Good morning, everyone. This is bloomberg surveillance. Im Francine Lacqua in london. E have great guests coming your way. First thing a check on your markets. This is what we have seen overnight. The dollar gained on the back of what we heard from janet yellen. Probably one of the most significant things that were watching. Were watching dollar and the bloomberg u. S. Dollar index and also im interested in crude oil. We had the i. A. Report yesterday. It traded at 45 a barrel. A couple of big investors said it means it is probably going to change the trade wagon and what we also need to look at is some of the australian bonds after we saw the rally yesterday in treasuries and were looking at swiss u. Now lets get straight to the first word news. In the u. S. , the special council investigating russias interference in the 2016 election will examine whether trump tried to slow the probe into michael flynn. The move expand scope of the investigation. Meanwhile trump and his wife melania visited House Majority whip Steve Scalise in the hospital after he was shot yesterday. He suffered fractured bones, internal organ injuries and severe bleeding after being shot in the hip after a congressional baseball practice in virginia. Crews worked through the night to dampen the deadly blaze at a london tower that killed at least 12 people. Officials warn the number of fatalities will rise. It also injured 74 and left an unknown number missing. The cause of the blaze is unknown. There had been a risk of fire at the building since 2013. Furbished in 2016. Deutsche bank has outlined the new structure for its corporate and Investment Banking division. According the people particular with the matter, it will create a separate business. They unveiled details of responsibility between the coheads of its newly combined banking and trading unit. And the exchancellor, the u. K. Chancellor will make the case for a new cause for brexit later. They will push for a socalled pragmatic brexit. Is move reflects theresa mays move to make immigration control. Francine thank you so much. Janet yell season pressing ahead to normalize Monetary Policy of the fed but that the ongoing strength of labor markets will ultimatery prevail. After raising Interest Rates for the second time this year, she played down a recent softening of price pressures that the fed is to hit its 2 inflation goal. With employment near its maximum level and the labor market continuing to strengthen, the Committee Still expects inflation to move up and stabilize around 2 over the next couple of years in line with our longer run objective. Nonetheless, in light of this softer recent ip nation readings, the committee is monitoring inflation developments closely provided that the economy evolves broadly as the committee anticipates. We currently expect to begin implementing a Balance Sheet normalizeation program this year. The plan is one that is consciously intended to avoid creating market screens and to allow the market to adjust to a very gradual and protectable plan. I fully intend to serve out my term as chair, which ends in early february. I did not have conversations ith the president about future plans. Francine that was of course janet yellen. The day after the fed spoke, let me start off with you. Let me bring you up to my terminal chart. This is inflation. We look at the 10year of three fed governors. The first one under a alan greenspan. In the middle you have ben bernanke. And then janet yellen. She said inflation can be noisy. She said g. D. P. Can be noisy. What is not noisy . The fed are being noisy at the moment. Why they are being noisy, they are not targeting inflation 2017. They are targeting their own credibility. Even though there has been a spriking downgrade in the Inflation Expectations from 1. 9 to 1. 6 for the year, they are keeping that policy path unchanged. Therefore i think in 2017 it is the case of out with dependency and in with restoring credibility. Francine if they are wrong, it will really hurt their credibility. They dont want to shake the boat or change the course very abruptly coming from the message they gave at the end of the year. I think the fed is trying basically to keep things standardy. I think the result of the it is not necessarily shocking. The tweak in the Balance Sheet, it is very important. Kind of the unknown factor we have now. It is going to be extremely smooth. Thats pretty much the big message we got from yesterdays conference. She is talking about the first level of reinvestment cap. 6 billion in the treasury side which is smaller than our forecast which was already a very tiny forecast. We are talking about a fed that is not willing to shake the boat now but there is a law, i do believe one of the important statements from yell season i think the reason the inflation were one ups. We are looking at our our board will be looking more, we have a little bit more to the next upping. Francine the problem, inflation, especially when it comes to wage growth. There is no wage growth in the u. S. Economy. It is not just the u. S. Economy. It is across a lot of market s that areor indeed in the case of the u. S. , the u. K. , japan, below their natural rate. There is no inflation. While that remains a mystery. Lets be honest, it is a mystery. You have not seen any fed members come out and providing a compelling narrative as to why that is. I must conclude it is only based credibility or they are worried about a broader basket of broader Financial Sector risks. They are not talking about this but that has to be playing with their minds why they are moving toward inflation so stag and in, below 2 . Francine this is the most significant chart. Financial conditions following the rate hike. It is the three previous ones. This is something that the fed needs to be watching very, very closely. Absolutely. I think the monetary conditions which has to be with the dollar on an Effective Exchange rate, they have been loose. So effectively it is not like we are tightening. Very different from what we saw in 2014 when yellen and fisher had to say dollar appreciation is going too much. We need to step back. We are not getting that. This is actually positive. One of the capitalists behind this very buoyant stock market. Francine this goes back to their credibility. They said well, we have to do something. It has to be honestly about whether it has generated not because generated inflation but because they are worried about overly lacks financial conditions lax financial conditions. Also if youre looking forward in interprets of what the prognosis is for 20182019, you just brought this up on the screen. It e still looking at going up by 3 at the end of the cycle. The position where the Unemployment Rate where the fed expects the natural rate to be. You wonder where that additional expansion that is going to drive that aggressive Monetary Policy in a world where no other Central Banks are tightening. How can it get there . I dont think it is an incredible longterm forecast. Francine stay with us. Stay with surveillance after a shocking election result, where does the bank of england go from here . We look ahead to todays Rate Decision and switching up the structure. Well also have the details on Deutsche Banks latest attempts to turn the business around. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash. Shares in british air ways are lower this morning after Heathrow Airport said it is experiencing an issue with its system. They said destruction is through terminal three inside. Chinese authorities have asked banks to suspend business dealings with insurance. They began a wide ranging probe into the company and its chairman. Representative failed to comment on the relationship with anbang. According to people with knowledge of the situation, a deal could give amazon a. Aluation of 9 billion thats Bloomberg Business flash. Francine . Francine thank you. Prime minister theresa smay seeking a deal to prop up her norlte government. Mark carneys prank of eng pressure nd hammond to philip deliver a softer brexit. That focuses on protecting jobs. Lets kick it off with you. We have a lot of politics to talk about. When you look at currency. How much does it whether we get a soft brexit, a hard brecksette, the reversal. The pound drops, inflation goes up. Wage doesnt go anywhere. That is what will determine how much of an appetite there is for a hard brecksette. The Current Situation which is a little bit of in limbo. The next quarters. I find it very difficult to believe that the sterling can stay at the current level. In my view, we are poised to see a little bit more deterioration of the sterling given all of this boom we have of optimism coming out of the announcement of fresh elections and now we have the outcome and know the situation is a lot worse than anybody expected. We have got later on were going to talk about politics but effectively this is all about politics now. Right . The british economy in the situation, we have seen some cracks in the wall in terms of retail sales. Were not seeing the same expansion in aggregate demand. The problem is the prospects. On a forward basis it is a economy. If you dont have the positive the reassurance in terms of what happens in 20182019 in terms of brexit negotiations i find it difficult to believe is capital account flow is sustainable. I still believe that. It is just crazy to see to be honest with you. Francine what i dont really quite understand is we dont know what kind of brexit this country wants. That would be my starting point. It is in turmoil. Hold up do they look at weakness in the how much do they look at weakness in the economy . In terms of the racket rat, not at all. F the elect ral rat, electoratenot at all. The chancellor, the head of the treasury here in the u. K. Who is going to push for some sort of customs arrangement going forward, an associate customs arrangement with the european union. If you compare where cable went o on 120 in october last year, you see some of the rally that we were talking about, the idea that a big u. K. Economy has outperformed. People want to see some of those synergies, those relationships maintains going forward. Francine a rate increase by the b. O. E. This is a chart looking at the probability of that rate increase by the end of 2018. Given the election so days ago, that probably has fallen further. Some sort of Monetary Policy action. I think that is francine on the up or on the down . On the up. Residual hawkish s there a lot of weight to watch and see and how the data unfolds. Like i said, it is the situation, the real estate arkets, in limbo. Trying to trend downwards. The situation in the job market is not as buoyant as it looked in q 1. We have plenty of uncertainty around here. I hate the hard brexit, soft brexit. We all try to put everything on a framework here. There is no framework here. We are still talking to the mirror here. I negotiate with myself. Thats the situation. Francine i understand. These are assumptions but if someone says were going to control these things, you could argue that the e. U. Has no choice but to do anything. Do you agree on b. O. E. . The hawkishness . No, i dont. I dont see it moving any during the next two years. If they were to raise Interest Rates, the mechanism would be to provide some support to sterling which actually is not what the u. K. Needs. It needs a weaker sterling through this environment. Probably a weaker one with respect to the trade balance. If they are going to sit on their hands for two years, there is no in there is no core inflation away from energy basefects from 12 months ago and the collapse in sterling. Youre looking at market based measures below 2 again. Francine thank you so much. Up next, we check in on the markets on a down day for trade here in europe. This is bloomberg. Francine were just getting breaking news on nufg. Mitsubishi chief financial group. We understand according to sources familiar with the matter they are considering that the group as a whole is considering shrinking its workforce by 10,000 positions over 10 years. This is because of low Interest Rates and intensifying competition squeezing profits. This would be a measure to counter some of the tough environment we see not only for them but the banks previously they seeked to eliminate some 3,500 full time roles. They seem to be deepening their reductions. Now a check on your markets with mark barton. Rk core p. C. , the preferred inflation gauge above 2 . That is combreenspan and bernanke and yellen. You can see with greenspan, yellen averaging 1. 53 plowing on with her rate hike hoping that the strength of the labor market will previll over the recent week. Inflation, 10year torre yield. Volatility in parts of the bond market is getting some investors taking it as a warning sign. Falling to the lowest level since november. Ahead of the b. O. E. , this is u. K. C. P. I. Inflation. Basic wage growth blue line. R. P. I. Yearonyear. The yellow line, wages, below inflation. That is the backdrop of todays b. O. E. You showed this chart a little earlier. No rate hike this decade. Thats how i take away it has a 35 probability of a rate hike by the end of next year but french says dont go there. End of the decade. Francine there you go. End of the decade. Well get back to you, french. Up next, the latest in the investigation by special Council Robert muller. Details next. This is bloomberg. Straight to the bloomberg first word news. Fed after raising Interest Rates for the second time this year, voice after he and for others were were were wounded in the shooting yesterday. He remains in a Critical Condition after the attack at a baseball practice in virginia. Five crews have worked through the night and killed at least all people. Officials have warned that the number of technologies will almost certainly rise. Georgia bank has outlined a new structure for its corporate and banking division. The german lender also revealed details of responsibilities between marcus shank and martin ritchie. Make thechancellor year. Or new branch later his move reflects Prime Minister teresas maze failure to win support for immigration. This is bloomberg. Thank you this is what we are seeing in terms of retail sales. This is the one you want to look at. Year overk at the year, it is far over estimates. This is significant because it comes almost 10 days after we had the treaty. Were waiting to try to see a fellow hammond has a blueprint for the economy. Now on to the u. S. Willpecial counsel investigate whether donald trump tried to slow the probe. What get more with kathleen in thestill with us studio. Great to speak to you again. Quite a week. How serious is this now . I think it takes this investigation to the next level. What we learn from james comey is that trump really wanted to know people he one of people to know he was not the focus of the investigation. Now is thatearning trump is a focus of the investigation. That his actions are being looked at by the special counsel and that could have dramatic repercussions for the future of his presidency. Doing no what point he became under investigation . Theres a lot more we need to know and find out, but i think from what we know so far is that it sounds like trump became part of the investigation after the firing of james comey. I would not be surprised that some of his Public Comments when he went on tv and said that he fired comey because of the russian thing, that might have been what spurred it, but we dont know yet. That is when i think the focus shifted to him. Papers on with these leaks. They are only allegations for the moment. Closedre still in the phase. There are different pieces. Inhave these probes going on capitol hill. This most recent relevance and has more to do with the special probes. Or than the it would be more likely to assume that congressional probes will be looking into trumps conduct. Does it translate into your world or is it just politics . Translates to the outlook of the u. S. Economy importantly fortunately the series of headlines diminishes the congress withake him. Specially when it comes to tax reform. He is having to fight political increasing the folks the debt ceiling. Tax reform may have to fall until 2018. Beckford months, we were talking 3 . T yields going up to treasury is saying the World Economy is not as rosy as we think it is committee at the stock market going higher. An investor has to change which one you believe. Just discussing that we have the wage growth back. I think that we are probably heading towards 2 treasury in an environment like this. Theres one thing weve been trying to get to the bottom of. Trumpse allegations hurt couldmp said himself he walk out on fifth avenue and shoot someone in nobody would care. I think there are some truth to that. The tax reform gets push forward, as long as there is nothing huge coming out, he should have the support to get stuff done . That would be the case for midterms. We have a reducing window to push the tax reform. The question is the degree to economy can absorb the Infrastructure Spending he is talking about. Thank you for all thank you all for doing this. Ons bring you uptodate that terrible block fire. Crews have worked overnight. A number of fatalities the block was recently updated at a cost of 10 million pounds. We understand there be an investigation and we will keep said whatairman is behind the move . We will discuss that next. This is bloomberg. This is bloomberg surveillance. The chinese authorities arrest banks to suspend viewings. It is another blow for the groups into the companys operations. More, first of all, why has this reached a dramatic point . Chinese authorities have been looking into Insurance Companies financial durance for quite a while. At 2 00 a. M. , the Company Issued a statement saying their chairman could no longer perform his duties