francine: rate hikes. chair yellen strikes a dovish tone, and the dollar drops. debt and no dividend. a decade of profit growth at china's largest banks come to an end. away;usseff's power slips the largest party pulls away from her coalition, as impeachment surges. this is "surveillance." tom, what a day. we are seeing a little bit of a rally from asian stocks and it

is all about chair yellen. tom: with lunch yesterday, you would not have known it, that there was a dovish tone, but i will tell you, the markets moved more than i thought after the nonevent. really the questions got a response. the harvard will join us -- dean harvard will join us. francine: i think you put a perfect. when you look at market movements, there is more investors saying she is chasing the markets, not a good place to be. this is one of our main discussion points. let's get to the first word news. vonnie: thank you. the airport in brussels will remain closed to passenger flights again. it has been out of operations since the terrorist attack. once the airport doors reopen, arriving passengers will be sent to the hangers to collect their bags. the departure holds will only be able to have 1/5 of normal passengers. the un security council is being pushed to fight back against

iran fourth nuclear missile tests. the stabilizing and provocative; they say they launched the missiles in defiance of the u.n. resolution. first democratically elected leader in a half century has been sworn in. she took the oath of office and officially begins the term friday. he's a close ally of a nobel prize winner, who was barred from becoming president, and was officially named foreign minister, who says she will lead the government. republican presidential candidates are backing off the support of the party's nominee. trump says he doesn't feel the l beholden because he has been treated badly. callingident obama is for aggressive steps to curb an epidemic of painkiller and heroin abuse that kill thousands

each year. he spoke at a conference in atlanta; is administration has issued guidelines that would make treatment available for millions of people. 47,000, americans died of drug overdose. for the first time in days, let's go through our data check carefully. equities, bonds, currencies, commodities -- they continue to move this morning, equities up and further up this morning. we will get to the vickx in a moment. a two-year .77 -- we will have a chart on that in a bit. oil up, dollar down. 13.82 is remarkable. renminbi an enormous moves down. german two-year showing the challenges.

francine, how do you interpret this? -- iine: enormous moves saw that on basic resources. resources -- it's all about janet yellen, and watch for your-dollar. i don't know whether that puts more pressure on mario draghi to do more at this level. we have the expert on this; we will ask him. tom: we will get to him in a moment. let's look at one of the stories -- i can't say this enough. everyone i talk to circles back to china. china, china, china. may be china, china, yellen. the chinese appreciation -- here is the new weakness, with the devaluation here and the managed dynamics of this trend. we rolled over with the new renminbi strength. tomvonnie: it's fascinating; the was a story pointing out today that the synthetic index that

measures the chinese yuan is actually weakening, down 5% this year. they're managing versus the u.s. dollar. tom: steve roach do that. did you ever think sunday your be talking about the synthetic? knew!: ikn knew, i just tom: francine, give us the synthetic chart please. francine: as long as the chinese authorities nowkknow, that's fie with me. it's all about china. yellen, and might also have something to do with japan. but basically, i chose japan's topix. i benchmarks it to the tobacco index. -- youis chart tells you can see it's at a record for the year. that means the topix they go down. the like that, tom? tom: it's brilliant.

the handkerchief is coming out. tom: he can't speak you so taken!s so francine: let's bring in our guest, the global head of fx strategy. great to have you on the program. good morning. surprisedsense -- you that janet yellen put the eyes on the dots? she wanted to make it a definitive guide to investors who can't rate hike -- the markets moved within two seconds. >> we're not surprised. and i'll tell you why. we think the markets are ahead of themselves in pricing in u.s. fed rate hikes. we think a rate hike is out of the cards. it's a cold call, the we have had it for most of this year. there were two key things that

janet yellen said, or didn't say. firstly, she signaled she is in no rush to hike. and mrs. after the rate tightening cycle has already begun. also she is talking about the risks, and particularly the risks in global markets. this is a key factor. to bring all this together, our view is we still think the dollar is overvalued, particularly against major currencies. our view is that your-dollar will move higher. argue for the quarter is 114. we think it goes to 116 in the summer. we areat perspective, not surprised, and we think janet yellen -- francine: core inflation is not bad. employment is not bad either. will drive employment to 4%? >> good point. we would argue that u.s. domestic conditions are

consistent with a rate hike, but it is global concerns, and i think fear from metro markets, particularly the credit markets, that we think is going to prevent the fed from being able to hike rates. tom: this is such an outlier call you have going -- let's bring up the index, a blend of our old trading partners, very eurocentric. pants, dxy is oppressive of dollar -- is the precipice of dollar weakness. why wei want to know the are focused on china. in the last 48 hours, everyone i speak to makes clear that china is the card here. what do you look for from the chinese government as greater economic conditions? >> it's a good point, and i think china is important here.

particularly to get back to these risks that janet yellen is focused on. we would argue that it was certainly equity market turmoil in china that kicks things off last summer, i continued into this year. but the big picture is growth. what's happening to chinese growth? will chinese growth drag down overall global growth? this is going to be a big point for janet yellen and the fed, and ultimately, it will have a big influence on whether or not she's able to reengage and to continue. tom: we are going to go to china in the next section, and we will focus much more on the macroeconomics of the nation. when i look at what chair yellen said yesterday, it seemed to be so original and so outside the text books. there was a brilliant question on reaction functions, the presumption of a model. does the fed have a model right now, or are they making it up as

they go along? >> i would say the fed has many models to look at the u.s. domestic economy. from that perspective, things are looking pretty good. as we just highlighted, we think ripe for a are rate hike, of global conditions are trickier. this is where they struggle to have models, because we don't know what the impact from china is going to be. we don't do what the credit market or equity market is going to be on the u.s. economy. we think janet yellen is right to focus on these global factors. tom: to begin this morning with clearly anwell, outlier. in our next hour, we will continue on international relations. the state of the united states. we will get the perspective of richard hoss into the presidential derby across america. from london, from new york, bloomberg "surveillance." ♪

francine: you are watching "surveillance." let's get straight to the bloomberg business flash with vonnie quinn. vonnie: thank you. downa deal that brings the main assembler of iphones with the maker of japan's first television set. foxconn was able to negotiate a controlling stake in sharp, $3.5 billion. foxconn has been trying to buy this companies and 2012. estimateser takata that the biggest recall ever may cost as much as $24 billion, according to a person familiar with the matter. the worst case scenario would involve 288 million airbag inflator's. they're still trying to figure

out how the cost will be shared. and job cuts are on the way at boeing. they plan to eliminate 4000 jobs after commercial airplane division. 1600 workers have elected to leave under a voluntary program; the rest involve attrition and vacancies. that's the latest bloomberg business flash. much.ne: thank you so china's banking sector is under pressure. icbc cut its dividend payout ratio for 2015. the profit growth is stalling in light of rising bad loans; net income beat estimates. for the very latest, we are joined by enda in hong kong. give us a sense of how bad these bad loans are. enda: good morning, francine. i think that's the story right now -- when you step back, it is quite bearish against the backdrop of the slowing economy -- bad loans are at a 10 year

high, the government had to roll out a debt for equity stock, which is not particularly popular. they don't want to talk bad debt for bad equity. it's something of a concern for investors, and i don't think it's just the top for banks. in the rural areas, the regional lenders who are funding the the zombies, that's the bad debt. as long as there are bad debts on balance sheets, there won't be lending. tom: and i can report to you that there is a shift in dialogue in new york. people are really focused on china. i haven't seen that in ages. it's the same shift in analysis going on in hong kong. a new urgency about the macroeconomic link into the financial system. enda: i think very much so. fears ise new modern the spillover effects from

china. yellen talking about the global risks; specifically, that's capital outflow, that's what china will do with its exchange rates, and how that will impact the rest of the world. the interconnectedness is a major concern for investors from hong kong to new york. francine: and quickly, i have been trying to figure out these capital ratios. is at the same? are they comparable? or is it very difficult to see? enda: well, look, there are always question marks around transparency, the same with the economic data. there is always a degree of skepticism, and most of that is warranted. few analysts agree with the but wel npl ratio, aren't yet talking about a crisis stage for china's banks; at least not the big four. not like 1999 or 2004 when the government had to intervene, but

there is a concern that it's worse than what's being reported. francine: enda curran. stephen, when you look at china, i know you weren't surprised by what chair yellen said, but it was clear she was mentioning china. saying we need to make sure foreign economies stabilize. this is her talking about china. tom talks about the fact that it is now coming to the perception of investors in the u.s. based on the turmoil in january, we saw all the concern about outflows. is at stabilizing? >> i think it is. the .2 would make is that the chinese economy is transitioning tha from one focusing on manufacturing output to one that is service sector. yes, it is stabilizing, but the amount of that or how much stabilization there is is unknown. the first important thing is what is the impact on the u.s.

economy. second, what does it mean ?or commodity exporters the point we would make is that if china's transition to a service victor driven economy -- a service sector driven economy, that's good for china, but not for exporters. another thing we would have here , in addition to the risk for the dollar,'s weakness and commodity exporters, and we think australian dollar, canadian dollar, brazilian real, will come under pressure. tom: i have to rip up the script. does that mean oil lower? >> in the short-term, it could. our view, in the view of our commodity team, is that this recover we've had may have been overstated, maybe ahead of fundamentals. when you look ahead at something

like iron ore which has seen a dramatic, recovery, if there is not a demand -- tom: good point. i want to emphasize the focus on global demand, global slowdown. pimco was brilliant yesterday, moving to 2.0 on his global gdp. in the next hour, how all of it dovetails into the agitation in the volatility in the market. looking forward to the new interview. stay with us. bloomberg "surveillance." ♪

francine: these are pictures of -- isn't that pretty? we have to talk about brings it. -- about brings it. brexit. there's an interesting read about how all their polls are wrong. we picked out some inc. for the morning must read -- picked out something for the morning must read. he talks about janet yellen, and her remarks. he goes on to list one of them, being that politicians aren't taking advantage of the fed giving them a little bit of the lunch.

our guest is still with us. you are one of the only ones calling for a lower dollar. others were talking about divergent. what does it mean for mario draghi? >> it probably puts more pressure on mario draghi to do more. euro will probably rally. but remember, the ecb looks at the euro on a trade weighted basis, and the biggest component now is renminbi. business changing things away from just focusing on euro-dollar. the point i would highlight is that you have a broader measure. the only problem with that, however, is that in his most recent press conference, he gave us an indication that the ecb could be done on deposit rates. it puts more pressure on qe, and asset purchases. but i think that is less effective in driving the currency lower. it may mean it is pretty tough for mario draghi to do anything. tom: that's why i watch him up

"surveillance."e let's go to that chart. we call this the lollipop chart. this is the fed meetings, and the clear trend toward a higher two-year u.s. yield. we came over here little bit. andome over a little bit, how important is the monitoring of the markets the feds? -- piece is truly must read are the markets telling cherry hill and what to do? >> i don't think so. i think janet yellen selling the markets what to do. i think that chart you just focused on is super important; the u.s. two-year yield check it. that gives us an idea in terms of what the market is pricing in. i think it is still too high. the fact that u.s. two-year

yields have come lower on the back of what she had to say is probably the correct, but we would argue it has more to do with the downside, and the fed is unable to hike interest rates. francine: thank you so much. we will be talking about oil and the resurgent oil industry going after market share of the world's producers, when they meet next month. oneext, we will hear from of the world's foremost experts on the iranian oil on the future of the islamic republic energy sector. a lot of these stocks and europe are rallying on the back of the comments by janet yellen yesterday. ♪

tom: good morning. the fallout after the janet yellen speech. francine lacqua in london; tom keene in new york. let's look at the data. real movement in the market over

the last 18 hours, the vix plunges, good equity markets, futures continuing higher this morning. dollar weaker, yen stronger, the german two-year churning at -.4 9. let's get to the first word. vonnie: thank you. a major blow for brazil's president, dilma rousseff. she faces an impeachment vote in congress. it has left her ruling coalition. there is speculation that other parties may follow. in venezuela, the opposition controls congress and is deepening the standoff with the president. lawmakers approved an amnesty law aimed at freezing dozens of politicians and activists. he vowed to block it. the opposition has had several key decisions overturned by venezuela's supreme court. a message for david cameron,

saying that he wants the u.k. to stay in the european union. the panel challenged cameron to present a positive vision of the eu. theapproach -- make case that it would be good for people of all income brackets. greece is poised to take in the terrorist that turkey is losing. they expect the number to rise to a record number. turkey says that the arrival rose 10%, and russia has bad tour operators in a pursuit over the syrian civil war. finally, donald trump is strongly defending his campaign manager in an incident involving a reporter. police say he yanked the arm of a female reporter as she tried to question him. trump says he is innocent, should never have been charged, and has no plans to fire global news, 24 hours a day. i'm vonnie quinn.

francine: thank you so much. let's talk oil. business called a doctor the 158 billion barrel woman. she joins us now. doctor, thank you for joining us. iran will attend these talks members,ow opec but they say they don't want to read production because they are just coming on board. >> exactly. oil,been trying to produce -- and now that removals of sanctions, they want to make sure they will get back to the market before they will commit themselves to cut any surplus in the market, if they would have ever done. francine: we recently spoke -- they're chasing these lucrative

arabian contracts. when you think we will start seeing significant contracts given to foreigners? >> look, the reality is that there is an opportunity for complications. as of now, we don't know the exact terms of offers. but i'm sure they are very well aware of the fact that there is a high enthusiasm in the market and oil companies want to know what's on the table, for them to get involved. time thinking about a around the end of june or july for the first round to be held in iran, were almost 30 oil and gas bills will be put on offer. i'll explain why that has to be the case later. tom: doctor, when i look at the

microeconomics of oil, we know about supply and demand, that it is still a relatively tight market versus other oil collapses we have seen. which country is the tipping point for you? we saw saudi kuwait yesterday, the discussion of iran. which country are you focused on to be the determinant of where prices will move? >> definitely iran will impact the international market, and will impact the volume of oil available, and also it would impact the oil prices. iran, i would say, is at the top of the list, and also ir aq. it would be the third country that could, at a very high level, impact the oil market flow in the prices. tom: within that, if they marginally move, will be the response of saudi arabia? >> look, with regard to saudi arabia, i think they really need

to get back to the long-standing principle of consensus within opec. the reality of saudi arabia taking their natural decisions, hoping that they could control the market share, which clearly proves theyiled, need to get back to making decisions on ansy consensus. if you look at the history of decisions taken under the umbrella, it's when the big boys -- iran and saudi arabia -- got together, and made a final and clear decision. francine: i covered opec for years. they always say we don't have a price we are targeting, but when you push them, most of them have something on their mind. is a different for iran than saudi arabia? it must be. >> they are coming back from years of international tension. obviously market share is a

prime target. they will make sure they get market share that they -- francine: how much do they want? >> from the day of removal of sanctions, about 1 million to be added. so far, they have made 500,000 barrels. months,hree to four they will be adding more. it depends on how ready the market is to accommodate the iranian oil pump. -- oil bump. and obviously there are a lot of criticisms that they haven't managed to meet the expectations they made, that with the removal of sanctions they will low one million barrels. that's a valid criticism. so far, of the challenges -- francine: that's mostly domestic criticism. i was always told it would come gradually. >> if

at the reports from the major international media, they say that they are failing to meet their promises. it is struggling with the banking system, it's not really up and running in the manner we were hoping. they're not ready to fulfill their commitments, and more importantly, the storage nowcity that -- they're being deprived of their storage access. they should be given a huge credit for what they are doing. tom: i have a question for both of you; let me start with you, stephen. the idea of demand down globally, which a lot of people are predicting, how does that link into petroleum demand? >> well, we only see a very moderate recovery in oil this year. the fact that we already are at the levels we are probably suggest that the prices are ahead of where we expect them to

be. from our perspective, we would be slightly bearish in the short-term. tom: doctor, when you hear that, the idea of demand lessening or dampening, how does that work into what these nations do? that, as we are sure much as everybody else in the there is a a lot of uncertainty in the oil market at the moment. with the extra production capacity yet to come, and from libya. there will be some downward pressure on oil prices in the m medium-term. going back to the argument, that everyone is hoping they keep the market share, the shale oil producers from the u.s. will disappear, but that hasn't mhappened, because of the oil

prices go down and the value of shale oil adds to the sophistication of their technology, i think we should stop aching about the oil prices of above $80 per barrel. much.ictor, thank you so can't say enough how interesting are bloomberg and theweek article is courage she has shown in her academic career. we will continue with stephen. coming up, on international relations, the states of america. richard haass will join us. much to talk about. bloomberg "surveillance." ♪

francine: i'm francine lacqua in

london; tom keene is in new york. tom, we've done the show for anyone minutes and haven't talked about brexit. tom: i know. what is life without breakxit? [laughter] francine: june 23 is the date of the referendum; still some time away. also have shown remain leading. this comes as pollsters are being increasingly scrutinized for the outcome of the scottish referendum. every day, there is acrimony. there is one minister going after the other. have you a cool head -- how do you look at them? >> we haven't got much alternative. and the remain campaign is fairly comfortably ahead in most polls. i think the way we look at it, we look at what is priced into

the market. two points stand out to us. we would argue that the market is very, very short sterling. we have our own proprietary positioning indicator, and what that is telling us is that very much corn caesar stirring. it is the largest since 2008. the market is pricing in bad news. -- euro sterling should be trading at around 70, but instead is trading at 78.70. already, soiscount combined with the positioning, the conclusion for us is a lot of bad news is priced in. francine: it is are you priced in our discount follow? >> it's hard to say. thapoint we would highlight is

the cut a lot of bad news is president, if there is no brexit, it rallies. i wouldn't say there is asymmetric risk as far as the pound is concerned. francine: there we go. i got a chart for you. >> great chart. that move from november, in euro-sterling, when it was around 70, which is where the model tells us it should be trading. a big move higher. you could argue that is the discount in sterling. tom: stephen, i want you to tell you what janet yellen can learn from mark carney. i love the euro-sterling chart. carney has been way out front with a constructive rhetoric about patientce and caution. is the bank of england out front of the federal reserve in terms of the rhetoric is developed economies? >> well, that the tricky one. tom: it is. >> maybe at the moment, but if we go back, certainly the pressure on mr. carney was the

opposite. the second half of 2015, he was pressureot of and received criticism for flipping in his guidance. two points to highlight. firstly, the big focus in the u.k. is wage pressure, or wage price increase. that was accelerating strongly last year, but has moderated. that has given him some wiggle room as far as talking about rate hikes. secondly, brexit. i think there is a lot of uncertainty in the u.k., and that's coming through the rates market. you look at what the interest rate market is pricing in the looked, theree i was no rate hike until 2018. that seems extreme. it's a pretty robust economy. tom: you guys own short-term, medium-term, long-term. how do you define term?

reallyto 2018 -- is 2018 long-term? >> the way i would look at it is if you look at the tightening cycle, that is where the market is currently pricing it for the u.k. it does seem quite a long way off, and where i would speculate is that once we get a decision on the eu and u.k., june 24, i think the market may quite significantly re-think its outlook on the u.k. rates market. remember also that there will be more clarity. the market will be able to assess the most likely outcome. francine: sorry -- tom: i love what james bevan neverendum.ay, the >> hopefully it ends june 24. digress. we

tom, i wanted to show you a quote from jack lew, speaking to charlie rose. he says "i don't think it's good for the europeans, the british, or the global economy." thet right that we have u.s. coming here like obama wants to, or is it counterproductive? and two, is the eurozone -- a lot of this movement, will it be on euro? >> i think these are tricky questions. the first point i would make is from the u.s. perspective. the u.s. has made it clear, which is its preference as far as u.k. outlook. it's also one that is probably easier rather than purely the impact on the u.k. it's easier for the u.s. to negotiate with groups of countries. you'll probably see these groups continue to have opinions on

this, and why not? it should all go into the fold? tom: stephen saywell. coming up later today, really looking forward to speaking with glenn hubbard of the columbia business school. he had a fabulous question yesterday for chair yellen. we will speak to hubbard on new reaction functions. it's bloomberg "surveillance." ♪

tom: market on the move after the yellen speech. francine lacqua in london; i'm tom keene in new york. we welcome all of you worldwide. right now, a bloomberg business flash. vonnie: thank you. are's british division having to deal with a flood of cheap steel exports from china. last year, they closed plants in the united kingdom. says itire louis bacon was the one scammed by a wall street banker, andrew casperson.

the foundation says he lied about plans for investment. prosecutors say he cheated them out of $25 million and lost the money betting on stock options. he was arrested monday on fraud. the all american beer maker budweiser has found an unlikely source of growth. the self-proclaimed king of beers is going into russia. that is falling 830 -- following a 30% drop in sales. russia is seen as a cheaper alternative. that's the bloomberg business flash. tom: [laughter] i'm speechless. stephen saywell, he's never had

club beer, but there is an important outlier involved; stronger euro. stephen, olivet dovetails into emerging markets and the collapse of world trade. -- isof all, is the trade collapse the right word for this dampening? >> oh. probably a little too strong, but certainly global growth is not surging. from that perspective, when global growth tends to slow, trade will slow as well. key will be china. we spoke about china already, and i think this is going to be a real pivot, to see how global growth and global trade really does pay out. remember, our point is that china is shifting to one more focused -- ,om: but that can be overcome

and are there elements not so much of 1998 but of before that -- 1984? is there instabilities out there when you look at global dampening, combined with a lot of debt on emerging-market books? >> well, you could be right, but this is where janet yellen probably had a positive effect. certainly from our perspective, some of the weakness in emerging markets we have seen as clearly been driven by expectations of tightening monetary policy in the u.s. if that slows down, as we think janet yellen signaled last night, that certainly has been a reprieve for emerging markets, and certainly the positiveness from em currencies on the back of that is to be expected. francine: are they still not stuck in a rut? madehe central bank money

sure that the world economy is in a recession, but we aren't going anywhere. what is it take for real growth to come back? >> that's the point; growth is not there. i think if you are in a much tighter monetary policy in the u.s., that will act as a further dampener. the best we can hope for in the short-term is that janet yellen does stall, which is our best case scenario, and that gives a bit of breathing room to emerging markets. as you rightly point out, global growth is not superstrong. francine: are there any emerging-market currencies he would prefer, were structural reforms are being pushed through? yellen is giving them a window. >> yes. if you look at the world globally, we tended to break it down into three regions -- e semia, asia, latin america. we'd pick up the mexican peso; rupee.otti, and the

and outative basis against the dollar, those three are the highlights. there are pockets of opportunity. tom: this has been fabulous. come back soon. looking against consensus for stronger euro and weaker dollar. in our next hour, on american politics, and honor international relations, richard haass. and the new volatility after the yellen speech. york,ondon and new another hour of bloomberg "surveillance." ♪

tom: chair yellen will wait.

stocks rise, the dollar plunges, as all adjust to a longer long-term. the state of the united states. in this hour, richard haass on anger and anxiety. and we look at the new volatility. good morning, everyone. this is "bloomberg surveillance ," live from our world ,eadquarters in new york thursday, march 30. i'm tom keene. with me, francine lacqua. i did not expect the market move yesterday afternoon, and it moves right into this morning, doesn't it? francine: it certainly does. the critics are saying now she is chasing markets instead of focusing on what i thought was more transparency. now we have a concrete data form that we are looking at. tom: glenn hubbard is joining us on "radio surveillance" in a few hours. here is vonnie quinn. vonnie: it is a major blow for dilma rousseff.

just week before she faces an impeachment vote in congress. the balance may be tipped against terror. there is speculation other factions may follow the lead of the brazilian democratic movement party. the airport in brussels may not take in incoming flights today. is a new push for the u.n. security council to take action against iran for its recent missile test. the u.s., u.k., france, and germany have come out with a report. they say iran watched the missiles in defiance of the yuan resolution. all of this is according to the associated press. myanmar's first democratically elected leader has been sworn

in. he begins his term friday. he is a close ally of aung san suu kyi. she says she will lead the entire government. donald trump is strongly defending his campaign manager, who has been charged with battery in an incident involving a reporter. police in florida say he yanked the arm of a female reporter as he -- as she tried to question trump. he has no plans to fire him. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. datawe get through the check quickly. we have to review where we are versus 12:00 noon yesterday. dollar weaker, euro stronger, yen stronger. crude churns off dollar dynamics. the vix is critical. there is the strong yen.

the german two-year still shows the lethargy, maybe the despond and see, of europe. -- maybe the despond and see of europe. gains from 4.6%. we are seeing gains on the energy producers as oil is gaining, at 38.58. tom: i want to get to ambassador haass. this is dollar-renminbi. over we go, almost back to the recent center tendency as we see a stronger yuan. francine? francine: we need to look at yellen, china. i want to show you japan, tom. japanese signs that stocks are poised to fall. i benchmarked the index with the the -- index -- with

this basically becomes 120. we have not seen that level for some time. this was a record high on monday for the year. tom: very good. richard haass is with us. we demanded his presence today. this is one quick opinion. david brooks and richard haass have been terry it up on the future of this nation and the political dynamics we seeing -- david brooks and richard haass have been tearing it up on the future of this nation and the political dynamics we are seeing. on short notice, thank you for coming. richard: i was not doing anything else at this time of the morning. tom: i like it. this is classic richard haass, and he sticks it in everybody's face with this great paragraph.

tom: this is awesome. why are we so miserable? richard: people should be on one level ok, but then you have the reality that for 10 or 15 years wages for the american family have stagnated. a lot of people having job losses not so much because of free trade but because of technological innovation, productivity gains. people are worried about everything from cultural shifts to their lack of retirement savings. so people are seeing the glass half empty. "chronic" comes up here. do you have the confidence that the dialogue on both sides can shift to a more civil debate as we go to the conventions and onto the first tuesday of november? richard: why would anyone on this planet have confidence that

that is going to happen? the dialogue within and between the parties is truly depressing. and we cannot just sit here and say not just in the conventions, but more importantly, come january, why should we have confidence that this country will be able to govern itself any better? why should we have confidence that we will tackle things like entitlements, infrastructure, schools? tom: david brooks of "the new york times" emphasized getting beyond november to the "then what" with both parties. the problem with the u.s., richard, is that a lot of politicians are not addressing the cyclical and structural challenges to the u.s. economy at precisely a time when chair yellen is buying good time to do we need more structural reforms in the u.s.? richard: absolutely.

the lesson from all over the world is central bankers are doing 99% of the work in life. the problem is they cannot succeed. we are not seeing structural reform. we have things like the sequester in this country, which is terrible public policy. it is a dumb way to go about budget issues. part of the ways that it is compartmentalized off is with the question of entitlements. ast is going to skyrocket the baby boomers retire and start consuming more health care. but at the moment no one is willing to deal with it. the strategic and economic consequences of a mushrooming debt are serious that i cannot find anyone in washington prepared to do with it. we go with a long list there. does that mean the u.s. is losing its leadership role when addressing global policy concerns? richard: the real danger for the world is not just that the u.s. is not just forfeiting its

leadership role, but it is not forfeiting it to anyone else. no other country will be willing and able to pick up the slack. you will then have a world without leadership, and the last i checked, the world does not fly on autopilot. it only flies well when the united states takes the lead, and others work with us. if no one else is willing to take the lead, you are looking at a world of greater disarray, greater dysfunctionality. we are seeing signs of that in the middle east and in europe. we could see signs of that in asia, all sorts of global challenges from climate change to trade not being tackled. this is a glimpse of the much darker future. tom: within that future, you have written about our altered course and history's altered course. are we at a tipping point where you just say this has been ugly and unseemly, and it will manage our way through to amended

establishment institutions that will get us back on keel and moving forward? richard: i would like to sit here and say it is going to work out. the old churchillian code is that americans always work things out. but that sounds increasingly glib to me. i am worried about the domestic political dysfunction. lack ofried about any consensus on what needs to be done. it is a combination of a world increasingly in disarray and america characterized by dysfunction. that is toxic. statistic of hyper atlanta, 0.6% gdp growth, it is not mourning in america. you cannot do this, as you wrote in your recent book, without economic growth. do you have an optimism? richard: i do not think 4% growth -- we are seriously

underachieving. we could spend the next hour talking about all the many issons why the opportunity there. but the real question is whether the politics will come together sufficiently to exploit the opportunity. i would like to be confident, but i am not. is --hich are toss richard haass is with the council on foreign relations. curnutt ofe dean macro risk advisors. dow futures up 103. "bloomberg surveillance." ♪

francine: i am francine lacqua in london. tom keene is in new york. let's go straight to the

bloomberg business flash with vonnie quinn. vonnie: the deal that brings together the main assembler of japan's maker of television sets, foxconn. with losses.ggling foxconn has been trying to buy the company since 2012. there is an estimate that the automaker's biggest recall ever -- the worst-case scenario would involve 288 million airbag inflator's. takata is trying to figure out how the costs would be shared. european mills are having to deal with a flood of steel exports from china. "bloomberg business flash." brazilian president dilma rousseff, her power is slipping away.

the odds are being raised that she will lose the impeachment vote. we go to julia in sao paulo. it is practically a done deal at this point that the party has split off. there is a schism in the party now, right? so it is almost 100% she will be impeached? julia: that is the national consensus here. r.b.i. analysts are putting at that she, the chances will be impeached. she lost the biggest partner she had to try to stop this, so it is not looking very good. tomvonnie: what will the alternative be? would another party have to join the government? julia: what she is trying to do is rebuild the coalition using smarter parties -- using smaller parties. she is having to go to smaller

parties, and she has already started meeting with them, trying to offer government pmdb isns that the going to give up to get them on her side. tom: how fast will this move, and when you make -- when you wake up in the morning and there will be a new government, what will that government be? is it like the drama we saw in argentina? julia: i think argentina is in a very different situation, a much better situation. gone through a .overnment sort of like lula we are expecting the lower house to vote in mid april, and then the process goes to the senate. we could have a new government as soon as may. the most likely probability is that the vice president takes over. we are trying to assess what he would do as president at this point. francine: do we underestimate the popularity of the former

president? he has put all of this weight behind dilma rousseff. an impeachment is not really a done deal, is it? in a difficult spot because of the carwash case. his name has come up several times. he was taken for questioning earlier this month, which caused a big rally in the markets and big protests in favor of the president. but it seems he has lost some of the political capital he had. dilma rousseff tried to make him minister, and he has not been able to take office because of all the injunctions against him trying to stop him. he was not able to stop the pmdb from leaving. tom: thank you. richard haass is with us on the council on foreign relations. we touched on brazil, and the

major message was that if they are going to do this, get it done. richard: the worst scenario is a d-out one. a dragge the bad scenario here is you have a shrinking economy about the process, and even if there is a change it is not neat and clean and there are questions of legitimacy and whether the new government can work. there are still 2.5 years before the next election is scheduled. what is worrisome is that the region's most important economy is in a prolonged crisis. francine: and -- vonnie: and money is not pouring in, richard. the underlying fundamentals are not bad. brazil has so many strengths going for it, but the question of when,, the question

not if, but it could be a long when. tom: if you said five years ago the president will visit cuba and argentina while brazil is flat on its back, nobody would have predicted that. richard: a couple of years ago, people thought that brazil after all those years of cynicism had finally arrived. also a real drag on argentina. it has consequences not just for itself but for the entire region. francine: richard, are we talking about corruption, or are we talking about economic incompetence? when i read the various news reports, it seems dilma rousseff is not the right person, no matter the allegations. to is not the right person make this economy grow. is that fair? richard: the answers to your question are yes and yes. recalibrating of the public sector. the public sector was coming down, and under dilma it

was like going back to the future. let's have the government play a large role in everything, let's over regulate, throw all sorts of money at this or that pet project, and this is the result. the good news is that it did it to itself, it can undo it to itself. tom: we will continue this discussion on international relations, and the key word is humility because the surprises are always there. barry riddled -- very rich holds is in for michael mckee. ♪

tom: good "surveillance" morning. tom keene in new york, francine lacqua in london. yale writinghe of it up on china. tom: i cannot convey, ambassador haass, in the last 48 hours, have things have sped up with china, and the focus on china is a linchpin of the global economy. what is going on? richard: if china is a linchpin,

then the global economy is in trouble. idea was to shift the model away from export-led to domestic-led, and that is not working so hot, so the chinese are trying to figure out what to do. we see the flailing in the markets, greater political crackdown. china once the benefits of an open economy and society without having an open economy and society. is your said than done. -- easier said than done. you have significant numbers of political protest, political crackdown that is quite profound, in china that we have not seen for decades. i think the numbers, the formal numbers are not the reality. it is much slower than people think, and there are dislocations. francine: we have to give them a little more time. there is a huge economy with a

huge population. if you are transitioning from consumption to services, there will be mistakes along the way. richard: absolutely. i am not criticizing that, but for leadership that for years that has based its legitimacy on economic performance, the performance is not there. so do they crackdown? that is what we are beginning to see because they cannot deliver on the economic side. when and if they deliver on the economic side, if they can't, what then? that is the big question about china. you had the benefit -- what does dr. economy say about the politics as it links into the people? richard: the leadership is worried. it is getting a lot of pushback from below. we are seeing all sorts of analytical as well as -- people

are getting unhappy. you see these stories about the letters circulating critical of president xi and others. you see hong kong arresting booksellers. this is not a confident, calm leadership. this is a leadership that is worried that without the lubricant of high levels of economic growth, how do they keep the populace satisfied? tom: just in the last 48 hours, a new look at china. we will be doing a lot of this in the coming days. part of the markets is volatility. that is what people make money off of. i believe i learned that from dean curnutt. we will get an update on global wall street and global politician of a -- and global volatility. "bloomberg surveillance." ♪

francine: i am francine lacqua in london. tom keene is in new york. it is all about what janet yellen said yesterday. the big picture for stocks -- in

europe they are getting 1.4%, after chair yellen reasserted central banks' gradual approach to raising interest rates. let's get straight to the bloomberg first word news with vonnie quinn. forie: it is a major blow brazilian president dilma rousseff, just weeks before she faces an impeachment vote in congress. the balance may be tipped against her as speculation continues that other factions may be against her. the -- ans deepening --esty law is being aimed at since taking over congress, the opposition has had several key decisions overturned by venezuela's supreme court.

a panel says david cameron should present a positive vision of the e.u., making a case that remaining in the unit would be all income brackets per greece is poised to take in tourists that turkey is losing. a record 25ts million this year. turkey says the number of arrivals fell last month. and russia has banned tour operators from sending people there. republican presidential candidates are backing off promises to support the party nominee. front runner donald trump says them beholden to the pledge because he has been treated very badly. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus i am vonnieorld, quinn. tom? tom: we do international relations this hour. so much to talk about, but let's

digress to the mysteries of what the french call agitation in the market. dean curnutt is expert on the nuttiness of volatility on volatility, or the simple dynamics of the vix. is a vix of 13.82 right now that complacency -- is it the same complacency of two years ago, or 2006, or the year 2000? dean: the dynamic is always changing. the market backdrop is always changing. i would not call it too high or too low. -- thesatility volatility in the s&p, the fluctuations that had been relatively calm, bring it down. janet yellen yesterday is taking a lot of the risk premium out of the casino is still open, i am advertising loose slots, so to

speak, and she is saying come back into the market and the waters will be called bank. tom: in every private conversation i have, everybody says what is new in volatility is the dominates -- the dominance of etf's. people use the phrase "hedge funds" in a collegial way. are these the bad guys? dean: the market has a large degree of artificiality to it, so it is not good or bad, but it is the reality that central banks are creating the bouncing around of risk back and forth. there is quite a bit of strategy built on volatility. many of them are not visible. they are off market, over-the-counter. tom: this question is critical. is it a fair playing field for the little guys, whether it is the individual little guy, or supply-side mutual fund in the 201 k? is difficult for

everybody because it is a world starved for returned by the central banks. when people ask why interest rates are negative, it is because central banks are saying it is so when you take away the , carry, to to earn earn interest, it becomes challenging notches for the little guy, but for everybody seeking capital. francine: what is the ideological four-vote overall? we tend to forget when you are on the markets that people need to make real decisions on the back of it. this is currencies, ceo's, it is people's jobs. dean: what we have learned in the past 15 or 20 years is that it are too high is not good. side, look at that period of ultra quietness in the markets from 2003 right markets drifted in 2010. that is a real danger when leverage builds up because the

markets are too stable. is 35 andthe vix going higher, alarm bells are set off and there is the potential for something to become self reinforcing. in reality, the markets need to almost be managed to a vix of 17 to 25. it keeps people guessing. a danger from yesterday is that the fed comes back into the marketplace, people are worried about global financial conditions, and they reinforce reliance on the guidance of central banks to provide clarity going forward when ultimately clarity is not going to be available to investors. francine: so in terms of a timeline, when does volatility become more normal? is it six or seven months after the fed starts to normalize interest rates? dean: it is difficult to see volatility normalizing when you have $9 trillion of sovereign debt now yielding negative interest rates on $9 trillion of

sovereign debt. the fed has not gone there yet, but there is quite a bit of speculation in asset prices, in euro-dollar futures contracts, that the fed may go negative. you cannot describe the volatility market as normalizing ton policy is so pinned zero. that we havetement seen denoted by those blue circles, and the answer is we have come down to a new complacency once again. richard haass and dean curnutt globally, a disarray and within america. is this deceptive chartres part of my finance -- is this deceptive chart part of a financial disarray? dean: china is said to be reacting to u.s. monetary policy. it is almost like the causality has been reversed, with janet yellen saying that the u.s. is

beholden to the global financial developments, much of which are in china. risk advisors are spending a lot of time studying the events of last august, and then earlier this year. the extent to which china imposed itself on the vix, which went from 13 to 40 in three or four days, and the fed needs to pay attention. ambassador, give us and dean curnutt a briefing on china's politics as it folds into a fiction of their financial system. i cannot say enough about michael forsyth's piece in "the new york times." brief us on what you have seen in the cfr. richard: janet yellen is in a tough position. she is running the u.s. central bank, and in some ways she is running the world central bank,

except that there is not one. that is why in some ways you see the fed unable to define and stick to it consistent path because some of these things are outside her control. in the case of china, you have an economy in transition. there are some parts that are relatively open and market oriented. some things are incredibly closed and opaque. there are some things that are in between that may or may not be in transition. the problem with china is its size, its scale, and the fact that it has elements of advanced economies. at the same time there are a lot of contrictions, and it has not reached the point of a new plateau. tom: maybe they are in search of credibility. richard haass is with us. dean curnutt, thank you so much. is 11.ck when the vix we are going to continue with dean curnutt later on "bloomberg

surveillance," and an important conversation. glenn hubbard announced a number items with chair yellen yesterday. and yellen's response on factors. it is "bloomberg surveillance." ♪

francine: this is "bloomberg surveillance." we looking for markets, but first let's get to the bloomberg business flash. vonnie: european mills are having to deal with a flood of cheap steel exports from china.

tata cut jobs last year in the united kingdom. charitable foundation lied, cheating the foundation after almost $25 million, and lost the money on camping on stock options. budweiser has found an unlikely source of growth perhaps, growing sales at a double-digit pace in russia. drop indespite a 30% brewing output there since 2008. that is the bloomberg business flash. francine: thank you so much, vonnie quinn there. fromve ambassador haass the council on foreign relations. we want to talk a little bit about turkey because this is a crucial ally for europe when you

deal with the refugee crisis. but we also see a president, mr. erdogan -- - mr. richard: it is one of those countries you cannot categorize. it is technically an ally but it is anything but a partner. it is one of the most difficult relationships for the u.s. to manage. mr. erdogan is coming to washington a couple of days or so from now for the euro -- for the nuclear summit. there is the kurdish question of what to do about syria. yesterday the state department declared parts of southeastern turkey, they issued a travel warning to americans, saying no americans or u.s. government officials should go to turkey unless it is for mission-critical reasons. now that they violence has -- francine: how do you deal with

turkey? what will the relationship look like? richard: i would stop the happy talk and moved to a much more transactional relationship. i would not assume that they are allies because we fought in korea together. i would get extremely transactional, not cut them slack and be publicly critical about everything from their domestic crackdown and their loss of basic political freedoms, the way journalists are being treated, to be much tougher on what they are doing and not doing in syria. tom: i assume the state department affects transactional policy. indication that the state department wants to do transactional diplomacy? richard: it is the white house that determines foreign policy, not the state department. this is something that the white house has to take control of, and have a much tougher policy

toward turkey. they have been a real disappointment in many ways, particularly in the middle east. his government came into power talking about having good relations with every neighbor. now they have bad relations with every neighbor. pivot around the strange institution, nato. mr. trump has spoken about nato as a fossil from world war ii that we do not need. it seems to me like nato is from the center in a transactional debate. , its importance is front and center. the threat is not just ukraine but the russian challenge. tom: including turkey. richard: we really have to ze.engthen and re-natoi we have to rebuild military capacity throughout -- you do not want to give mr. putin the kent tatian to put pressure on

countries. turkey is not so much just a -- toe mr. putin the temptation put pressure on countries. francine: ambassador haass, we helpdo need mr. erdogan's dealing with islamic state. richard: absolutely. we need turkey's help with the refugee flow to europe, with stopping the flow of jihadists going into syria. the problem is, the united states and turkey are not on the same tied -- on the same side of how to do with the kurdish issue. the kurds have been our best harbors against isis. turkey sees them as a major threat. tom: the late christopher hitchens wrote about this years ago, about the uniqueness of northern iraq, and then into eastern turkey, the kurdish question. this gets fairly radical for this time of the

day, but we are moving to a post -sites middle east and iraq. we are probably looking to a middle east where you have essentially autonomous areas. kurdish areas, various sunni areas, and so forth in places like iraq and in places like syria. tom: and that is anathema to mr. erdogan? richard: absolutely. because once you pull that thread, ultimately the turkish state unravels. richard haass with the council on foreign relations, and analysis from the border of syria. today market's really moving. 123 zero.at about futures up 12, dow futures what

-- dow futures up 107. francine lacqua in london, tom keene in new york. "bloomberg surveillance." ♪

tom: foreign-exchange matters

this morning. francine lacqua in london. i am tom keene in new york. let's go to the forex report. dollar weaker. you see it in europe with the you want -- you really see it with the yuan. a $1.16 euro. very few people are moving in that direction. ?rancine lacqua francine: coming up is bloomberg . what do you have on the show, david? david: we will be joined by michael holland of holland and company. we will be talking about oil. new reality in the oil market. finally, we will have mike peeples. mike will be talking about equities versus high yield and fixed income and what we should be doing in light of what is

going on with the fed. that is all coming up on "bloomberg ." look at: tom, when you stocks, they are jumping around the world after janet yellen is saying we will have a gradual approach to raising interest rates. tom: we see that across all assets this morning. let's go to the single best chart, focusing in on the political debate in america. this is two presidential moving averages, the four-year moving averages. you can barely see the actual data. the green line is the animal spirit of america, and a nominal gdp. if you take out inflation, you have that lovely red line with the challenges of zero gdp, zero real growth during the financial crisis. richard haass, things have narrowed and dampened. the animal spirit has been mr.ed out, and this goes to trump. he is still riding high with the anger and anxiety, isn't he? richard: absolutely.

you see that in his stance on free trade, and his sense that somehow allies and others are "ripping us off." it is playing into the sense that somehow america has been taken as a sucker. tom: as speaker ryan and others have to adapt to mr. trump, what do you expect him to do as we go on to wisconsin and the new york primary? the most interesting debates now in american politics are less between the parties than within them. you are seeing that within the republican party. you are seeing it in foreign policy and on the domestic side. it is one of the reasons people should not be surprised that you see the candidates no longer pledging to support one another. like arthur levitt said the other day, a lifelong democrat,

she should have the courage to stay the course. what is your thought on mrs. clinton? biggest energy and challenge on the democratic party is also antiestablishment. what bernie sanders is tapping into is not dissimilar similar from what donald trump is tapping into, which is why you , orall the anti-rich anti-1%, and so forth. the question is, can she succeed politically? if she bucks, what is essentially the economic and political headwind in our party? that is an open question. francine: who is more unpredictable, donald trump or vladimir putin? i actually do not think either is unpredictable in the sense that, mr. trump, you may agree or disagree with his

positions on immigration and trade, but it seems to me he has been quite consistent with his views on the economy and his limited view of what america's role in the world should be. vladimir putin is all about recovering russian pride, dealing with the humility in the last 20 or 25 years with russian history, and with the opportunity to make russia to be a major power, he does so. tom: how do the parties find middle ground by the third week of october? how do they get to the independent voter, the disaffected middle of america? richard: whichever party succeeds over the other could well win. these are has begun its pivot toward the center, toward the plurality of american voters that defines itself as independent. even more problematic might be whoever wins, can you ill a

governing coalition? you have to appeal -- can you build a governing coalition? you have to appeal across party lines. tom: safe travels to brazil and argentina. with an important trip truly new spirit in argentina. francine lacqua, as always, thank you so much. "bloomberg " is next. and glenn hubbard will join us from columbia business school, important questions yesterday to chair yellen. tomorrow on the program, synthesizing across all assets, robert sinche. from london, from new york, "bloomberg surveillance." ♪

globaljanet yellen sends stocks rallying after her comments that the fed will proceed cautiously on rate hikes. after is plunging

of $200 million. be waitingnks could a decade before paying out some bonuses. welcome to "bloomberg ." i'm david westin, here with vonnien ferro and davi quinn. that i think it is fair to say that this market check is brought to you by janet yellen. across the board, futures up again this money come a 100 points on the dow, the s&p 500 up 12 points. if you look