global rally after the u.s. jobs data. as fed hike optimism grows. china's overseas shipments stall, signaling tepid global demand. and trump tries to rebuild the campaign. repealingals include the estate tax. "bloomberg

surveillance." there are many delta flights that have been granted because of a system failure, something to keep an eye on. we also have a little bit of economic data coming from germany. >> we also have a little bit from america. obviously, a light week in america after the festive set of data we got last week. i would focus as well, francine, what we saw from japan this morning. truly, since world war ii and back to the middle of the 19th century, quite an announcement from the emperor. francine: we will have plenty more on that, but first, let's get straight to the bloomberg first word news. reporter: more on japan. the emperor of japan is signaling he is ready to step down. said he is concerned he would be difficult for him to carry out his duties.

succeeded by his son. secrets confirmed that information has been provided to the u.s. he claimed he had been kidnapped and held in the u.s. for 14 months. but the washington post provided that he was promised $5 million after he defected. there was a machete attack over the weekend. an algerian national using a machete injured two police officers before he was shot and killed. islamic state has claimed responsibility. donald trump will call for a temporary moratorium. he will try to draw a stark contrast with hillary clinton's policies in a speech today in detroit. he will call for a repeal of the estatet ax and propose a top tax rate of 15% for american businesses.

at the summer olympics, the u.s. has 12 metals so far. china has eight and italy has seven. michael phelps won his 19th gold medal last night when he was part of the four by 100 relay. global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. much.ebastian, thanks so let's look at equities, bonds, currencies, and commodities. we have seen record highs and a higher yield of the jobs report. screen, iso the next he would. look at this, stunning. i have to go back and look at the last time this happened. yield, two year 0.76. and we come right back off the

better than ever jobs report. francine, i will let you talk about sterling. francine: oh, thank you, tom. if you look at a lot of the , thailand's shares gained after voters backed a new constitution in the country that points to more transparency. but you are right, it is a fed's story and eighd a jobs story. tom: and one of our themes for the morning will be the rollover in sterling. the new weakness in sterling. jane foley, in our next hour as well. let's go to the bloomberg and this is data tomorrow. this is in line to be chart of the year. this is the nation's productivity back 64 years.

the double recession of 1980 and then again, there is the big surge in productivity over to the right. and this interesting rollover, francine, and the efficiency of the american economy is front and center. this is the great mystery of 2016. francine: it certainly is, tom. i picked out one of the other big mysteries, what yields have been doing and what they will do from here. this benchmark basically shows the spread widening to the most in four months. the 10 year note yields climbed to eight four month high. the white circle there was four months ago. you can see the difference after u.s. employers added more jobs. this is the story of the day and we are also watching the pound trading lower. the bank of england's decision to increase stimulus.

let's get to jane foley. jane, we have to talk about the pound and the dollar. which is the most interesting? jane: clearly, on drivese the other. i think the pound probably is a huge story. it has been since the referendum on june 23 and of course, going forward, it is going to take a lot of time before a lot of the political pragmatism will be put together. so, this week, we have some adjusted production data for the u.k. but what we really want to see is the july data. that is june. by the end of the month, we will get the retail sales data. francine: we really do need to wake and see the september or but we reallye -- do need to wait and see the september or august because you could argue that july will be uglier than the next couple of months.

jane: not necessarily. i think it will take a long time to work at what the implications will be on the labor markets and unemployment. this situation is not going to change for a number of years. at how long will it take before investor confidence has an impact on jobs growth, on people's job security? rom, we have noted for the surveys that there was a massive negative shock. so, i think as you begin to see the official that opposed that referendum, -- official data post that referendum, we can begin to put together that story. tom: jane, it is a sleepy monday in august, but as you know, something is always going on. right now, we are looking at a rollover in sterling. this is sterling back before brexit. this is the 50 day chart.

down we go, we get the lows under 130. and here is gentle rollover. where is the bet on sterling right now. is it a big one way bet weaker? or are markets level? jane: a lot of that can be answered when considering the fed. the market has not been expecting for the fed to hike for some time. if you think the fed can hike in september, then you can bet on cable falling further. that will highlight the vulnerability of the u.k. economy, which makes sterling weak. but if you begin to think some of the u.s. data is going to be better, then surely, cable is going to be lower. abobankat is the rubble bank

call? jane: it is not as bad as that. it is about 126. tom: well, listen to you! jane: there is always a great deal of uncertainty when you are forecasting currencies, but this is more uncertain than usual. tom: but why does jane foley, the outlier of a stronger sterling, what is the significance that forces 6, versusto stay at 12 the doom and gloom of 120 or 115? jane: i don't know. i did not know the other banks were forecasting that. but 126 compared with where we are now is still bearish. again, part of it might be that some of the banks are anticipating numbers from the u.s. favorite what is your pairing right now? know, i think the

dollar-yen is really interesting. but i am also looking at the new zealand dollar. will they cut once, or will they cut three times this year? the risk is they could cut aggressively. people have been forced into looking into yields. new zealand had the best performing g-10 currency since know, i think the the referendum. that is not particularly normal. whepeople are so forth to look for yield -- people are so forced to look for yield that it is performing well. tom: let's come back with jane foley. we are going to go to china with edna and then talk to jim foley. is withext hour, david us from bank of america.

mr. trump, mrs. clinton, and american capitalism. good morning. ♪

francine: i'm francine lacqua. this is "bloomberg surveillance ." let's get straight to the bloomberg business blash. >> the british brought office has opened an investigation. it involves allegations of fraud, bribery, and corruption relating some of airbus' third party consultants. delta said its flights are being grounded because of a computer outage. they hope the outage will not last much longer.

that is the bloomberg business flash. francine: thank you, sebastian. tom, we are looking at breaking news out of delta . we broke this at the top of thehour. now, delta is saying the flights that are grounded are the ones that were meant to take off, but the flights en route are operating normally. tom: certainly, delta is a major carrier. with all the mergers, it is amazing, francine, how nationwide we have devolved down to what feels like three carriers. i know that is not true, but it feels that way. francine: it certainly does feel that way and some of the u.s. carriers are somewhat left behind. tom: let me translate that. what francine is saying is the airlines in europe are better than here. i get it, francine. every american knows that. ,rancine: right, so, tom

let's turn to china now. imports actually deteriorated some 12.5% according to new trade data from july.. our chief agent economics correspondent is here now. what do the numbers actually tell us about strength and weakness in the chinese economy. >> good morning, francine. i think a pretty soft set of numbers overall. we see shipments coming out of china. and the european union is falling. you can see on the import side, imports are falling. there is also softening demand inside china's economy. long-term exports look ok and volumes are holding up ok as well. on import side, let's not forget the impact of falling commodity prices. this shows you the challenges the factories are facing in

china. francine: what i really liked was that the pboc came out, signaling they would use more innovative monetary policy tools. what does that mean? >> it means they are looking through their to block just like every other central bank. they have had six breakouts since november of 2014. -- they have had six rate cuts since november of 4014. so, they want to look at more targeted lending and more targeted accrediting facilities. the rate cuts have not necessarily had the impact they did in the old days. it is a question of shaking things up to see what works, francine. the rate cuts were not hitting the target. tom: i have been remiss in not asking this question in asia. inflation, and particularly pork inflation in china affect -- i know this is

an emotional barometer for the chinese. >> obviously, the rates in china can be skewed by the price of pork. policymakers look through the impact of pork prices on inflation. so, it will be interesting to see how policymakers respond to this. tom: thank you so much. jane foley is with us this morning. jane, you and david are both in the fx world. this is persistent management of the renminbi by beijing. what is their strategy going forward? jane: again, it depends on growth, but they are still struggling to get domestic demand. look at the import data. the fact that there is so much weakness in the import data reflects poorly on domestic demand.

again, as we have been hearing, they are having difficulties with their monetary policy and feeding that through into the economy. are they going to be looking at exports more? are they going to try to get the exchange rate lower? with china, they are just looking at the renminbi-dollar level. if asia is slowing, that means they may be trying to get the renminbi lower. tom: bring a better one more time. just describeme what the renminbi has done. the strengthening, the unpegging, if you will, of renminbi. then, we break right through the trend line. many people think we will see further renminbi weakness, but i agree with of the adjacency fx effects of china and asia.

francine: tom, if you look at eminbiimplistic dollar-r analysis, you can see the central bank had to cut its reference rate. i know it is simplistic, but it goes back to what the fed does. tom, we were discussing this on the program a couple of months ago. jane, did you ever believe in this secret shanghai accord? if janet yellen surprises, what does that mean for the yuan stability? jane: i think it is safe to say a dollar stance would be advantageous. for the japanese, too. and of course, the ecb. they would very much welcome a stronger dollar. a u.s. rate hike would be very helpful indeed, but they do have to look at their own economy and get it right. unless you have signs of growing havetion in the u.s. --

inflation of 2.6% -- and it is not that strong yet. so, it really is a balancing act. tom: i like the idea of a balance in that is the way this monday morning field. we will continue with jane foley and address what is moving this morning, which is the weaker sterling, but the bigger picture as well as central banks slide through august. michael mckee will be in jackson this year. this is bloomberg. ♪

francine: i'm francine lacqua in london. this is "bloomberg surveillance ." we are talking about austerity in europe, but this could be applied worldwide. directore of the human this is theoffice, thinking behind the currency where theyurope, have combined structural reform, meaning less regulation to protect workers. they go on to say obviously, the cost of these policies are poor andrne by the middle class. they are trying to make the lives of the europeans a little bit better. there could be a push back from the more anglo-saxon world, but this is the premise by which

they wrote their article on. tom: it is an interesting article, but the bottom line is a new europe will be decided in the voting booths. francine: there is so much pushback in the markets. jane, we have talked about this. onethe time, there was fighting against it. was he right? are we putting too much hope on fiscal stimulus? jane: we might be, but before we get there, we have to look at europe and the u.s. what we can see is a lot of disgruntled voters. they are moving both to the left and to the right. in greece, we've seen a movement to the far left. in portugal and france, we have seen the same thing. sso, voters are unhappy for the reasons you have described. that could have an impact on

what decisions that the politicians will describe. first of all, they should be doing more structural reform, but they can do that because the mandates have been water down. so, we come back down to fiscal measures and fiscal spending. this is a function of the fact that monetary policy is running to the end of the road. spendingill have some on infrastructure. we hope the u.k. will do that. we have seen that in japan, but we don't know. francine: we are getting more breaking news out of delta. delta airlines, saying computer systems are down globally. some flights or even grounded. so, check the website if you have a flight today. ♪ [ hip hop beat throughout ] [ fans cheering ]

♪ olympics 2016, let me get you on my level. ♪ ♪ so you never miss a moment, ♪ ♪ miss a minute, miss a medal. ♪ why settle when you can have it all? ♪ ♪ soccer to wrestling. track and field to basketball. ♪ ♪ fencing to cycling. diving to balance beam. ♪ ♪ all you have to say is, ♪ "show me," and boom it's on the screen. ♪ ♪ from the bottom of the mat, ♪ ♪ to the couch where you at? ♪ ♪ "show me the latest medal count?" ♪ ♪ xfinity's where it's at. ♪ welcome to it all. comcast nbcuniversal is proud to bring you coverage of the rio olympic games. tom: good morning, everyone. i'm tom king in new york. thrilled you are here with us this morning. right now, on monday, the first

word news. of japan isor signaling he is ready to step down. this is weeks after he said he decides to abdicate. >> when i consider my age of over 80 years, as well as gradually deteriorating difficult conditions, i'm concerned about not being able to fulfill duties. he is 82 years old and has been in a ceremonial role for 22 years. by his son.ucceeded in thailand, voters have approved a new constitution backed by the military. it puts thailand on a path towards election.

russia's practice that > -- president, vladimir putin, maybe on path to a series victory in syria. if they can capture the city of aleppo, it would make it much more difficult for the u.s. to achieve its goal of allstate all caps on -- outstanding sting al-assad. global news, 24 hours a day, powered by more than 120 120nalists in more than countries. thank you so much for joining us.

it seems that flat me put -- vladimir putin is very close to some of the power eccentric erdogan is one aire of them. >> it will revamp relations between turkey and russia. it is not surprising there was six months of difficulty. it of course started before the coup. erdogan heads to st. petersburg tomorrow with the goal of -- lifting. francine: the parallels between the two leaders are quite

astounding. who is more dangerous on the global stage. putin has nuclear weapons. francine: good answer. they are are some -- somewhat conspiracy minded. and, russia took a clear stand against the coup. from the west, we're waiting to hear from some. we have not seen any other western leader going to turkey since the coup. tom: i spent too much time in a turkish restaurant in western massachusetts this weekend. it's great.

the cai from insta pull -- the anbulrom inst him years agogan but says that he is radically different from vladimir putin, from obama, and an entrepreneur running a restaurant in western mass. how has he shifted? >> power has centralized more more around him. by the incredible charisma, and bringing 3 million people to the center square. to all of these i would add that

the position is also responsible for this. his position in turkey was inspired. tom: the pregnant question is does he need the elite? when he puts that many people in the square in those images over the weekend in turkey, does he need the elite of turkey taco >> no, he does not need it. part of the elite is very concerned about the trajectory. they are finding themselves uncomfortable. there is a new elite that has been emerging over the past year . this is the elite that will be in power more and more. the old elite is on the losing side. on their side, it was impossible

to take a decision on friday. we do not have enough data. the situation is completely up in the air. politically, you could argue that the country is stable. 10-12 years view, the country is stable. onis a balance based populism, repression, authoritarianism, and so on. it is very difficult to go back on the coup. it is a clear set play, is it enough to think

about the rest o? coup, have now, after the western leaders. industry as well. from that point of view, it going forward. a doctor is watching this morning, and he wants to know what is a turkish restaurant in western mass? this is right off the green from the acclaimed williams college. francine: we only allow this him in such aard

steam. we: havecommend turkish coffee. francine: there you go. london is at least closer to a stumble -- istanbul. >> there is always something to learn. francine: what have you learned about turkey and the last six months? that it is a phenomenal show. not many will be able to: stop the tanks. we know the trajectory politically is negative. now, the process is faster. levelonomy has a very low of debt. let's be very clear.

barrel, below $50 per it is nothing particularly alarming if we compared to the past. to me, the concern is the long-term church rectory -- trajectory. that they needy to work on. it is not just a man, but technology. these are the long-term concerns. on short term, it will be stable. tom: fascinating. we find it brilliant. we will continue here. on me do a data check monday. risk on. , futures up, today

five. .rude oil with the bid worldwide, this is bloomberg.

francine: this is bloomberg surveillance. look at u.k. guilts. you pointed out that there is quite a bit of movement on the pound. you can see, it is not a record low. it is important. june 24, you see the massive leg lower. this is of course after the vote. mark carney has been doing more than expected. this is an important move.

we will have to talk more about guilts in general. let's get to the business flash. sebastian: major concerns for delta airlines travelers today. delta airlines computers have crashed. they say that flights already in the air are operating normally. no word on how long the outage will last. steinhoff is expanding into the u.s. they agreed to expand matches mattressldings -- matches firms holdings. billionaire warren buffett is simplifying stockpiles. the maximum risk on the derivative was almost $8 billion. that is the business flash. tom: mr. trump speaking to date

on his economic policy. bloomberg post, a very important essay on politics. tom: this really summed up some across thelity i see political spectrum of where we are in the stormy august. francine: we talked about this a lot in the past and the fears that brexit showed being replicated in the u.s. it is amazing when i see twitter hate messages between "wall

street journal" and sean hannity. it is so simplistic and sometimes makes so little sense. you majorl give points that the american dialogue on the surface is simplistic. what i would really focus on in the essay is a seismic change about now, and particularly, january next year, and how the elites in america speak to everyone else. you wonder if it will endure and forever change. francine: when you look back at brexit, there is a vote, which you also don't really understand, but it is a vote for change. phone of someone that says, i'm fed up, i want something different, even effective for it is very dangerous.

tom: mr. trump speech today is scheduled on economic policy. it is a laundry list of ideas. for tradeot support agreements and the tpp. that really pushes against the republican of the in washington, new york, and frankly, across the country. he is not a typical republican. francine: there's something i'm still confounded about. elite.for me, and yet, he manages to speak to the common person. i cannot really figure that out. if you cannot square that, and it remains a circle, going into the election, it can be very uncertain. tom: it would be nice to have a calm august week in the derby.

francine: somehow i don't think that will happen. tom: mr. trump will speak at 12:00 noon today new york time. on u.s. politics, to get the full briefing, i recommend "with all due respect." 's worldwide, as always, this is bloomberg. ♪

tom: with this spectacular. for those of you worldwide, it is scaffolding coming down on the dome. the dome is largely cast iron repair in major need of with the statue of freedom on top. behind it, in this gorgeous shot, is the library of congress. truly one of the most important spots in intellectual america. the lower left is the canadian embassy. i've been there a number of times. it is truly a successful building on the mall. that is a gorgeous shot of a new

capital without scaffolding. that is great. francine: it is great and powered us of the true the next u.s. president will have. you are the leader of the free world. got you, tom, but the leader of your country. currencyey is senior strategist at rabble bank. one of the pairings you picked out was yen-dollar. it depends on u.s. elections going forward. if we look at the breakdown we , we saw two dissenters at the negative interest rate policy. that aiken is reflective of the general feeling that negative interest rates in japan may have

been a mistake. it may be difficult for him to push with that. in japan, a love that this is is now with fiscal policy. it's not really affect the markets that much. it will be difficult for either kuroda or the government to do much to weaken the yen. francine: is that it for negative rates? the way it is structured to not really work. >> if you look at corrode as itense, he will say, yes, didn't work. they can produce evidence that it has worked and produced an impact. however, there is a huge amount of skepticism. it is not just negative interest rates. it is the huge amount of bonds

that they owe and the huge amount of assets that they have been buying. the side effects are two significant. commotion ofthe the emperor's possible applibdication. i think this fits not only for the emperor, but other members of the japanese elite. it is the idea of the proper station of institutions within japan. what is the proper station in modern japan of the bank of japan. what level of proper independence do they have? >> they are an independent central bank. there are people from the treasury at those meetings. in the past there has been perhaps a little bit more attention.

we sense that the policy of the bank was just one part of the policy. the emperor, however, we have to remember, a japan he has no political role whatsoever which raises the question is wordation is the correct because he has nothing to do with politics. it should not really make that much difference for politics going forward. tom: let's go to a chart here of japanese yen. i guess the question is simply we did not get to 100. we have a nice bounce here. yen or weekend -- weak is it strong dollar? saw the dollar rising and holding for some weeks.

the fiscal of that, stimulus package. i think we need to push the yen above 105. it would be a rate hike from the u.s.. if you don't believe that will happen this year, the chances of a rising yen-dollar really are limited. be have to bear in mind that there is a risk to break that level. francine: do you think the market is mispricing a possible rate hike for september. >> possibly. i think september is too soon. we are talking about just a few weeks. we had some reasonable numbers. looking at that stage, the

on theage has to be table. we need some strong data to be sure about that. i think the market might be quick and pushing that back. tom: thank you so much. what a terrific way to start monday with a great briefing on what we see in weak pound -sterling. from will will join us merrill lynch. economics, finance investment, and international relations. also, a little bit of american politics. it is a-rod's new york. this is bloomberg. ♪

tom: after the jobs report and a

stronger u.s. dollar, pound dissent. in this hour, david woo of bank of america on brexit and on china. in may and go away. that worked out. luigi zingales on and during american capitalism. and we must think carefully about what we can do. japan considers an abdication of the emperor. good morning, everyone. this is "bloomberg surveillance," live from our world headquarters in new york, monday, august 8. i'm tom keene. francine lacqua is in london. where is brexit this morning? are we brexited out and have we moved on? francine: not yet. having a huge impact on the pound, remember, we are waiting for data for july and august. it is backward looking, but we also had a record low yield for the five-year. tom: i strongly agree with that, waiting to see

if governor carney was right on an important decision last week. sebastian: the emperor of japan is saying it is too difficult to carry out his duties. ihe is 82 years old. would be succeeded by his son. pakistan, a bomb exploded at a government run hospital, killing at least 53 people. the explosion took place not long after the body of a murdered lawyer was brought to the hospital. no one has claimed responsibility. iran has confirmed it has hanged a nuclear scientist for providing secret information to the u.s. he claimed he had been kidnapped

and held in the u.s. for 14 must. but "the washington post" gave $5 million -- donald trump will call for a temporary moratorium on new financial regulations. aides say he will call for a repeal of the estate tax. at the summer olympics, the u.s. has 12 metals so far. italy has seven. michael phelps won his 19th last night. he was part of the winning four of the 100 meter relay. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. tom: let's go to equities, bonds, currencies, commodities. right now, post jobs, a great report. futures of 4, yields were

higher, risk-on, dollar stronger, crude gets a bit this morning. onto the next screen, if you would. , 11.54. the complacency of the vix market. that is with the dow is. sterling is weaker. i want tofrancine: spend a touch on oil because you are right, there is an informal meeting with opec, so i guess the market is getting a little bit ahead of themselves, hoping for some kind of cut. goes back to brexit, what mark carney did. new constitution makes it more transparent and more democratic. tom: very good. let's look at the bloomberg right now. this is some of the economic data this week. productivity. this is a cool chart. this is the four-year moving average of productivity in america, with the negative touch

in the 1980's. this is back 60 years, back to eisenhower, and the latest roll over in productivity. truly one of economics, looking at the efficiency of capital, labor, and total factor productivity, a raging debate on this decline in american productivity. francine? francine: this is what i picked out. this is on the back of that opec news. at oil, and ignore the right -- the white line. if you look at wti, it is in blue. the purple one -- you can see this list in the last couple of days, they have a new opec chief in place, and opec, planning informal talks next month. we have a similar situation to this about seven months ago where the markets were hoping for some kind of coordinated action, which they never got, which is the u.s. rate count here. tom: francine, thank you so much.

david woo is with us. has been a wild. we are thrilled that he is back with us this morning. your number one focus is china. is it about china in the adjacent asia, china and america? what is the linkage with china that matters? david: i think right now there is no question that the big story this year, and the last couple of month, the market is starting to basically treat r&b decline as being a nonevent, but i think it is unlikely to change the fact to make its going very difficult for the rest of the world, especially with respect to the fed. chart, if youthe would. we show this earlier with jane foley. a real trend here of them doing the job with a lot of global pressure. now they have reversed. is the weakening that they want up to that yellow circle, which,

david, you have been out front on? is that the same weakening that abe desires? the chinese stock market has been one of the worst performing today. one thing they have not done is cutting interest rates. guess why. everybody has cut interest rates except for china. bank in the central prime minister has been telling us, is that there is too much debt, to make much leverage. if you do not cut interest rates, the only thing left on the table to stimulate is the weaker r&b. from that point of view, that is the only thing left on the table. signale: today the pboc there would be even more monetary policy is, that they do not want to cut rates, that they want to play with liquidity tools or make monetary policy more effective. what exactly are these monetary

tools? francine: i really honestly do not think there is that much right now. from that point of view, the point is this. especially given that there are signs that president xi is for rating into his economic policy, he is leveraging his popularity to sanction the stress more on the long-term sustainable growth model in china, which means basically less leverage and possibly lower r&b. i think that is the only thing left on the table. much do you worry about liquidity traps for countries. our lending facilities the number one thing that the pbc needs to work on? david: liquidity is not an issue right now. there is nothing that looks basically out of place. the issue here is that they are

not cutting interest rates, and i think the reason is because nonperforming loans are rising. problemsot want to add banking system. from that point of view, they are preparing lower growth. as i said before, from that point of view, the currency continues to weaken, almost every month, and that tells you -- tom: that is the release valve that they have. is can theystion clear the balance sheet, the markets. can a political system like china buttress up against its give any system optimism that clear markets in the normal fashion? david: not really. it is a question of time, of course. but in the short term, not

really. , in the last five or six years, investments in gdp has been over 50%. it has been higher in any other --ntry, which means china driving r&b lower. tom: i think we could go for three hours, just with david woo on china. we will not do that. including brexit. bonus round on monday. luigi zingales will join us on his italy, luigi zingales on our american capitalism. worldwide, this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash. here is sebastian. sebastian: walmart may close a $3 billion acquisition of e-commerce stock of jet.com as soon as today, according to people familiar with the matter. to run itstay on online division for several years. billionaire warren buffett -- $195 million was paid last year -- the maximum risk on that derivative was all most $8 billion. delta's computer systems crash,

which led to flights worldwide being grounded. that is the bloomberg business flash. tom: that is a big deal. thanks so much. to see delta shutdown for a global audience, truly one of america's major carriers. the delta shuttle between new york and washington -- it is a lot bigger deal than the stereotype of the east coast. we first broke the story, i like the way you put it, that it shows the vulnerability of relying on a global computer system. we had a situation at heathrow four weeks ago where flights could not take off because computers were not working and they could not check in people. tom: david woo of bank of america merrill lynch is with us. now i'm a luigi zingales from .hicago's blue school wonderful to have you here.

let's talk american politics. there is without question a nostalgia of republicans supporting mr. trump in search of a past. what passed is there? we know they cannot find it. what are they going to find as they try to look back to something to grab in our past? luigi: there is nostalgia for a time when the united states was growing at a more healthy way, and this was shared by a larger faction of the population. today growth is low, and not only that, the fraction of people enjoying this growth is smaller. that is why people look at the past and they want to think about the time when things were better. tom: tpp, i believe mr. trump will say this morning, 12:00 , that he is against trade

beingtheir candidate against the trade agreement? luigi: his position against trade is trying to get at the feasible calls rather than deep calls. if you look at the substance, the impact of china on jobs is just 10%. active story is technology. technology is increasing productivity. not enough now. and the result of that increasing productivity is fewer jobs in manufacturing. but it is very hard to want to complain against technology. it is much easier to contain against china. are way worse off than we were 30 or 40 years ago, or luigi:e the perception? the rate of growth is actually higher, was higher than it is today.

the biggest problem, especially in america in the last year, is not lack of growth. lack of generalized growth. woo, with bank of america merrill lynch. where mr. trump is heading? for that matter, is it a form of mercantilism that secretary clinton is heading? david: you think about the people who voted for brexit in the u.k., they tend to be blue-collar workers who traditionally vote for the labour party. this time they are much more likely to vote for trump. if you look at the polls in michigan, which are very --eresting -- the primary

the democratic voters say the biggest reason for job loss is because of free trade. the fact that since china became a member of wto in 2000, meeting household income dropped by 7%. tom: we are down 7% in real rates. seen a massive increase in terms of compensation of wealth. zingales, how do the elites adapt and adjust to what dr. woo speaks of? luigi: taking distribution into consideration -- we always think and we keep thinking that trade is good, and i think it is good. there are institutional impacts. as economists, we used to think ,nce you make the pie bigger there is a way to make everybody better off. and i think it is true that there is a way, but it is not that easy a way, and we have

forgotten to take care of it. we should think about ways in areh the benefits of trade more equally distributed across the population. how is donald trump, a self-confessed millionaire who travels only by private plane, not considered part of the elite? i think that is one of the phenomenal mysteries. man in italy was able to appeal to the ordinary people. in part it is that it is very hard for anybody running against powerful interests to make it to that point, so we take somebody extremely rich and famous to do that, and that is part of the contradiction. it takes somebody from the elite to run against the elite. trump is sufficiently sort of crazy to do it. tom: do you see a linkage between mr. trump and the populism here in italy?

luigi: absolutely. withwhat david was saying, populism in the united kingdom. the vast majority of the population feels left behind by the elite, so they are ready to latch onto whoever screams. who screams the most in the united states is donald trump. tom: luigi zingales and david woo with us. on the political discussion of america, start your week with mark halperin and john heilemann. they have a lot to talk about, and of course their immediate take on mr. trump's economic speech. worldwide, this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. tom keene is in new york. the stimulus last week -- they talked about negative rates. i was not quick enough to do a chart. on very graciously -- what a gentleman -- did it for me. this is the pound-dollar chart. beauty,ty, that pure tom. thatan see the swing lower we saw at the end of june. luigi zingales is with us, as is david woo. david, what does pound tell us weut the future for the u.k.

still need proper data for the end of july, not only sentiment, to show us how much investment has been impacted. david: last week i was in london, and i had 20 clients come to dinner with me. 18 of these 20 were short sterling against the dollar. i think that is for much the consensus. i think sterling is going to go down. one pointecasting 25, maybe 1.20, whatever. over the last few weeks, we have had a lot of influences in the u.k. that will provide a big boost to sterling. nice paragraph and inflation/deflation, ambiguities to the near term. there is a long-term that is a current account deficit. let's bring out single best chart right now, another candidate for chart of the year.

this is united kingdom, current account deficit, the white line. the purple's goods and services, and that massive wedge from the red circle out is the money flowing into the united kingdom. rate of adjusts the change of money flowing in. will the money stopped flowing in? david: i personally think yes, definitely. with arm we had to do being taken over by softbank, but arm is probably the only u.k. company that would not be directly affected by brexit. most of what goes into the u.k. tend to be from u.s., japanese companies that want to use the u.k. as a basis for goods and services. now the basis is that you have to believe that it will reverse. , will thessor influences go to italy, germany,

france, scandinavia? luigi: that is a good question. i wish they would go to italy. i think primarily ireland. tom: this is a great theory. everybody is looking east from london. no, look west from ireland. this is great. david woo and luigi zingales on brexit. they are both suggesting the certitude of 1.20 as maybe a little overwrought in the markets right now. .quities higher, oil with a bid from new york and from francine lacqua's london, it is beautiful. turneresque this morning. worldwide, "bloomberg surveillance." ♪ ?c+sv

francine: "bloomberg surveillance," good morning. let's get straight to bloomberg

first word news with sebastian. sebastian: the emperor of japan is signaling that he is ready to step down. akihito spoke today to the nation, is pressing his desire to abdicate. >> when i consider my age of over 80 years as well as a deteriorating physical condition, despite being luckily healthy at this moment, i have concerns about not being able to fulfill duties with my utmost effort. sebastian: akihito is 82 years old and has been in the ceremonial role for 28 years. he has tried to mend relationships with countries after wartime aggression. a new constitution is been inked by the military thailand. critics say the new constitution may boost the military influence over the government.

president, latimer putin, maybe on the verge of a victory in syria. -- vladimires putin, may be on the verge of a's victory in syria. in istanbul, turkey's president erdogan has vowed to keep seek to whatever powers undermine the government. his government has detained or arrested almost 18,000 people, mostly from the military. global news 24 hours a day, powered by more than 2600 journalists and analysts in more this is countries, bloomberg. francine? francine: italy's future is 'anging by a number of banks nonperforming loans. , with david woo, bank of america head of global

rates and currencies. luigi, when we go back to the italian banking problem, do the markets expect a resolution quicker than what the eu needs to resolve it? is it a bigger issue than briggs at? this be the final -- then brexit? luigi: i think there is a risk. the most likely scenario is that things will walk out. but i think there is a risk that this does not work out properly, eventually it will create a major disruption in italy. and through that, the entire european union. francine: you wrote an article saying that this is what the atlantic fund, which was considered too small by the markets, but still -- you would have structured it differently? luigi: what i wrote is that i look at -- the only one big experience that we have over the bank of italy is the bank of poli -- at the time, 9

wereon euro of loans separated in an entity called sga. -- the years, this sga problem is, and many people use this as an example that we can get out of this crisis just waiting in the patient. however, if you look at how long it took and how much it cost to reasonable to place the value on the loan at $.23 for dollar. it will put the italian banking system in a much weaker situation. tom: david, you know this as well. this is a rough number from cfa

institute. within my reading at the bottom, it is 18% as the valuation and maybe it migrates up to the 20's, right where your 22% is pure this history of markdowns to me is not all that much of a history when you blend in all the history of markdowns. we get to that number, don't we, david? david: yes. the problem with the management company solution, when you move these things off your balance sheet, you can move it to whichever evaluation to basically render the good banks out, so to speak. so there is a lot of -- there is a lack of transparency. the bigger issue is that we have seen a massive increase in correlation between european banks this year and government bond yields. doing isary easing is driving down yields, weakening the banks, and in europe it is a huge problem because of the disproportionate road that european banks play. tom: i would point out that francine lacqua this moaning

pointed out -- francine lacqua this morning pointed out -- francine: is it even worse for european banks that the ecb has gotten into negative territory than it is for japanese banks? david: absolutely. europe, unlike the u.s. or the u.k., is much more dependent on banks, basically lenders are you are weakening the banks and the banks are reluctant to recapitalize. what you will end up with is a credit crunch, which is what we are seeing in europe. tom: the credit crunch goes to the heart of the matter. everybody knows, go out and raise more money and dilute equity shareholders. what is your italy waiting for? we know that. all, equity of orders do not want to be diluted. we have seen that in the united states. during the crisis, everybody was waiting. the question is, is a government willing to step in and force

this recapitalization one way or the other? i don't think so. i have been trying to advocate in moving in that direction, but there does not seem to be the political will at this moment to do so. francine: why not, luigi? this seems dangerous. they are playing a dangerous game. luigi: absolutely. i think it is very dangerous. try to kick the can down the road all over the world, they hope to fix the problem without help measures -- with adult measures here and there. the second is that they try to blame the eu for that. they say we cannot do it because the european union does not allow us to do it. i think we could do it with the esf fund if we just call for europe and say this is a problem. i think italy is in a deep problem, and the time has come to call for help. tom: let's go back to your idea

of a credit crunch, which is inflammatory. instabilityassume and junk conditions out of this deck of cards they have constructed? david: i think the point here is , until three months ago everybody was talking about negative interest rates as the new frontier of monetary policy, as though this was going to solve all the problems in the world. 2016ost important theme of is that investors are waking up to the fact that any policy that , the primaryanks arm of credit intermediation, is going to be a problem. tom: a great article in "the telegraph," nestle has gone from 10 to 80 almost over the last 12 years. equity markets in europe are woo's creditdavid course. they do not care. david: companies are much more -- the countries that are much

more dependent on the banks are the small to medium-sized enterprises. large companies have access to bond market. the bond market in europe is much smarter -- is much smaller in europe. i agree that banks are much more crucial in europe and in japan than they are in the united states. it is a question between average and marginal. the question of negative interest rates will reduce the average profitability of banks. also on the margins it creates more incentive to lend. my willingness to land goes up, not down. if the banks -- i think negative thingst rates is a great to push them to lend. if they are not solid, and this might be the case for italian banks, then that is more of a problem. if anything, the banks

are pushing up lending rates because it will offset the losses by charging borrowers more money. that is where monetary policy starts to become counterproductive. francine: do we need a bank in europe to fail miserably, to go under, like we had with lehman's , to spur that industry action? do we need an ugly event for something to happen? luigi: certainly an ugly event will focus minds. , soear is that in italy far, the pollsters have been fairly loyal to the banks in spite of everything. but a bank run could be spurred they will nott, stop. i do not wish an ugly event to get to the next step. francine: who would it be? who

is more at risk? luigi: i do not want to name names. there are clear candidates for that. but unfortunately, there is more than one. that is not an easy situation. , theine: luigi zingales diplomatic luigi zingales, from the university of chicago, bank of america. this is the picture for a lot of asset classes. you were mentioning the pound. pound weaker overall. one of the main stories is what is happening with oil. it is up around $42 a barrel on the back of opec saying they will meet informally next week. overall, we are off the day's highs in europe, but we are getting a little bit of ground. 34.98 on a new constitution. this is bloomberg. ♪

francine: tom keene is in new york. francine lacqua in london. let's get straight to the bloomberg business flash. the british serious fraud office is open to investigation. airbus says it has to do with misstatements involving the contractors in export financing. at the box office, it was a record opening for the latest superhero movie, warner bros.' "suicide squad," raising $45 million in america over the weekend. that smash the record set by "guardians of the galaxy." delta airlines computer systems have crashed, leading to flights worldwide being grounded. delta says the flights already in the air or operate normally, but no word how long the computer outage may last. that is the bloomberg business flash. tom: i want to squeeze this in

with david woo of bank of america merrill lynch, and professor luigi zingales as well. last week about being worried about bonds and equities, and buying into intangibles. for bill gross, that means buying more stamps. he is one of the world's great stamp collectors. when you a bond bubble see these negative rates, as francine mentioned, on yields? david: we have two straight months of better than expected nonfarm payroll results, and what it is also telling you is that the u.s. is now importing monetary policy from europe and japan, and clearly with a massive easing of financial conditions. fed is not doing their job properly if they do not do something about this. zingales has a cottage industry of talking about american capitalism. one of the seminal books he -- in indian and italian

-- an indian and an italian telling us about what to do about capitalism. as mr. trump speaks today, i go to one of your chapters in that book, "the taming of the government." is that a solution? i do not hear that from secretary clinton or mr. trump. taming of the government is important, but i am not sure that mr. trump can do that with his team. we say we should not pay much attention to business people when you design economic policy, and trump has a collection of business people advising him. that is really a very crony capitalist agenda. tom: did mr. trump ask you to be on his economic team? luigi: no, what i would say no even if he asked me. francine: how is the prescription to have a

capitalism to have something for everyone? it is not only about redistribution. it is about how you perceive your wealth compared to others. luigi: the most important thing is to, number one, we set the growth and productivity. which is done by increasing the number of new firms. one of the most depressing facts of america is the starting of new businesses is constantly down, and this has a huge impact on productivity. that is the number one thing. the second is we should bring of antitrust or do we have too much concentration of industry, and this concentration depresses productivity growth, investment, and innovation. we need to bring in an antitrust. that is not clearly what trump wants. francine: what does he want? luigi: that is a good question. i figure we are going to learn today with his big speech.

we will see what he does with trade. i do not think that will be the solution. i do think that building a wall will help. i do not know what his economic policy is. i do not think abolishing a state tax is going to be a solution. clearly it will be a solution for the trump family, but not for the united states as a whole. on thebelieve the limit estate tax globally in america is 5.45 million dollars. let me do a data check right now --equities, bonds, currencies, commodities. a lift to the market. we are with david woo of bank of america merrill lynch, and luigi zynga alice. this is bloomberg. ♪

tom: good monday morning, everyone. in london, tom keene in new york. a foreign exchange report. sterling out front. let's go right to it.

1.3070. euro-sterling,at 0.8481, showing sterling strength this morning. the yen of course is weaker this morning. francine? francine: the ftse started higher, and now we are seeing a reversal. coming up shortly, it is "bloomberg ," with david westin, alix steel, and jonathan ferro. david: we are coming off very strong markets on friday. we will be joined by richard clarida of pimco. we will talk about how far they can go. we are also delighted to have liz myers with jpmorgan. she will tell us what is going on in the equity capital markets. finally, we have jim's any of the capital. he will talk about what kind of investments should be made right now, what he is doing, and what

he sees. that is coming up on "bloomberg ." francine: it is a record-breaking day in the markets. this is a picture of asia, equities hitting new highs. the ftse started the day quite strong and it is seeing a little bit of a reversal. let's get back to our guest in new york -- our guests in n york, luigi zingales and david woo. let's kick it off with you, david. i am concerned about, if you look at what bonds are doing and what equities are doing, they make little sense. i understand there is cheap money so both can rise at the same time, but what will correct first? david: i think it will have to be the fed. jackson hole is probably more important than it has been for a while. i think the fed needs to basically convince the market that if the stock market is going like this, the fed will

have to do something about this. francine: which goes back to, what, that we are mispricing risk? janet yellen hinted at it when she was saying we are mispricing things, but they have not hiked rates since. david: this year the biggest winner in investing markets has been risk parity funds. this is becoming -- given what is coming off these -- these guys are sitting on a lot of leverage. potential you can see a pretty nasty august. for that reason, i think that august, the next four weeks, there is a nontrivial risk of what you can actually see with yields going higher and risk coming off. in that environment, the dollar can dupree well, too. distortion isis

chicago economics, which you are part of. richard clarida will be on "bloomberg ," and he has written important papers on dynamic equilibrium theory, which i guess we will call modern economics. is it dead? have we gotten to a point where there is such a cacophony of flow and information that the foundation is that i can -- the foundation of economics will change? luigi: i don't think so. the low interest rate is challenging the system, but i -- we are in where uncharted territory, so we cannot look at the past. we need some guidance. tom: do you believe in that? clarida --ichard these models that we have, are they helpful now for guys like you, flying blind?

david: i personally do not find it very helpful. tom: there you go. finally, some tension here on the set. david: i do think there is another branch of economics that deals with the political economy. you think about one of the most important issues of the day, it is not so much about economics, it is about politics. and we are on the verge of making some tough political choices that could potentially have huge impact in terms of the policy outlook in a global economy. that is to me the most interesting thing about trying to decipher the future right now. are the central banks deciphering in the wrong way? we talk about productivity and how they look at things, but as the world moved on from what we were doing 10 years ago? luigi: i think the central banks are the only game in town, because we do not see, especially in europe, the

central government acting any other way. they are taking on too much responsibility. not result, they are succeeding particularly well. i am not sure it is all their fault. tom: this has been wonderful to get started during the week with both of you. and david woo will continue with us for further discussion worldwide on bloomberg radio, which is what we like to do. "bloomberg " next. of pimco onida "bloomberg ." tomorrow, adam parker of morgan stanley. this is bloomberg. ♪

the rally continues.

it is risk-on following friday's blowout jobs report. david: china's red flag. the central bank promises to reuse innovative monetary tools. alix: trump tries to reboot. he unveils his new economic plan. will his proposal distract voters from his recent setbacks? jon: a very warm welcome to "bloomberg ." i am calling today the day after payrolls, and the rally continues. outd: really strong numbers on friday, and you see the markets reacting right through the weekend. alix: jeffries out this morning saying what can actually derail the rally, what will put bonfires on strike? what will lead a rushed out of high-yield? weid: the question is, can keep this going? does it keep going or is there a turnar