To check up ony the barcelona updates. European stocks are dropping. Impact on some of the travel and leisure stocks. This after a terrorist struck a crowded street in barcelona exacerbating unease in the the mountingred by concerns over a dysfunction in white house. This is the dollar this is the bloomberg dollar index. 1. 3. Twoyear yields, bob corkers says President Trump has not yet demonstrated the characteristics needed to serve in his job. Al gore went further saying that donald trump should step down. U. S. Stocks suffered their worst day yesterday. , rex. S. Secretary of state tillerson and jim mattis says the reaction to north Korea Remains an option. Option has been endorsed by the president. This contradicts the comments from steve bannon who said earlier this week there was no such option. The u. K. Is prepared to give further details regarding its approach to brexit. According to three people familiar with the plans. The institute for Economic Affairs says a trade deal with the eu after brexit is desirable but not essential. There are more signs that chinas Property Market is cooling. Have imposed a series of curbs on lending. 62 injumped as much as a year in big cities such as shenzhen. Global news 24 hours a day powered by our 2700 journalists and analysts in more than 120 countries. I am sebastian sadly and this is bloomberg. Francine we start with the situation in spain where police have killed five suspected terrorists in a town south of arizona. The incident came hours after 13 people died and 100 more were injured after a van was driven down the iconic las ramblas avenue. I. S. Has claimed responsibility for the attack. We are joined from the dreaded by bloomberg reporter were joined from madrid by bloomberg reporter rodrigo. We do not have any profiling so far. We have very Little Information but the First Impression is that it is a rather large network. Not a lone wolf. They are talking about at least two people dead. The driver escaped. People werewo killed and the driver escaped. They are looking for the support network. There were also two other people ortwo other cities about 100 200 kilometers away. A large area with a lot of people involved. What is tell us about happening today. The search is ongoing. What are the authorities telling the population right now . Have notthorities spoken much today but they have said that the the catalan interior minister said yesterday that the terrorists killed in the city south of barcelona were bombs. G out but today, they clarified that those bombs were phony. Is alsodia in catalan reporting that there have been other arrests. That is what we are expecting today. There is also a cabinet crisis meeting this morning until around 1 00 p. M. Francine thank you so much. Former u. K. D by the security minister, Polly Neville jones. Thank you for joining us. All of the hallmarks of similar attacks we have seen recently in berlin, and london. One of these is that the thatrities have agreed these kinds of attacks are difficult to revenge. The nature of the organization line behind them is the problem. They are lowtech, and locally organized. The chances of picking up much of a trace of the organization, as things are taking place, is not high. That means you have to go behind this. What the authorities are what yourn is correspondent talked about which is the network. You have to know more about people who are not necessarily themselves who have not necessarily yet themselves committed an offense and yet they are known to the police. And police have to maintain some kind of surveillance. An ever enlarging list of people that you have to watch. And then your capacity to give serious attention to all of them as much reduced. You have to do some prioritization. In deciding who are the people you really need to focus on. Onlyou need for that, not good intelligence, but also high quality policing. Policing is coming to the forefront. We talk about Intelligence Services but in many respects, as we saw today, in these incidents, the local police are key. They are key to dealing with incidents once a have occurred, but also key to preventing them. It is they, in the end, that have to do a great deal of the ordinary footwork that will actually prevent these instances from taking place. And that includes having good relations with the community. Network means they have to talk, prepare, and organize things. And that throws out information. National security means all of us. It is no longer something the authorities deal with. It is the whole of the community. Talk to us about the difference in surveillance between the u. K. And a country like spain. Spanish authorities are still trying to hunt the perpetrators of these attacks. Is it much more difficult if you have fewer city cameras . Pauline the u. K. Has been much criticized by libertarians for having so many cameras. A started off being security against perfectly ordinary offenses like robbery. But these days, they have become crucial in being able to track peoples movements. U. K. Does not cover the whole of the country but the urban areas, these cameras are of extraordinary use both for safety and security. I think we would certainly, as a community, and as the ordinary citizens, say that the disadvantages of having so much surveillance is greatly help it givesthe us to prevent and to bring people to court. Killingnd, shooting and is something you have to do in order to stop an incident. Technique in a democracy for preventing terrorism, and in the end, making it obvious to people that it does not pay, is by bringing people to court and convicting them. And for them, you had to have the perpetrators alive. Themo, being able to track and bring them to court is important. I am quite certain the Spanish Police will be watching all the frontiers, all of the communications and they will put in an immense amount of energy into tracking down what appears to be the driver. I think with that kind of effort, they will probably succeed. It is made much easier, of course, if you have networks, technologies you can turn on and look very carefully at what it reveals. Also, it helps you in the process of establishing networks. Someoneave your eye on who you have reason to believe is up to something which could be very damaging, the ability to see what they are doing in their movements is a very important aid. That the of the prices greater freedom has to give way in some ways to some of these precautions that we need to take. Francine Polly Neville jones, thank you so much. The former u. K. Interior minister. Stay with us. The Economic Advisor for the white house is not resigning. But the speculation regarding his future is unsettling to the markets. Speak about the outlook for the rate hike. This is bloomberg. Francine this is bloomberg surveillance. The white house says dear a cohen says gary in his position as drafter of the National Economic council. That came after u. S. Stocks had their worst day in months. Rob corker has called for radical changes at the white house saying the white house the president has not demonstrated the characteristics needed to serve in his job. Al gore went further saying that donald trump should resign. Let us bring in our Global Business representative, stephanie. And thank you to nigel for joining us. Stephanie, what do we know about gary cohn . Overderstand he was upset the comments of the president regarding charlottesville. He wouldeople assumed be considering his position, at the very least, given the president s comments. He was the point person for a lot of these corporate ceos, as that unfolded as well. As those two panels were disbanded. I think he was having many discussions with those ceos about whether he should stay or go. The nerves we saw in the market yesterday reflect the fact that many view him as a moderating, stabilizing force in the white house and with him not at the helm, it will be very difficult to get some of the reforms through congress including infrastructure, tax reform, or even raising the debt ceiling or shutting down the white house and passing a budget. Francine what do we know about his relationship with other white house staffers . Speculation mounted because of the interview steve bannon gave yesterday that highlighted his constant struggle with gary cohn and treasury secretary steve mnuchin. That heightened speculation and worries that the risk in the white house had reached a boiling point. Many wondered if gary cohn was going to remain and fight it out with steve bannon. We arenigel chart that shows us how the market reacted to the news that gary cohn may have left the white house. Were you surprised by the big reaction we had yesterday . May be so because we are left wondering how many people will be left in the trump administration. It seems in a state of permanent turmoil at the moment. Gary cohn leaving would be a big problem because he is seen as a force for stability. He is a credible next chairman for the Federal Reserve. His leaving would be a another bad sign for the administration that is already in turmoil. Francine if we do have tax reform or infrastructure issues, will stocks rally . I think they would. I think it is true to say that since the president ial election, the markets have moved from a touation of wild optimism one of either realism or probably a little too much pessimism. There is a chance for some upside surprise now. Francine what are we expecting today . There is all a weak there is only speculation about what will happen with steve bannon. On for has been going months. As with everything in the white house, it is difficult to predict what will happen. There have been reports that the president was worried he was butidering firing them worried about the implications of doing so. And crossing the breitbart media platform and making enemies. Does he by his time does he bide his time or is he under pressure from people like gary isn who are saying that this unsustainable to have such divisions in the white house . Is john kelly, who probably worried about the ongoing media speculation about what is going on. Francine thank you so much, stephanie baker. Nigel jenkins will stay with us. Inflation pick inflation patients. There is a hunt for the 2 inflation figure continuing. We will discuss that, next. This is bloomberg. Francine this is bloomberg surveillance. Be patient. That is the message to the Federal Reserve from caps on. He thinks the inflation rate should rise before rate hiking. Progressd like to see on the fed reaching its inflation target before we talk about another rate increase. It is not so much affected by debt rate as it is about the economic fundamentals. I have said that i think we should begin the process soon of letting our Balance Sheet begin to run off. Francine with that said, Nigel Jenkins is with us. When you look at the fmoc, it says the market was going one says no, theed other way. Can they do anything before they get 2 inflation . Or is it enough to think that it will come through when the wage growth comes through . The fed is pretty perplexed on why inflation has been subdued. And why the tightening in the labor market has not put on more pressure. In our view, they can still move. They have moved three times since the president ial election. That is not a rapid pace, but a cautious pace. They can continue with that. In the end, rates are still only just above 1 . They are not tight. Francine what is the biggest policy mistake . Going too soon or waiting too long . Haselcome arguably the fed waited a long time already and the fed would say they have been right to do so because there has been no sign of inflation at all. The problem is once you see the whites of the eyes of some modestly greater inflation pressure coming through, it might be too late to do anything about it and you may have to hike rates more later if you do not move right now. We think they will continue with a gradual pace of hiking but, to be honest, it is glacial by historic standards. Francine do you even look at the phillips curve anymore . Some has not worked for time now and that is a global phenomena, not only in the u. S. We see the same thing in other labor markets that like the u. K. And germany. Francine there is way too much inflation in the u. K. Is not coming through anything but the exchange rate. What we would be looking for our signs of selfsustaining inflation that needs to come through the labor market. And in that piece, it is not showing up anywhere. The phillips curve looks entirely flat or not working at all. I do not think you repeal the laws of supply and demand in the end, if there is a limited supply of labor and a heavy demand for additional labor, that surely must put upwards pressure on wages. Francine let me bring you over to our chart, a snappy way to look at the Balance Sheets. Is there an asset class you are most worried about . Fed likely to be very careful in the way it unwinds its Balance Sheet, and announcing in advance that it is taking it in small, baby steps, we are not worried at all. The initial 10 billion or so a month it said would be the maximum amount it would let rolloff if they let that happen for the course of a year, it would be less than a 3 reduction of their Balance Sheet. Ofis not a big deal in terms the pace we have talked about so far. We do not think it will have a great effect. But it is a sign that the point of maximum accommodation has been reached. Francine we will look at negotiating positions that the u. K. Government has published this week. We will also look at sterling. And the boe policy. What does it mean for the inflation outlook . Brexit have our weekly show on what is next. This is bloomberg. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Francine welcome to our weekly brexit show live here from the bloomberg headquarters in london. We will get to the roundup of the brexit news this week. We did have the big story overnight that five suspected terrorists were killed after the attack in barrett attack in barcelona. The travel and leisure stocks are leading the decline of the stoxx 600. Spanish police say they have killed five suspected terrorists after a confrontation in a town south of barcelona. This was just hours after the rampage down the streets of las ramblas left urging people that. Let us have a roundup of the brexit news. ReGain Momentum by publishing its outlined plans. They sketched out future customs arrangement with the european union. They also want to avoid a physical border as part of any deal. It calls for flexibility and imagination to design a arrangements for the Free Movement of goods and people across the border. U. K. Is also said to be considering the Free Movement of who are there to study or work. The Home Office Plan is set to be finalized in a few weeks. Written risks further complications by producing these position papers for the talks. The government in london suggests every day of another proposal and this is not meaningful in my eyes. They need to overcome the main problems especially the freedoms of the european union. Let us discuss it. U. K. Is preparing to give further details of its approach to brexit next week. The institute of Economic Affairs says a trade deal with the eu is desirable but not essential. It reckons that britain should walk away if bad terms are offered. Global news 24 hours a day powered by our 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine Nigel Jenkins is with us. What do you make of what we have learned so far about brexit negotiations . Our brexit negotiations advanced where we have a u. K. Position or is the cabinet still discussing amongst itself . Slowly. Going very we are five months into the twoyear withdraw period and not much has happened. I think the pace needs to pick up. Francine what kind of brexit will be u. K. Want . In the end, the u. K. Will want a pretty soft brexit. Personally, i think it will be a deal,er to have no trade no ongoing or transitional arrangements that get to a different way of doing business with the rest of the world. Lookingwhat we will be for. A lot of the talk of the socalled hard brexit from theresa may prior to the election was political posturing and not much more than that. Awacine what will the the what will the boe or the pound move on . I think it will be an ongoing judgment of what the impact of the brexit will be. Anything the bank of england does on the state of the u. K. Economy. Brexit is ais that big and goal by the u. K. Population and it will slow growth. That the bank of england can stand on the sidelines for much longer than it otherwise would regardless of the inflation. Francine where do you see pound . The pound has recovered quite nicely admittedly against a relatively weak dollar. We do see the pound weakening from here, particularly against the dollar, but a little more against the euro as well. 120ound dollar gets back to where we could see new lows. The u. K. Economy would be a disaster if the pound went to parity with the euro. Francine this is euro pound. We have two big banks calling for parity. Can that touch parity . I think it is unlikely. A lot of the negativity towards the u. K. Economy is already priced in, and by an equal token, a lot of the positivity towards the eurozone with president macron, and a more stable situation in italy, a lot is already priced in. I think we could get to 95 and probably not parity. Francine when do think we could have a transition agreement on what the shape of the brexit will take . I dont think the markets will be very impatient. And we gone five months have very little to go on though there was an election that got in the way of any further progress. I think the markets will be patient as long as they feel that in the end, a reasonable kind of common sense, mys will be found between the u. K. And europe. Both the sides have a lot to lose if this is not a consensual, sensible agreement in the end. Francine thank you so much, nigel. As the u. K. Government outlines its brexit positions, we speak to the head of the why he backs the proposal of a Customs Union