francine: this is bloomberg "surveillance". deutsche bank slumps on concerns that the u.s. justice department tabled a $14 billion claim. europe pushes back against top banking regulator. and in bratislava without britain, e.u. leaders gather to discuss europe's future without the u.k.. this is bloomberg "surveillance". 'm francine lacqua in london

with tom keene in new york. deutsche bank is down 7%. m: the idea of a cash call being had. i can maybe make a guess. what are they waiting for? they have to go out and recharge. it has been years and years and years. maybe this $14 billion love note is another catalyst to get them there. francine: they say they don't want to pay $14 billion. may they will get a better deal. the analysts guessed $5 billion. i'm not sure how how they got it so wrong. let's get to the news. >> angela merkel is promising to do everything she can to hold the european union together. they are meeting in bratislava brexit plot their post course. british opposition leader jeremy

corbyn says his labor party is looking to norway when it comes to the brexit. norway has exit to the e.u. single market but is not in the e.u. itself. >> maybe we can learn a great deal from norway. after all it has a successful economy. it is based on oil. it is a much smaller society strongrs but they have a social democratic tradition. they have a huge welfare state and health service. the model of their socially based economy is that different from what what we in the labor party talk about. >> corbyn is working to keep his position as head over the labor party. the cease-fire appears to be holding. -- .n. ready to roll with

they are stopping from pulling back on a major road in the city. the typhoon battered the province. more rain is expected. the typhoon is the strongest storm in the world this year. global leaders attending the in venezuela will be greeted by anti- government protesters. they are vowing to take to the streets again throughout the country. they are demanding a timeline to old a recall referendum. this is bloomberg. tom: thanks so much. on a friday, let's get to the data now. equities, commodities, futures some weight to them. negative seven. euro has done nothing since time began. crude oil is a back story this week. 4338 on american crude and there

is brent that 98. it is not so much a big deal but if trend continues, that is big deal. here is the trend, dollar-mexico, 19.31. really gets my attention as a proxy for e.m. combined with the american election. francine: tom, this is my data board. i have to look at the banks. down 1.4%. deutsche bank down 6.6% after the dodge asked for $14 billion -- the d.o.j. asked for $14 billion. this is a claim they say they will not pay for. they do have to raise capital if they pay somewhere near that mount. very quickly some of the main movers. tom: nice second chart from francine.

is that in euros? rancine: it is in euros. 21 euro cents a share. tom: not centimes? trey: the old french franc, tom. tom: i learned something today from francine. very, very cool. let's help you with the many faces of inflation. the white line c.p.i.. the yellow sideline core. oil is rolled over. there we are. the red line is a 2% level that everybody blathers on about and then those three circles over there are only a few of the many inflations from the top. service sector inflation. well over 3%, francine, what is in our mailbox? maybe that is the rent in london. the green one is my favorite. cleveland c.p.i., a little above

core and the red one, which is what the fed looks at is the top line deflator. it is an odd picture of which inflation the fed should look at now. francine? francine: this is deutsche bank. instead of looking at the share price, this is coco's. remember there was a controversy coco's.february about this is when the controversy started. a leg lower from these deutsche bank coco's. already in a little bit of a mess on what the d.o.j. will do next week and what the fed will do next week an all of this uncertainty about european banks. >> the d.o.j. may do something. the fed won't do anything. we're at a point where whatever central banks do, that bit of a jam jar with the spoon scraping

around the bottom and then there will just be enough jam to put some on your last crumpet but there is no meal down there. francine: what does that mean for the markets and participants? >> it means solving all of these problems, there is not much inflation. there is not much wage growth. horrible numbers out of france this morning. there is not much the central banks can do to liven it up. it means a journey on let's all o and hunt and yield and carry wherever we can in the summer. tom showed the mexican peso which is in limelight for two reasons at the same time. bond yields can't go any lower because they can't get any help from central banks. we take a pause. tom: let's come back to mexican peso in a minute. sterling is maybe a proxy for

everybody like you waiting around for something to happen. i love your research note the morning on how deadly it is and you're looking for a surprise to get my pulse up. e have the hsbc call to 110 on sterling. a lot of people, that yellow circle to 120. where is consensus on sterling now as you look at it? >> i think consensus is slowly coming up. people overdid their bearishness. it is not going to be moving much. the story on the u.k. and sterling is the story about the long-term economic impact and the uncertainty about how the u.k. divorce itself from europe and we are no further forward on that today than we were. tom: what is the catalyst kit to ump-start weaker sterling? >> garagal slow realization that

hirings will be postponed and the growth of the economy is going to continue to slow and lag and the bouncing around over the economic data at the moment doesn't change any of that. as growth slows to a 0% to 1% range instead of 2% to 3% that we have been in, rates probably get cut further and asset purchases probably increase again at some point and then i think we get another -- i wouldn't look for a huge move. i would look for 5%. francine: thank you so much for now. coming up, we'll have plenty more on banks. this is what the deutsche bank is doing at the moment. a lot of pressure from what we heard from the d.o.j. yesterday. slumping after a $14 billion claim in the u.s. justice department. withmay mean they struggle

profitability. ♪

francine: this is bloomberg "surveillance." i'm francine lacqua. tom skeen in new york. > the new iphone 7 went onsale today. many may walk away empty handed because apple hasn't made enough phones for demand. apple has decided to break with tradition and not announce the first weekend sales figures. u.s. safety regulators have made it official. samsung will recall the galaxy note 7 smart phone after dozens of the phones caught fire or exploded. they are recalling them because

of a battery flaw. francine: thank you so much. deutsche bank shares falling ome 7% in frankfurt. the $14 billion claim is to settle investigation into the sale of mortgage-backed securities. figures are triple what some analysts had estimated. the company suspects the amount will go lower. james, a significant lower amount. it can't really be that significantly lower, can it? >> well, there is a history of european banks getting slapped with big fines because of the securities issues. during the precrisis period and then getting their governments to go in to bat for them to try to get the fine mitigated to some extent. the fines have been very, very

substantial indeed. the trouble with the european banks is they are not strong enough to pay them yet. francine: does that mean we will see deutsche bank raising capital? >> personally speaking i think it is fairly inevitable that a bank like deutsche bank which has always argued that it is extremely high leverage was ok because it was mitigated by the fact that its assets were very low risk. the market used to believe that and give deutsche bank the benefit of the douth. now it is not. therefore that leverage just stands out. tom: james, thrilled to have you on. i love your recent work on lloyds bank. help me with john and the size over the cash claw he will need and the effects to shareholders. >> obviously the really big problem that all banks have with

cash calls and capital raising is that you can only do it when you don't need to do it. once you need to do it when your share price is under intense pressure like deutsche's, it becomes really critical. banks have to buy themselves time, to do it through retained earnings. i think there will have to be a cash call of some description. deutsche is being assaulted on all sides. this is incredibly unhelpful for deutsche. the fact is they can't realistically raise enough in the short-term. that's why i think the authorities in europe will push for a delay. tom: let's go to the chart on deutsche bank. you have a 10-year level with the blue line. we migrate below $10 to to be the catalyst. do you think there is enough breakdown for that share price to go below 10 euros? >> this is an intense debate and

we're getting quite close to the there's the share price hit. this is the level at which the share price has to decide whether it is going to break or hold in there. one thing, you could make all sides happy. if you think about how long it has been since the infringements occurred and when the fine arrived, all could be happy behind closed zpoors deutsche agrees to fay fine but is given five to 10 years to do it in. it is not necessarily an urgent problem. all sides could be made happy and good as long as you buy time. the problem with that, as always, with resolution from banking crisis, when you're buying the banks time during that period, they are not in the business of helping the the economy or making new loans. francine: this go goes back to what you were saying about the impact that the banking industry can have on the european economy. banks today, they say are not

bulletproof. regulator consist strain leverage and curb riskier activities. shareholders continue to suffer. james, this is on the back of a larryby harvard academics summers. they chose the anniversary to put out this paper. this is before we knew about deutsche bank. real real problem -- the problem for europe yan banks, deutsche bank is hitting the news today. they have too many bad loans still hidden away in the cupboards in their offices. if you look at loan growth at the banks. a lot of people look at it and think all is ok. that is mainly do to things like q.e. , etc. loan growth is running about

0.4% nominal. the u.s. is 8% nominal. it has been for two years now. there is a large difference between the state of u.s. banks which are largely fixed and european banks which look sickly indeed. we'll talking a little bit about b.o.j. and currencies in general. this is the state of the markets. quite a lot of pressure on deutsche bank. european markets fluctuating. look out for the italian banks. this is bloomberg. ♪

tom: oh, the yankees. they have made a dash. they are less dashing this friday morning. they are up at the fenways losing. oh, the yankees. francine lacqua in london. i'm tom keene. francine: it is tonch yen. you have the wrong yen. yankees. tom: we'll do that later. right now michael mckee with us. there i was yesterday. me, mr. trump on an economic plan. did you hear a plan within his speech? >> not much of one, not one you could evaluate with anything serious. let's take a look at the one thing he got right.

he talked about how growth in the united states has ratcheted down. he got that right. post world war ii, at 2,000. 1999, 2,000, there is the break you can see. the we have averaged about 2%. there is yet a problem. he doesn't offer a lot to fix that. the center species his tax cuts. he goes to three tax brackets. that couldn't change a whole lot. he cuts corporate taxes to 15% and give it is everybody tax curts. hat would be a $4.4 trillion pra program. total revenue loss is $2.6 trillion. how do you make that up? this is where it gets very tricky. they talk about renegotiating trade deals deals, cutting regulation and reducing spending and you'll love this. the return to have rosy scenario from the reagan years. the tax cuts will pay for

themselves through additional economic growth. you can see what happened in the reagan years when they said the tax cuts would pay for themselves. francine: away from economics, is he going to win voters with this plan? >> here is the problem, francine. when you look at the plan, there is no plan. he doesn't say how he would renegotiate the tax deals. he loses every economist on that podium there. as bloomberg politics pointed out, the only thing americans are going to hear is donald trump says he will cut your tax. they are not going to go into the details. he may win some voters who say wow, he is going to cut my taxes. doesn't add up. doesn't necessarily make sense. we don't know enough to really judge it. politically it may work. francine: berlusconi, we have drawn parallels between him and

trump in past. this was his policy and he won every time on promising tax cuts. >> it is hard to say what americans think about cutting taxs. we saw it after jorning w. bush cut taxes. growth picked up a little bit but then we had a couple of recessions including the great recession. tom: francine has a good question about the marginal voter. i heard harkening back to william jennings bryant. the difference was jennings bryant losing three elections. was a kid from illinois, went to nebraska and was part of that fabric and soul away from new york. trump is not like that. he is a new yorker. is that a distinction to you in this process we're going through? >> it is certainly a di tunks to people who are -- distinction to people who are -- i don't want to be too negative here. people who are educated and know

donald trump. average american who supports him seems to be grabbing on to his message which is filled with distortions. he claimed 94 million people were sitting on the sidelines over the u.s. economy. that is absurd. tom: i'm not sure he knew who he was talking to yesterday. governor pence came out and gave a real campaign speech. people were like why are we listening to this? >> this is the elite of new york. you were there. did anybody applaud? tom: yeah, there was tepid applause among the moverbs the economic club. full disclosure. i'm a member. this is great. michael mckee. "with all due respect" 5:00 p.m. tonight. ♪

tom: tim cook is a failure. apple is a failure. i guess the stock prices -- i really vant looked a at this. this is the acclaimed fifth

avenue store of apple computer. the glazz box with the apple. they are beginning to line up for the latest toy. apple is a failure prm good morning, everyone. i'm tom keene in new york. francine lacqua is in london. right now he is not a failure. let's get to our first word news. snowden . house said caused tremendous damage to u.s. security. they will eventually spend billions to repair the damage he caused about spying operations. he is now a fugitive in russia. a movie sympathetic to him opens this weekend. trump believes the president was born in the u.s. the trump campaign believes the so-called birth issue has hurt his efforts to win support from black voters. hillary clinton has resumed campaigning after taking three days off to recover from

pneumonia. she hit the swing state of north carolina and the congressional hispanic conference. japan and china may be on a collision course in the south china sea. japan's new defense minister said the country will step up its ativity in the disputed region. it comes a week after ping urged japan to exercise caution in the aters. francine? francine: thank you so much. next week, not one but two to have world's major bank release the major policy decisions, the b.o.j. and then followed by the fed about nine hours later. when you look at the traders and i want to focus on the currency traders because they seem to be paralyzed. we have a great bloomberg article. they seem to think this is a

guessing game. en you look at b.o.j., is it communication from the governor wrong or do we think what they are doing is just not working? >> what they have done is not working. i think that seems at least -- not working anymore. i think it is also that there is disgrem about what to do next. the back story to some degree is bad uary they made a policy move without full support that surprised the market and failed spectacularly. since then, they have given the impression of being people in a funk of what do we do now? they didn't work. i have three bullets left. i have just blown one. i shot one in any foot. i'm not feeling confident. they are in unknown territory. i would go next week and cut rates. francine: you would but will they? japan is almost the epicenter of

this global -- last month. >> correct. they would like to have steeper yield curves so the banks get some relief. that is a theme close to your heart. francine: i've been there before. >> they are not trying to push it down forever an forever but they need to do something to stop their currency from appreciating. i think if they do it in a quieter calmer market, their chance of success stronger. i think there is a chance they do it. put me against the wall, i don't really think they will. i hope they do. tom: this follows on from michael mckee's great chart on mr. trump moments ago. i'm going to introduce this in the 6:00 hour. it is remarkable in a four-year move moving average of 1.9%,

real u.s. g.d.p., how chronic, how chronic the lack of economic growth is. can government policy relate in to create growth or do they just re flateto create inflation? >> you can. you don't do it by whacking global trade really hard, which is an observation on the side. global trade growth is bad enough. the u.s. captures it. there has been a lock of investment in the u.s. there has been a collapse of productivity growth in the u.s. in recent years. same thing in the u.k. for what it is worth. aggressive spending by overnment -- for long-term programs to boost productivity. the u.s. is at 2%. . it could work, sure. tom: help our global wall street audience. what i heard yesterday from mr. trump was a consistent zero sum

message which is almost a neo mercantilism. is that what you're hearing? >> i'm hearing wishful thinking that hurts trade and global growth and doesn't have the investment for the long-term productivity that the u.s. needs. tom: this is a zureo sum idea going back to the atlantic charter in world war ii 3. are you hearing an america or a part of america that wants a zero sum calculus? >> yes, that's what i'm hearing but equally, i heard a lot of things in the brexit debate near the u.k.. i'm coming out of that debate, we don't know what they are going to do or how they the real world problems. i think you have a bit of the same of that. down near the real world, this zero sum game does not work. francine: i like the fact that

mark carney is being quizzed by school kids here if the u.k. this is part of the bbc school report. asking if why they still have pennies if they can't buy nything with them. how does mark carney field these -- this is an existential question which mario draghi has to deal with. the situation in the u.k. is a little bit different. >> it is a little bit different because we have this other elephant side ways in the room coming through, but otherwise, how do negative interest rates boost economic activity? who did they help? a part of me says in in an economy like to u.k., this is an economy with a shortage of savings. with, you know, which means it has a lot of borrowers by

nature. make their lives cheaper at the expense of the savers. in germany, they have a lot of savors. these are serious questions. if i didn't borrow when rates were 1%, when they are zero or minus one, really? francine: what do you do? this is problem. if negative rates don't work, then do you pull back? altogether as a central bank? >> you go and walk in the general direction of your government and you say -- we need fiscal help at this point. if i can borrow long-term money for long-term infrastructure prucks at this kind of money before this covers money goes away, can we please reboot the architecture of my country to boost? let's build some universities. let's do stuff that is going to help in the long run. tom: i want to squeeze this in. it has been the quiet story of

the week. the erosion of oil. there is a con sun us is of stability in oil or a -- consensus of snablet oil or lift in oil. what do you see at sock general? >> you had our guru on this on a show last week who i thought was really good on it. we have not yet balanced the market. inventories are still building. supply is still ahead of demand but supply is not increasing at the same pace of demand. we're in this difficult period where i can see that demand will catch up with supply in x months down the road, but right now, i can get these little air bubbles, little troughs and drafts down in the price that scare me every time they happen. tom: 4342 on west texas tying trying to find a bid this morning. our next hour, one of our

most popular guests who has been dd on on tepid economic growth. he didn't get the recession he called for but he got something equivalent to it. in the next hour. this is bloomberg. ♪.

francine: this is bloomberg "surveillance." i'm francine lacqua in london. tom keene is in new york. you're going to que after "surveillance". the new iphone goes on sale. we saw them already in japan. we saw them in hong kong. we saw a lot of customers line up across the world. joining us now is neil, he is the head of global c.m.t.

research for northern trust and kit jukes of is sock general. will people be disappointed? we understand some buyers will be let down because supply is trailing demand. >> if you look at the details to have specifications, there are certain models, the jet black model is in high demand and sold out until november. there is still plenty of availability especially on the 7 relative to the 7-plus. francine: can you pit apple against samsung now? >> in the western markets. that is an issue for samsung. the recall itself that sold 1 million units at the time, they are likely to we estimate take a charge over $1 billion on the recall. clearly they had a two week lead

against apple on the launch date and they have lost that momentum because of this issue. there is an issue with this in term turnovers regulators from the airlines are saying you shouldn't use these phones on airplanes. francine: we're seeing some of the pictures there of you know, a samsung note. i think this is one of the phones actually that blew up. i don't know if it blows up. it catches fire, . it is bad enough. we don't need it to blow upper. catching fire, doesn't sound like a safety -- at all. neil, talk to me about when we go back to happenle. analysts are split in the middle. either this is the end of apple or another wishful thinking from analysts but apple will get back from this and come wake up a new product that everybody will really want to bifmente where do you stand? >> today we have been standing on the side of this is the end of their innovation curve to be

onest. there are a couple of dynamics in the marketplace that are supportive of apple. these product are still $600 to $900. when the product itself is evolutionary and not revolutionary, it is a tough ask for the consumers to pay for that. it is the carriers who are wearing that in terms of we estimate that a lot of the carriers are losing up to $300 per iphone that is sold at the moment. that's why you're seeing headline grabbing stats from t mobile and sprint. tom: neil, you covered your short this week on apple. does that imply that you go long? >> for us, we don't go long. we just take off on some of the splice including skyworks. there may be opportunities in the supply chain where you have

very low expectations and if the build is correct, you're moving rom 80 million to 100 million. tom: is your tepid view on apple down the income statement, at the gross margin line? is it a revenue question? you mentioned innovation. are you suggesting they are not doing it with the a-10 chip within the iphone 7? >> i think you raised some excellent questions there. on the innovation side, there is anevolutionary process. hen we get the next phone, the a-10 chip is a powerful processor. we are concerned on the gross margin side. tom: where do you see that evidence? i'm fascinated by this call. where do you see the evidence of gross margin erosion after what we heard from the telephone

vendors this week on preorders? >> i don't suspect we see the gross margin erosion in this quarter but i think going forward there is a risk of the pushback in terms of no one yet has obviously talked about what happens to the biggest growth market that china has had historically. if you look at the stats that come out from the supply chain, they continue to get momentum. if we are moving to a service-led industry in technology, which i think we are, if you a hardware vendor, you have to have a solid service offering. apple has some severe setbacks in that in china. there are some drawbacks. they are trying to push down pricing cuts to the suppliers. i think it is unsustainable for apple. tom: neil, nicely explained.

thank you so much. that was quite good. head of technology research with northern trust capital markets of chicago and london. coming up on bloomberg "surveillance" radio, we continue our discussion with james of the foreign policy of the two presidential candidates. actually i don't know what it is yet. we'll find out. this is bloomberg. ♪

francine: this is bloomberg "surveillance." i'm francine lacqua in london. tom keene is in new york. let's get to bratislava. europe's leaders are gathering for an historic meeting, the first in more than four decades without the u.k.. caroline, this is the first time in ho years that 27 member countries, that the european union meets without the u.k.. will they talk about the u.k. and brexit? >> it is not on the formal agenda. behind me they meet in this castle, francine. the idea is not to put out points how they will negotiate with the u.k.. they have said again and again we have to wait for article 50

to be trigger. what will be discussed is how to show a united front. 27 members. talking about security, defense and how to fight terrorism. and offer growth opportunities to nose that remain within the e.u. merkel said -- those that remain in the u.k.. merkel said this is a matter of war and peace. francine: this is an inflection point. we'll find out whether we stay together or whether the e.u. falls apart. >> i think certainly many economists are feeling this is a pivotal moment. we need to see some sort of a strong agenda. in fact, what barclays are calling about is they need to show ambition. lack thereof slows down confidence and the economy. there is little shared vision and that is key concern for the investor base as well as indeed for the fligs politicians and it

is an inflection point because they need to show that the rest of the e.u. can remain as one. two key battle lines, whether the brexit, you see more integration or less. trey: all i know is francine lacqua is in strasburg, france. i'm going to pougpoug. -- poughkeepsie. what is being accomplished here sides suits and tice and chanel and st. john dresses for the meet and greet, what is getting done? >> what needs to be done is to show some sort of common path. we need a bratislava plan but actually we're not going to get any seismic change. what they are going to come away with is probably plans for more plans. plans for more meetings but they are likely to be putting out the

focus, the priority on security and the economy. tom: thank you so much. really valuable. francine, help me here. is an ugly american with how europe will coalesce. i understand that has been an age-old issue. from where you sit with your experience, what will be the catalyst for them to coalesce into an opinion or view to address prime minister may? francine: we don't know. this is the problem. this is what i heard in strasburg. the problem is at the moment, these nations don't have a common purpose. now this could be because of populism although we don't know what it means anymore. everyone is throwing what they think populism should be in this basket. to tom's point, we don't really know what the european union will look like in 12 months from now. >> it might take longer than

that. that is why they are there. they need to reach a common position on movement and labor. within europe and from the outside, you cannot have the position of let's have anybody come in or push refugees back off the coast. neither of them put fences up. neither of those positions work. they need to fast track fiscal union, banking union. some of the nuts and bolts they have been slow on. they need a plan for economic growth. kind of old fashioned. around that, and admitting you want to save this thing, then you can say how do we if we can fix our major internal issues, how do we look out at these people who have decided to go away. francine: is there any downtown in your mind from a pure economics model point of view, it is better for the e.u. to stay together than splitting? >> oh, way, way, way better. you can argue it wasn't an optimal currency area, the way

it was done, without getting everything joined up was a mistake in some ways. doesn't matter. breaking this up would be a this ophic mistake at point in time. tom: i have noticed immense euro stable. which way will it break? >> if it doesn't break weaker in the next 12 months, there will be more japanese in its makeup. an inablingte ability to drive real interest rates lower, it will end up getting stronger again and that will give a whole new set of problems. europe's problem with its currency is japanification. you end up with a currency that reflects your position. you have high real interest rates. tom: in that scope, what is your euro strength targets? if you get japanification, is it

120? >> we get up to the 130's. that is not a forecast. that is what you need to avoid. europe doesn't need that. tom: really important. very valuable. i want to make sure it is not a forecast. coming up on bloomberg "surveillance," he has been brilliant. we'll get an update on what we see from the economic cycles. francine lacqua in london. i'm tom keene in new york getting your weekend ready for weekend readings. this is bloomberg. ♪

tom: before next wednesday's fed meeting, this morning, an

important inflation report amid tepid growth.will janet yellen delay into 2017? deutsche bank shares drop like a $14 billion stone as markets reprice the cash call. there are no barriers to entry no barriersre are to entry, the crushing economics of luxury fashion. good morning. we are live from bloomberg world headquarters. i'm tom keene, in new york. francine lacqua in london. i guess we have to talk about the surprise of deutsche bank. how big a surprise was it? francine: it was a huge surprise. we knew it was coming. analysts had put the figure around 3 billion to 4 billion. 14 billion. conspiracy theories say this may be linked to a certain apple story. i have not read any research on that. you have to look at global banks

in the context of brexit, because we know some banks have been pushing the u.s. to put pressure on the eu. tom: laxman lakshman achuthan with us. he has some stunning views. bloomberg first word news. germany's chancellor angela merkel is promising to do everything she can to hold the european union together. merkel and other european leaders are meeting in bratislava to plot their post-brexit course. she wants to take on issues such as defense and protecting the eu's borders. sweden has upheld its attention order for julian assange. assange is wanted by prosecutors in a rape prosecution. assange has confirmed if he goes to sweden, he will be turned over to the u.s. for publishing diplomatic cables. china, a typhoon has killed

at least seven people and left nine people missing. the typhoon battered a province with strong winds and torrential rain. more rain is expected. the typhoon was the strongest storm in the world this year. the cease-fire in syria appears to be holding, but the united nations is blaming the city -- the government for preventing aid from reaching aleppo. syrian government troops have now started pulling back from a major road in the city. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 150 countries. tom: quickly to the data. equities, bonds, futures, commodities. they grow turn -- the euro churn. texas. $43.35 on west the mexican peso weaker.

19.36. really and ugly week for dollar-based -- really an ugly week for dollar-peso. francine: deutsche bank is down some 7.7%. the vicks index, -- vix index, up a touch. we are about a month away from the algiers meeting. this bank has been halted. they had lost their chairman. credit suisse is down from 5.2%. of regulation, we have various stories out on the bloomberg. there is concern amongst investors about capital raising in europe. tom: we don't have the 11 handle yet on deutsche bank, but we are getting near there. let's go to the bloomberg inflation study. the white line is cpi. below the yellow line, core cpi oiling less oil with the

price down. there are three other inflation numbers, the mini inflation of america. blue one is service sector inflation. that's what you feel in the mailbox, 3.1%. the green circle is my fave, cleveland cpi. a little elevated. what the fed look said is the red circle, way below the 2% barrier, that is the pce deflator, nowhere near the inflation that many of us are feeling. it makes for an oddity, a conundrum of inflation statistics. francine: "conundrum," one of my favorite words. i'm looking at the cocoas. this could be a proxy. tom: i agree. francine: something investors are looking at. remember back in the end of january, beginning of february, there was a lot of concern about cocos. these are what we call pier 1 notes -- tier one notes.

they were introduced after the financial crisis to meet new --es, meaning that the shift they were meant to shift the burden of bank failures from taxpayers to investors. you can see them going down in the wake of what we heard just last night, tom. tom: very good. as no other guest, laxman lakshman achuthan -- no other achuthan hasan been out in front on gdp. what did happen, as noted by senator sanders, growth is terrible. , congratulations on your call. what does mr. trump see in economic gdp? lakshman: we have the fundamentals, which far -- are a cyclical downturn that has been going on since early 2015 in growth.

, but at a recession vector of growth. you have both gdp and payroll jobs growth year-over-year falling since early 2015. that's a long time. tom: are you here today to reaffirm a new recession call? lakshman: there is no recession imminent. into 2017,e too far but there is nothing imminent in terms of a recession. but first, before we get to that, the downturn in growth is undeniable. that is part of the reason why the fed has -- they will probably try to get one in this year if they can. just for a minimal amount of credibility. but the slowdown in gdp -- you have it at a 36-month low. job growth at a 26-month low, year-over-year. qen if gdp comes in at 3% in

below 1.5%are still year-over-year. they have a problem because they have stagflation light. forward-looking future inflation gauge has turned up. you go back to your inflation chart. we see inflation rising. francine: the problem -- data dependent. we also tried it out here. the problem, if you are data dependent, is that it can't go to the markets. you are seeing a fed which is, i guess, a little bit more distorted. you have external members who can express their views. is that it. confusing for participants in the markets in the u.s.? lakshman: absolutely. look, jackson hole was all about their framework. how are they going about doing what they are trying to do,

which may or may not be a good thing? toimally, if you are going be doing something with monetary policy, which acts with long and variable legs, you should try to look at forward-looking data. that's what we are trying to do with our cycle work. we are never going to nail it and say it is going to be 3.2%. the precision that these models sometimes suggest is laughable, but you can get a sense for if there is a directional change. and what we have on inflation is a directional change. it bottomed and is rising. no matter what measure you're looking at, it has risen noticeably. i think the conundrum that we were seeing in the earlier chart is attributable to differences between things like services inflation and tradable goods, tangible inflation. so, when you look globally, tradable goods -- you have deflation. and that's, perhaps,

attributable to a lot of this monetary policy, when you have really low rates -- francine: what do central banks need to do to fix inflation? fixed deflation? they tried it for quite a long time. lakshman: you have to stop digging. every time -- what a central bank can do, at the end of the day, it's pull a little bit of demand forward from the next quarter or two. after you've done that for five or six or seven years, there is nothing left for the future. they can't fix structural things. francine: who can fix it? lakshman: in theory, policy, longer-term policy. basically, when you get to what this is notnomies, cyclical. this is structural. what ails the economies is based in the fundamentals of growth. how many people do you have who are working? how fast is productivity growth

increasing? and if you look on those scores, developed countries are in a lot of trouble. that's why europe is hurting, japan is hurting, the united states is hurting. those basic building blocks of bywth cannot be impacted monetary policy. how do you make someone more morective for our - - productive per hour based on monetary policy? francine: if you are in the markets and you have these central bank questions being thrown at you, how do you trade? lakshman: the markets are being kicked around by the central banks. we are still in that regime. it may or may not be ending. every once in a while, you say, "this is it. they can't do anymore." and then they do more. i'm not saying we are all japan, but they've done a lot of this was spending, for example. that's the new idea. after the election is over, where someone is going to come

and do a lot of fiscal spending, that still doesn't move the dial on those fundamental issues. tom: it doesn't move the dial, but i'm not even sure you are going to get the fiscal spending. let's bring up another look at inflation. the white line is cpi. ok, fine. those other two lines are what we are looking at on friday morning. the yellow line is health inflation. the redline is rent. does janet yellen want to overshoot to jumpstart inflation? lakshman: you want some inflation, but they still -- they are in the threeoret -- the theoretical world. they want to get the overall basket moving up. the problem is that bottom line is related to tangible goods, tradable goods. tom: i get that. lakshman: the capacity to produce that stuff is huge compared to the demand. in no one is going to invest

further capacity, which might improve our productivity growth, with that kind of pricing. tom: i just can't convey enough how you and summers are onto something, when i get mail from our viewers and listeners. they agree with you. they agree with secretary summers that we are in a secular stagnation. they are seeing that redline and that yellow line. shmanman hackathon -- lak achuthan, we will come back. lls,ly looking forward to fe on the state of the global economy. francine lacqua in london. tom keene in new york. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua, in london. tom keene is in new york.

before we talk about banks, let's get to the other businesses we follow. >> the new iphone 7 went on sale today. many of those who show up to apple stores may walk away empty-handed. that's because apple hasn't made enough phones to meet demand. customers who preorder iphone 7 plus will not be able to buy them today. honest company, the company cofounded by actress jessica alba. they are discussing a deal in the $1 billion range, substantially less than the $1.7 billion valuation in a round of funding last year. deutsche bank is not backing down. the german lender says it will not pay the $14 billion that prosecutors want to settle claims. deutsche bank says negotiations are just beginning. a materially lower amount.

shares of deutsche bank are lower today. that's the "bloomberg business flash." francine: let's bring in michael moore. he leads are financed team for rloomberg news -- he leads ou finance team for bloomberg news. lakshman achuthan is also with us. it's a big day for european banks, deutsche bank, down 7%, after the drg slammed them with jhis huge $14 billion -- the do slammed them with this huge $14 billion bill. >> it is a huge gap from what analysts had said was a reasonable amount, which was $2 billion to $3 billion that deutsche bank could handle. that's a big gap. obviously deutsche bank wants it closer to that $2 billion to $3 billion. we don't often see the initial negotiating strategy out in the public sphere, so that changes

the dynamic somewhat. tom: also relate -- francine: also related to brexit, some of the officials from germany and france pushing back against regulators. is there one thing that is certain, that regulation will go away or that banks will have to raise more capital? fight rightt's the now. we are supposed to have some sort of answer by the end of the year. they say this is just fine-tuning the basel iii rules. some of the banks have started iv.ing this basel i think the european officials that are pushing back one is to remain just a -- back want this to remain just a tweaking of the basel iii rules that will need more capital for the banks. francine: is this a turning point? folks were saying banks are doing really badly, look at the share price. now it seems that the burden is more on policy makers because of negative rates and on

regulators. could we see a, quote, "fast turnaround"? michael: i don't think it will be fast. we have been talking about it for two to three years. we are starting to see a turn, at least in some of the sentiment from politicians and policymakers in europe, on the way they talk about this, the way they talk about banks needing to get back to the core business of lending to the economy and be done with some of the regulatory issues. but, you know, on the other hand, that continues, and the fines are going to be done for at least another couple years. tom: michael moore, help me here. there is 0.27 book on the bloomberg. maybe it is .30. a, is the banks solvent? when do they do a cash call? michael: well, a lot of that will depend on what this number comes in. you have j.p. morgan analysts

yesterday saying anything about $4 billion on this settlement would need more legal provisions, would need some cash from somewhere -- tom: but then, in your reporting, can they all go out and get cash this morning as the dominant bank of continental europe? michael: i think they could get cash. it would be highly dilutive at .3 book. it is not something they want to do. they have assets they can sell. they have come out and said that asset management is a core part of the business, and they don't want to sell that. tom: at some point, there has to be an adult in the room. where's the adult in the european banking room? michael: well, i mean, i think you are seeing the lack of that baselhe fighting in this committee. the fighting between the european officials. there seems to be two camps. one is that we need to continue

to make these banks hold more capital and avoid anything like the lehman that we saw eight years ago. the other side saying, we had eight years of this, we need to move on. francine: michael moore, thank you so much. he heads our banks coverage for the u.k. we will get back to lax and axes to lax and active on -- to lakshman achuthan. paschi was halted because it fell more than 7%. toing up on monday, we speak a chicago business professor. we will be looking at italian banks with him. this is bloomberg. ♪

tom: "bloomberg surveillance" on a friday. lakshman achuthan with us. let me bring up the chart quickly. this goes to your language of american real gdp. mr. trump clearly addressing this yesterday. we are back the years -- back 60 years. movinga 1.9% four-year average of economic growth. fromred box is the leg

2007. you suggest we will go lower? lakshman: on the trend growth, by all means. simple math. your demographics have growth. the cbo is looking out, 0.38%. productivity growth has been 0.5%. if you add the two together, you are under 1%. nobody wants to say it. it's not pc. tom: what's the policy prescription for that? lakshman: stop digging. the idea that a recession is the end of the world is a poor idea in a free market economy. that is actually -- there is a lot of collateral damage that can occur, and i don't dismiss that, but it's cathartic to have a recession from time to time. when you are in a free market economy. ere, in the wake of the

global financial crisis, recessions are forbidden. and we will do almost anything, which you've seen from the monetary side, to try to avoid deeperd that gets you and deeper in the hole. low interest rates means there which meanscity, there is a global deflation in goods. you can't invest in productivity-enhancing stuff because there is too much capacity. tom: channeling -- from 1945. also geoffrey moore, who founded economic cycle research. it's the state of washington. here is a data check with the mexican peso weaker. this is number. ♪ -- this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua, in london. tom keene is in new york. this is the picture for the banks. our biggest corporate story is deutsche bank, but there are a

lot of banking stories brewing. the italian banks. the ongoing saga for monte paschi. they don't have a ceo. there is read trading. there's this concern for the need for a lot of banks raising capital. that has been spurred by the deutsche bank -- the claim by the doj that they want $14 billion. tom: i'm watching deutsche bank in euros now. you may get an 11 handle on deutsche bank. we are not there now, but we are getting there quickly. francine: let's go to bloomberg's "first word" news. a new report says the u.s. government will eventually spend billions to repair the damage that snowden caused in leaking information about spying operations. japan and china may be on course for a collision in the south china sea.

japan's new defense minister says the country will step up its activity in the disputed region. those comments come less than two weeks after china's leader she jinping -- xi jinping urged caution in those waters. trump's campaign says that he believes president obama was born in the u.s. hillary clinton has resumed campaigning after taking three days off to recover from pneumonia. the democratic presidential candidate hit the swing state of north carolina. clinton agreed that her campaign should have been quicker to release information about her illness. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. you have more on politics now. tom: first, the politics of the kremlin and mr. putin. they lower the central bank rate. i'm not sure how independent the russian central bank is, but there you go.

down to under 10% even. really one indicator of where we are on this friday in terms of weaker gdp. trumpble away from donald as he spoke yesterday at the economic club of new york, megan murphy. speech. give me the scorecard from a friend. how did he do? well. i thought he did he was in an audience where he felt comfortable. he started very soundly -- stumbling because he was off prompter. he was definitely struggling. one of the reasons -- that was an hour-long speech. it was quite detailed. many people in the room were surprised how detailed he was on taxes and regulation. tom: i was taken aback, by it was a campaign speech, and economic club of new york -- there were, like, 40 people going nuts i get was tulsa. did he deliver the speech to this group that you expected?

it was a campaign speech, right? : his running mate, mike pence, was even more over a campaign speech. the thing that got the most applause were lower taxes and easing regulation. he made an interesting point. when i go out and talk to people about taking our keynote corporate tax rate down to 15%, when i talk about lowering it from 35%, that doesn't generate near as much excitement as stripping back regulations. some of the things he is saying about freezing regulations, freezing clean power, really taking a look at dodd-frank, looking at how we are regulating the financial sector, seeing if we can easily burn for small banks and -- can ease the burden for small banks and small businesses, that plays very well to that audience. francine: is he going to win votes on the back of that speech? megan: i think what we are seeing in the race is a real pivot moment.

it reflects concern about hillary clinton, concern about her inability to generate this enthusiasm and get her message across. she had a rough stretch last week. one thing that is interesting, since kellyanne conway and on the trump has made -- and donald trump has made some shifts in his campaign, still, late last night, we have this wacky statement with the birther issue about obama that goes back to the trump of old, that actually he has done a huge service to americans in bringing this to light and how hillary clinton and obama covered this up. that, i felt, was really strange and sort of a piece out of the old trunk campaign. just as he is gaining -- the old trump campaign. just as he is gaining momentum, he takes this further issue and puts it front and center again. francine: does it mean he can't help himself? does that help to win votes? is he going after votes, or is it unscripted?

megan: i think tom saw it yesterday as well. he just talks sometimes. there is no question he just goes off-the-cuff, speaks, and sometimes it works. sometimes, frankly, many times, it is really offensive. ther further issue -- bir issue is a bad move. tom: what is the news of the week on rising median incomes? let's bring up my morning mustering. paul krugman definitely not agreeing with mr. trump. but, lastd good news, year, it turns out the economy putt -- party like it was 1999. much of the stimulus involved expanding the social safety net, not just to protect the vulnerable, but to increase purchasing power and sustain demand. what i saw yesterday was popular than personified -- was populism

personified. is this the reincarnation of williams jennings bryant -- william jennings bryan? megan: the economic divide that is generating this trump surge -- how much is real and how much is pretend? obama and that column would argue, 5.2% of the median income, a decline in people who lack insurance. people have done better than it is widely thought. is that true? tom: come out here and sedate lakshman achuthan. he is going nuts over this. help me with the polling we saw, the seachange. omg, this state, mr. trump, omg, this state, ms. clinton. megan i think it's: evidently ohio for her. -- definitely ohio for her. takes ohio and florida, he still needs virginia or colorado or new hampshire.

he needs a state that is not trending toward him right now. tom: one more question, are you having fun? it seems like it got fun about two days ago. megan: we don't want to make light of some of the issues that have gone on. this is everything we have worked for. this is really going to be tight. we will have to see what happens september 26 in hofstra. francine: what should be hillary clinton's next move? megan: she has to refocus on the positive, get out of the negative. . i was surprised how hard she hit on him. she has a better plan. tom: he said that in his speech. where is your plan? early in his speech, i believe he was really pushing that. megan: where is her message? akshman, what are your thoughts on this? lakshman: i think a lot of this misses the mark, but i think a lot of that's -- a lot of people suspect that anyway. the policy prescriptions flying all over the place don't do anything for the building blocks of growth. and the income stuff -- we have

a completely different view on. tom: thank you. lakshman achuthan with us. megan murphy, the update on an important moment yesterday in new york. on monday, we will go from new york to london. my conversation with the mayor of london, saudi, -- sadiq khan. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua, in london. tom keene is in new york. let's get some business news. >> the japanese air bag maker in defense of the industry plans to

have a plan. they hope to shortlist two or three candidates. witha has been negotiating carmakers on costs linked to the faulty bags. fiat chrysler is recalling about 1.9 million trucks and cars in north america. some of the models being recalled include the compass suv avenger.odge there have been three deaths and five injuries possibly related to the problem. a london asset merger. person according to a with knowledge of the matter. the company is said to have offered ikea about $1.1 billion for the properties. about -- almost half are in germany. tom: new york fashion week means visit from robert burke. we are thrilled he is here today. part of this is the struggle of luxury. we saw that in the news this week from hermes, a small store

on madison avenue that depletes the bank account rapidly. we sowed -- show the video of where i get many of my bowties. here is one right here. beautifully made and depletes the checkbook. robert burke is with us. we are thrilled to bring you the most dangerous magazine in the world. mr. fallon, i've never seen a fashion industry like this. what the level of panic within wwd? james: no panic within wwd. we are always very calm. the industry is definitely hitting amber alert, let's say. it wasn't just hermes. didnything, hermes relatively well in the first half. richemont did badly. the outlook is not great for the second half. the sense is they are really not seeing any upturn.

tom: robert burke, i walked back from the waldorf yesterday to my house. there was this thing, caps. everything this year is caps. dolce gabbana. what is the state of selling to women right now? in that regard, what is the panic? robert: i think the panic is that the retailers are seeing very weak business. the only thing that the customer is responding to is really unique products. if that means they take the form of the cat, then they will go for it. but we are really are seeing them only motivated to spend money right now on unique fashion. francine: i love that. i haven't seen any cats, tom. we might be going through different stores. i'm seeing stars. the problem when you look at luxury spending across the world is that it's going down. is that because of the asian demand? is that because people feel poorer? what is a symptom of what we are seeing right now, which is worse

than expected figures from richemont and worse than expected forecasts from hermes? james: it's not the people are feeling poorer, certainly not the 1%. if the asian demand, china particularly, instability in the middle east -- it's the asia demand, china particularly, instability in the middle east. perhaps people have as many hermes bowties as they need, and they are beginning to spend on experiences rather than products. francine: too many bowties. away from the bowties, the problem is that the companies and the luxury companies that do it really well, for example, gucci -- this was a revival. they are doing really well. if you get a product people want then it works. you can make a lot of money in the industry. james: absolutely. 100%. even though hermes was cautious about the second half, hermes is

still doing very well. chanel is doing well. gucci is doing well. ifgoes to robert's point, you have a unique product, the consumer will go out and buy it. the problem is, there is so much that is available, they don't know what to pay. tom: you are legendary for being one to solve problems. what's your advice to luxury in terms of solving problems? "no, you've got to do this." the robert burke this right now? robert: there are a lot of issues to address for luxury houses. staying incredibly focused. making sure they go narrow. go very specific. the last thing the consumer needs is just more product. to everything that they need put out has to have a message. i think social media means more today than ever. we are seeing it even with the fashion shows. it's more of an experience. tom: we saw that with rebecca minkoff this week.

robert: we saw it with rebecca minkoff, tommy hilfiger, ralph lauren building a whole structure and closing down madison avenue. we haven't seen these types of reductions in many years. francine: what's more exciting, london fashion week, new york fashion week? tom: come on. it's milan, isn't it? james: i think that new york and paris really set the bar and have years. london is fantastic. we've seen a lot of growth. i think people take a lot of the lead from new york first, and then paris -- tom: rebecca minkoff wandering down. she's great. i love what she's doing within an entrepreneurial vision. take what she is doing and bring it over to ferragamo. i adore the shoes, but they are incomplete turmoil, aren't they? they are bringing in all new people. james: i wouldn't say they are

in turmoil. they had management change. ferragamo's shoes and belts do very well, etc. it perhaps became too much of a, brand, and took its eye off the accessories that drove the business. they are focusing in, as is tod ds. a fashiond to become brand. now they are going to focus on core accessories. i think that's what the consumer will be wanting. ferragamo has brought in a new designer. francine: what did burberry teach us? tom: great question. francine: like a lot of the fashion houses, the way the catwalks work, to be much more in line with fast fashion, because we buy things differently. we don't have seasons like we used to, or at least we don't shop that way. and the ceo and creative director just doesn't work?

you need a business brain and a creative? >> certainly the latter. it will be interesting to see, now that christopher bailey is focused strictly on the creative, what happens. show isrberry -- the monday in london. it is senile by now. it is by far the biggest brand -- the second biggest brand after ralph. tom: in the minute we have left with both of you, i call them the girl magazines. wwd is the industry magazine. what's the future of the magazines? they are big in september. are they going to sustain through the next five years? >> you are seeing more online magazines, even the print magazines are really pushing their online -- tom: in my house, they have to get their hands on this. >> i think for the millennial customer, they are less likely to have to get their hands on it. they are more likely to be on their ipad and looking at the

different bloggers, looking at social media, looking at the online magazines today. tom: great, thank you so much. robert burke, james fallon. new york fashion week -- an interesting luxury business right now. let me do a data check. moving on a friday, dolce gabbana. the cats. help me. 45.81 on brent crude. i'm going to feel like mexican peso's this weekend. from new york, robert burke's manhattan. this is bloomberg. ♪

one of the most interesting friday's. francine the plot in london, -- francine lacqua, in london. deutsche bank attempting to find a bid. the foreign exchange with the euro stasis. kit juckes, really interesting earlier this morning, on a stronger euro due to surpluses of trade. mexican peso, 19.38. that gets my attention. francine: coming up shortly, it

" with davidg westin, jonathan ferro, and alix steel. alix: we will be following this risk-off theme we are seeing in the markets, definitely hitting deutsche bank hard as well, really looking at those coco bonds, the lowest since charlie -- early july. we will discuss all about with rick rieder over at black rock and get his take into the doj, into the fed next week, and what does that rising yield curve mean. is it technical? is it fundamental? tom, you will be online at the apple -- in line at the apple store to buy your iphone? tom: i did it in april. what did you learn about oil this week? alix: you have goldman sachs saying lower for longer. oil is recalibrating the investment potential.

50 others are saying we are going to see higher oil because it is a tighter investment now. tom: "bloomberg " coming up. final thoughts with lakshman achuthan. i want to talk about the clear and present paycheck, which, i guess, is pretty good for america. lakshman: there was a story earlier that wages have really bounced back. absolutely true. but because the deflator used to calculate that went to zero when oil plunged and you had a firming and economic growth, which is now behind us. since early 15, we have been slowing again. that's after that income data. the income issue is, with little fits and starts, not going to change dramatically. that's the fundamental problem. and that's all part of the slower and slower growth that we are having. the tiny bit of good news is that, in the forward-looking data, very distinct from wages and sales and gdp and jobs --

the forward-looking data is a little bit of an uptick. it may turn into something better. it's too early to tell. we have to really watch that. in the meantime, you've got the inflation cycle still firming on the back of services inflation. francine: when will we be able to tell? lakshman: when? francine: give it three months? lakshman: in three months, i would think we would know either if we are seeing the growth rate cycle downturn come to an end or if it is slipping down and downshifting again. of course, it's already at a very low level. i think in a couple months, two or three months, we will be able to know one way or another. tom: thank you so much. francine, you travel to new york next week. joining me, the mayor of london. i will speak to him sunday. we will talk on monday. tell us about the london mayor.

francine: the london mayor for the moment is very popular. mayorthe first muslim that london has had. as we were speaking, i brought a chart up. germany's benchmark bond, rising, erasing a weekly decline and pushing the 10 year yield back below zero. i know we can be on yield watch next week. tom: i agree with you. that's been interesting this morning as well. joining me in new york next week, francine lacqua. with lakshmanue achuthan on bloomberg radio. there is an autumn new york. ♪

>> deutsche bank plunges after

receiving a $14 billion claim from the u.s. justice department. the bank says it isn't willing to pay. >> lucky number seven. apple hopes its new iphone 7 will stem at two-quarter decline in sales as customers lined up to buy the new model around the world. alix: back to risk off. falling below zero ahead of a central bank decision week. ferro,n: i'm jonathan alongside david westin and alix steel. david: $14 billion will get your attention. the chief executive -- chief litigation officer. alix: we are seeing the market reaction really reflected in the contingent convertible bonds, d own to $.37 on the dollar, the weakest since july. jonathan: the question is, do they need to raise more money?