misses estimates. hsbc beats. cutting down under. the aussie dollar drops. return of the pound. sterling erases its 2016 losses against the dollar as traders caps off brexit concerns. this is bloomberg "surveillance." londonncine lacqua in with tom keene in new york. we are getting breaking news. the commission lowering their gdp forecast and lowering inflation forecast for the euro

area. he inflation forecasts are the real key. the australian bombshell. there is a time to her three times every year where the wind shifts. this morning feels like that. with the australian shock of new low rates. of deflationregime and disinflation fighting going on as we speak. francine: it's something we have been trying to fight. i guess this is a shift in the wind. realization that central banks seem powerless when it comes to fighting inflation. let's go straight to bloomberg first word news. republican presidential front runner donald trump may be on the verge of delivering a knock out blow. poll shows trump with a 15 point lead over ted cruz. cruz says he will keep campaigning in a longshot bid.

for the democrats, hillary clinton and bernie sanders are in a tell you race in indiana. 90% of the delegates she needs to become the nominee. european companies are rushing now that international sanctions have been lifted, but they are doing it without their favorite banks. many of europe's biggest lender's remain unwilling to go near iran-related businesses. the reason? remaining u.s. sanctions that has opened up the door for chinese banks. former chancellor of the warns that iting would be a disaster for british trade of the country leaves the european union. darling says the u.k. risks losing 375 billion a year. the reason? unnecessary tariffs and various. supporters of a british accent called his claims absurd. british voters will decide on june 23.

hat helicopter crash in norway is raising questions about whether oil industry costs are a threat to safety. last week's crash killed 13 people on their way back from an offshore platform. union callsgest oil the accident a wake-up call. it was the first fatal accident in norway's oil industry since 1997. in turkey's parliament, emotions got a little bit out of control. lawmakers fought each other over a controversial plan to strip them from in from prosecution. that could pave the way for a pro-kurdish legislator to be tried on terror related charges. water bottles were thrown and so were a few punches. dayal news 24 hours a powered by our 2400 journalists in more than 150 newsrooms around the world. francine: thank you so much. we are getting breaking news.

tom keene, king philippe day of spain has called for new elections from june 26. we did have elections three months ago. it is incredible when you look at what is happening, the political landscape in spain. they were not able to form a government. it does not bode well. a lot of people are concerned that it is the more extreme parties that will go in. again, june 20 6, 3 days after when we referendum is have referendums in spain -- june 26. tom: i'm going to make a new screen. futures -12 shows a linkage, the independence of currencies. the yield comes in a solid five basis points. the euro i'll talk a lot about today. it is the unspoken 1.1592. three standard deviations is a 1.1625. euro i s on a tar this

morning. -- -- on a tear. dollar index is shocking with 91 earlier. the yen we know 105.73. there's euro-dollar. one more time. what do you have? francine: i wanted to show you some of the banks because we had disappointing earnings. ubs first-quarter profit plunging 64%. we also have bnp. the only one gaining. stock is downhe 7%. watch out for the banks. european stocks overall all down -- are down. look at the australian dollar. look at the pound because we had much worse than expected manufacturing data. but poundontraction still reversing all of his declined since the beginning of the year. go figure. tom: there it is. what we do, folks, if some go

back-and-forth between the control room trying to give you the most up-to-date stuff off the bloomberg. this is the euro-dollar. i am making this up as i go. this is a really elegant chart, the green moving average bounces off the yellow moving average. we have a nice trend. this is not two standard deviations, it is three. the pros talk about is convexity or acceleration. this is the brutal that trichet used to talk about. we are now beginning to see off the australian news brutal moved linked together worldwide. francine: following from that, the brutal moves kinder translate into pound now. i have an elegant chart for you. there you go. pound versus dollar. this is when david cameron comes to bloomberg headquarters in london. january, 2013, and calls for referendum. it bounces a bit.

but now is today. we have reversed all of the decline since we saw the beginning of the year. so, people are feeling a little bit better about brexit of is t -- or is this a dollar story? joining us is james bevan. he helps to manage $6 billion in assets. great to have you on the program as always. moved?has the dollar francine: when you look at this chart, some pretty dire economic figures today. manufacturing, a contraction, 492. -- 49.2 james: a lot of people have taken positions in advance of the brexit vote. the stay-in camp is beginning to gain traction p people are a little bit more relaxed. a consensus expectation that the pound would collapse to

1.25. as the risk receives, the pound can feel more comfortable. francine: what is today feel like? we had the astoria central-bank move. they say they can do more to fight disinflation. the european commission going down with a lot of their forecasts, downgrading their forecast for gdp. the banks are just terrible today. earnings were not good at all. hard to see very how banks can do well were mergers and acquisition activity is going to be low. we had a really terrible quarter for investment banking. to might expect that continue. also, what progress they are making comes from cost-cutting and one-offs. so, if you were to say to me, what is going on a central banks? i think i would draw a distinctive between the united states, where there is still a clear appetite to tighten at some point, and i was -- yellen will keep the bdi on the jobless numbers later this week -- keep

a beady eye on the jobless numbers. tom: wonderful to have us on the show.- you have on the many exogenous shocks we see. theyen chart. if we zoom in, we begin to see the brutal moves that mr. trichet we speak about where yen near the blue line at the bottom is approaching one, two standard deviations of yen strength. the abruptness here. aese exogenous shocks, and nothing more than an adjustment to weak economic growth? they arethink fundamental. i think they relate to the structural challenges the global economy presently faces. globalperiod since the financial crisis, we have had an increase in indebtedness. terms of yen strength, i would say the policies the bank

largely leads to encourage or repatriation of assets by japanese investors to japan, has led to a net increase in demand to the yen. tom: within those charts we are going to be speaking with the chief financial officer of commerzbank of germany in a bit. when look, at negative interest rates. it is a little bit better than it was. if i look at the german two year negative rate, it is still substantial. where will this spill over into the financial market? what avenue of transmission will receive from the australian central-bank or yen dynamics over into the reality of our banking system? james: i think what we will observe are th central-bank of europe, thee ecb, recognizing it needs to get on with the asset purchase program that it announced to take place in june where it will buy into the

corporate bond market. it will end up with some were up to around 25% of all corporate issues. that is going to be very significant to the pricing of risk assets in europe. the icecb's line is not so muche need to provide the wherewithal to the economy but we need to get asset prices higher to restore confidence. very risky. tom: i agree with the very risky. i really agree that he goes over to balance sheet adjustments. we are thrilled to have james bevan with us. many other good guess coming up. talk about luck. blaxem has been on our schedule for weeks. australia.hsbc we will get his perspective on the shock from the reserve bank of australia. stay with us. bloomberg "surveillance." ♪

inncine: i'm francine lacqua london. tom keene is in new york. let's get to the bloomberg business flash. >> thank you so much. first-quarter profits fell at bmw, the world's biggest maker of luxury vehicles. bmw has been investing in new technologies like a self driving electric car. the company hopes that could eventually replace the 7 series sedan as its flagship model. ipo for is planning an its lighting division. for months, the company try to find a buyer for the unit but failed. now phil's plans to sell at least 25% of the shares of the division in amsterdam. the company may seek evaluations of $6.3 billion. reached aner has

agreement on self driving cars with google, according to italian media report which says the deal will be signed today. google has developed the software and vehicle control capability for driverless cars and tested it for one million miles. that is the bloomberg business flash. francine: thank you so much. a slew of european banker earnings. bnp is the only one who share prices are rising today. bloomberg gadfly columnist covers banks and james bevan is also with us. great to have you with us on the program. when you look at banks, it seems like all the fears we had for some of the trading revenue, ubs looking very ugly because we do not have visibility and we are concerned about volatility. >> absolutely. aside from the expectations game, you can say it was an objectively bad quarter. revenues were down, yes, it looks better because there is no

more bad news on litigation, which is good news. but a sickly, it is the focus on costs, can ceo's execute? and what if they got to protect themselves of it gets worse? chase.t me cut to the i think this is a critical time for european banks. with that said, do you sense and anglo-saxon urgency on cost cutting? this is the moment where the continental banks become much more ruthless like the london banks or the new york banks? lionel: not really. it is interesting to note that all of the strategies or most of them were issued before the rea turmoil we saw inl february. and we see what is happening with the central banks. it is interesting there, as well. but with more action from the ecb, i do not see a lot of earnings upgrades, estimate upgrades on the back of a more benign central-bank environment. of we are not seeing a lot optimism or confidence and not seeing a lot of aggression yet. johnson spokeguy

to the ceo of ubs earlier on and he is very sanguine. there is no magic bullet to take billions of costs down. he's concerned about volatility. >> it looks like we are still in a very challenging environment because none of the issues we have been highlighting and the last few quarters are disappearing. macro, this cocktail of macro economic issues, geopolitical issues are now coming on. you know, we are going to see soon a vote on brexit. other major,to see we see the escalation coming from the u.s. elections. potentially you see a lot of factors that may affect the market sentiment. you seesense, volatility but it is not the kind of volatility that translates into client activity. it is a paralyzing volatility. francine: " paralyzing volatility." that makes me worry.

tom talks about continental banks but the swiss banks are run like the anglo-saxons. they have at high requirement for investment banking and wealth management. they have reported wealth management plans as well as investment banking plans come a just not wanting to take any moves at all in this uncertainty. i would absolutely share tom's point of view that we have not yet got resolution of the trade-off between a sustainable long-term cost bsaase and a reliable long-term office engine. tom: when "with all due respect" wants to run -- when francine lacqua wants to run the wealth management, it is so on board, everybody wants to be -- ol weinberg joins us yesterday and he was heated about the state of the italian banks, that they are truly the canary in the banking coal mine. your thoughts on the fragility, the combination of events that

face italian banking. james: i worry about all the peripheral economies and their banks. when i look at the support that the banks have had an terms of, the european central bank, both buying debt directly and therefore allowing them to exit government debt at good prices. but also the whole challenge of target two. for yours who are not familiar, target two not like the federal reserve. they do not zero balance at the end of a period. there are vast and palance is. everybody knows, the commercial banks are going to be very sensitive to the resolution -- there are vast imbalances. the problem with italian banks is that media b anco, the fund that was set up by the government, atlantic, may accelerate losses. ermotti saidfrom

about a cocktail of macro events. that perfectly gets to where we are this morning. francine: it is a balance of how much you cut or how much you wait for the recovery. james bevan stays with the spirit coming up later we speak with a cfo of commerzbank. stephan engels. commerzbank the performer among the european banks. down some 7%. report good earnings. we will ask him about that. ♪

francine: tom keene is in new

york. this is what i paid for our morning must-read. robotics. they write in "the financial times," the rise of the robots. the machines are starting to roll or walk out of labs. they are superlative -- they are about to tip off a financing boom as robotics becomes one of the hottest new markets in tech ." robotics, or at artificial intelligence, is it off the bat or the big tech companies that have the firepower to push these robots through? james: i'm definitely after the big players, of which alpha that be4tt is a core holding. anticipation of the long-term value of these companies and is not recognized b. have decisions

and facebook and amazon and everything. francine: we talk about artificial intelligence. and robots for one or two years when are we going to see them mass-market, delivering packages or driving cars are things like that? james: we are seeing just option in terms of the improvement of productivity within companies. we're seeing a lot of support for the profit line. if you said to me, take a long-term view, i believe these companies are capable of growth.ng mid-teens in contrast, when a look at long-term earnings discounted for the s&p 500, still, -- that looks wrong in the context of low growth and low inflation. francine: talks about bmw because the reported earnings today. if you play the driverless car, do you play through google or alphabet? are so far ahead

in terms of delivering better technology to to make the electric car, the driverless car is a concept that you have to have more efficient batteries. that is the holy grail. francine: later today, a conversation with the blackstone chairman. milken institute global coverage. we have plenty news commerce coming your way. we look atope, markets. we look at some of the banks missing estimates. market turbulence the name of the game. then the ubs ceo seymore volatility is to come this year. ♪

good morning. bloomberg "surveillance." markets on the move off the bombshell announcement by the australian central bank. francine lacqua and tom keene to

bring you up to speed. a daily check across equities, bonds and currencies and commodities. the vix elevating. remember the vix now trades before the market open. that is new, new. a guy on twitter saved my butt on that yesterday. euro substantially stronger. 1.16 this morning. let's get to our first word news. >> thank you so much. elipe has called for election june 20 62 break a political stailmate. -- stalemate. spain's parliament has not been able to agree on a coalition government. in ireland enda kenny may have to wait another week before he is confirmed. he's lost three votes in parliament since his coalition

was defeated in february selection. last week, the two biggest parties reached an agreement paving the way for kenny to lead a minority government. he still needs the support of independent lawmakers. in north korea, on friday, kim jong-un's ruling party will open its biggest meeting and more than three decades. kim's family has used party congresses to consolidate his grip on power and reveal long-term economic plants. this congress comes as kim in the midst of wrapping up north korea's nuclear weapons program. virus an hacker whose lot of them to steal money from bank accounts and the u.s. and europe is getting a reward. he is being spared additional prison time in the u.s. after serving three years. prosecutors praise him for cooperating with their investigation. he still has to pay back almost $7 million. ing called one of the

biggest upsets in sports history. ester has won the english premier league soccer title and the team's fan celebrated like mad at the start of the season. you could have gotten 5000 to on e odds that leicester would win it all. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. francine: leicester. what a story. tom keene almost but a bid on it, but he did not know how to pronounce it. tom: i just love the foxes. that second place in 1929, which i don't remember. it is very important that we a magnificent level. their biggest fan happens to be the editor-in-chief of bloomberg. did he make the daily mirror? is that right? francine: he made it on the

front page because he wrote an editorial that every year he puts 20 pounds at the start of the season on leicester. this year he didn't because he moved to new york. ouch. i love the store because it is the underdogs and every one of us always kind of wants the underdogs to win. it is big news for bookies, because they have to pay out 20 million pounds in losses. james: first of all, it is -- that's highly unusual for an entity that is less fancy to be on top. a's quite easy for that to be major upset. this is truly unusual. in terms of the losses, they are fumbling through they have to pay out. of course, we do know in leeds is large number of people put the favorite.n that is why i think bookies will

make a lot of money on this. tom: let's look at the safe investment, a premier league and look at something less uncertain. cocktail of macro events out there. you explain to the viewers pros pro, how that are less do you invest in sustained investing given the cocktail of events we see? james: very good, tom. the first thing is to lay out the store of what the challenges look like. to me, they are very difficult challenge of low growth and globalry behind in the economy, the probability we will continue to have deflation in most economies. other than perhaps the united states where rage pressures may well rise over the rest of the year. in that climate, it is hard to see the bond market selling off aggressively. but it is abundantly clear to me that central banks are ramping prices. and therefore, that is not a smart play to put long-term money. for me, we should be investing

in companies that know how to cope with disinflation. after all, we have been here many times before. in the 19th century, the first great companies, they prospered in a climate of general deflation because they delivered, they took advantage of the destruction that was the technology of the day. at companies like alphabet, and colgate, palmolive. tom: how do you separate out the quality dividend growth as you identified, colgate, palmolive, from those that are faking dividend growth? that seems to be what is priced perfection now. how do you define that this data between good dividend growth and those who do not have the cash flow to do it? ames: i go into the accounts i have a look for the return on incremental return on employed. what i look for air are

companies that when they invest money, it adds to shareholder value rather than subtracts. i see far too many companies that are spending money on projects that are not about value. i worry that companies report back to earnings on the back of buybacks and not on the back of proper business to goldman. -- business development. atncine: when you look proper business development, a lot of them are skewed towards emerging markets like colgate in others. and emerging markets are in a rut once again. james: i look at global economic growth. two .5't getting percentage points and develop markets. emerging markets are still delivering the goods. the real issue is how do you make money out of that play? companiesy look at operating efficiently and doing well. climate of probably continued low interest rates and low inflation, so we should be prepared to pay much higher

prices for january quality growth -- for genuine quality growth. francine: would you stay away from oil producers? james: when i look at the oil sector, i look at royal dutch shell. i see a company where the midstream business is cheap. i would be perfectly happy to say that shell would make a decent amount. i would avoid coal. any of those difficult energies. tom: within this is the use of cash. help me with an idea that came up yesterday which is that the culture of corporations is different. do you gy the idea -- do you buy the idea that there is a structural change in how corporate offices manage cash? james: i worry that a large number of corporate officers are incentivized to find the easiest route to drive up share costs. by buying back shares.

i think that is pernicious. unless there is a very clear point in terms of improving balance sheet efficiency as part of a long-term business plan. separating the sheep and the goats is tricky and does require a lot of thought. tom: help me with the lethargy that is out there. we know trading's slow. the european banks as well. where will the cathartic event come from? is it going to be directionally a clearing of the markets and then up we go, or is it a catharsis that will lead to a lot of pain? james: i certainly think we may well have quite a lot more pain to get through, particularly in companies building debt. haved it extraordinary we more debt and develop markets than we had at the end of the global financial crisis. we all signed up to the premise that the end of the global financial crisis was the opportunity to clear away this mountain and it is bigger than ever. tom: from your view from london, this is a critical question, and folks, this goes back to the

entrance action adaptation within continental europe -- the idea that the u.s. is clearing markets better than other nations. do you buy that idea? sign up forutely i that. you had the troubled assets relief program whilst europe was busy thinking about putting more money on -- francine: coming up we speak with the cfo of commerzbank. that stock, the worst-performing stock in europe today. this is germany's second-biggest lender. this morning it had first-quarter profit halved. does he see an end in sight? we will ask him next. ♪

francine: this is

"surveillance." tom keene in new york. let's get straight to the bloomberg business flash. >> shares of ubs are falling today. banks had first-quarter profit plunge 64%. market turbulence hurt earnings. bloomberg spoke with the ceo. >> if i look at the kind of market conditions we have been operating, those results are resilience. achieving profitability in those environments is not easy. most important, we have been doing that while keeping the opportunity and the possibility in a more normalized environment to deliver stronger results. >> ermotti has been shifting investmentway from banking. in the towel in

the fight over the 2010 gulf of mexico oil spill. h oil company dropped a battle to avoid paying $1 billion in damages to fishermen and seafood processors it said did not exist. bp has said lawyers for the seafood industry fragility inflated the -- fraudulently inflated the number of claims. for apple's plans to conscious consumers in india. regulators have rejected apples request to import cheaper iph ones. apple argued it would lead to a electronics i would defeat the government's program to encourage local manufacturing. that is the bloomberg business flash. tom: it is a wonderful time to speak to my kylie -- my colleague michael mckee about the shock in australia and the shift in markets. a look at euro -dollar.

three standard deviations. this is not what trichet would like. mike: we're beginning to have a debate among central banks about where inflation is going. have beenk evens falling as people expect more inflation out there. we have got a chart already made. that shows tip spreads. the tips yield for the 10-year has been going down as people pile into it. nine weeks in a row we have seen more money going into u.s. inflation protected security as people begin to worry about it. that's the converse of what is happening in a study. 8m: what a brilliant note months ago, but look, deflation is real. but overrated. people in the united states are beginning to see we're starting to see the signs of nascent inflation. we saw that in yesterday's pmi.

a big rise in the prices paid index. in australia, they are worried about disinflation and the possibility of deflation because they are worried about what is happening with the chinese economy and the import much more. there is a question around the world of where we go and central-bank are reacting differently. francine: right, but if you look at the world -- australia cuts, who's next? the boj is something on our minds. if you look at china, they can also ease. and then you have india and south korea. mike: the problem is is each country has its own problems. new zealand wants to wait because they do not want to get too far out ahead of the curve and slow their economy or feed inflation. you have got the chinese who do not want to do that, either. they are holding on. at this point, nobody knows what the japanese are going to be able to do since their economy is still struggling. tom: michael mckee, thank you so

much. we will have much more on this through the morning. now an important interview. francine: germany's second-largest bank halved in t he first quarter. shares down almost 10%. we go to fry for it were the chief financial officer of commerzbank stephan engels joins us on bloomberg. thank you for joining us. commerzbank down percent, -- down 10%. how do you turn the company around? yeah, i think we had a very difficult first quarter like almost all of our peers. the negative interest rate environment and nevertheless, we have a strong capital ratio. lower risk profile and in that sense, i think the market reaction will ease out. francine: we, of course, have a new coe at the head of -- a new ceo starting on may 1. this may be a surprise or he's certainly hitting the ground running.

is he going to significantly cut the dividend or will we see more cost cuts, job losses? with respecteah, to the dividend, we have yearstently with last accrued of 5% dividend share in the first quarter. i think that is an indication. who knows the bank well. it is only the second day in charge as ceo today. i guess we will all give him the time to really consider his actions going forward and be assured we will be coming back to you in due course. francine: i of course understand. it is not easy for a new ceo. markets are asking him to do something quite fast. do you think cost-cutting is the way to go? where will you cut costs? veryngels: let's be simple. i think if we look at our business model, and that's the first question we would have to

ask, also it has been a difficult quarter. we can show we have a stable and performing business model in the very difficult market circumstances. we are in the fourth biggest economy of the world, which still has a good growth perspective. from that point of view, i do not see any real need for emergency or immediate actions. nevertheless, as i said before, in due course we will come back to you and that will obviously look at all of the levels available to be a successful bank, not only costs but revenue growth. tom: thank you for joining us this morning. long-term view in commerzbank has been one of the immense challenges, including the german government assisting you. ubsin what mr. ermotti of cause a cocktail of macro events, what do you need from mario draghi right now? things are miserable. what is the policy action you need to assist your bank?

in basics: i think terms, it is pretty clear that for an economy like the german, which is strong in export, is a net importer of cash. all banks tend to have a very strong loan to deposit ratios. a negative interest rate environment with a flattish curv e up to the five years is obviously a very difficult environment. r runningly the job fo the bank is a team at the bank and if mr. draghi changes something in the environment, we have a difficult -- to do with it. tom: thank you for those comments on the sensitive issue of negative interest rates. when we look at the persistencey of the chronic nation

negative rates, we are aware of the struggles with italian banking. we are aware of the struggles with medium and small size of german banks. can those struggles come over to commerzbank? are we missing the point that the big banks could have the same balance sheet issues and retail banking issues that the little banks are having? of theels: i think part current situation, including substantial investment -- and regulatory -- does require a for banks.e the economies of scale work in favor of the bigger banks. it remains to be seen whether that works all the same across europe. has taken on the challenge to make sure we all get a level playing field provided. i guess the future will tell. francine: sir, a quick one on how your balance building

capital buffers and your higher dividend payouts. this is the main challenge for yourselves and all your rivals. 12% capitalum, ratio fully loaded that we have right now is a very comfortable level as such. then if you compared to other, indeed, very low risk profile, it's a very comfortable position. midterm payout ratio for the dividend will be up to 40% of net profit, which means there is still ample room for further capital. francine: thank you so much, mr. stephan engels. the cfo of commerzbank. this is "surveillance." we will be right back. ♪

francine: welcome back. i'm francine lacqua in london. tom keene is in new york. we just spoke to the commerzbank cfo. after the earnings, the biggest loser on the stoxx 600. that stock losing 10%. we are back with james bevan. james, when you look at

commerzbank, very clear the cfo was treading very carefully. he could not call the end of the volatility. he said, they will take actions in due course because they have a new ceo. james: when one cuts up the numbers, what was disappointing was they were light on interest income, light on commission income. the marginally were marginally numbers were marginally better. however, investors are holding the faith because commerz has provided excellent exposure to retail in germany. i encourage people to have a look at venovia, a residential company, a property company in germany. i was suggesting if you want to play recovery, that is where you should be looking. tom: within the shifts we see in markets today, can janet yellen ignore international market action? james: absolutely not.

i think the reason that that day changed tune -- they recognize the outlook to the global economy to the u.s. i anticipate that she and her colleagues will have a beady eye on international developers. bevan helping out. a terrific perspective. we will continue this discussion. atule lele will join us. for most of our hour, paul bloxham with hsbc, their australia chief economist. of course, paul bloxham on the bombshell from the rba on lower interest rates. another hour of "bloomberg surveillance." ♪

expect the unexpected. the reserve bank of australia stuns market. they/rates to fight this

inflation and deflation. in this hour, paul block some of hsbc and the death of commodities on the china effect. further, the yen strengthens. the euro as well. when will janet yellen blank? exit stage left and right. why can't sanders and cruz exit gracefully? this is "bloomberg surveillance ," live from new york. tuesday, may 3. i'm tom keene. friends lean the quality is in london. extraordinary events, and you see it with sterling doing an anti-brexit thing. francine: what is amazing with sterling is it is reversing the decline we saw since the beginning of the year. we are in a contraction now, so we are seeing an impact on gdp, or at least an impact on manufacturing, yet sterling

doesn't really -- tom: we are going to bring all that to you. now to first word news. republican presidential front-runner donald trump may the on the verge of delivering a knockout blow in today's indiana primary. "the wall street journal nbc news poll shows trump with a 15 point lead over ted cruz, who has indicated he will be campaigning to keep trump from winning the nomination. for the democrats, hillary clinton and bernie sanders are in a tight race in indiana. clinton has 90% of the delegates she needs to become the nominee. the european companies are rushing to iran now that international sanctions have been lifted. but they are doing it without their favorite banks. many of europe's biggest lenders are unwilling to go near iran -related business. the reason, remaining u.s. sanctions on iran.

that has opened the door for chinese and persian gulf banks. of thechancellor saysquer alistair darling the u.k. risks losing $367 billion a year. the reason, unnecessary tariffs and barriers. supporters of a british exit calls his claims absurd. british voters will decide on june 23. that helicopter crash in norway is raising questions about whether oil industry cost cuts are a threat to safety. last week's crash killed 13 people on their way back from an offshore platform. norway's biggest oil union called the accident a wake-up call. it was the first fatal accident in norway's oil industry since 1997. 's parliament,

emotions got out of control. overkers fought each other a controversial plan to strip them of immunity from prosecution. that could pave the way for pro-kurdish legislators to be tried on terror related charges. water bottles were thrown, and so were a few punches. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. tom: thank you so much. i just thought that was a republican platform meeting. you tricked me. you can see that with helper and and heilemann tonight. there it is, the republican platform meeting. are you kidding me? let's go to a data check. the markets are on the move. equities, bonds, currencies, commodities. -- we are outside a

standard deviation move. next screen right now are german yields have not come in lower, negative yields. we have not seen that. a weak dollar, strong yen, and a stronger euro. francine: i cannot see any good news out there. banks exporters are dragging european stocks lower for a third day, and you mentioned the e.u. cutting into inflation forecasts, warning that nations have too much debt and will be unable to cut it. easingnext in terms of at geoeye want to show you pounds because they are .hrugging off brexit concerns more firms are hemorrhaging jobs. tom: auto sales in the united states, frankly very constructive. forget about that. let's look at the euro. this is a brutal move, three

standard deviations. this is usually two standard deviations. i have set it to three. you can do that on the bloomberg. the three-deviation move is truly unusual, one of the litmus papers of what we see across all asset classes. francine: you can do anything on the bloomberg, tom. i brought the pound back to december of 2012. , david 23 of 2013 cameron shows up at bloomberg's headquarters and says i am going to call a referendum. you can see the pound, a little bit of volatility. when you retrace all the declines from january, that is the line here. that is despite u.k. manufacturing unexpectedly shrinking. growth already slowed in the first quarter. tom: our executive producer consulted with rick springfield and ed work and said we need to

do in australia show. little did she know that mr. springfield told her they will cut rates the day you have atul lele on. you grew up in sydney, right? is there central bank in sydney like janet yellen and the fed here? atul: the composition of the board is quite different. it is made up of industry leaders. it is a different composition, but the focus is as great as it is here in the u.s. shocked by the rate cut here and the idea of further rate cuts if needed? atul: the timing was a little bit surprising, especially in light of the fact that we are seeing huge extension stimulus in china. that will flow through australia and give australia a short-term boost over the next one to two quarters. if we take a step back, working his way through economies in

australia and canada, that is still a long way. francine: what does today tell me? does it give me an indication whether china leaves the boj, and can i have for -- can i infer that in asia monetary policy is one of the strongest tools? atul: the deleveraging that started in 2009 in the u.s. worked its way into europe in is still to work its way into commodity economies. isis great that deleveraging not yet complete. focusing specifically on markets in the short-term, it tells us -- isry policy is very still a very powerful policy tool. francine: i was told south korea china,sibly india, maybe but the boj remains the main candidate here. atul: clearly you have seen

economic conditions in japan deteriorate quite considerably. they obviously did increase their qe package several months ago, and that has done almost nothing. they are really lacking in credibility policy, the bank of japan. tom: this is absolutely dead on, "credibility."d, ubs saysi of ups -- of it will throw you with the knocked down effective inflation. we are getting back to where the great moments, including japan, are beginning the knock on to other economies. atul: that is absolutely right, and your comparison to the 1990's is spot on. tom: before 1998. atul: absolutely. and we have seen the fed already act.

the transition into emerging markets is a lot quicker on this occasion. 1998e 1990's it took until . it is happening a lot quicker this time. tom: a transmission mechanism -- our viewers and listeners say what about it for the real economy? you have u.s. auto sales booming. you cannot tell me this stuff does not affect america. at some point do we begin to import disinflation and deflation? atul: it is already happening. the import price index is the lowest point it has been for almost 20 years. has already seen the phase of imported deflation. the u.s. is going to a phase now where you have wages growth dealing with domestic inflation. the imported deflation coming into the u.s. will ease a little bit, and you will potentially see imported inflation. francine: where are the deflationary pressures coming from?

is a china devaluing productivity, technology? atul: it is really coming from china. it is an economy where you have seen huge dislocation occurred. is being dislocation exported, that deflation to the rest of the world. the deflation we are seeing coming out of china will not be enough to offset the domestic inflationary pressures we are seeing in the u.s.? -- domestic inflationary pressures we are seeing in the u.s. things we are seeing not happening this morning within theseismic shifts, we see

australia announcement. we are thrilled to bring you later in this hour, the australian new zealand chief economist from hsbc. a perfect time to speak to him about the challenges down under. in london, new york, worldwide, this is "bloomberg surveillance." ♪

francine: lamb francine lacqua in london. tom keene is in new york. let's get straight to the bloomberg business flash. >> first order profit fell at the m w, the world has biggest maker of luxury vehicles. bmw has been investing in new technologies like a self driving electric car. the company hopes it could eventually replace the sedan as its flagship model. phillips is planning an ipo for its lighting division. the dutch company for months has been trying to file -- to find a buyer but failed. the company may seek evaluation

-- seek evaluation of $6.3 billion. that is the bloomberg business flash. tom: thank you so much. it is not like lister, lester, -- it is the ugly reality of american politics. us now fromer joins bloomberg politics. would you please explain to me where leaving gracefully when? where is this? michael: i think you -- if you are a democrat come you should be feeling better than if you are a republican. bernie sanders says said all along he will support the eventual nominee. his rhetoric has been intense. he has gone after clinton pretty hard. but the writing is getting pretty clear for sanders. he has refrained from getting personal with clinton, unlike the republican race. and if you are ted cruz, i think

you are going all the way to the end of this. tom: what is the end? i am stunned by the hope and prayer of various establishments. michael: he seems to only have hope and prayer left. if trump gets a majority in over 50% and heads into california with that momentum, this is over. but trump is barely on pace to get enough delegates. if he falls even a few short, he still has some hope for ted cruz. francine: it seems there is movement he will not do so before the california primary on june 7. michael: i think that is right. he has been talking about having his voters have the opportunity to cast a vote for him, and that would indicate he is going to stay in through june. his advisers are talking about

going all the way to the convention in philadelphia in july. i would be surprised if that happens, particularly if clinton is well within the mark of delegates after california. francine: is that not damaging? why not give hillary clinton support now? michael: it all depends on bernie sanders' tone. if he continues talking about his issues, that is good enough for the party. that is good enough to bring the party together. he can stay focused on the issues, he should be fine. tom: rip up the script. i saw you tearing it up at the white house correspondents dinner. newt gingrich was there. is he a vice presidential candidate? michael: if you are donald trump, you cannot write off anyone at this point. he is so divisive and has so many republicans saying they will not vote for him, let alone be his vice president, somewhat like gingrich has to be a consideration. tom: michael bender with us as

we look at the derby and indiana. through the evening, on bloomberg, our political coverage continues. john heilemann and mark halperin will do "with all due respect." an important day for indiana. this is "bloomberg surveillance." ♪

francine: this is "bloomberg surveillance."

ubs said its first quarter drop it -- his -- ubs said its first-quarter dropped in the first quarter. it was a great interview, because he put it very simply. one thread in, for the first quarter, and that was risk aversion. this is why bloomberg clients have read this the most here in europe, because they know what is going on in the banking sector. they want to know what happens next, and this is what sergio had to say. >> it looks like we are seeing a very challenging environment because none of the issues in the last few quarters are disappearing. macro issues -- microeconomic issues, geopolitical issues, are now coming on, and we are going to brexit, theote on

escalation coming from the u.s. elections. potentially uc see a lot of factors that may affect the markets. in that since you see volatility , but it is not the kind of volatility that is translating client activity. it is a paralyzing volatility. they have never seen transactions this low. clients are simply not doing any business right now. this was an abnormal quarter, but that is the big question. does it become abnormal or does it become the new normal? does that change? he does not sound convinced. francine: do we have any idea when it gets better? ubs in my mind was a poster child that always had to do things. they went through wealth management before any of their rivals. ermotti is happy, it

is just tactically he has a problem. is, when does it actually get better? body lying his words, and he is frustrated by what is going on here. an incredibly tough quarter. to get plenty more banks out there for the next few days. socgen tomorrow. they are all saying the same thing. q1 is horrible. q2 is probably not starting any better. francine: what do dividends look like? sergio ermotti is very unclear about how things will be this year. i think the dividend is one of the key things everybody is watching out for. today, absolutely pivotal that they stuck with that dividend. to cute going to have costs if they want the dividend

story to move forward from here. tom: guy johnson, thank you, in zurich this morning. the markets are on the move. here is the 10-year german. here has been this wonderful hope and prayer recovery. this is a long chart showing percent change, a leg down here this morning. massiveisplay my bloomberg chops here. we are going to come up here with the 20-day intraday chart. no, we are not. i screwed it up. there we go. if we have a 20-day bloomberg chart -- that is better. the markets are really reacting to, as guide mentioned, the slowness, the lethargy that is out there. atul: it is interesting to see. i think we need to make a distinction between the banking activity and what is a shortage of long duration assets globally. a long -- a lot of the reasons why you are seeing 10 year yields around the world being

depressed is a shortage of long duration assets. in the real economy, we are seeing an improvement. tom: the real economy is better. i will give you that. we see that in u.s. auto sales today. but there is some point where the knock on effects of a theoretical fiction of negative interest rates begins to affect the real economy. when do you see that? with the paralysis you are seeing, essentially we are starting to see that already in markets. we are at the point where the real economy -- when we look at the isn manufacturing continuing to remain above 50, when we look at across the world pmi indicators improved from where we were last year, that is an improvement in economic growth. markets move on second derivatives. tom: this goes back to trish a -- with two -- goes back to trichet's moves.

atul: we are seeing the numbers improving consistently across the border, and that will in turn improve in the coming quarters. tom: did i get -- did i do ok picking out rick springfield and men at work yet they are old. outspringfield is still there. australian music and australian economics. we will continue with paul bloxham of hsbc. the us trillion chief economist -- the australian chief of economics. with markets on the move, stay with us. "bloomberg surveillance." ♪ âi

tom: if you are just joining us, worldwide markets on the move. right to the data. we can show you three boards right now. forget about that. upures deteriorate, the vix

a big figure. , -- through 116 earlier euro through 1.16 earlier. right now to our bloomberg first word news in london. >> king a has called for elections in spain to break up -- king felipe has called for elections in spain. spain's parliament is the most fragmented it has been in modern history, and it hasn't been able to agree on a coalition government. , kenny may have to wait a second week to be confirmed through the coalition was defeated in february's election for a week, the two biggest parties reach an agreement paving the way for kenny to lead a minority

government. he still needs the support of independent lawmakers. in north korea, on friday, kim jong-un's ruling party will open its biggest meeting in more than three decades. his family has used party congresses to consolidate its grip on power and reveal long-term economic plans. this congress comes as kim is in the midst of ramping up north korea's nuclear weapons program. whose viruscker allowed him to steal money from the bank accounts in the u.s. as well as europe is getting a reward. he is being spared additional prison time in the u.s. after serving free years -- after serving three years. prosecutors praised him for cooperating with their investigation. he still has to pay back $7 million. it is being called one of the biggest upsets in sports history. listen to that. leister has won the premier

football title, and the team celebrated like mad at the start of the season you could've gotten 5000 to one odds that my sister would win it -- that leicester would win it all. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. tom? translate for us. i'm focused on boring stuff like the stanley tough -- like the stanley cup in hockey. this is a global story, isn't it? francine: it is a global story because the odds were 5000 to one. this is a real underdog winning , and it also means book is need to spend about $20 million in pay out because of their win. it is amazing. tom: you get lucky, folks.

francine lacqua and i are lucky with a terrific staff that weeks need to put together an australian show. paul bloxham of hsbc is from western australia, where they could give a damn about leicester. rugby or australian rules football? paul: rugby union for me. where i grew up, it is certainly an aussie rules state. , ourtell us quickly here audience, the disparity between the western and eastern australian societies -- with airlines, with modern -- you go back and forth like it is nothing, right? paul: traveling long distances is nothing for us.

getting across the country is like getting across the u.s., but the difference is there is nothing much in between. we know it was a surprise because only 12 the move, predicted but how much does it has to do with inflation, and how much does it have to do with they cannot do with a stronger currency. paul: i am one of the 12 calling for a cap today. we were not as surprised by that. we had a cap in for the rba since the beginning of this year. the big downside surprise was the inflation numbers. the key story there is that although growth is holding up fairly well in australia, we are succumbing to a large degree to the fact that the world has got low inflation and low interest rates, so the rba is needing to cut rates because domestic conditions are weak because global inflation as as low as it is. -- is as low as it is. should we not be

concerned of a house price move in australia? paul: there are enough of measures to slow down the housing market. they started tightening the screws on lending standards from 2014, and we have seen evidence that the housing market has pricesdown her and house nationally have tracked sideways since october of last year. judged they feel they can cut rates. tom: your bank -- i want to give you a major -- led by steve major's, hsbc has been way out front. james steel with a bullish call on gold. you guys have been on fire versus the other major banks. this is to you as well, atul -- are you the canary in the iron of macroeconomics? we are -- you are way out front on inflation and disinflation. a key reason australia has

had relative economic success is the adept monetary policy settings. the rba keeps tight policy settings when the mining boom is strong. these --trong when when the rest of the world was zero. tom: i feel like i am in one of those australian movies where all the actions are killing me here this morning. me with shifting the analysis of paul to the equity markets. if you look at inflation, it is the same chart. bring up the australian trend mean inflation. what does it mean for equity investors? looking back on the us trillion scenarios, it means there is a huge amount of liquidity being injected into the market, and that will help certain sectors of the equity market. the marketority of

is still driven by banks and resources, not only in australia but in economy -- in economies around the world, such as brazil and south africa. much of the stimulus will help certain pockets. it really is going to negatively still impact the fact that resource projects are coming down, that the banks sector is under pressure from falling asset prices. francine: how low can they go, right? they cut to a record 1.75 percent and they believe they can do much more. this is because of low inflation. can they go to zero? do they go to 0.45? are we talking negative rates? atul: we have the view that the rates are going down. the commodities boom out of china is it -- the commodities boom out of china is slowing. the decline in national incomes is going to continue to weigh on

asset prices in australia. as much as house prices are coming up, we believe house prices are going to come down further. workto work off the men at hit "who can it be now?" which central banker is going to react to fit? to inflation? is it going to be janet yellen? paul: we have seen fed rate hikes continually deferred, and that would be quite helpful. a strong u.s. dollar would mean a week or australian dollar. that has allowed australia to rebalance. i think that was a key converting factor to why they cut today. , is hisretary jack lew jawboning going to be of good use? paul: we would like a lower aussie dollar. it would be very helpful.

we need a stronger u.s. dollar for that to happen. i am more optimistic about australia then atul is. australia is making a good adjustment to the end of the mining boom. tourism and education -- that is the new growth story. help along the way will be lower currency. tom: from australia, to lay lay and paul bloxham with us -- from and paul, atul lele bloxham with us. we will continue the conversation later today from san francisco. williams,ident, john look for that at 7:00 p.m. london and worldwide. ♪

francine: this is "bloomberg

surveillance," where we focus on markets and the economy. tom, this is what i am looking at today. european stocks under pressure. first of all, we have ups -- we have ubs profits missing estimates. we have the e.u. once again cutting the inflation forecast and warning off a lot of nations on this. you see the pound still recouping some of the declines we saw at the beginning of the year, but stocks are under pressure. let's get to the bloomberg business flash. >> shares of ubs are falling today as the first-quarter profit plunged 64% to market turbulence. ceo,berg spoke with the sergio ermotti. sergio: the kind of market conditions that we have been operating, that is the result of and achieving

profitability in those environments is not easy. '> he has been shifting ubs focus away from investment banking in space -- in favor of wealth management bp has thrown in the towel in a fight over the 2010 gulf of mexico oil spill. lost thesh oil company battle to avoid paying almost $1 billion to businesses and fishermen. bp has said lawyers fraudulently inflated the number of claims. it is a big blow to apple plans to go after price conscious consumers in india. indian regulars have rejected apple's request to import and sell cheaper refurbished iphones.

apple's rivals had argued that would lead to a flood of used electronics, plus they said it would defeat the government's program to encourage local manufacturing. that is the bloomberg business flash. francine? francine: this is a picture for the oil market or last week we touched technical levels. hobby or black, our chief energy correspondent, is with us. he is from hsbc australia. and also, a tool lay lay -- a ele from lay -- atul l dell tech. oil priceed that the rally is not as deep-rooted as we thought as first. >> if you look at wti, you see oil prices are more or less where they were six months ago and have recovered to $45 a barrel. but if you look long data prices

, oil futures will be delivering on much longer data. those prices have come down over about sixix months by dollars. so there is a signal that investors see a chance that oil prices are recovering, but they are not as sure that over the long-term prices will go up. oil,let me bring you to inflation-adjusted. we are back to where we were in 1976 with richard nixon. i what to talk about -- i want to talk about the longer, lower for longer. do you see evidence of supply clearing, or does it lock us into a forever longer? javier: we are seeing a lot of curtailment. time, andng a lot of it is taking an awful amount of pain for the industry to see the curtailment.

will see a supply adjustment and prices need to recover from current levels. this is a process that is taking a lot more than expected. we have seen conference calls over this first quarter. we see signs already of shale oil producers in the u.s. we have to prepare if oil goes back to $50 to deploy more rates. quickly, to interrupt, pfizer is out with earnings and they raise their mid-point guidance for the year as well. i guess that is of an interesting note as well. lele, thaty -- atul is about recurring markets. anywhere else, it is about clearing markets. when does that market occur and clearing out? ofl: the clearing out markets is taking longer. when we step back and look at what is happening with monetary

policy, that is elongating the market clearing process. when we are seeing u.s. production, l, that process is taking a lot longer than people would think. still believe liquidity conditions will normalize, but the reality is clearing markets take a lot longer now. tom: steve major, from you and others, it is about this illiquidity, this lethargy in the market? when you get steve major interest rates, do things dampen down into a soggy mess? lower fors about longer. the commodities story is a part of this as well. tom: just a part? we have built capacity and it takes many years for it to come online, and it is all finally arriving. we still think that those markets will remain oversupplied for a while. add onto that the excess capacity in manufacturing and in

europe, all of that is putting downward pressure on inflation. that is the broad theme. francine: when you look at commodities, talking about the australian central bank, how much of a link is it? they need a week -- they need a weak currency to sell these commodities off. jury upset the impact of lower commodity prices in the current account and also in the economy of those countries, we need to see a recovery for australia in iron ore prices. we went too low. the market overshot on the downside and we have corrected. but if you look at australia, i do not know if prices have recovered. how much of that recovery is fundamental supply and demand, and how much is based on the commodity markets in the last few weeks? i do think that iron ore prices are beginning to stabilize, but not nearly as much as the market is suggesting at the moment. commodity markets -- a

great banner for the next bloomberg chart. schwarzman live at the global conference. that is at 1:00 40 p.m. in new york, 6:40 p.m. in london. ♪

francine: this is surveillance. tom keene is in new york. we have a lot of earnings coming out. we have pfizer, the drugmaker, and halliburton. pfizer, premarket, after issuing their first quarter guidance, better than expected. ,arnings-per-share was above and remember it was back in april that tax inversion m&a with allergan -- it does not seem to have the routed pfizer. 6.3%.ock has gained it is all about energy and engineering services. already better than

expected. tom: foreign-exchange right now, folks. the forex report is huge off the australian news, the yen ever stronger. at 1.16, stunning, an hour ago. more than brexit, anti-brexit, elevated this morning. francine? francine: coming up shortly, it is bloomberg with david west and a jonathan ferro. jon, i know you will be studying milken and it is all about the markets. jon: the real story was renewed dollar weakness in the european session. handle, a with a 1.05 euro-dollar with a 1.16 high. if it is a pain trade for corona, i will say it is a pain trade for draghi as well. i would say look at the wealth management unit.

the down point -- look at this for a headline -- the gold standard for wealth management, ubs, the lowest transaction volumes recorded for a fourth quarter. -- for a first quarter. tom: i have no idea what you are talking about. i went away for a trip and came back and the red sox were in first place. miracles can happen, like licensed or -- like leicester. a very australian moment, which means it is about emerging markets. paul, used on me. you said mining is only 10% of australian? paul: it is only 10% of gdp. australia is in the process at the moment, having benefited a great deal from china upon demand for our resources and having a mining investment boom, now having ended, we are now

shifting growth toward the services sectors. the key story here is rising middle-class incomes in asia and increasing demand for services. tourism, education, business services. these are the things that are consuming more to gdp growth in australia right now and creating jobs. they are not delivering as much income because wages tend to be lower in the services sectors than in the mining industry, but they are lifting gdp my arms -- they are lifting gdp volumes and increasing employment growth. recent list in the aussie dollar is a bit of a concern because the rebalancing requires currency. francine: will it work? we talk about the end of monetary policy being able to do its job. i think of the u.s. in europe. what about australia? the key mechanism is not just interest rates for

australia, but what is going on with the currency. that is what is a major driver of them cutting interest rates today. are having tohey cut interest rates because of the rest of the world being at such low interest rates. we are getting sucked into the global center of gravity of lower rates and low inflation and we cannot continue to maintain those higher rates, otherwise we will get a higher currency. i think monetary policy has been very effective so far, and it can go further. tom: thank you so much for being with us. all tool lay lay, thank you so much as well. what a show. australia. they will be on bloomberg television, "bloomberg surveillance." tomorrow, what a time to speak with adam posen. ♪

david: ubs shares are plunging. the ceo warns of paralyzing volatility affecting the markets. jonathan: the aussie dollar drops as the bank of australia

cuts interest rates to a record low. stephanie: hedge funds under attack. more investors are weighing in on why they are such a bad bet. ♪ david: welcome to bloomberg . i'm david westin here with jonathan ferro and megan murphy. megan: i'm lucky to be here. jonathan: she is very happy because she picked one team. megan: i'm very happy. it's not even my club. jonathan: