francine: the big bond theory. yields hit record lows. the 10 year bond makes headlines. of monetary policy is needed to fix the euro area. european stocks could lose a quarter of their value in case of a brexit. this is "bloomberg surveillance." i'm francine lacqua. tom keene is in new york.

need to start looking at the implications of a possible brexit. tom: we are going to touch on that. i want to say thank you to all the people who e-mailed in about the new wants we gave to all the data checks. it is that kind of thursday and friday. francine: it all goes back to negative rates and the limits of monetary policy. let's get to the bloomberg first word news. >> president obama made it official. he has formally endorsed hillary clinton to succeed him in the white house. nbc'sinterview on "tonight show," he spoke. >> the main role on going to be playing in this process is to remind the american people that this is a serious job.

this is not reality tv. i've seen the decisions that have to be made and the work that has to be done. >> president obama will campaign with hillary clinton next week. teams hunting for the missing malaysia airliner will inspect debris. debris may be spread out over 6200 miles. that plane disappeared more than two years ago. brexit wouldays a rock european stocks. european equities could lose a quarter of their value if the u.k. were to leave the european union. the vote counting is over in the closest election ever in peru's

history. the former finance minister had a little more than 50% of the vote. is expected office to make the result official in the next few days. the euro 2016 football championships get underway. there is a trash strike by garbage workers. there is also a rail worker strike in france. the president said they will take all steps necessary. dayal news 24 hours per powered by our journalists around the world. tom: thanks so much. let's get to the data. we will give you extra data checks through the five hours of "surveillance" today. worser -- if that is a word -- worser equities.

bid.cannot get a oil pretty much where it was. on to the next screen. yen in the next block. 106.95. that is a weaker yen. as francine mentioned come the 10-year0 year -- german , there it is. swissd note -- the 20-year plunged down relative to everything else in the last few hours. francine: yields are going lower and lower. look at the japanese 10 year yield. we will touch on japan later. it underpins the week we have had. a quick look at the european stocks.

stocks overall are paring their weekly gains. i was just reminded that next week we have the fed, the boe, and the boj. we are in central bank watch. tom: we are going to do a real interesting 15 days or so. we are thrilled to bring you our coverage of brexit as we move on to june 23. this is a chart which basically says america is not immune to the trends that we see in europe and japan. we will see this this morning. the michigan expectation of where inflation is. you can see we have rolled over 15 years. we have rolled over with a vengeance. this looks remarkably like a lot of other charts when we look back 10-15 years. francine: this is what i did.

we are 13 days away from the referendum on brexit and investors are trying to figure out what it means for their portfolios. krone inhe norwegian blue. this is the pound. us,cally, what this shows is that as these portfolios are being readjusted, we may see the nordic market taking a hit, although scandinavia's biggest bank says they may have a little bit of a release in the meantime. one of the best foreign exchange strategists is here to help us talk about all the ball of tilly -- the volatility we have seen and macy. -- may see. thank you for joining us. we need to talk about yields. how significant is it that we saw a record lows for the german

10-year and japanese 10-year? >> it is significant. i think the main link is that it is a difficult environment for global reserve managers. naturally, they try to avoid holding negative yielding assets or currencies with negative to them.ached ultimately, they are forced to move further up the curve. this props up asset prices and necessitates interest rates in the developed world staying low. think thaty i don't we are being very aggressive with our fed view. francine: on yields, they will continue going lower? stephen: i think for the time , the in front of brexit brexit risk, the eu referendum, it is difficult for me to see

markets not being jittery, unless the polls move significantly in favor of remain or something like that. tom: you can't do friday unless allotalk to stephen g about newtonian mechanics. equationck to newton's on gravity. with that idea, would you explain to me the gravity motto -- model of europe right now? it is not brexit for brexit or what is going on at the fed meeting, but what it means for this clumsy thing known as euro. explain the gravity model of europe right now. basicallyrade gravity -- there is evidence of it in europe. rich, large economies tend to do

lots of trade with other rich, neighboring economies and poorer economies tend to do less trade with each other when they are further apart, especially when they are further apart. trade gravity holds. brexit wouldhat a intentionally make trade flow more difficult. less streamlined, potentially. essentially, you are unscrambling the omelette. tom: i love what you are doing here. it really goes to our conversation in the next half hour. understand is that trade gravity within europe if we get brexit. what happens to germany -netherlands, germany-poland, france-italy -- will it fall apart? stephen: i think there are political risks for what remains

of the eu if the u.k. leaves. what the trade model shows is that these countries want to do most of their trade with one another, so their growth depends significantly on free trade flow. example. for if that breaks down, it could be detrimental to growth. tom: i think this is absolutely critical. it is always good to quote newtonian functions on a friday. francine: yes. youuld be disappointed if don't have some kind of equation for the last part of the show, tom. tom: i will work on that. francine: we speak with the former ecb president later this morning. stephen gallo is also with us. ♪

francine: welcome back. tom keene is in new york. i'm francine lacqua. >> a whistleblower is helping u.s. regulators investigate nk.ch a bank -- deutsche ba they may have inflated the value of mortgage bonds on it stocks. the bank said it was cooperating with its investigation. new drones will help man fighter planes, not replace them. a plan for newed combat drones. these would contact ground controllers only to start an attack. the success of elon musk's

spacex has given europe's space industry a wake-up call. france's space agency said people in europe thought elon musk was just hot air. europe is now scrambling to come up with its own reusable rocket. francine: global bond yields are grinding lower. japan's benchmark bond yields plunged to a record low. concern is this falling yield? it all has to do with being a safe haven or a haven for japan. >> absolutely correct. i think we will see the boj talking about this.

we have a policy board decision due out on thursday. do not expect the boj to act. tom: into the weekend and into what is the level of sweat among the elite in japan. the japanese chart is remarkable. brian, i'm going to show dollar-yen. bojriginal action. here is the vector we rolled over. there has got to be a point where panic sets in or is the panic already there? i think that level we saw last month is a big one. that is where the dollar found support. i think japan would really start to panic if we got down to ¥100 per dollar.

they are not going to intervene unilaterally with decisions less than a week off. francine: is there anything they can do that governor kuroda can do to try to defend themselves? brian: it is going to be interesting to watch. one of the things that was interesting last week was the lbp put out its election the firstand for time, there was no mention of the boj. when you think about the free era, the most effective one was monetary policy and now they are not even talking about it. mr. kuroda may be in a situation where he does not have as much influence. tom: can toyota get business done with the yen at 1.06? brian: toyota is a very smart company. absolutely. they may pretend otherwise, but absolutely.

they have seen worse. it is not a big fear for them. francine: thank you so much for the update. mohamed el-erian spoke to bloombergtv last week and saying banks. nightmare for the stephen gallo, this is a great financial experiment. will japan actually deliver? stephen: there are question marks over that already. i think you already have the answer, the increase in the consumption tax was pushed back -- you have the answer to that. it is inherently difficult for net creditor economies in this environment. if the central bank encourages outflows, you get short-term weakness in your currency, but the minute global markets go into turmoil, a lot of the

capital comes back on shore. tom: to keep the newtonian angle going, does japan have the inertial force to reverse the yen to a weaker again -- yen? or do they need a market hope and prayer of flows? stephen: i think they need to intervene when the flows are going with them. tom: interesting. stephen: when brexit risk is not on the horizon, when global markets are not in turmoil. u.s.terest rates in the are in an uptrend, if they are moving higher, that is a better time for the boj to intervene -- if they can get away with it without annoying policymakers in washington. francine: overall -- and this is my chart of the hour -- japan in white, germany in blue -- those yields ever lower. this is what you are talking

about, risk-aversion. do we need a catalyst before this? stephen: risk aversion is one aspect of it. then you have capital needs, regulatory changes. there are many different factors. low wages in the developed world. you are talking about a catalyst. francine: from where? or do we not need one? stephen: for it to reverse? i think we need to get through the eu referendum first. you still have the risk that fed rate hikes will have dampening effects on emerging market economies. you have the china story. the risk of a sharp reversal is low. , thevery quickly here accelerations we see out there, i've got a german 10-year at a new low. is there a trade flow pricing up

that bond with a lower yield? how are we actually moving the german 10-year right now? is that big institutional money? stephen: i think it could be a lot of what is going on at the moment with eurozone rates, corporate credit spreads. it is largely a function of what the ecb is doing. that is an important factor. it is one that will keep a lid on euro-dollar. 110-114 trade a at the moment. tom: yields just broke down. 10-year with pressure. futures are -10. u.s. futures down -13. we will drive forward the conversation in her next hour. john silvia of wells fargo.

we have the markets in turmoil. jean-claude trichet next. ♪

i'm in london. i'm francine lacqua. bond yields falling to record lows on the concerns about growth. there are no signs that it will reverse. stephen gallo is our guest for

the hour. yields, isok at the there a direct link to how we see the world and the impact on dollar? stephen: i think that the dollar, at the moment, if your outlook is almost 100% based on what your fed call is. if we have one more fed rate hike for the remainder of the year -- that is about 75% priced in. we will probably get a 3% appreciation of the dollar. if they move twice, we may add most get 4.5%. tom: very quickly, jean-claude trichet talks about brutal moves. these are brutal moves we are seeing in the market. stephen: yes. we have talked about liquidity before. this is significant.

liquidity is very poor. you can also see this if you look at the implied volatility. a lot of that kink in the curve is due to the liquidity. conditionsignificant . francine: coming up, we have a great, exclusive interview with jean-claude trichet. we will be talking with him about negative rates, qe inflation. ♪

tom: good morning, everyone. futures deteriorate, yields lower in the last hour or so.

let's get to our friday first word news. >> the obama administration is on the verge of giving the military more authority to conduct airstrikes in afghanistan according to a senior defense official. afghan troops have been struggling in their fight against the taliban. the u.s. house has passed a bipartisan bill aimed at resolving puerto rico's debt crisis. the bill would create an oversight board to restructure the debt. it has to be passed by the senate still. puerto rico faces a july 1 deadline for a $2 billion debt payment. one of the most expensive national disasters in canada's history is expected to create a real estate boom. the wildfire destroyed over 2000 homes. the rebuilding may provide a $785 million boost to alberta's economy. the former london mayor boris

johnson came under fire at a televised debate on the european union referendum. he is the figurehead for the brexit campaign. three opponents accused him of being more interested in furthering his career. dayal news 24 hours per powered by our 24 hour -- 4400 journalists around the world. francine: we have been talking about yields, about how we saw a record low yields for the 10-year german bond and four u.k. guilds. let's talk to a man who knows a thing or two about central-bank policy, the former ecb president jean-claude trichet. very pleased to say he joins us live for an exclusive interview from paris. thank you for joining us today. it is a hard week to understand policy.ts of monetary

do you believe it still has the tools to go into negative territory? mr. trichet: i think really that monetary policy is doing what it should probably do in very, very difficult circumstances, in japan, europe, and also the u.s. it should not be the only game in town. the problem is that the government and all other partners have to do their job. again, central banks cannot be the only game in town. francine: do you think they should go into deeper negative territory? is trichet: my understanding that they are doing a lot, obviously, and everybody can see that. they have taken decisions which are very difficult to take, very bold, but necessary, in the circumstances. i hope very much that they will not be obliged to do more, taken

into consideration that they are counting on governments and parliaments, particularly in europe. the language of the ecb in europe is very strong on the other partners, governments, and parliaments. this is absolutely of the essence. my working assumption would be it would be progressively implemented, that the appropriate correction would be done by all countries concerned, and that the central bank could be released a little bit. and wee: i understand hear that from mario draghi and central bankers around the world, but the release is just not coming. to central banks need to step away? ?r can they do more will they do helicopter money?

mr. trichet: appropriate work will be progressively done. that the othere partners would only say that the only game in town would be the , including the job we are not doing, this would not be correct and this would probably be preparing the next big crisis. tom: what i love about your economics is you studied economics, you studied at the university of paris, and then you invented this phrase, "brutal and unwelcome moves." can european banking survive these brutal and unwelcome

moves? can they clear their markets given the chronic nature of negative interest rates? all, theet: first of circumstances are absolutely exceptional. inflation is low and is negative in some situations. abnormal normal -- situation in which we are plunged. in switzerland, also in sweden, also in japan. these are extraordinary circumstances. we have to get out of that. it has a knot of negative influence -- a lot of negative

influence on many sectors and markets. it is not the fault of the central banks. in my opinion, it is because the central banks are doing what they have to do in the circumstances, taking into account that the others are not doing their jobs. tom: we are only quoting french economist out of respect for you. one had the courage to ask for reflation a number of years ago. do you have an optimism that japan or europe can reflate their economies? mr. trichet: they have to do that. it is exactly what the central bank is trying to do. very fortunately, we have a definition of price stability which is an inflation of 2% now. so, all the big, advanced economies have the same definition of price stability.

i was very much in agreement that we should have a level of inflation which would avoid deflation. i'm not sure i would follow him on the 4% definition. i'm very happy that we have a 2% definition of price stability, but we have to deliver. is not a little job of the central banks. tom: can you support chair yellen in her desire to overshoot and have a more sustained inflation as we go into the next decade? saytrichet: well, let me that if we could go back to 2% and also late around 2% -- 2%, it wouldund already be a big success in japan and europe. we will see what happens afterward, but nobody can suggest that the central banks are not doing all they can to push up inflation.

it is particularly clear in the case of japan and the ecb. francine: our markets overall distorted -- are markets overall distorted? mr. trichet: could you repeat? francine: our markets distorted because of central-bank activity? mr. trichet: i think there is no doubt, of course, that even if ,hat is being done is necessary taking into account the exceptional circumstances in which we still are and we are still in a situation which is extremely abnormal, but it has that arendary effects not at all appropriate and not at all positive, including re-creation of some bubbles in the segments of the market, distortion in the markets -- that is absolutely obvious and the reason why the ecb, as well as the other central banks are right to be very blunt on their

messages to the other partners. again, it is clear that if they don't do their job, the central ,anks are doing what they can but there a secondary effects. that is absolutely clear. francine: where do you see the biggest bubbles? look athet: again, if i what is not done by the various countries concerned, i would say structural reforms are absolutely of the essence in all countries on the one hand and the appropriate macroeconomic policies have also to be delivered in all countries, including in the countries that have room for maneuvering capacity to have foster much more domestic demand. we have a lot of hard work to be done by all.

as far as central banks are concerned, they are trying to do with they can. of course, all what they do in these circumstances, which are created by the other partners -- they also have negative consequences in the longer term. tom: i sat in our london news bureau with you on thinking eight years ago, you and i talked about the adjacency of isions in europe -- what your prescription for the swiss national bank? mr. jordan seems very lonely. he is dealing with massive capital flows. some would suggest irresponsibility by his adjacent nations. what is the correct prescription you would give? , it ischet: first of all a very good example.

the current account surplus of switzerland is around 15% of the gdp. the current account of the isted states is new -- numeral -2%. 15%. , it is enormous. bank inthat the central switzerland is doing all what they can. they took a very bold decisions in the past. the came back to abandoning eg and have evolved on negative rates. it is clear. with all of the negative aspects, i imagine, but the problem is plus 15%. it creates --

is korea the next switzerland? is south korea, with that surprise put yesterday, is south korea the next switzerland because of their massive surplus? mr. trichet: it has to be looked very carefully. i would not say that south korea is in the situation of switzerland, both in terms of current account surplus, as i already said, and in terms of long-term confidence of the investors and savers. it seems to me that switzerland has acquired a position, in terms of global confidence. clear that we are in a world which is performing

abnormal and it is a problem for all industrialized countries, first, but all emerging countries, like south korea, that are fantastically prosperous, obviously. we all have to get back to a normal level of inflation. that is not only the job of the central bank. it is the job of all partners. i insist on that. tom: we insist that you stay with us. we are going to come back and consider a vote in the united kingdom on june 23. markets are stable. futures are -12. ♪

tom: good morning, worldwide,

everyone let's get right back to mr. tree mr. jean-claude trichet. how will france, your france, react to a brexit from the united kingdom? well, first of all, let me say that i hope very profoundly that we won't have a brexit because it would be a catastrophe for the u.k. puts even into question the integrity of the u.k., the flag, the union jack, if scotland decides to stay. it is an immense problem for the u.k., in my opinion. the prime minister is absolutely right to stress the importance to say yes to staying, two remaining in the european union. know, france, as well as

all the others, asking the u.k. tuesday, they are unanimous in welcoming the u.k. in the european union, which is very different from the period we have known in the past. general de gaulle was not welcoming the u.k. we have welcomed the u.k. for many, many reasons, including the fact that the values of the united kingdom, in terms of dedication to democracy, in terms of dedication to market ,conomics, in terms of values in terms of global influence -- all this is a positive heart of the assets -- part of the assets from the european union seen from the continent. francine: how should central banks view the referendum and the possible shocks or volatility that happen? we have the boj, the fed, and the boe meeting before. thatrichet: well, i think

as is the case when there is an event which is preannounced and witches extraordinarily uncertain -- which is extraordinarily uncertain, i would expect all central banks, as they did very well in the past, and the very unfortunate , i expect they are in constant contact and that they have the appropriate means to take into account the situation, in terms of the decision of the british people and, of course, all the possibilities to cope with a situation which might be very, very volatile. i have confidence in the capacity of the global central banks, not only the central banks of the advanced economies, but all of the central banks, including the central banks of china and india, of course.

i hope very much that the response is, yes, we stayed. francine: talking about all the central banks in the world, who has the most difficult job right now? yes.richet: i'm sorry. yes? i was asking you who has the most difficult job of the governors? mr. trichet: oh yes, i'm sorry. they all have a very difficult job, obviously. get it to be launched. it is not yet launched. the fiscal problems are dramatic. i would say mark carney has the brexit ahead of him and it is really one of the worst possible situations, i have to say.

if the people in the u.k. say we want to leave, it would be dreadful. i would say the ecb has a lot of problems, that is obvious. and janet has also to cope with a situation which is obviously difficult because, again, the normal functioning of the economies of the u.s. and the others, if there was not accommodating policies, if the $4 trillion were not still in the balance sheet of the fed, then the counterfactual would probably be very bad. you see all central bankers in the world -- but mark has the worst difficult job in the weeks to come. tom: i like that. governor carney has some challenges ahead. jean-claude trichet, thank you so much from paris. you will see the interview out across all of bloomberg digital in a bit, as well. stephen gallo is with us.

we will return. good morning. ♪

francine: this is

"surveillance." we were talking with jean-claude trichet. let's get back to stephen gallo. ,hen you listen to mr. trichet he says that you would not say that monetary policy has reached the limit, but he was wary about structural reforms and fiscal spending. stephen: he said monetary policy should not be the only game in town. unfortunately, for markets, it is. central banks continue to fight fires, whether those fires are weak domestic growth potential or volatile capital flows. personally, i don't see the cycle breaking anytime soon. francine: i wanted to go back to some of the terms on volatility we saw a earlier on. you said you would have missed this trade. what is your favorite play right now? stephen: one of the things you might want to look at is buying euro vol.

the euro should fluctuate on the day of the results. the euro should eventually suffer. you should see a pickup in vol. liquidity premium should be inflicted in the implied volatility curve, but compared fourerling, implied vol euro is cheap at these levels. it could increase a bit in the next couple of weeks, relative to the referendum. tom: as we see yields drive slower -- lower, is there a point where there is instability or are these smooth curves to whenever lower yield? -- an ever-lower yield? stephen: i'm worried about the exit from these policies or if something happens in the global economic picture which causes a reversal of yields. before -- there

taper tantrum. we've seen significant spikes in euro area yields before. i think the exit -- i anticipate that the ecb will edge toward removing some of its negative deposit rates over the next 12 months to protect eurozone banks -- that is going to be a difficult act to pull off when you have bond prices doing what they are doing. tom: this has been wonderful. thank you for your patience, stephen gallo. love your gravity model. let's get that out more visible. stephen gallo. we are going to drive forward this conversation and bring you to the u.s. economy, as well. john silvia joins us. another hour of "bloomberg surveillance." ♪

tom: this morning, continued signals of disinflation and deflation. bonds and currencies signal a

low growth trap to june 15 and june 23. will the implied reality of negative interest rates -- what our banking and business rates to do? and republicans are in hand to hand combat. good morning, everyone. this is "bloomberg surveillance." i'm tom keene with francine lacqua in london. just the last hour, the german-10 year -- the german 10-year moves -- absolutely extraordinary. francine: when you look at japan, germany, and the u.k., they all have record lows. tom: we have wonderful guests to give us perspective. news.now, our first word >> thanks very much. president obama has made it official -- formally endorsing hillary clinton to succeed him

in the white house. his endorsement came in an online video. in an interview on the "tonight show," he spoke about the campaign. >> the main role on going to be playing in this process is to let the american people know that this is a serious job. this is not reality tv. i've seen the decisions that have to be made and the work that has to be done. >> president obama will campaign with clinton next wednesday in green bay, wisconsin. the u.s. house has passed a bipartisan bill aimed at resolving puerto rico's debt crisis. it still has to be passed by the senate. puerto rico does face a july 1 deadline for a $2 billion debt payment. the government says it does not have that money. a new study says a brexit would rock european stocks. european equities could lose

about a quarter of their value if the u.k. votes to leave the european union. british stocks have been among the best performing in europe this year, but they are also the most at risk. san jose lived to fight another day in the stanley cup playoffs. the sharks beat the pittsburgh penguins 4-2. game six is this sunday in san jose. bloomberg news powered by our 2400 journalists. tom,, stanley cup. tom: it has been a lot of fun. everyone is happy it has been extended. even as a diehard penguins fan, i'm sure you are excited. a game seven would be fabulous. the penguins have young, young players that have come out of nowhere. up.jose just will not give then you have basketball, as well.

what would that be to have the warriors and san jose to have a san francisco-san jose winter of champions? francine is going wire they playing hockey in june? francine: i love hockey. i've embraced hockey. the problem is we also have a huge sporting event in europe which i need to talk about -- it is the beginning of the euro olympics. tom: let's rip up the script here. can they pull this thing off with the protests and the strikes in france? .rancine: they had bad weather -- strikes have affected garbage pickup. the president has such a low approval rating, i don't know how much worse it could get. tom: there we go. your sports and garbage survey with "surveillance" this morning.

futures deteriorate, -13. the euro weaker in the last 20 minutes. yields almost making history. on to the next board. francine will pick up on this. the german bond. that is not a typo. 0.024%. grinding lower. francine? francine: overall, caution prevailing as the week draws to a close. bond yields hit a record low. investors trying to figure out if we are going to see seismic or shocking events. the japanese government 10-year yields at a record low. tom: very good. we have two wonderful guests. john silvia has a cottage industry of the dynamics of the

american labor industry. by agreement as the red sox have fallen out of first place. [laughter] tom: we have an agreement that we cannot speak to each other when the red sox are in first place. i've got to you to begin with. is adamant trichet in repeating that central banks are done and that they cannot go it alone. do you have any confidence that draghi or yellen or carney can just say enough? can they rhetorically say enough? >> in the last few years, how many times have we heard from them that they have said that? tom: this is different than a few years ago. >> don't you remember the lower bound? tom: it was in silvio's textbook. [laughter]

dino: now we are seeing lots of examples when zero is not the lower bound. they can go further. question as to whether that is the right thing to do. but they can go further. john silvia practices orthodox economics at wells fargo. none of this is in the textbooks. john: not at all. it akeep talking, you make -10-year on the german bond. [laughter] john: i'm sure a lot of pension managers thought it would never get this low. trying to reach a target return is increasingly difficult. when interest rates get this low , small movements upwards create negative total returns quickly. it is an interesting challenge in terms of managing money. francine: i wanted to bring you back to my terminal. we are not actually guessing or

saying anything, but if you look at -- these are the record low seen thist we have blue is germany, purple is the u.k.. yieldsook at the 10-year , if we have 0% and then negative territory for the german 10-year, how does it impact the rest of the market psychologically? john: psychologically, it is incredibly negative. as you were talking about earlier, the market is feeding on the expectations perhaps of weaker economic growth, disinflation if not deflation in some economies -- again, a negative feedback. almost, a chance for a negative feedback loop, where one country acts this way and another country says this. the world bank lower their economic forecast. i think there is a feedback problem going on in the

marketplace. what is the end game? we can talk about a catch-22 or a cycle, but we don't really know what the world or these yields will look like six months, 12 months from now. dino: we don't know. if we look at the world right now, they are going in different directions. in the u.s., short-term rates have been going up. in europe, we are still pressing downward, pressing the negative side ever more. where you getoint some dislocations of the foreign exchange market as the fx market tries to equilibriate. tom: there is a typo. the symbol is dkk. i'm going to come over to the martin or. -- monitor. .his is danish krone

nobody looks at this unless you are in copenhagen. we are two standard deviations off. are we at a stress point where things unravel? we are at stress points, aren't we? dino: we are pressing against these bounds. very few people look at the danish krone exchange rate. i actually studied there is a while when i was much younger, so actually do pay attention to the danish krone. it is at stress points right now. denmark is one of those countries that has negative rates. this kind of thing forces them to push rates more negative. tom: we talked about korea as the new switzerland. when you look at a european thing like this, janet yellen

can't ignore this. what anyone says, she can't ignore these foreign stresses. john: absolutely not. bringing in global economic financial developments into the whole fed discussion. i think that july is off the table. tom: john silvia and dino kos with us. without exaggeration, we could do a data check for 15 minutes. we can't do that. the senator visited the president. democrats shift with grace. republicans, it is brutal hand-to-hand combat. ,enator clinton, a victory lap to say the least. megan murphy joins us next.

francine: welcome back. i'm francine lacqua in london. tom keene is in new york. tom, we have to do extra data checks. tom: absolutely. francine: bond yields falling around the world. tom: oh, the humanity! francine: earlier on, we had the jgb 10-year. definitely a record low. let's get straight to the bloomberg business flash. >> the most popular mobile messaging service in japan will raise $1 billion in an ipo. that would put it on the track to become the biggest market debut for a tech company. it will sell shares at a valuation of $5.5 billion. tesla motors is denying reports that the u.s. government is

investigating a potential safety defect in the model s car. alexander hamilton came up with the idea of federal taxes. broadway producers want a tax break extended. they are asking congress to allow live theater backers to take deductions in the first year. that is the first --bloomberg business flash. tom: this is really interesting. and everybodyss is outraged by $800 tickets. they need the break, they would suggest, because of the many, many shows that failed. "hamilton" -- you can't even measure the success of this show versus previous broadway history. i'm not surprised to see that news item.

i'm not surprised to see megan murphy with more than four hours of sleep. the rumor is she got sleep last night. me highlight of the week for was the new york post was a total class act and presented secretary clinton as the democratic candidate. it's plain to me how the democratic party extends the grace we have seen -- explain to me how the democratic party extends the grace we have seen to the convention and without getting into a fist fight with donald trump. megan: i think you saw that with bernie sanders giving hints that he will withdraw after the d.c. primary next week. i think it is going to be difficult to avoid the fistfight. hillary clinton called donald trump the thin skin, racist bully and if that is the rhetoric we see, it is going to be hard to not see it extending

into a knife fight. tom: a brutal conversation with about rates, , he wastern mississippi really not supportive of much mr. trump has said. his donald trump listening to the haley barbours of the republican party? megan: i think he is listening to people very close to him who are saying that in particular, this racist overtones of the campaign are a step too far. there are many things donald it.p like about peopleu are race baiting , that is when people are going to draw the line. they are being from with that messaging. francine: overall, how surprised are you in the closeness of the polls? clinton leads trump by only

3%-5% percentage points? megan: i think we will see that change. we always expected clinton to get a 5 point boost. she has had the best week of her campaign without question, both with this historic moment of the first female presumptive presidential money from any major party in the u.s. and with the kind of endorsement she is theing, not excluding president himself with a quite touching video. francine: i keep being told that 2016 is different and the rules don't apply. will we ever see the u.s. political system going back to the old rules? megan: i think we have seen so many things that have fundamentally disrupted electoral politics this cycle. one of the biggest things in the media. donald trump has spent so little money. he said he did not even need to spend $500 million.

how disruptive that is to the , if he can runm a general election campaign on that little amount of money, that will be disruptive in cycles ahead. tom: i was talking with one of my interns and he pointed out that the courts have written about the gop -- it is trump less. here is the gop website. they've got mrs. clinton up here . this is hatred for hillary. i get it. this is john silvia's coffee cup from 1982. [laughter] tom: why is it trump-free? megan: i think that coffee cup will do more for the brand than donald trump, they think. what is so interesting about buza the donald trump does

not have infrastructure in place -- is that donald trump does not have the infrastructure in place. it has been a really uncharted territory. i would kind of like a coffee cup right now. [laughter] tom: you have earned a cup of coffee, megan. thanks for taking us away from international economics and shockingly low interest rates. megan murphy holds court for all of our political coverage in washington. what a week she has had. we will continue this discussion tonight. intoeed a weekend briefing the festivities of the sunday talk shows. with all due respect." i don't think they will mince words on clinton and trump. ♪

tom: good morning, everyone. markets on the move. we will have extra data checks across five hours of "surveillance." francine in london. we will join each other for the week of brexit. the tumultuous u.k. weekend. ," a at the "telegraph brexit consideration. american s&p. if eu itself is also at risk britain pulls out, a consequence that has been widely ignored.

i would suggest, francine, you were out front on this 180 days ago. what does brexit mean for your italy or for germany? course, there is a concern. there is more and more realization among the political class that this may give rise or this may give a little bit of oil to the fire to more extreme politicians. for the moment, it has concrete implications on trader expectations. we also spoke to jean-claude trichet, the former ecb president, and he said he was concerned about brexit. mr. trichet: first of all, i hope very profoundly that we will not have a brexit because it would be a catastrophe for the u.k. francine: you can see that there

are political implications, but it is also playing out across the market. how should we look at this? is it the political fact that we don't know what comes after a possible brexit? or should we worry more about the market data? forward.ink it is vigilantesthe market are may be telling prime minister cameron what to do. dino: there are so many aspects of this. if the leave campaign wins, what happens with scotland? does scotland reconsider its position in the u.k.? the rest of europe, which countries will demand their own referendums? you get into this situation where that might lead to a domino effect where other countries might want to have referendums. tom: what do you need to see from brussels? what do we need from brussels before we get to june 23? dino: i don't think there is

much brussels can do. they are putting the issues on the table. he saw tony blair on the stump yesterday. the british establishment, if you will, is doing what it can. i don't think brussels can do much of anything. brussels speaking up will have a counterproductive effect because the british people do not trust brussels. tom: we are going to come back with dino kos and john silvia. let me do a data check. bring it up, if you would. futures deteriorate. -12. we're watching yields. stay with us. ♪

?c+sv >> welcome back. we're and watch. -- on yield watch great let's go first word news. vote counting is over in

the closest election in peru's history. popular concern ski has been elected president. 2% more than the other candidate. they will make the result official next few days. singapore is repaired to prosecute indonesian companies multiple for polluting it there -- its air. ashs produce hazardous clouds last year. boom for thestate 2000 homes that were destroyed or damaged by the wildfire that weren't through the -- that went through the area in alberta.

and dislocated remarks about the likely republican nominee for president from the republican leader of the senate himself. mitch mcconnell tells us that trump needs to pick and experience running mate he comes he does not know a lot about the issues. his attacks on ethnic groups and other republicans need to end. footballuro championships get underway today. they may have problems getting around the country because of a rail work or strike. the government will take all steps necessary, ensuring that fans get transport. to breaking news. because of stabilizing oil

prices, there are a couple of reasons they are resuming easing. prices, not as low as they were. then justification for the bank of russia to announced this rate cut at 10 and a half resentment messaging estimates. distinction is what we saw there. michael mckee joins us before we -- off to radio. he and i were channeling tim geithner. it was ages ago that the secretary of treasury said this is going to take a lot of time. we really need to see where our friend balancing -- balance sheet is 10, 20 years from now. bring us up to she on what we have on our balance sheet. >> it is becoming very important. they are becoming that central

banker to the world even more than you know. regulatory rules require banks around the world to keep enough liquidity on hand to meet their obligations for 30 days. liquidity has to be high-quality liquidity asset, reserves, or treasuries. to meet the demand for reserves the argument goes that you cannot treat the balance sheet. in fact for some analysts are arguing that has to become even larger. they have to ramp up their purchases. credit suisse has done a lot of work on this, and saying that a big balance sheet is not art. what a line represents is what valid she would've looked like , if the same liquidity requirement would it in place right we would not have had the ability.

this is a great point, very interesting point. high-quality assets, treasury securities, and reserves. the fed is under pressure to keep applying these reserves. and that makes it so hard to swing balance sheets. otherwise you have stresses and funding work. >> high quality liquidity to me is a good whiskey. [laughter] this is something that we hear about in london. i would not call these rumors, i where they inspected

to hit in the next six months -- expected to hit in the next six months. >> i do not think they will take actions that will create these stresses. they are going to be thinking about these issues. talk about how to direct for the market operators. advocate is an important consideration. >> what else do we see here. >> because this is a global shrunknon, and they have to your relevance over the last couple of years to work just a few banks trading, they will dump the fed fund rates. it will use the overnight bank funding rate. that improved for its euro-dollar's treating around the world.

the fed is more sensitive to everything happening in the world. >> global we're really talking about, we don't know with a risk-free rate is. what mike is saying is there is no anchor to the system anymore. >> i absolutely agree. i've been saying this the last few years. there is no risk-free rate. think about the unintended consequences. if they are increasing their balance sheets because of reserves and liquidity needs for banks, what goes into the economy? just that gets into the real economy. as a consequence of these issues. would you talk about unintended consequences, it is the same as side effects. when you look at every single central-bank policy around the world, we can talk about that.

>> absolutely. the globalization of the markets has really surprised everybody. that you do not have this independent moving in interest rates. just clause sovereign bond rates of the major currencies out there. you do see this longer-term trend over the last 5, 10, 15 years of lower rates. opportunity to a act independently of what goes on on other countries. ,> here's a long-term trend eight years of the u.s. 10 year. breaking twenty-year down even lower negative fields this morning. >> that is great. >> that was a test. [laughter] >> but when i do not understand

this if we talk about his consequences unless we have fueled growth of point, and i'm not sure where that would come from, the one example he is the endgame? sisi global financial monetary experiments which could end very badly. >> let's go back to your conversation earlier with tom. growth europe to talk about fiscal policy of structural reform. there has to be supply-side changes and fiscal policy changes. the, personally, when you look at this liquidity from it is being tied up in terms of cash. we are just seeing a real problem in terms of unintended consequences. that is why the election matters.

routers what policies are put in place, it matters the direction of country after that. let's presume she does nothing in june. would you expect to see at the press conference? you expect we will see, given what i see on my bloomberg? >> we have been talking about how you get out of this trap. she has two appearances. one before the press corps after the meeting to it a week after that her humphrey hawkins testimony. i bet you she goes and is a little bit stronger saying we need help. we will drive the conversation forward here are on bloomberg radio and a little bit. foley, us will be jane senior foreign-exchange strategist. she has a great perspective on the synthesis of the moment with

your

>> this is bloomberg surveillance. tom keene is in new york. i will be watching yields every minute, because this is a picture for the german government bonds tenure. 0.02. earlier on we have to tenure are yield at a record low. be bonds seem to have no signs of reversing, stocks are down to date with european stocks 1%. >> these are yield movements further off the curve. we are some in the two-year

these arespace, but dynamic moves in the 10 year and 30 year bond. when need to go to our bloomberg business flash. 2014, oil prices have led to 120,000 energy workers losing their jobs very that is according to oil and gas u.k.. 450,000 two years ago, and now have fallen by 25%. more problems for volkswagen, december south korea. the company will respond to the invest a should. and a hack attack was larger than they first thought. wendy's says that malware into customers payment

information was found in fewer than 300 restaurants in north america. now that number is expected to be much higher. >> john silvia joints is, he has worked with the national association for business economics. --course, will forgo the wells fargo. it is a low growth trend. sometimes they just want to make a chart. this is the four year moving average of korean exports. i am sorry, it is the switzerland of asia. they have lost themselves in. there are no smooth curves here. when you see exports rollover to a negative statistic. >> we would do another graph and

look at other major exploiting countries. global trade has slowed down, -- wee implication is might be in trouble because we are not as discipline when we were in a another time. we are running into trouble because we are two standard deviations away. there is a relationship between trade, currency, and is just rates. all of that suggests there is difficulty going forward.

any kind of sense of equilibrium. >> you know what this reminds me of? >>? we would have a maximum announcement effect. is this a sign of desperation? when you see their central faith going against consensus that is a good thing or a bad thing? even beforelook at taking action to the market interprets that looks at why. as the central bank doing that particular activity? situationoftware in and you put up that graph on bloomberg, is there is a reason, and you have slower growth going on. the central bank is following the economic implications of that. , if younegative sign

look at other central banks as well. >> when you look at the roman around -- central banks the world, thursdays option that a lot of easing will come from asia. >> potential growth is coming down everywhere. it is going to hear in the u.s. but you can really see it in asia. part of that is the demographics. it is very negative in asia in particular. , butave potential growth the era of globalization is probably picked. >> you're more than qualified to answer this one. the chronic nation of the native -- of the narrative.

it is not only the very negative the chronic nature of their x-axis. >> is not good for lending. ironically they are pushing rates lower to try to stimulate lending to love it if you lend to somebody with is kind of a rate structure where you cannot make any money? you're seeing this in their stock prices. yes here would've been a surprise. >> we talked about negative rates? >> let's talk about the

conversation. here's a data check. we will come back and migrate to our next hour. futures are deteriorating. healed, 1.65%.

♪ >> amid the backdrop of lower interest rate, we will do a foreign exchange check right now. 107., we are we are just in the last two hours this. the crew in st. paul's this morning in celebration of her 90th birthday. stirling at 144 for the queen this morning. >> it is bloomberg coming up shortly. i know you have a pretty packed show. what else do you have. the big story of global

sovereign debt and record yields that will be happening. we have great guests to talk about this. the cio of the new york state pension plan. this is the third largest pension plan in the country. how she will invest your money , andis rate environment what could go wrong after we just heard from mr. gross. and that steve will join tom on surveillance radio. >> thank you so much. we talked about you but we talked about this race into the bottom. we keep going lower. we touched a record low for the 10 year japanese yield.

if you are a haven it would be much more difficult to get inflation on. >> absolutely. there are very limited options for the bank of japan. we have been talking about the bank of tokyo moving in terms of a primary dealer over there. i think it is structural reform, well-thought-out policy. >> consumption tax has been taken off the table. >> if you're going to get helicopter landing, japan would be the obvious candidate. since they have wanted negative interest rates, which the point was to get weaken the end, and it has strengthened that those who the real deflationary

undertone in the economy that we just cannot get out of. you have to look at being a failure. this chart 842n times. here is the bank of japan wanted to go. aw we have a little bit of blip here. screams unilateral currency intervention. that comes from ancient time. cannot be considered today? unilateral intervention will only happen if there is a real .arket disruption

they have not intervened in quite a few years. >> thank you so much. of firstor a lot place. this is terrible. radio and tv, we will continue this discussion. it is shocking to look the bloomberg and see the rate deterioration. we will see you in it in london n. and michael from barclays is on our left.

>> global bonding. yields on government bonds around the globe offer regularly. growing outlook worldwide. >> president obama's endorsement

, and the three word to tweet that sent the internet into a frenzy. longest streak since 2014. ♪ >> welcome to bloomberg . jonathan ferro is off this week, but we have a great program to close out the week. >> we have voices that can shed light on global markets. the chairman of bullets advisers will speak about