. Think we are anticipating a nonpartisan Budget Office. After delaying the august recess to the third week. What we are hearing is there has been an increase in Opioid Addiction Fund and funding. Whether or not you can get folks on boardtor rand paul and it still looks like a tough sell. A trimmed down version of insurance. Will that be in the bill or not . We do not know. Someone who has taken a backseat to policy negotiations, as now has seen a resurgence a negotiator for the far right wing of the senate. The majority are not able to get him on board, what is really Marco Rubiois lambasted the congressional Budget Office saying there math doesnt add up. Attacking this nonpartisan referee. We will talk to you later on in the program. Now by the mend responsible for viewing those assumptions. He is the former director of the congressional Budget Office. Thank you for being here. Good morning. Ledger old hat on. What things would you be taking a hard look at . Is the budget was very date on so