francine: life after oil, saudi arabia will outline its plan for a post crude world. we hear from the deputy crown prince later on. --ack obama urges post transatlantic ties as he praises angola merkel. tort -- hishis g4 european tour. china's biggest banks found exposed. we talked a greek -- banking all around the world. this is bloomberg surveillance, i am francine lacqua.

michael mckee in london. we have a very busy week and we start talking about yields an economic indicators that disappointed. michael: we are starting to get ahead of the fed meeting on wednesday, the bank of japan on thursday. the bank of japan is a wildcard and it is having an impact on the market. tom heard that vonnie quinn had been on assignment for several weeks and said he is not coming back until she returns. nobody told him. she is back. francine: i thought he was getting caught up on game of thrones. i am sure he is also looking at jgb's. isnie: president obama pitching american business today in germany when he spoke at a trade fair in hanover. >> so here we are proud to showcase america's commitment to innovation.

you will see pioneering countries that are changing the way we live, work, learn, so this is another chance for me to tell everyone to come here and by made in america. the president also said companies looking to create jobs should set up in the u.s.. the president is wrapping up the u.s. fight against islamic state in syria and is expected to send 215 more u.s. troops according to a senior administration official. they would help local forces fighting islamic state. in north korea, latest attempt to display its military might is on display. the regime says it has successfully testified a national desk testfired a missile -- test fired a missile. saudi arabia is unveiling a , admap for the post-oil era

plan to overhaul the saudi economy. oil accounts for 80% of their in oilbut the decrease prices is causing them to diversify. the other two republican presidential candidates are teaming up to stop donald trump. they have agreed to play in certain states and not in others. but could bolster romp's criticism -- trump's criticism of the system that he calls rigged. michael: so much fun to watch the republican presidential campaign. let's say what is happening in the market. if it is not the republicans, it may be oil. the equity markets around the world are lower this morning, futures decidedly down. some of that money going into bonds, the yield on the 10 year down to 1.87. the euro getting a little bit

stronger today ahead of a fed meeting that is going to do nothing. crude oil lower, dragging down on stocks. thised will consider lower. the yen, some of the money going into japan ahead of the meeting. look at the korean won, at a two mud flow. korean yuan at a two month low. soybeans,s -- commodities might start rising again, at least soft commodities. francine: i'm glad you brought soybeans up. this is my board to show you some of the european equities. they are all down. shares falling in asia and europe so crude oil dropping, the yen strengthening. investors are cautioning before a central bank meeting this week in the u.s. and japan.

michael: something interesting about what is happening with the fed and central banks, the fed has been raising rates but it is having no impact. this is the fed funds effective rate, how it trades in the market. it has gone up since the fed raised rates, and here are corporate spreads. this is the bbb rated spreads and they are going down. they should be going up. if the fed were making it harder to borrow, they would be rising, but they are not. does the fed raise rates? does not seem to matter in the markets. francine: i like that chart. this is a little bit random that goes to the point. we were looking at excavator sales in china so i want to show you production margins. china's steel mill margins are at a seven-year high and this is what the chart shows you. you can see five or six months ago they were almost at a record

loss and now they are up here. the question when you look at this, can you trust the data and how much stimulus from china has filled through this construction? let's get to saudi arabia, decades oil dependence may change their vision on oil. we are expecting a conference later on from the deputy crown prince. bloomberg had a privileged experience when we spoke to him about six hours state -- straight. he joins us now on the phone from riyadh. glenn, great to have you on the program. we are expecting the deputy crown prince to once again lay out his vision. is it because he is trying to make a stand or because they are in trouble because of the oil price level? glen: i think they are trying to change the economy and adapt to lower oil prices. today they will roll out and announced several economic,

social, and development programs. we do not have details, that is with the deputy crown prince told us. michael: what is he expected to announce, what kind of diversification is going to make enough money for them to keep the population happy? glen: they are going to announce on whetherme points they may lower subsidies, areas that they want to create jobs, whether it is in the service sector or tourism, and maybe some new developments that they are working on. we have had very few specifics on what they want to do, but this is part of their overall froma to move saudi arabia decade-long dependency on oil to an economy that has diversified sectors. francine: glenn, thank you so

much, glen carey in react. -- joined by davide serra. this week we have boj, have the fed, gdp, a lot of earnings. great to have you on the program. you look at the real economy but also look at how you make money in this kind of real economy. does it feel a little bit better, or do you think back to janet yellen, thinking she is not seeing the move so i'm a lot more cautious? davide: i think overall, markets were to bearish at the beginning of the year. my experience has been typically that debt was consensus ends up consensusg -- davos ends up being wrong. if i see where we stand today,

flat yesterday. if you look at the pmi and china is basically a 50. the bankshares which are supposed to be -- are down. in reality i think what is happening is a coordinated monetary policy of easing so far has kind of been working. francine: you think that the fed is not hiking because there is some kind of tacit agreement with the pboc? davide: i think what they understood as a question of speed. they had to give the time to the stimulus,r domestic which is basically part of more lending into the economy. it is a close system so when you look at the overall lending in the economy, the fact that you do not have that -- you have the possibility at least, as far as china is concerned, to stimulate.

not want to lower it because of the exchange rate pressure, but i think if i look at three or four months ago, we were supposed to have an evaluation. we have not had it. tmi, you justthe mentioned the profit margins were going back. i think it was not as bad three or four months ago and it is understood in the markets today. michael: is it that markets are thinking we can now make more ' earnings arees going to go up or are we just getting used to this new normal of slow growth and what is possible? davide: i think markets were very worried about the possibility of the so-called leaving event style. , a mistake ofina

the ecb not clearly communicating some of the rules -- that crashed european stocks. given the fear that the economy was not as stable as it is. when you look at tmi you look at gdp, job growth. it is not as bad. i think what happened is the market entered in panic and central banks said, relax, look at the data, and that is why we had a market recovery. francine: davide serra stays with us for the hour. coming up, james stavridis. natorved as a former supreme allied commander for the u.s. this is surveillance. markets are down, oil, yen rising. ♪

francine: this is surveillance, i'm francine lacqua in london, michael mckee in new york. here is vonnie quinn. vonnie: in germany, the ceo of deutsche bank and four former bank employees have been acquitted in a fraud trial. the charges were linked to the media empire. before closing arguments began, the judge said prosecutors had failed to prove their case. phillips leading toward having an ipo of its lighting business. it is the first time they said they may prefer an ipo to a private sale. lighting units had more than $80 billion in revenue last month and the -- last year.

one of the biggest shareholders in all of japan is the bank of japan. bloomberg crunched the numbers and found that it is a top 10 shareholder and 90% of the nikkei. distort valuations and undermine efforts to improve corporate governance. that is our bloomberg business flash. francine: president obama is in germany for a second day, meeting with angela merkel. we are expecting the president to speak shortly from germany. zuczkae moment, tony c joins us from berlin. how much of the focus is on tt ip? quite a bit of focus on the u.s.-eu trade deal because it is hard to pass. ,t is hard to pass in the eu

certainly not very supported among the german public. the mood for free trade is not as good as it may have been on either side of the atlantic. it has been a topic of both obama and merkel, both made a pitch for yesterday. francine: president obama was in the u k where he did a pitch urging the britons to stay within the eu. one of his best relationships and europe is with chancellor merkel. was it a warm welcome? tony: he was absolutely if you said yesterday when he was effusive- absolutely yesterday when he was talking at a news conference. obama really brings a smile to her face, which is something you do not see often these days since she has under a lot of pressure in germany domestically

because of her stand on the refugee crisis. it is a big shout out from obama to merkel. michael: that is an interesting point, because obama is not very popular in the united states for the past couple of years. is he still as popular in europe as he was? is he an advantage to merkel? tony: that is an interesting no,tion, and the answer is, the euphoria that you had in europe at the start when obama came in and george w. bush left the white house, that has stated and has faded quite a bit -- faded and has faded quite a bit. there are few figures in the world that can swoop into germany and give a boost to merkel. factor, this residual although they openly mention some differences including on global issues. francine: tony, thank you so

much for the up date. from our berlin office. davide serra is still with us. the last seven days was dominated by president obama in europe. brexit, where you flabbergasted that he came here, or does it just tell you how serious the debate is for world leaders and general growth? davide: i think it is the key to political unrest. president obama made it very clear that were the u.k. to leave the eu, it will have to negotiate a new trade agreement. if we were to leave as a country, where are we going to stand in terms of trade negotiation? have beend france clear that we will be at the

bottom of the list. , they willticularly be even more clear, you have to keep paying the eu subsidy with a budget. these kinds of choices and is very simple, that we pay some and the over influenced by the weight of the eu economy. most importantly, the thinking of the commission is often driven by an anglo-saxon trade and at thatleave point if we want access to the market we have got to pay the bill. that would be for my view a disaster from an economic point of view. francine: we will be talking a little bit more about brexit but also u.k. banks. we will bring you president obama speaking live from germany. he is in hanover and is expected to start talking about 5:30 in new york.

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francine: you are watching bloomberg surveillance. we are heading straight to hanover where president obama is speaking. president obama: over the last seven years have relied on your friendship and counsel, and you are a firm moral compass. we appreciate your chancellor angela merkel. bundestag,ers of the prime minister, meier, distinguished guests, people of

germany, and i am especially pleased to see the young people here from germany and across europe. we also have some proud americans here. i have to admit that i have developed a special place in my heart for the german people. back when i was a candidate for this office, you welcomed me with a small rally in berlin where i spoke of the change that is possible when the world stands as one. as president, you have treated me and michelle and our daughters to wonderful hospitality. you have offered me excellent year -- beer. you have now hosted our delegation in hanover. my only regret is that i have not been to germany for oktoberfest. i will have to come back, and i

suspect it is more fun when you are not president. [laughter] [applause] president obama: and as always i bring the friendship of the american people. we consider the german people and all of our european allies to be among our closest friends in the world. because we share so much experience and so many of the same values. we believe the nations and people should live in security and peace. we believe in creating opportunity to lift up not just a few, but the many. i'm proud to be the first american president to come to europe and be able to say that in the united states, health care is not a privilege, it is a right for all. we share that as well. [applause]

obama: perhaps most importantly, we believe in the quality and inherent dignity of every human being. today in america, people have the freedom to marry the person that they love. we believe in justice, that no child in the world should ever die from a mosquito bite. no one should suffer from the egg of an empty stomach -- ache of an empty stomach. we can save our planet in the world's most vulnerable people. these are things that we share. common experience. this is what i want to talk to you about today, the future that we are building together, not separately but together. that starts right here in europe .

i want to begin with an observation that, given the challenges that we face in the world and the headlines that we see every day, may seem improbable but it is true. we are fortunate to be living in the most useful, most profit -- mostuseful, most profit -- l, most profitable era. that might be a surprise. consider that it has been decades since the last war between major powers. more people live in democracies. healthierlthier and and better educated. with a global economy that has lifted up more than a billion people from extreme poverty and created new middle classes from the americas to africa to asia.

of thebout the health average person in the world. tens of millions of lives that we saved from disease and infant mortality, and people now living longer lives. around the world, we are more tolerant with more opportunity lesbians,and gays and as we push back on bigotry and prejudice. world, there is a new generation of young people like you that are connected by technology and driven by your idealism and imagination, and you are working together to start adventures. is moree government accountable, and enhance human dignity. if you had to choose a moment in born, any time in human history and you did not know ahead of time what

nationality you were or what or what your economic status might be, you would , which is not to say that there is not still in or miss suffering -- enormous suffering and tragedy. that theremember trajectory of our history over the last 50, 100 years has been remarkable. we cannot take that for granted, and we should take confident -- take confidence in our ability to shape our own destiny. but does not mean that we can be complacent because today, dangerous forces do threaten to pull the world backwards. our progress is not enough. europehallenges threaten

and they threaten our transatlantic community. we are not immune from the forces of change around the world. as they have elsewhere, barbaric terrorists have slaughtered innocent people in paris and brussels and we see these tragedies in place essential to our daily lives. workplace, ors, theater. unsettles us.- it it makes us unsure in our , fearfuly lives notches just for ourselves, but for those we love. conflicts from self event to fleeingve sent millions to the safety of european

shores, but that strains on cities.ies and local russian aggression has violated the sovereignty and territorial of an independent european nation, ukraine. that unnerves our allies in eastern europe, threatening a vision of the europe that is whole, free, and at peace, and it seems to threaten the progress that has been made since the end of the cold war. slow economic growth in europe, especially in the south, has unemployed,s including a generation of young people without jobs, and who may look to the future with diminishing hopes. all of these persistent tollenges have led some question whether european integration can long injure, whether you might be better off

separating off, redrawing some of the barriers and one between nations that existed in the 20th century. across the countries, including the united states, a lot of workers and families are still struggling to recover from the worst economic crisis in generations. a trauma of millions who lost their jobs and savings is still felt. meanwhile, there are profound trends underway to have been going on for decades. globalization, automation, that have, in some cases, depressed wages and made workers in a weaker position to bargain for better conditions. wages have stagnated in many advanced countries.

inequality has increased. for many people, it is harder .han ever told on -- hold on this is happening in europe. bc some of these trends -- we see some of these trends in the united states. these anxieties are real. they are legitimate. they cannot be ignored. it's their solutions from those in power. unfortunately, in the vacuum, if we do not solve these problems, you start seeing those who will exploit these fears and frustrations, and ch channel them in a disruptive way. a type of politics that the european project was founded to reject. and us versus them mentality that tried to blame our problems

on the other, someone who does not look like us or does not pray like us, whether immigrants are muslims, or someone who is being different than us. you see increasing intolerance in our politics. and, loud voices get the most attention. of the poem byu and weat irish poet, yates, where the worst are full of passionate and the -- and w intensity. this is a defining moment. what happens on this continent has consequences for people around the globe. peaceful, liberal,

pluralistic, free-market europe , beginso doubt itself to question intensity. this is a defining the progresst has been made over the last several decades, the we cannot expect-- and we cannot the progress that is just now taking hold in many places around the world will continue. instead, we will be empowering democracyargue that cannot work, intolerance and tribalism and organizing ourselves along ethnic lines and authoritarianism and instructions on the press, that

things that the challenges of today demand. i have come here today, to the heart of europe, to say, the united states, and the entire world needs a strong and prosperous, democratic, and united europe. [laughter] -- [applause] pres. obama: and perhaps, you need an outsider, someone who is not european to remind you of the magnitude of what you have achieved. the progress that i described was made off the boat in large appearedy ideals that

on this continent and the founding of ideals and a new republic. of course, that progress did not travel a straight line. ande, extreme nationalism politics consumed this continent, in cities like this one were reduced to rubble. tens of millions of men, women, and children were killed. from the ruins of the second world war, our nation set out to rebuild the world, built a new international order, a united nations to prevent another world .ar international financial institutions like the world bank and international monetary fund that promote prosperity for all peoples. universal declaration of human rights advances the inalienable rights of all families.

here in europe, giants like the chancellor set out to bind old adversaries through commerce and trade. unity wasuropean a dream for a few, it became a hope for many, and now it is a for all of us -- necessity for all of us. .nd, it was not easy old animosities had to be overcome. national pride had to be joined with commitment to a common good . complex questions of sovereignty and burden sharing had to be answered. impulse step, the to pull back had to be resisted.

skeptics once, predicted the demise of this great project. but, the vision of european on.y soldiered having defended europe's freedom in war, america stood with you every step of the journey. a marshall plan to rebuild, a nato alliance to defend our way of life -- america's commitment to europe was captured by a young american prot president, john f. kennedy, when he stood in west berlin and declared freedom is individual, and no onee man is enslaved, is free. with the belief in a unified

europe, we did not simply and the cold war, freedom won. germany was reunited. you may argue over whose better, votes are for different fingers on your vision -- singers on eurovision, but your accomplishment -- more than 500 million people speaking 20 languages in 19 countries in one european union remains one of the great political and economic achievements of modern times. [applause] obama: yes, european unity

can require frustrating bettercompromise. it adds layers of government that can slow decision-making. i understand. i have been in meetings with the european commission. [laughter] and, as an: american, we are famous a disdainful of government. b understand how easy it must be to vent and complain, but remember, every member of your union is a democracy. that is not an accident. note you country has raised arms arms eu country has raised against another. that is not an accident. the marketat economies are the greatest generators of innovation,

wealth, and opportunity, in human history. our quality of life remains in envy of the world. so much so that people are ready to risk everything in the hopes of getting our children the takeings that you cannot .or granted , in the 20ent century, was at constant war. people starved on this continent . families were separated on this continent. now, people desperately want to

come here precisely because of what you have created. you cannot take that for granted. unitedt re than europe remains the necessity for all of us. it is a necessity for the united states because europe security and prosperity is inherently indivisible from our own. we cannot cut ourselves off from you. our economies are integrated, our cultures are integrated, our peoples are integrated. of the the response american people to paris and brussels. in our imagination, these are our cities. a strong united europe is a necessity for the world because an integrated europe remains

vital toward international order -- to our international order. up hold the to ol norms and rules that can promote peace and prosperity around the world. consider what we have done in recent years. pulling the global economy back from the brink of depression and putting the world back on the path of recovery. competent to deal that has cut off every single one of iran's paths to a nuclear bomb. in paris, the most ambitious agreement in history to fight climate change. [applause] ebolaa: stopping in west africa, rallying the world around new sustainable

development, including the goal to eliminate extreme poverty. none of those things could have states, if i, if united did not have a partnership with a strong united europe. it would not have happened. that is what is possible when europe, america, and the world stand as one. that is precisely what we will need to face down the dangers that we face today. let me just lay out the kind of cooperation that we are going to b need. we need a strong europe to parent share of the burden, working with us on behalf of our collective security. an united states has

extraordinary military, the best the world has ever known, but the nature of today's threats means we cannot deal with these challenges by ourselves. right now, the most urgent threat 20 should his isis -- to our nation is isil. all 28 nato allies are contribute in to our coalition, isil in iraq,ing or providing critical humanitarian aid, and we continue to make progress, pushing isil back from territories that are controlled. just as i approved additional support for iraqi forces against isil, i have decided to increase american support in syria. a small number of special operations forces are already on

in syria. given the success, i have approved the deployment of up to 250 u.s. personnel to. syria to keep up the momentum. they will be essential in providing training and assisting local forces as they tried isil back -- drive isil back. no mistake, the terrorist will learn the same lessons as others have. relentless onain the military front, we will not give up on diplomacy to end the civil war in syria because the suffering of the syrian people has to end. that requires an effective political transition. [applause] pres. obama: this remains a

difficult fight, and none of us -- fall problem solved this problem by ourselves. europe, including nato, can still do more. i have spoken with chancellor meetingand i will be later with the president of france and prime ministers of .reat britain and italy syria and iraq, we need more nations future to their campaign, building a local forces in iraq, contributing economic assistance to iraq so that it can break the cycle of violent extremism so the isil cannot come back. we need to do everything in our power to stop them. that includes closing gaps so

that terrorists cannot pull off attacks like those in paris and brussels. europeans, like americans, privacy.our many are skeptical about the government sharing in collecting information with good reason. that skepticism is healthy. germans remember the history of government surveillance. so do americans, by the way. who wererly those fighting on behalf of civil rights. it is part of our democracies areake sure our governments accountable. i want to say this to young people who value their privacy and spend a lot of time on the phone, the threat of terrorism is real.

in the united states, i have worked to reform our surveillance program to make sure they are consistent with the rule of law and upholding values such as privacy. by the way, we include the privacy of people outside of the united states. we care about europeans' privacy, not just americans' privacy. also, in working on these issues, i have come to realize that security and privacy to not have to be a contradiction. we can protect both, and we have to. value our liberties, we have to take the steps information share and intelligence within europe, as well as between the united states and europe to stop terrorists from traveling and killing innocent people.

diffused threats as ever, we have to have an alliance. warsaw, and in we must unite together. that means standing with the people of afghanistan. said, nato central mission ournd always will be article five duty to our common defense. that is why we will continue to bolster the defense of our frontline allies, of poland, romania, and the baltic states. we have to both make sure that nato carries out its traditional mission, but also to meet the .hreats

we have to defend the security of every ally. that is why we must stay nimble and invest in new capabilities likes i would offense, missile defense. quite every nato member must be contributing to percent of its gdp towards our common security, something that is not always happen. i will be honest, sometimes europe has been complacent about its own defense. just as we stand firm in our own defense, we have to uphold our basic principles of our international order. that is the principle that nations like ukraine have the right to choose their own destiny. ukrainians,t it was

many of them your age, reaching out for a future with europe that prompted russia to send in its military. after all that europe injured in the 20th century, we must not allow borders to be redrawn by proved force -- proved force in the 21st century. we must continue to help ukraine to modernize its forces to protect its independence. i want good relations with russia, and have invested a ukrt in good relations with europe. we need to keep sanctions on russia in place until it fully implement the agreements that so many have worked so hard to maintain, and provide a path to political resolution for this issue. ultimately, it is my hope that russia recognizes the true that true greatness comes not from bullying neighbors, but working with the world.

now, our collective security the foundation of prosperity. tapping speed to the next point. andworld needs a prosperous growing europe, not just a strong europe, but a prosperous and growing europe that generates good jobs for its people. economic anxieties that many feel today on both sides of the atlantic are real. the disruptive changes brought about by the global economy unfortunately sometimes are hitting certain groups, especially working-class communities, more heavily. if neither the burdens or benefits of the global economy are being fairly distributed, it is no wonder that people rise up s globalization. andhere are too few winners

too many losers, people will push back. all of us in positions of power have responsibility, as leaders of government, business, and to society -- civil society to help people realize the promise of economic security in this integrated economy. know how tos is we do it, sometimes we just lack the political will to do it. in the united states, our economy is growing again, but the united states cannot be the enginegine of -- sole of growth. we need performs for long-term prosperity and to invest in the future. all of our countries could be investing more in infrastructure. all of our countries need to invest more in science, research, and development.

all of our countries need to invest in our young people and make sure they have skills, training, and education that they need to adapt in this rapidly changing world. all of our countries need to inequality and q make sure that workers are getting a fair share of the incredible productivity that technology and global supply chains are producing. if you're really concerned about inequality, about the plight of progressive,ou are it is my belief that you cannot turn inward. that is not the answer. we have to keep increasing the trade and investment that supports jobs, as we're are working to two between the

united states and the eu. we need to keep implement reforms to the banking and financial system so that excesses and abuses that triggered the financial crises never happened again, but we cannot do that nation by nation. , itnce now is transnational moves around too fast. if we are not courtney between the united states, europe, and asia, then you will not work. we need to close loopholes that allow wealthy individuals and corporations to not pay their or trillions taxes of dollars that could be going towards education and health care and infrastructure. to do that, we have to work together. europe, as he worked to strengthen your union, through labor in banking reforms and by assuring growth across the zone, you will have the

support of the united states, but you have to do it together because your economies are two oo integrated to try to solve these problems on your own. i want to repeat. we have to confront the injustices of widening economic inequality, but that will require collective work. capital is mobile. if only a few countries are worrying about it, then a lot of businesses will head towards places that don't care about it quite as much. for a lot of years, it was thought the countries had to choose between economic growth and economic inclusion. now we know the truth. when wells is increasingly concentrated among those at the top, it is not only a moral challenge to us, but tracks down .he country's growth potential

we need tax policies that do right by working families, and those like me that support european unity and free trade also have the responsibly to conditions for workers. and, commitment to protect consumers and environment, upon which we all depend. if we really want to reduce inequality, we must make sure everyone who works hard gets a fair shot. that is especially true for young people like you. that includes, by the way, making sure there is equal pay for equal work for women. [applause] the point is we have to reform many of our economies, but the

answer to reform is not cutting ourselves off from each other, this brings me back to where i began. the world depends upon a democratic europe that upholds the principles of pluralism and diversity and freedom that are our common creed. as free peoples, we cannot allow the forces that i described -- fears about security or economic anxieties -- to undermine our commitment to the source of our strength. democracy can be messy. it can be slow, it can be frustrating. i know that. congress.deal with we have to constantly work to make sure government is not a

collection of distant, detached institutions but is connected in response to the everyday people. that how a doubt united europe works together can be improved. atlic around the world authoritarian governments and theocracies that rule by fear and oppression. and there is no doubt that democracy is still the most just and effective form of government ever created. [applause] president obama: when i talk about democracy, i do not just mean elections. because there are a number of countries where people get 70%, 80% of the vote, but they control all the media.

, and civiliciary society organizations and ngo's notot organize and are registered and are intimidated. real democracy, like we see here .n europe and the united states, so we have to be vigilant in the defense of the pillars of democracy. >> you have been listening to president obama. his long speech with a defense of the european union, almost praising of the european union, and then went on to speak about various to for, including nato needing to bolster its -- we got confirmation as well that americans are sending more troops to syria.

european business, a chance to wrap up the competence of the administration and to wrap up the european alliance. quoting john f. kennedy, -- let's check on what is happening in the markets. as the president started speaking, something has turned around sentiment. s&p futures are basically unchanged right now, as our bonds and the euro. while prices are still lower on the day. index stays in the the korean won moving ahead of the bank of japan meeting. we should mention the bad weather in latin america and in the u.s. as people are talking about a rising commodities.

francine: we saw a slight rivers on the markets. he talked about -- it was a great speech because it was quite passionate, very endearing, and he is once again appealing to the european unity for brexit not to happen. what the president did not talk about, which we need to talk about, is banks. we heard that deutsche bank executives have been acquitted. this is a trial that is going on for about 14 years, and there against josef ackermann. thank you for some -- thank you so much for sticking around and listening to president obama's

speech with us. when you look at global banks, deutsche bank, credit suisse, all the banks are going through a tough time. it looks like there is no basis for the tough times. >> i think it has to do with the underlying business model. first of all, if you look at it simplistically, u.s. banks were generating 5%, because the european economy is still -- the u.s. is ahead of the crisis. secondly, the investment bank has been slower. example, ubse best was the first head of the curve that decided to go on a live usage,,th capital wealth management in investment banking, which is useful to --iety, which is ultimately restructuring and m&a activity

in what are called simple fixed income trading. curve --ne behind the all of a sudden, unfortunately, on a weakening market. and hence the restructuring with the top line. francine: is there any value opportunity out there? i started analyzing credit suisse almost 21 years ago, and the price is pretty much where it was back then. the destruction of the investment banking business, going forward, i do not necessarily agree with the spinoff of the illegal operation. it creates more complexity and running the institution. i think it is a bit of financial

ins -- a bit of financial engineering, and i would not have done it. he did say figure out what they want to do. in the first quarter, they actually had a loss out of the-yield trick -- the high-yield trade involved. i cannot believe management was not aware of that. michael: an issue that came up of the weekend was whether to cap the number of bonds banks can buy in your. the germans worry that if a country runs into trouble, the banking system will run into trouble. how much do you worry about the amount of government debt pouring into bank as it sheets? e: in the u.s., you're talking about a percent of total losses. in europe the number is less than 5%.

europe is the odd one out in terms of having the lowest exposure. the point comes in europe if schauble once the european -- we need to issue a euro bond or of this not because happening yet, then what happens is each banking system prefers so the german position is, in my view come out of sync with the numbers. michael: banking regulators have been saying maybe we should not be focusing so much on the panamanian law firm but they

should be investigating the banks for money laundering practices. goingre a concern we are to find something else that the banks have been doing that is going to be a threat to the bottom lines? davide: i think the issue with banks, it has been typical in following the local lowe's. challenges.e global in europe, what i am more you hadd with is the to major u.s. global players think about, google, apple, and amazon. they decided to pay no taxes in europe. where basically the tax illusion out of the u.s. corporation is running around 10 billion to 12

being euros. it is known to everyone, but apple and google paid no taxes in the u.k., which is ridiculous, being the second largest market in the u.s. exterior in be the position. as far as the personal is concerned, just the fact that the sanctions of the local levels. i think that would be a good way of tapping the penama cases. francine: are you concerned about chinese banks and the fact that the debt load will get worse and that could lead to a financial crisis? davide: i am concerned in the long run. -- theuation in china

-- the reality is those numbers are not sustainable in our view. the market is already ahead of the game. but we do not see any crisis imminent long-term, and that has to do with when china will be able to open all its current accounts and balance. and at that point we will see domestic debt and foreign reserves. francine: thank you so much for joining us. we did not even touch on italian banks, although they have been cleaned up a touch. coming up on bloomberg radio, it is david haro, the chief investment officer who had a stake in credit suisse and also

glencore. ♪

francine: i'm french a likewise in london. michael mckee is in new york. here's vonnie quinn. timee: this is the first this dutch company said it may prefer an ipo to private sales. it was almost a billion dollars in revenue last year. hsbc is being sued by a traitor whowas fired -- by a trader was fired. the trial is taking place in paris. the trader e-mailed the 1400 e-mail spreadsheet listing all

of hsbc's equity transactions in 2010. he is seeking $2.6 million in compensation. more officials at the bank of japan want the government to do more to boost the economy. wantof the central banks administration to seek economic reforms. others wants fiscal spending. that is our latest "bloomberg business flash." joining us now is jerome schneider. welcome to central-bank week. wednesday, fed on the bank of japan's meeting on thursday. the real question is, does anybody care? certainly not with the fed. the fed is expected to trade smoother risk investments at this time in some way. the reality is a lot of these banks have played a game of go fish, where you ask for cards

and you may not have them. this creates the mood trajectory for the dollar and where the dollar is going. it does not necessarily mean a lower value for the dollar but just a stable value for the dollar. the volatility. has been a big concern over whether or not the fed is going to upset markets. we showed this chart earlier, the fed effective rate trading higher, but corporate bond rates are trading lower right now. two things toare highlight here. one is the fed effective rate. one is deemed to be the risk-free rate. fed funds invest in a rate for everybody. the spread is a little bit bigger than this. the second thing to highlight is the triple be spread.

you noted earlier that came down. the interesting thing about this is the reason it came down because of quantitative policies from the global central-bank. attractive interest rate policy has gone through these interest-rate policies over the last few years. positive interest-rate policy, zero interest rate policy. the power behind the fed tightening is simply investors globally who are prone to negative richest rates are looking to find positive returns. that positive interest-rate is driving the corporate spread. hear the propaganda to that. more important for investors, this is not just simply short-term proposition. people who are plagued with the idea of negative interest rates will look globally, whether you -- a japanese francine: we have a great story on the bloomberg, calling it the

most dangerous bond market in history. they are talking about negative rates. i want to bring up a jgb spread. the white line is a 40-year jgb. one or how is a blue do you make money in japan? jerome: it is the story of capital appreciation versus income. you have to think about where on the interest rate curve you are taking that risk. it is very prone to repricing quickly. capital preservation and potentially volatile interest-rate environment are incredibly tricky. specifically when you think about it on the front end, it can be repriced very quickly. jgb, it has been low interest rate at this time and that is volatile because interest-rate policy is volatile. francine: they can be repriced quickly how? if the fed increases interest rates. fed increases

interest rates or policy changes .lobally interest rates remain low at this time. the probability of a fed 2017 was less than 70%, so you are pricing in less than one fed hike over the next year, and that is -- hope the fed starts to see increased growth. if they see increased signs of theation and it translates economy, the fed will have to react in some way, shape, or form. pricing in one hike discounts we saw an amount that speaks specifically to this risk and the fed may have to play catch up later on to get ahead of the curve. michael: you are safe, in other words? jerome: not necessarily immediately, but over time you have to be prudent. spending on the yield curve is poignant in terms of thinking

about how to manage that risk. that is what re-prices whenever you get inflation and the fed react to that. interest-rate hikes are transmitted through that. jerome schneider is staying with us. coming up tomorrow, joseph stiglitz. this is "bloomberg surveillance." ♪

francine: the conversation focuses on finance, markets, and the economy. francine lacqua in london, michael mckee in new york. our morning must-read is linked to brexit. --m "the new york times" francine: what i especially like about this is that the improvements take the view that i have not seen before. to the american right in the way of thinking, and that leaving the e.u. with likely give him a lot more power -- he is saying that boris is very close to the american right and the way of thinking, and that leaving the e.u. will

likely give him a lot more power. michael: one thing we will see -- jerome schneider is with us -- a lot of volatility. jerome: it is great if you are an option trader. it may not be great if you are into capital preservation. you will seeings is a focus on financial conditions, with china and the ongoing conversation we will have. as we get past that point and the improved economic conditions in the u.s., initial jobless claims -- since 1973, there are pretty good numbers out there. more importantly, the fed is going to mean not only volatility due to systemic questions like brexit, and also interest rates and economic data and how those two reconcile in the united states. that will create a history of volatility on the front end of

the yield curve. investors will have to find other ways to manage that safety. adding corporate spread with desperate risk and exposure will be prudent. francine: coming up next on jamesberg surveillance," stavridis. we will ask about the middle east on the day that barack obama in hanover is talking with angela merkel, committing to a next her 250 boots on the ground in syria. ♪ show me movies with explosions.

show me more like this. show me "previously watched." what's recommended for me.

x1 makes it easy to find what blows you away. call or go online and switch to x1. only with xfinity. shoshow me more like this.e. show me "previously watched." what's recommended for me. x1 makes it easy to find what you love. call or go online and switch to x1. only with xfinity. francine: i am francine lacqua in london. michael mckee in for tom keene in new york. here is vonnie quinn with first word news. vonnie: president obama has made

it official. he is sending more troops to syria to help fight islamic state. obama: a small number of operations forces are on the ground in syria, and their expertise has driven isil out of key areas. given their success, i have approved the deployment of additional 250 u.s. personnel in syria plus additional forces to speed up the momentum on syria cash in syria. the brussels subway station hit by a suicide bomber has reopened. attack hit other targets, and the airport are still not up to capacity. saudi arabia is unveiling a reducingo the --

reliance on oil. oil accounts for 80% of its income. the plunge in oil prices is prompting the saudi's to diversify. other presidential candidates are teaming up to try to stop donald trump. ted cruz and john kasich have to play in certain states and avoid others. stop thecould nominating process. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. michael: to the extent there was a headline from the obama speech, it would have been about the additional advisers going to syria. the president also talking quite a bit about the future of nato. joining us now is admiral james dean of the -- he served as the former nato supreme allied commander. we were talking earlier that we want a title like this, supreme commander of "surveillance,"

something like that. james: all you have to do is about 35 years in the military. we will get that taken care of. onnie wants people to salute her. as you look at with the president had to say, are the troops to syria more symbolic than anything else at this point? james: i think they are. they can have real operational effect. because they are not there to fight on the front lines, they are there for training. think ofness context, them as leverage. they are a small number but can have outside effects if they are used effectively to train syrian opposition fighters. runael: maybe in the long the more interesting comments from the president, in light of some of the criticisms we have heard on the campaign trail is his comment about europe needing to do more to bolster nato, particularly countries who are not spending their commitment to nato. james: i think that is correct and i have spoken about this for

three or four years. nato has a minimal defense spending platform which is 2% of gdp. only five of the nato nations are meeting that don't -- i'm meeting that 2%. on the other hand, we do not want to throw the baby away with the bathwater, even spending at 1.6% of gdp, which they do. 300europeans bring in billion dollars a year in defense, the second-largest defense spending budget in the world. we need to get them to up their game, but we also recognize they are significant contributors to global security. daycine: at the end of the -- i know you say 250 troops on the ground are trading -- our training local fighters. but the end game from the u.s. has to be substantial combat ground troops to the region. james: i think we need about 10,000 u.s. troops in the region. we have about 5000 there now. that sounds like a substantial number.

but let's remember we had time.0 in iraq and one we had 140,000 in afghanistan. so a commitment of 10,000 troops is not beyond our capabilities at all. it ought to be matched by 5000 from our european colleagues. that force i think and do the work both in iraq and syria, of getting the indigenous forces to boost their already on the ground to take the fight to islamic state. we have to get that done because trying to solve what happens in maelbeek, where we just saw the subway station reopened -- we have to go to the cause of the problem, and that is in iraq in syria were islamic state is headquartered. francine: there seems to be no real win from the u.s. combating i.s. in the middle east. turner?l be the game james: in order to combat

islamic state in the middle east, we will have to begin in iraq. the next big step is taking most ---- is taking most of all is taking mosul back. on the syrian side, we have to press with the syrian opposition and work with -- and this is unpalatable to many -- in the end, we will have to work with russia. michael: i want you to assess the state of the u.s. military. as we go into this campaign and budgeting under a new president. i have a chart that shows dispense -- defense spending under president obama. it grows, and then it started falling again. that is where republicans are attacking him. is that a measure of the decline in spending because the iraq war is over and the afghanistan commitment is winding down, or is that a real weakness in the u.s.? james: my assessment is that we are spending too little on defense right now.

i do not think we need a massive uptick in defense spending, but in terms of the percentage of gross domestic product, the baseline assessment, we have declined significantly over the last six years. it is time to reverse that and get that trending back to 3.5% to 4%. it is a dangerous world out there. the u.s. military remains quite capable, but we need to look to the future and the rise of pure competitors. we will have to invest more in defense like we do in the rest of our infrastructure. ask -- whatael: i have to do we put our money into? where it is more need to be spent? james: i will not name defense contractors, but three areas where there needs to be additional spending -- one is ciber. we are already in a cyber conflict with russia and china. iran, north korea. we will have to spend more in a

military context. the second is unmanned vehicles. it is aircraft, undersea, in space, satellites. the third is special forces, which are very effective in the shadow wars that we are conducting. there are three areas that i think are worth thinking about for your investors. francine: we are waiting for todi arabia's crown prince unveil his vision for saudi arabia and the next couple of hours. a weakening that it has to go private because of the oil price. how much does that affect the power of the u.s. in the middle east? james: saudi arabia is our ally.pal arab the tension in the kingdom at the moment is significant, and also what is unfortunate is the relationshipsaudi has been so difficult of late. the president of the united

states lands at the airport. no one from the upper tier of the government meets him. there is clear tension about how to proceed forward. we ought to be doing everything we can to support saudi arabia as a counterbalance to iran. now that iran has come off sanctions, they are well resourced to create major disturbances in the region. that is a significant impact on us and our economy. francine: thank you so much, admiral james stavridis. this is the picture for global stocks dropping. oil dropping as well. the yen is rising. it is a busy week here and we have the fed, the boj, and the gdp later on this week. ♪

francine: investor caution is what we get before central banks in japan and -- let's get straight to the bloomberg business flash with vonnie quinn. vonnie: in china, auto dealers are facing a shakeout. a trade group says three out of four chinese auto degre dealerst money last year. the problem is that carmakers are putting too much money into showrooms. groups like autonation may enter china. one of the biggest shareholders in japan's largest companies, the bank of japan. the exchange traded fund prices make it a top 10 shareholder in --

in germany, the co-ceo of deutsche bank and four former bank employees have been acquitted in a fraud trial. the charges against them were linked to the collapse of a media empire. before closing artemis began, the judge said prosecutors had failed to prove their case. that is the latest bloomberg business flash. michael: let's focus on the banks with jerome schneider, and i want to bring in a chart over what has happened in the banking system since the fed started raising rates. general financial conditions -- how tight are conditions for companies? they have raised them a little bit, not a whole lot. look at bank lending. it keeps rising, rising, rising. it has picked up some altitude this year. it seems like people are not afraid of higher rates. banks can make a little bit more money, so they are willing to lend? banks have had to

re-calibrator banking sheets. of -- isn is become because of lending. the second is the economy. than are less reserved they had been in the past. finding good sources of income is key and essential to those banks, and they are getting more and more confident. that confidence comes as they start to see these financial conditions ease, and more important, as they get comfortable with the trajectory of interest rate path from the fed. michael: this suggests if the fed raises rates, it will not be a bad thing. jerome: everybody wants to be on the same page and understand the same game that the fed is trying to play, so to speak. as long as the rules of the game are being communicated effectively, it is fairly easy

for these banks to recalibrate to higher-margin endeavors, such as -- francine: i am already confused. they are not looking at domestic policy. they are seeing some things which are beyond their control, which is why janet yellen has been so dovish. what exactly is she so worried about? last august, we thought the fed had only two mandates, inflation and jobs. then we saw a third not-so-subtle made it come in, which was global conditions. janething else, it gives a little bit of leeway in terms of how they manage sector medication and credibility. arehe fed sees data collating for increased jobs and more importantly wage growth on the inflation metric, they will eventually have to react. francine: what do you see as global financial conditions that we should worry about? is it that in china? we have been told we know about

the problem, it will be dealt with, and it will not be eradicated, but it also will not implode. we're looking for stability in the dollar. that will commit to keep the basic notion that we are seeing the stability of the dollar. the valuation of the dollar is key and essential to maintaining global financial conditions. we are in a different situation as we approach this meeting. should the stability and to medication and framework hold, i think that is very important. michael: the dollar index you are talking about has gone down since the fed has raised rates. why? it should be going the other way. jerome: we are dealing with a situation whereby the gdp -- the meeting, they wanted a stable dollar, not a global dollar. two, a lot of this has to do with relative valuation of the

yen versus the dollar at this time. what we have seen over the last month or so, the yen has strengthened versus the dollar. michael: when we see it go the other way? the world is putting money into -- jerome: the key point over here is that over time, as long as the fed approaches it gradually, the gradual stability is going to be the key metric for the bankers around the world to go with, not upsetting the apple cart. for investors that is key, too. we now understand all the variables that the fed is paying attention to, and with that in into thatll see more insight on wednesday. michael: jerome snyder is with pimco. vonnie quinn has breaking news from saudi arabia. vonnie: we are getting the information that the cabinet meeting today has been dedicated

to the vision, and the king has approved the vision through 2030. he is urging citizens of saudi arabia help with those divisions. the dollar index stock from saudi arabia is down .4%. we expect the king to make a statement and hear more about that vision at around 9:00 a.m. eastern. ♪

high-end michael mckee in new york. francine lacqua is in london. time for a quick forex report. -- i am michael mckee in new york. francie likewise in london. time for a quick forex report. the euro is a little bit stronger today. euro-yen also moving stronger in the direction of the euro. the british pound stronger today as we get farther away from obama's event on brexit. francine: coming up shortly, it is "bloomberg ." jon:, you have a lot coming up on the show. of central-bank

decisions. coming outporting about the idea that they do not just own half of the japanese atf market. the boj is a top 10 shareholder in the nikkei. and saudi arabia -- what a challenge. you think about the china pivot, the saudi arabia pivot. i would say that pivot will be harder for saudi arabia than the transition we are seeing in china. francine: i think you are probably right. i do not know if saudi arabia is as systemic as china. jon, thank you so much. "bloomberg " in 10 minutes from now. michael: we are going to do something a little different this morning. instead of the "morning must-read," the "morning must see." for the first time ever, the new yorker has dedicated all cartoons to one topic -- donald trump. 17 cartoons, all about donald. he was a couple of them, a

selection for you. these people are playing bridge. please, no trump." becomesld trump president, i do not care how high a walled he -- how high a wall he builds, i am going over it." let's talk about political risk during the markets so far do not seem to be reacting to what is happening on the campaign trail as much as they are toil and outside influences. when does that happen? jerome: probably fairly soon. we have to get through the global situations like brexit and elsewhere. what is interesting in the markets, they are not necessarily icing in the upside for potential reconciliation on the physical side, not just the united states but globally. when you talk to any monetary policy central banker, they are focused on the point of exhaustion too many regards.

they will quickly point the finger at the fiscal side. in the u.s., we do not see the potential for upside being priced into the market. i think that is the key component as we enter and move 2017, evennd into the move to the moderate from the election standpoint, boats fairly well. michael: as you say, it is a very small -- probability of physical action. you have the cover of "time" talking about the national debt this week, how much risk there is going forward that we are not going to be able to do. because we will have no money left. we have had fiscal stimulus before. it is important to note that we have been through cycles where there is an incapacitated effect from the fiscal side.

we have seen in the u.s. a hint of modest growth with gdp around 2%. we are not necessarily in an awful situation right now. from the fiscal side, we have a little bit of a longer runway then potentially the rest of the world, but i think there will have to be some action on the fiscal side. francine: what happens to treasuries if donald trump becomes president? will he be replacing janet yellen? i think once you get into an election cycle, you get more clarity on how policy implications will affect the market. then we can react. i think the uncertainty right there is political uncertainty with regard to the candidacies we are seeing that will be more crystallized over the coming months. -- theertainty it was

uncertainty is what is driving volatility. it will actually impact treasuries? it is playing on the currency but not so much on fixed income because of the cash. it is difficult to price in risk. jerome: i think that is a great point. you will had the versions on what gets priced into the equity markets versus the fixed income market. fixed income will focus on the data dependence of the fed, and a gradualist approach, and most importantly, the credibility of the fred -- of the fed and the fomc around the table. the fixed income markets will be focused primarily on that. unexpectede of deterioration in global financial conditions, now that we have moved out of the january-february cycle. that will be the focal point. michael: do we see any kind of yield in the goat curve?

-- any kind of move in the yield curve? jerome schneider, thanks for coming all the way from newport beach. coming up next on "bloomberg "bloomberg surveillance" continues on television. tomorrow, joseph stiglitz of columbia university joins us, 6:30 a.m. in new york. "bloomberg surveillance" continues on bloomberg radio. ♪

jon: european stocks drop, and oil drops from a five-month high. michael: the tokyo whale.

the bank of japan is a top 10 shareholder in 90% of the nikkei's top 25. david: welcome to "bloomberg ." my colleague jonathan ferro is here. also glad to have carol massar here. carol: good to be here. jon: it will be a busy week ahead. let's bring up the scorecard on the financial markets. --ures softer, dow futures in europe, we were lower by a percentage point on the dax.