francine: u.s. president changes his tune on china, saying he won't label it a currency manipulator. rebuilding relations with russia, tillerson says much work is needed to replay or a relationship he thinks may be at an all-time low. good morning, everyone.

we have a lot of breaking news. we need to literature treasuries and the markets. i'm interested in what japanese treasuries are doing today. oil stockpiles rose in the first quarter despite the opec cuts. let's see of its having an impact on the price of crude. you can see it's unchanged at 52.96. we have that report that is extremely important. i am trying to filter through what we know and what we don't know. despiteles are rising the opec cut. that's the one significant thing. the oil market needs time to rebalance as january stockpiles rose. there is little affect on the market so far. it. will be looking at in the broader market, the dollar is slumping a little bit. talking, he was

said the dollar was getting too strong and shares in europe. let's get straight to the bloomberg first word news. rex tillerson and his russian counterpart vented their disagreement after hours of talks. they did signal that neither side is given up on improving relations soured by russian hacking and syria. if is unclear whether vladimir putin. he joined their meeting for more than two hours. >> i expressed the view that the state of russia relations is at a low point. there is a low level of trust. the world's two foremost nuclear powers cannot have this kind of relationship. >> north korea's nuclear test site is primed and ready to conduct a trial. that's according to a u.s. research institute and monitors

the country. commercial satellite imagery shows activity at the test site. south korea has downplayed expectations of an eminent nuclear test. saudi arabia has raised $9 billion in the bond sale. that's $1 billion more than they were aiming for. is tapping markets to help finance a budget deficit that may reach $53 billion this year. london's housing market is in its worst slump since the financial crisis eight years ago. the price balance for the city fell to the lowest since february 2009. the report showed more respondents are expecting prices to rise over the next year. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. francine: donald trump has his

currency in his sight again. the president told the wall street journal he thinks the dollar is too strong, adding it's hard to compete when you have a strong dollar and other countries are devaluing their currency. the reaction was swift area -- swift. in that same interview, he also said he won't label china a currency manipulator. the -- h switch from that is a switch from the campaign. herel trade could rebound as long as rising protectionism and a tighter economic policy stays of the way. >> anything that makes investors think twice is a big risk. that includes uncertainties in terms of monetary policy, trade policy as well.

that could be good or bad risk. anything that makes the investor hold on and see what happens before he puts his resources on the table, all of those things have an effect, including geopolitical tension, which we see around the world. francine: let's bring in paul donovan from ubs. thank you so much for joining us. let me start off with you. what was most present thing you heard from the president in the last two or three weeks. we thought he would stick to his campaign promise. are you confident he is less protectionist? isl: the issue for markets we have not only uncertainty about policy, we have uncertainty about the policy framework, how it's being developed it does seem to be almost random, some of these

decisions. yesterday, we got the flip-flop on the china currency situation. we got a flip-flop on health care, which got buried with everything else. it might take priority over tax cuts. previously, that was it. you had your chance. it's not happen again. how dothe challenges is you handle this uncertainty? what do you do with this uncertainty about where the next policy is coming from? francine: is there an argument to be made that some of the uglier policies could now take a back step? aboutu feeling better populism now that you are five months ago? peter: what you've seen in the last two or three days is the meeting of rhetoric and reality.

during the campaign, we are going to bring back protectionism and jobs to america. now that he is faced with the reality of dealing with the chinese in a serious technocratic matter, it's more difficult than just making a campaign pledge. it's interesting to see the comments on china be a currency manipulator, he's not going to label them that. he says he won't. he says he doesn't think they are. if you look at the reality, they have been manipulating their currency, but try to prevent excessive weakness. they don't meet the criteria from the state department. it's this meeting of rhetoric and reality. i am less concerned about protectionism than i was. francine: because he is a dealmaker, that's what we keep being told, this is a caret so they get involved in geopolitics and foreign policy. paul: i diss agree a little bit.

ist we have learned so far not that he's being more conciliatory. he changes his mind a lot both ways. we've had four different health care policies now. i think that is troubling. there is the chance he could flip back and change again. my concern is if the trump administration does not get its way with congress on various aspects of policy, the health care, building the wall, they put all their firepower on the one area. the presidents cup authority with traded. that would be my worry about the flip-flop. francine: isn't health care different? i have heard what you've said in the past and people give them the benefit of the doubt. health care is a little bit different because his party did not support him. he would have a much more sweeping majority on fiscal policy.

paul: let's not forget in terms of this whole thing, the campaign starts again in december. we've got midterm elections next year. you know american politicians alike. approval ratings are low, the risk is he goes to appeal to the base and his support race and does that through the threat of protectionism later this year. tom: the argument is he seems to understand economics better. hisr: reality is informing decisions to a greater extent. care,k regarding health health care reform is difficult in any country. particularly difficult in america given the situation they have there. it doesn't surprise me at takes longer to get consensus.

thinking the stimulus, i there is some rationale to argue that you can have a bipartisan support to reform. we have the 2018 election coming for the midterm. what politician wants to go back to his electorate and didn't get anything? francine: when you say he doesn't get what he wants at the moment, he will go back to what he does best, which is protectionism. what do you most worry about? is it forcing people to come back? paul: we are looking at selected protectionism. you want something you can tweet about. you want something you can go to your base in the rust belt and in 140 character say look, i did this. it doesn't matter from a political perspective how effective it is. in most cases it is not effective and does more harm than good.

a lot of people say he is a businessman. this is one of the most worrying things. business people are protectionist. they look at a micro level. picture,ok at the big protectionism can be superb for an individual industry and disaster for the economy. that's one of the risks we see. we get a businessman's approach to protectionism coming through. francine: thank you so much. let's get to the bloomberg business flash. >> hsbc says some of its largest clients have asked for their business to go through your. the head of global professional banking said clients aren't waiting to see what brexit deal the u.k. strikes. they are ensuring they can continue training, whatever the outcome as they can't afford to wait. a credit suisse traitor who was

fired after being accused of hiding $18 million in losses is suing the bank for unfair dismissal. the criminal case was dropped last year. he filed the suit in a london tribunal. an aprilin april -- hearing has been delayed until summer. first quarter revenue growth matched analysts as -- expectations. sales rose to 21.3 billion euros. they plan to throw -- float this year. fallouteen the biggest this year after profitability of its franchise market. angry united airlines customers can that their fury at a juicy target, the chief executive paycheck. the manhandling of the man dragged off and overbooked flight in chicago and his

response was widely viewed is below par. it's not going to help his cause. the airline will come passengers on that flight to cover the costs of their fares. that is the bloomberg is the/. -- business flash. the u.s. secretary of state and vladimir putin and the foreign secretary vented disagreements during hours of talks in moscow. view that the the current state of relations is at a low point. there is a low level of trust between our countries. foremost's two most -- nuclear powers can have this kind of relationship. they have been heightened by developments in north korea. a u.s. research institute that monitors the country says the nuclear test site appears primed and ready to conduct a trial. these pictures are from september of last year.

commercial satellite imagery from yesterday showed in increase activity. still with us is paul donovan. peter, let's start with you. at what point does foreign policy or the concerns have a real impact on the market. peter: if we get more talk about further sanctions against russia, that will have an impact on markets. it will have a bad impact on the ruble for sure. it's good they've been talking insane we have bad relations and we want to improve them. again, trying to get from where we are now to where we need to be is a long struggle. you've got to superpowers basically who are diametrically opposed on some very important issues. both of the parties have

invested political capital in the serious situation, that's going to be very difficult. ago,four or five months the russians were singing because they thought they had a pro-russian president in the white house. that doesn't seem to be the case now. francine: when does this translate into economics? paul: this is actually noise. the way it translates into economics is in one of three ways. , youirst and most obvious start dusting off the oil forecast. the second is the general sense of confidence and spirits among his this people. that i am quite skeptical about. what we find is the reported surveys say these react to what you are saying. they react to the media.

that reflect the reality. you might get exaggerated news. the thing that is starting to concern me more and more about this is as we get completed -- home countryget a buyer. people are keeping their money to -- close to home. we have a less efficient allocation of capital in the world which makes for a less efficient economy. that's going to affect this in the next three months. over the next five years, this could be problematic. francine: does that influence productivity? paul: it does. inefficient products being given a lifeline in other countries because people say it's not very efficient. the world looks very nasty out there. i'm not going to put my money

overseas. francine: this is what we are seeing at the moment. fix is usually the one that we look at. indexes, howity much do you believe them? they don't really mirror each other. is it market liquidity? peter: it definitely is the issue. people don't trade that much on geopolitical stories. i make the analysis that if you israeli development, if you traded on those reasons, you would lose a fortune. even last year, despite the russia headline noise, the ruble in russian stocks were pretty good. francine: is that central banks in general? is that markets? peter: they ignore geopolitics

is launching don't have safe haven assets. consequently, investors are still in a situation where we do have yield and performance. this noise doesn't -- doesn't tend to have a impact. francine: let's talk about oil. paul was talking about the impact on oil. we have that inventory increasing for the first quarter despite the opec cut back. coming up, we are live in a stem bull with a crucial referendum on constitutional changes. this is bloomberg. ♪

francine: a referendum on turkey could grant new powers to the president. it's great to have you on the program. what kind of result are we expecting? turks are eligible to vote and if they vote yes, they will give the president sweeping powers and limit the role of the prime minister. the polls are too close to call right now. they are in a connect. divideds a deeply nation. i want to tell you of an interesting twist. we have just learned that if turks reject this constitutional

change, there could be another referendum. that is according to the president's advisor. it's worth noting that if there is a yes vote or a no vote sunday, there could still be early elections. francine: i'm reading the story now that you were just mentioning. may need tothey hold another referendum. oftens something we don't see in western democracies. what do investors think? >> investors hate uncertainty. modey has been in election every single year. vote, therea no could be another election. investors are saying that a yes vote would be market friendly and we could see a brief relief rally. if we look at the lira, it's the worst performer this year and emerging-market currencies. it's depreciating 3.5% against

the dollar. that's after hit record lows. we will see how the election plays out of the market. francine: thank you so much. let's get back to our guests. what you make of turkey at the moment? is it uncertainty or is it too risky? clearly, this is literally a 50-50 call in terms of the polls. i would agree. if we end up with a yes vote, that gives a degree of short-term certainty. we then focus on the longer-term question about is this a government that is going to produce the structural reform, is it going to be able to attract capital and talent to the economy in the longer-term? those are all difficult questions to answer. you volatility. another referendum if you don't

get the answer you want the first time around. i think that would be creating more short-term volatility. covered e.m. have for years. ramy: when you look at it over the years -- peter: it has a very constant trend. that has been very high in turkey. you've got central banks that have lost independence and a lot of that is because of political pressure. regarding the outlook for the lira, i agree. it would weaken dramatically. it just increases uncertainty in a significant way. vote, short-term we can see some stabilization. the longer-term questions remain. the interesting thing for me in the selection is it doesn't really change anything in reality. we already have a factor

executive presidency. it's formalizing it. francine: we have another great chart. we will get back to that shortly. up next, why hsbc says some of its biggest clients are saying goodbye to london. we will talk about that and some of the passport issues. it's a very beautiful picture of london. we will get pound levels a little bit later on. we'll be joined by stephanie saunders. we will talk about some of the policies that the boe could be putting in place. this is bloomberg. ♪

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the dollar again, telling the wall street journal he thinks it's getting too strong. he thinks that makes it a very hard thing to compete with other companies -- countries. the reaction was swift. in the same interview, he said he won't rand china a currency manipulator. the is a shift from campaign. rex tillerson and his russian counterpart had that to their disagreements after hours of talks in moscow. bated did signal that neither side is giving up on improving syria.ns showered by it has been unclear if letterman put in would snub tillerson. in the end, he joined the meeting for more than two hours. >> i expressed the view that the relations is a low point. there is a low level of trust between our two countries. foremost's two most

nuclear powers can't have this type of relationship. francine: the nuclear test site in north korea looks primed for a trial. commercial satellite imagery shows activity at the test site northeast of pyongyang. south korea has downplayed expectations of a nuclear test. the international energy agency said things increased during the first quarter. that has brought world markets very close to balance. that should decrease stec piles in the second quarter. there were out put increases. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. francine: thank you so much. largest clients of already asked for their

businesses to be routed to the bank in europe. the head of global commercial banking says they're not waiting to see what brexit deal the u.k. strikes. can tradensuring they whatever the outcome of negotiations as they cannot afford to wait two years. let's get with our banking reporter. thank you so much for sticking around both the. welcome to the program. what we learned about how many jobs will go and how they will retain access to your? stephen: one of the biggest commercial banks with over one million clients, i spoke to them and he noticed changes. some of the bigger companies that have operations inside your posting the writing on the wall. they are getting questions from our clients. are going to their banking

partners and saying we want you to route our business through the paris office so it's done. rewrite contracts if necessary. he did notice a few other trends as well. a lot of companies are considering flipping the order of prominence of their local office. usually they are in the u.k.. they are considering moving that to the continent and turn the british branch into a subsidiary of that. that could have some tax implications and moving staff from the u.k.. francine: what does it mean? are we wiser about how my jobs will likely go? is there a chosen city? aboutn: we are talking the home markets, wherever they are from. it probably won't involve an enormous movement of people. fromg the shift of talents the u.k. and back toward the continent, if there is one thing in london's favor, there's not

one clear city in europe. francine: are they not waiting for the government? are they doing contingency plans and waiting to see what theresa may can negotiate? are they just kidding. stephen: they are already moving ahead. one international bank has said they've got a majority of the work done by july. that is very soon. the rest say we can't afford to wait any longer than spring next year. this is well before the negotiation time ends. banks are not waiting around. these things take a long time to put the process. francine: at the beginning of the process, we heard a 250,000 jobs would move. apart from home prices in london, bankers moving, does that impact the economy? paul: if it happens. it's not necessarily people moving. i spend much of my life on the

plane as it is. the point is the tax revenue. the city of london through corporation tax and through income tax is way above the chair in terms of creating tax revenue. that is significant. one of the big reasons the u.k. would into such a big deficit wasn't the ramp-up in government spending, the tax revenue from the financial sector disappeared. that is something over the medium term. it does require people to move there move money out of u.k.. francine: what is the biggest concern? we talked about inflation and growth. i keep hearing that it's going years, butfor two the path forward will be much better. peter: i'm not sure. most of the investors i speak to share the concern. most of the corporate i speak to have severe issues with supply

chain management. that is where you will see big effects from brexit. we have a very large depreciation. oh exports are doing ok. an effect that europe is growing more strongly than it was previously. if you look at these u.k. corporate's, they are not investing in the u.k. now. why would they do that ahead of brexit. that's a big problem. consequently, that's where we will see an effect as well from exit. it's too early to say. it doesn't look good from our place at the moment. are getting headlines say the pace of business lending has eased. we still have foreigners because of the cheaper pound. i spoke yesterday about taxes. i tried to get from him if he was worried the u.k. would become a tax haven and that would be the only way to counter the brexit effect.

is that a possibility? paul: i think it's unlikely. i think the u.k. has got going for it still is english laws. labor,xibility of potentially tax regime. what i think in terms of the medium-term, international trade is going to be so important on a 20 year view. the answer is no. it's not because we've got it rise in global protection. it's cheaper to produce closer to your customers today than 20 years ago. the supply chain problem is going to be an issue in the near term. that diminishes over time. the question is if you have a localization of production, that worrying about the trade deal is 19th century.

we should be moving into the 21st century. someone is to tell the foreign secretary. francine: thank you so much. we talk about french elections and the eurozone next. stay with surveillance. we've got plenty coming up. under donaldg trump. how have u.s. financials responded. 1145 a.m. u.k. time. this is bloomberg. ♪

francine: let's quickly check on the markets. mark: things are winding down

toward the long holiday weekend. investors are usually trimming their overly up to mystic profit forecast. this is a wonderful chart. the return of inflation is improving economic growth. analysts are upgrading their 2017 estimates. this is rising, this is a seasonal irregularity. this is the first of the charts i want to show you. donald trump said some things to the wall street journal. he indicated that the dollar is getting so strong it's harmful to the economy. he said he won't ran china a currency manipulator, retreating from one of his court campaign promises. the strongest ever correlation the shows between the dollar point index and the u.s. two-year yield. it doesn't bode well for the stops theif the trump fed been so aggressive.

that's a wonderful chart as well. we have to promote her every now and again. this is the two 10-year spread in the u.s. he held the yield. he said he likes the feds low rate policy. renominatedng about janet yellen. investors are seeking havens ,rom geopolitical uncertainty syria and north korea. the spread is tightening between the two and 10 year yield. the united states and marine le pen victory, what would it mean for sterling? the premium on two week contracts to sell the euro versus the pound. that is widening above two percentage points at the close wednesday.

with the biggest premium on and of day prices since records began in 2005. sterling has ball against the euro by 10% since the brexit vote in june. if le penee 75 pence wins. francine: thank you so much mark barton. we will be talking about french politics in just a few minutes. rose 16.4%.hina imports increased by just over 20%, double the previous month $23.9 billion. the demand has proved resilient this year as global expansion holds up. paul, we are confident our we seem to be confident, the market seems to be confident that

nothing bad is happening in china. stabilizere how they outflows, the currency, the reserves. what they are doing is unsustainable. the growth rate is above trend. the trend for china is 5.5% at the moment. it is falling. it is declining. you've got a rate of growth that is unsustainable in the medium-term. it can be sustained for the time being. they've got control of the credit system with the currency flow. they have the ability to block or make it difficult to get currency out of the country. they can sustain this for the medium-term. they can build up a larger problem for the future. we've got a credit induced economic expansion, which is not sustainable but can be managed for the next couple of years.

peter: i quite agree. if you look at how they manage the situation, we were seeing outflows of nearly $100 billion every month. they have close the capital account. you can't get capital out of china. it's postponed the date of reckoning. hugeng as we have this capital account surplus in china , this is going to be somewhat unresolved. it's going to be an issue quite some time. we have seen them manage the economy reasonably well. trade, estimates for chinese growth will increase for this year. trend is lower. no question about that. francine: first of all, i had up something to do with property prices. what i have here is the rate differential. white and the

differential is in blue. a data point you look at for the canary in the coal mine? at broaderok spending. i don't necessarily look at that too closely. the chinese are just closing capital accounts. flows looking at that spread. the activity that i look at seems ok. it certainly doesn't indicate a canary in the coal mine yet. inl: the thing with china is any situation where you got unsustainable growth, you burst that bubble through one of two things. either policymakers choose to slow down the bubble or you become dependent on foreign money to finance it and the foreigners stop lending. that's the greek problem.

china is nowhere near those situations. , we are a situation long long way away from that. it just isn't happening. politics be policy and , trying to work through the politics of beijing and the politburo of when they're going to try to slow down. francine: thank you so much. as paul was talking there, he mentioned greece. inre is a possible meeting early may. we will focus on the eurozone. we look at how the french presidential race is shaping up and what it's doing to bond spreads. more to come. this is bloomberg. ♪

francine: here are some the highlights for your day head. for the u.s. market opens, we get earnings from jpmorgan it, wells fargo, citigroup. at 1:00, we have u.s. data. tomorrow, we see stock targets and bond markets closed. equity markets are shut in the u.s.

the federal government is still open. politics, polls suggest marine le pen is unlikely to become the next french president. markets are still showing signs. the yield spread narrowed this week to the least since 2013. still with us is paul donovan. thank you so much for almost doing the hour with me. thank you for sticking around. i imagine what people are worried about is the fact that you have a far left candidate. round,go to the second this would be a disaster for the economy and reform. paul: i think markets with take that negatively. i think also there is an overreaction. the u.k. got referendum wrong and trump wrong.

opinion polls in the u.k. were within the margin of her. the electoral college messed us run. the national opinion polls in the united states were right. trump did not win the national vote. people have extrapolated from the shock into the french election and that's giving added concern as we head into it. candidates,k at the four of them with the margin of error puts them all at 21%. it's almost a free-for-all. peter: the worry for investors is if we get a situation where we've got a low turnout in the vote and we see some of these undecided voters, that makes the stakes higher in the second round. that's what the worry is for investors. we have this pavlovian response. we have seen trump and brexit and now people are saying can

this happen in france? perspective,ency it's very range bound. if you look at the risk reallyls, they are pricing in a disaster scenario. people are hedging for worst-case scenarios with relative value trades. they are not putting that much cash in. would you sell french bonds? francine: it's not quite a level we saw in 2012. people are worried. peter: i wouldn't. lead, that'st pretty insurmountable. polls have been accused of being wrong or incorrect. that's a very largely. even when we assume the numbers affect, it's still very largely. i can't see that being made up.

francine: is france the biggest concern for europe that you see? italy is very weak. haveave greece and you concerns in germany. francine: i think the greek thing is temporarily we kick the can down the road again and it's out of the way. with italy, there is more concerned. there is more concern for investors outside europe. ithink when it comes down to , we need to distinguish between antiestablishment and anti-european sentiment. particularly in a country like italy. ultimately, if we don't elections until next year, the situation could. as far as germany is concerned, we have a center-right government. more concerned about the german election is what role germany plays in europe in the future

without the u.k. as an economic ally. as they drift in the direction berlin, dostead of you end up with a chancellor who is strong enough to assert free market principles against whoever is french president? do he and up with a german chancellor who is not able to do that is forcibly. francine: does that make it extremely strong? paul: i think it helps on some issues. there is a lot of common ground there. i am not sure whether the practicality of day-to-day policy necessarily aligns so much. if you wind up with merkel in germany, there could be disagreement about labor markets in banking reform and free trade. this is where the u.k. used to weigh in on the german side. we have taken our toys and left

the sandbox. francine: more volatility in europe? peter: it's reasonable to expect if we see polls tightening in the coming week or two, you could see more volatility. question about that. francine: thank you so much for joining us for the are. surveillance continues with the next hour. we will talk about asset markets. getting earnings from jpmorgan in about 45 minutes. we will try to figure out what it means for bond yields across the world. negative bond yields are creeping back up. this is your data check. you can see again. this is bloomberg. ♪

francine: talking down the dollar. asian currencies rise as

president trump says u.s. currency is too strong and partially his fault. he said he won't label china as a currency manipulator. the u.s. secretary of state rex tillerson said trust between the kremlin and the white house is -- as a result of the syrian crisis. markets are closed. the market seems to be focusing more on fundamentals and we have bank earnings later on. absolutely. looking ahead to jpmorgan. welcome back. a trip to bill russellles. francine: we did a lot in brussels. we'll talking about it in this hour. let's get to the bloomberg news. >> in the u.s., president trump

has indicated there are deep divisions between the u.s. and russia. president trump: it would be wonderful as we were discussing just a little while ago if nato and our country could get along with russia. right now we're not getting along with russia at all. we may be an all-time low in terms of the relationship with russia. this was built for a long period of time. but we're going to see what happens. >> meanwhile at the united -- they ussia vetoed a said the probe was tilted to blame saaan. asia and north korea may be on the verge conducting its sixth nuclear weapons test. north korea's test site seems

primed and ready to conduct a trial. a llite images show that nuclear test is imminent. overseas shipments up 16%. imports rose too, up 20%. half the rate of the increase in february when chinese new year celebrations lead to a buying surge. global news 24 hours a day powered by more than 2600 journalists and analysts. david? >> thanks so much. futures pointing to a down open this morning. p four points. our/dollar, 10232. oil at 530 a barrel. francine: overall the dollar slumping is significant because the u.s. president was talking

about it yesterday. he said it was getting too strong and that he won't brand china a currency manipulatedor. shares in europe up a touch. work laying the ground for conversation about china not being labeled a currency manipulate. trade surplus being greater than 20 billion. chinas is 24.05 billion. meeting that particular criteria. g.d.p. is 1.75. no inside intervention. china does not meet that criteria as well. francine: we're going to spend a lot of time talking about the comments from the president.

the queen of charts did this for e. this is despite ome opec's implementation of production cuts. how much further do they need to cut production to have an impact on the stockpile? we'll try to figure it out throughout the day. president trump has gone back on long standing rhetoric saying he will not label china a monetary manipulator. joining us, our guest host for the hour, stefanie flanders. thank you so much for coming on and thank you for coming on. let's start with you. either not a currency manipulator anymore. does that mean he wants to deal with china or he was persuaded they are not a currency

manipulator? >> oh, i think this is exactly where china wanted to get mr. trump and they have been very retrained since he took office. they have been very measured in everything they said. it was seen as a win for china to get that meeting with president trump so early in his presidency. it was considered a win. they could gauge what his strategy is. it is a huge change of tone from the u.s. when you consider a few months ago we were talking about potential for a trade war, 45% tariffs. we have come back to the realm of standard diplomatic language. china is much more pleased at where things are today than where we were at the turn of the year for sure. francine: what does it mean in terms of the ties between president exi and president trump?

-- exi and president trump? >> you always have to qualify when it comes to the u.s. and china. it is in a much better space than had been anticipated at the turn of the year when mr. trump took office. now we're talking about how the u.s. and china can trade more with each other. financial services and perhaps in more beef imports, which they were talking about before trump took office. china talking about put r more investment in the u.s. in particular in infrastructure. let's not forget the one big elephant in the corner is north korea. they have played a significant role in bringing together china and the u.s. on the trade side of things. they both need each other.

david: the united states spoke and there was a the same summarizing what the conversation was like. how do you see the quality of that dialogue between these two leaders on the heels of that summit in florida? >> you know, on the one hand, the florida that summit didn't achieve very much. but the fact is relations haven't worsened and if anything, they continue to improve from what we were anticipating heading into this. campaign ret rick is always different once in office. by all accounts we're in the realm of standard diplomatic language on trade and not withstanding the occasional twitter burst. one caveat i would add is we are

still very early in the term. i guess we just have to wait and see how it plays out in the coming months. francine: thank you. now let's get more on this. our guest host is stefanie flanders. chief market strategist for europe. i'm looking at the events. china abstained from voting in the u.n. resolution. are we clutching at straws? are we reading too much into this? stephanie: we have had from that meeting at the weekend, you never know whether president trump is is going to declare war or victory. we might have already fixed some of the problems. i think we'll see that play out. obviously the geopolitical symbols coming into that and there was a connection to the

u.n. vote. it is encouraging that he realized that the currency manipulator thing was not a particularly fruitful road to go wn and got out of it like he does, instantly when he feels like it. i think it will be a year or two years from now, can they say that they ever actually done something meaningful on this sort of america first agenda? and you can't judge that on these kind of week-to-week adjustments. if there has been an improvement in u.s. companies' access to china, if there have been some changes to nafta which make it harder for chinese goods to go streit through there, then they will be in a better place. if not, we may be looking at the more extreme measures. francine: i know it is difficult

at this point to say, are you less worried about populist measures than you were five months ago or because he has put healthcare back on the agenda. if he doesn't get that through this time, he can go back to what he knows how the do best, tariffs. stephanie: we have to be looking at over the next year or so, i would still be worried long-term about does the trump administration reject the multilateral system for trade altogether? saying we're not getting anywhere? i think the short-term has gone better than he might have expected and he has gone into these meetings with a more constructive view than you might have feared given what he said. david: comments from a wide ranging interview the president did with the wall street journal, he said it is very hard to compete when you have a strong dollar and other countries are devaluing their currency.

what does it mean to have a president commenting on the way the president is doing fow? stephanie: we were smiling before, because when i was working in the u.s. treasury under robert ruben and larry summers, ruben said a strong dollar is in the national interest. we decided to let that mean lots of different things over the course of eight years. we didn't think -- we would worry about changing language but usually we didn't change the language to have a president with a completely different attitude, a less disciplined approach to dealing with the currency, i call that a shift. if he talks so much about it will he have lessfect on where the market goes because we will read less into it? i suspect you will find his language has less and less impact unless it is associated

with something concrete. it was in the case of the discussion on china. if that is off the table and it really is rhetoric, people will be looking at fundamentals. given how the reflationary mood has changed. so you never know. david: there you go. stefanie flanders stays with us. coming up, we talk with michael of m.k.m.. that is coming up here on bloomberg "surveillance." ♪

francine: this is bloomberg "surveillance" with david and francine from london and new york. we're joined by funders from jpmorgan morgan asset management.

stephanie, there is one clear i guess move that we saw the last two to three weeks which is a lot of negative price yields going on. what kind of impact does that have on treasury and trump policies? stephanie: you have had a move where the whole in general market is not behaving the way people were expecting. any bit that didn't cooperate was the bond market. i think it ended up being two questions really. are we looking at a more synchronized global recovery independent of any dramatic things that trump manages to do for u.s. growth? i think the answer to that is still yes but we're not seeing a takeoff of u.s. growth. does that necessarily mean that we're going into a full reversal mode on this -- on interest rates? definitely we have had a turn in that long process that was taking more and more negative

yields, more and more of the were in negative territory. the feisty forecast for the end of the year, where treasuries were going, those are being dialed back a bit. we'll find out tomorrow. we probably are past the peak for u.s. inflation for a while. francine: now let's get straight to the bloomberg business flash. >> hsbc said some of its largest clients are not leaving for brexit. they are asking their banks to e routed through the mainland. multinational companies want to make sure they can trade no matter what sort of deal the u.k. works out with the e.u. francine: thank you so much, taylor.

global bank executives assume negotiations with brexit will end with a hard brexit meaning u.k. firms will lose their rights to -- i want to ask you, where are you moving? we don't want to get you in trouble. we had inflation figures. we have wage growth figures. how much will the umbs k. households feel the pinch? stephanie: the thing we're looking at this year, every time i come to talk to you, we have to see how consumers respond to that with the squeeze in real wages coming. we had that time where wages were going up at a reasonable rate. it has come in quicker than bank of england was expecting. at the same time you had wages pretty stable, not picking up. that key part of the economy that has been supporting the recovery, how are they going to respond? are they going to increase their

borrowing, reduce savings or get more of a softening in the u.k. growth overall? i think the jury is still out on that. we could get a bounce on the trade side ironically because in the short-term you have key markets in europe doing better thewe obviously have all of access from being in the european union. we are seeing that softening on the consumer side of the economy and consumer confidence retail sales. david: i saw an interview with the french finance minister a couple of days ago saying france is keen to have that taken out of london and moved back to the continent. do you see that playing out and resolving itself in the near term? stephanie: every bank, jpmorgan is no exception. they have a key objective now which is to make sure they can do absolutely everything they are currently doing for clients regardless of whatever deal

happens, however a hard brexit might be. if the u.k. comes out in two years without a deal, we have to be sure we can do everything we're doing now. the french have been talking about clearing. it has already involved the likes of citi and credit suisse moving some of their banking activities and key figures to say we have that presence in europe and we need to convince regulators. you also have to division from the long-term. we did everything we need to do now but day 10 and five years down the road will we want to keep all of those u.k. operations? there has been a regulatory push which is clear you have to have a certain amount of key players that have to be in the european union and banks are making sure that would be the case. david: stay with us. stephanie flanders will continue with us. coming up, a conversation with

former minneapolis bank president. look for that at 8:00 a.m. in new york and 1:00 p.m. in london. this is bloomberg. ♪

david: the professor at bard college writes mr. erdogan has abandoned the policy and replacing it with a crude nationalism. turkey today is increasingly

isolated, particularly from the west. stephanie flanders is still with s. a firm no, siding with the no vote here. if there were to be a yes vote, what does that mean for turkey and the economy? stephanie: i think at least what many investors would be looking at is the normal desire for stability. less chance of an election in the near future if the administration has the capacity to push through some structural reforms for the economy. i think people would see that as a positive, even with all the concerns about the nature of the government. particularly it would be potentially taking a little bit of pressure off the central bank that has had to work so hard allowing its policy, has been so driven with what's happening the currency and the need to drive the surgeon si and in that sense san francisco, turkey were under less pressure from the

international market, that would be helpful. the short-term investor focus is different from the broader geopolitical concern about the regime. david: i know the turkish government will be at the pentagon meeting with the secretary of defense jim mattis. still in decent shape? stephanie: as with all relationships, it is a moving target. i don't get the impression it has been a big focus for mattis. in europe, the concern is more around russia and how does that affect the balance in the region? turkey is a piece of that. the failure to build a consistent relationship with turkey has been part of the western foreign policy failure of the last 10 years or so but i don't think it is at the top of his list. we'll see. francine: thank you so much. stephanie flanders. stay with us. we'll be talking more about president trump.

she is from jpmorgan asset management. this is a picture for data. we saw a big move in the last 24 ours in the aftermath of trump's remarks. a lot of people are saying it is nly for now. janet yellen adding momentum to volatility across stock markets. we have seen lower volumes because it is a shorter trading week before easter. it may have compounded. we'll be talking about the french presidential election. this is bloomberg. ♪ [ engine revs ]

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e is leaning on north korea to try to back off weapons quoment development. trump and xi discussed it by phone. meanwhile u.s. research stitute said north korea's research looks ready for another trial. the president tells wall street journal the president of china has not been intervening to make the dollar weaker. the dollar fell after comments. so did u.s. 10-year bond yields. the housing market is in its worst place since the financial skies are. the price index has dropped to the lowest level since february of 2009. buyers are being kept out of the market because of high prices.

plus the nervousness about the future of the economy. this is bloomberg. >> i express the sthrue the current state of to u.s.-russia relations is at a low point. there is a low level of trust between our two countries. the world's two foremost nuclear powers cannot have this kind of elationship. president trump: it would be wonderful if nato and our country could get along with ussia. we're not getting along with russia at all. we're going to see what happens. david: stressing that u.s.-russia relationship is at an all time low.

stephanie flanders is still with us. we're getting a couple of headlines here from the kremlin. putin explained why u.s.-russia ties are in a sad state and said he talks were constructed. tillerson has been back and forth and has a working relationship with the working president. yesterday it was up in the air whether or not he would get a meeting with him the two of them did talk for two hours. >> it is important. we can't underestimate how much tillerson has been relatively sidelined to date until this week. very much not allowed to build his own circle of people around him in the state department. lots of confusion and concern among long-term diplomats about what type of policy he would project and what type of authority he has if at all under

donald trump. we saw this meeting yesterday. there has been a push by tillerson and the white house to ratchet up the pressure and heat on vladimir putin. the market shifted from what we saw during campaign and during the early days of the campaign. we're now in a state, you saw trump yesterday with very pointed language, syria, calling assad an animal. this could not be allowed. russia has chosen the wrong alliance there. trump has talked about nato and china and really is trying to circle the wagon and see what happens with russia and their response. david: let me ask you about the frankness we heard from the secretary yesterday. he is talking to reporters. he did a press briefing. margaret brennan said rex tillerson said russia was either

incompetent or complicit in the chemical weapons attacks. what is he saying about syria now and the path forward? >> i think that is what we saw in that press conference with lavrov that there is a fundamental difference. he did not make those comments. what russia's knowledge was in the chemical attacks. i think rex tillerson's role with russia and how they are using china, we can't underestimate the fact that donald trump was moving off with having a visit with the chinese premiere and he was responsible what happened the knowledge was of the chemical attacks. this is how they are trying to use the foreign policy. it is really the first test of what kind of foreign policy rex tillerson and trump will be bringing through the state department. this has been an administration on a knife's edge in terms of

policy. we have seen a tremendous shift from currency manipulation to janet yellen. let's not assume that is going to be the direction in the coming days. francine: we need to let it breathe a little bit and let it play out. if you have an unpredictable foreign policy and president trump, it is the perfect match for vladimir putin. you have two unpredictabilities. you're on your toes stephanie: we might expect in a couple of weeks we're going to go back to what was being said a few months ago or is it a pivot back to the default position that the u.s. has been in for ra long time and it was position that many people in congress had. it was donald trump's language around russia which was scrambling the system because it was so at odds with what really the majority of the republican party and people in congress thought let alone the foreign

community. if he is pitching back to the position where we would have said was more typical of the last few years, that is not necessarily good news for vladimir putin but it may make for more predictability going forward but we can't say that either because it is generally an inpredictable situation. francine: do we give the benefit of the doubt? we heard from rex tillerson when he was in us the kane. said why should the u.s. -- tuscany. resaid why should the u.s. taxpayer care about yueh ukraine? >> i think we have to be careful of isolating the foreign policy piece and the domestic policy piece as well. we have to draw a line and look at overall what they are trying to do. a lot of this as they are approaching 100 days, there is not something they can point to as an achievement with this

administration. they are scram g. they want to be seen as strong and cohesive. obamacare, this is something a week ago or two weeks ago was scrapped and left in the dust and moving on and he resurrects it again we have to do this first and foremost when the congress gets back. this is an administration search for a thread to pull on to give the person people confidence. perhaps russia is it. i'm not confident that is where we are. david: stephanie, you said trump tweets since ut 8 taking office but has not passed any legislation. how confident are you that we'll see stephanie: we're not talking 100 days for any of those things. it is interesting. of course he wasn't expected to be f.d.r., the definitive 100 day, 76 pieces of legislation. he is not even necessarily going to be doing as much as president

obama had done coming in with a need to do that big stimulus package and response to the global financial crisis. i think megan is right. they are looking for those things to move and probably the business tax cuts and the tax reform over the next six months or so will be up there as a big priority but it depends a little bit whether we take this pivot back to health. the optimistic around the tax cuts is that is now next on the list. if we have gone back to health as job one again, then that's not so clear. the important thing for markets is a lot of those expectations around infrastructure, around tax cuts have been reigned back and there is still some expectation there that you can maybe find pricing but the outperformance you saw in the stocks that would benefit from those policies, most of that has unwound over the last few months and i don't see it coming back very quickly. you're going to need to have

tangible evidence that the financing issue and the political concerns around the balance of the deal are going to be resolved before people start believing. david: stay with us here on bloomberg "surveillance." coming up later, our conversation with the oil minister of nigeria at 8:40 a.m. in new york. 1:40 p.m. in london. this is bloomberg. ♪

francine: this is bloomberg "surveillance." francine and david from london and new york. david, we need to look at the french elections. on the back of thark we see yields and spreads widening between the german and french

10-year. a lot of volatility. we're days away from the first round of the elections. the two frontrunners are unlikely to secure parliamentary majorities. let's go live to paris where we're joined by marc and we're here are stephanie flanders, and megan murphy. before we go on to that, this is something we need to explore. whoever becomes president needs to make sure they can actually govern. what do the polls tell us? are they underestimating the impact he could have if he went to second round? >> the calls between frontrunners, le pen and macon and the third, essentially, they are tied in third place. that gap is tightening every day. it has been tightening for sometime now.

if you keep in mind there is sort of a 2.5% margin of error on most polls, there could be some overlap there. it is very difficult. we are very much headed into a final week where it looks like there are four contenders and between those four contenders, we don't really know who is going to come out on sunday night as finalists. so it is really an unprecedented situation. francine: it is inprecedented. who is the country candidate that will actually have a strong enough majority to be able to govern if he or she becomes president? we have elections july 17. >> it is a very good question. francois keeps harping about this because he knows it is his advantage. the republican party is still strong in the country. candidates everywhere suggesting that he is the one that can deliver a coherent government and a stable majority.

if i win there will be enough moment forum the presidential election. the french are reasonable people. as they have always done, they will vote in people from my party. it is wait and see at this stage. you know, the candidates are what they are and you know, getting through the next month is a lot to do. it is a real concern. whether the next president can deliver strong reforms or not depends a lot on the state of the parliamentary majority. we saw a lot of trouble with that. it could happen with macon and it could happen with le pen. there is no guarantee that francois has a strong and stable majority. first round. the how difficult is it to move for the candidates? who stands the best chance of setting himself or herself apart?

light of the restrictions? >> in the french press, the far left candidate has, you know, if you look at the graph, his momentum is huge. and he is certainly gane lot of people the jitters. that's why you're seeing the bond spreads with germany widening out a bit. whether that continues into next week to be seen or whether he has topped out his support remains to be seen. he is certainly -- the major story of the moment i would say. francine: thank you so much. he is getting a lot of momentum. mark dean. stephanie and megan. let me start with you. the only thing i care about, the markets would freak out. you had a second round, are people so undecided we have polls that show the main

candidates neck and neck? stephanie: we're looking at the polling. remember there is an awful lot of people who are undecided and not even reflected in these polls and that's what has come back to bite us in some of the previous votes. we talk about the gridlock. macon is right. there has been a tradition in france. you have the winner feeling they ought to be given the capacity to govern. you saw that with mitterand. in a funny kind of way, we know they are not close enough to the center. they have people they can work with and form that coalition. we shouldn't forget, it sounds surprising to say it, in france, there is a tradition of -- they traditionally had larger parts of local governments, they are not felt to be a party that you

can't work with in a way that they still have that stig that m&a. if we were in that circumstance, there would not be perhaps, he is not the pariya that you would think in that context. overthey really choose him le pen? men's chances would go up significantly if the choice were between those two. i think it is le pen -- it is hard for her to build a coalition. david: we talked here at bloomberg headquarters about the u.s. political parties. what happens to them in light over the last election results. let's look to france and see what's happening with the socialist party. are we seeing a reconfiguration >> i think it is exactly as stephanie says. no matter who comes out into this runoff in the next round. whether we look at whether it

will matter in terms of forming a coalition, the kind of support it needs to govern is going to be perhaps less of an issue in france than we thought. we have seen it happen in the u.s. and the u.k.. are we seeing a fundamental restructuring or pivot that's happening with western democracies from the u.s., the u.k. and france as well? what are people voting for? are they voting for a candidate? are they voting for a party? an ideal or are they voting for change, disruption, something different? one thing is different. if they see a runoff after the first round, that is going to cause some serious jitters indeed not only for the prospects of governing but the prospects for real reform that france needs. francine: what can we learn from the u.s. elections, away from the polls. everybody says the polls were much closer in the u.s. than they are in france.

i apologize for the confusing but important graphic. le pen at 23%. this is the bloomberg poll for the intention the first round. you have macon. if you look at the u.s. presidential election, a lot of bernie sanders votes went to donald trump. ? the past, i grew up saying if you're from the left, you go to the left. is this going to happen the same here? we don't have the line of left to right anymore? >> this is what i'm so fascinated about. how are we going to see this play out? how things are shifting so rapt rapidly. is this real surge we're seeing, is it real? is it a moment? is it going to last? how this alignment is going to shift. as you said, where his supporters go, will they drift towards macon? probably much easier for that to

see. what is actually driving people's intentions here? i think it is different than we have seen -- we have seen it reflected in france. as part of this movement we have seen through europe, people's allegiances are not where they used to be. stephanie: they have reduced allegiances and the representatives of the system have not been speaking to their concerns. you saw similar thing in germany. one of the reasons social democrats are doing well is they are getting support from the people who had gone to the extreme right. that clearly does scramble our normal expectations, how would you go from the extreme right to the extreme left? it is the ability to speak to those populist concerns. there was always a question mark whether he could do that. francine: thank you so much, stephanie and megan. we'll be back with stephanie

flanders. we'll talk a little bit about oil. you can ask questions of stephanie and megan. this is bloomberg. ♪

francine: bloomberg "surveillance". i'm francine lacqua in london. david is in new york. we have a question from a viewer on i.b. the person asks don't you think statistics and polls overestimate macon? this is what we were talking about before with megan murphy. what poll dos you actually trust? >> the one i mentioned earlier and look at closely is how many people are undecided and whether people are sure of voting. actually the only time that we have had an upset in french presidential elections where at le in the first round, pen's father was further than expected, the turnout was more than expected. the question is right. when you ask the typical macon supporter how firm their votes are, are they certain to vote for him, you have seen over the

months that his support is sort of what -- is softer than some of the other candidates. so it could be that people will all decide at the last minute to vote for him, maybe out of fear of other things but it is certainly the case that his support may be more questionable than some of the others. david: how much does a voter have in mind the second round when he votes in the first? stephanie: i think that is hard to say. i don't -- there is not as much evidence in france of people gaming the system in the first round, you know. in france, you tend to have maybe there will be some expect -- some playing around who the candidate is and which candidate will be better suit for the second round versus the first round but when it comes to the ordinary voter, one of the things that the french system liberates people to do is really do what they want to do on the first routine and we have seen that in the past. what we haven't seen is this crazy collection of candidates from different parts of the political spectrum all looking

really quite strong. the david: thank you. stephanie flanders, asset management's chief market strategist. coming up, we'll speak with michael darda. let's take a quick check of the data here. looking at futures now, still pointing to a down open. down six points. s&p futures down six. dow futures down. euro-dollar, 10237. 53.14. ude, this is bloomberg. ♪

francine: asian currencies rise as donald trump says u.s.

currency is too strong. the president says he will not label china a currency manipulator as the white house writes a report on global fx practices. rex tillerson says trust between the kremlin and the white house is low as syria drives a wedge between the superpowers. . am francine lacqua wi another reversal from donald trump. in the mostnting authoritative terms yet about what he thinks about china being a currency manipulator, saying they are not one. first, let's get to the bloomberg first word news. u.s., president trump indicated there are deep

divisions between the u.s. and russia. the president spoke at a news conference with the nato secretary-general. president trump: it would be if nato and our country could get along with russia. right now we are not getting along with russia at all. we may be at an all time low in a relation with russia. we will see what happens. at the united nations, russia vetoed a security council resolution demanding syria cooperate with investigations attack. chemical russia says the investigation was tilted to incriminate bashar al-assad. on the vergeay be of its sixth nuclear weapons test. site appearsest

"primed and ready" to conduct a trial. satellite images show activity .t the site south korea is downplaying expectations that a nuclear test is imminent. 2, half the increase in february when chinese new year celebrations urge.ered a s global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. david: futures down 6. euro-dollar -- crude, $53.09. i would point out that

there are lower volumes because of a shorter trading week before easter. it may have compounded some of the swings we are looking at. we have seen good moves in the aftermath of the trump remarks. he signaled a softening stance on the currency practices from china, but talked about the fed. we are seeing a jump in volatility. yen 108.93. david: we will obviously be talking a lot about china. three criteria the treasury department uses to declare a country a currency manipulator. a trade surplus more than $20 billion. 3%rade surplus greater than of gdp. china is not there. and no persistent one-sided intervention. we see that with china as well.

one of the three being hit. .rancine: i like your chart it is one of the most important because dollar has moved on the back of it. this is the net short positions on euro. this could go back to the french elections, also to what we saw because of the trump comments, but i think you have the chart of the day. trump will not label china a currency manipulator. joining us is michael mckee and a.chael dard michael mckee, let me start with you. he said "we had tremendous trade deficits with everyone, but the big one is with china, hundreds of billions of dollars for many years. i told them, we will not let that go ahead." when you were in berlin ahead of

the baden-baden meeting, who speaks for this administration when it comes to currency? he said at the time it was the president. we got that yesterday in this interview. michael: he pointed to the -- to that at the time that he might label china a currency manipulator, but he figured out china does not meet the criteria. china has been trying to prop up yua forn a couple of years. he is not legal to legally do it, but he is pushing back on the idea that china has traded unfairly. since the chinese injured the wto in 2000, the massachusetts institution of technology argued due to 1000 factory jobs unfair trade practices and china. there is a persistent effect,

usually when you lose jobs to trade, people go into other jobs. there are huge pockets in america where they did not. this has been a different reaction to trade. elected.ed get trump he has an obligation to address the issue, but he won't be able to do it through the currency channel. .avid: rather unprecedented what does it mean for the u.s. as an investor? michael: it is unusual. what most investors want to know , will the president be pushing trade protectionism? will we move into an environment where we are backing away from the gains we accrued from trade? his view is it has been a one-sided situation. the fax cut the other way, mainly.

it is nice to see the rhetoric cool off a little bit. david: when you hear about the dollar and the chinese currency, does it give you optimism he will step back on his rhetoric on trade policy? the moderating comments are reassuring. with regard to china being labeled a currency manipulator, if that is accepted, what will you do about it? it is moving towards retaliation if you kind of stick, will. that gives me some assurance.

francine: michael mckee, the u.s. treasury is set to release its semiannual report on its major trading partners. we were seeing stephanie flanders who worked for almost a decade at the treasury saying they were very careful over who you label that. is there scope for the u.s. to label someone else a currency manipulator? michael mckee: we don't have any countries that meet the criteria . there are countries that get 2 out of 3, including japan. which is interesting because abe had such a successful visit. in thed, vietnam is also two out of three category. one thing that is happening, china took a lot of manufacturing jobs from the united states. vietnam is taking any fracturing jobs from china. there is a little bit of shade schadenfreude. there are countries that make it onto the watchlist, but none that are a manipulator as such. francine: give us a sense why

the markets moved so much on president trump's comments. can he do anything on dollar strength? michael darda: it comes down to the fed. a bit of a pickup in volatility, but it comes down to what the federal reserve is doing relative to other central banks. that is what will drive currency markets over the longer haul. michael: you have to worry a little. when he thought the dollar was the yen was- overvalued, he said he would like to see a weaker yen. that was followed by bill stronger yen is one of the biggest problems we have. the dollar got so strong against the yen that the u.s. and other countries had to prop up the

yen. if traders think the u.s. will do something about it and keep job owning the dollar, we could have a problem. that is playing into people's minds as the dollar weakens. never seen ahave president that talks so much on twitter, open policies in 140 characters. the more he talks about dollar weakness, will the are get believe him? to see darda we need concrete policy action. we have three open fed board seats. and a replacement for fed chair yellen next year. assuming he wants to replace them. that good have an influence on monetary policy if they want to push in a different direction.

they can sense is there is a direction of academics rather than bankers. we can debate with that could mean for the strength of the dollar. , stay withael darda us. michael mckee joining us as well. up, this is bloomberg. ♪

taylor: this is "bloomberg surveillance."

toshibabacking for its business. lining up financing from three japanese banks and silver lake. offering $18 billion for the toshiba unit. the sale of the chip-making business may violate the company's contract. aetna is selling its group benefits unit. a sale fx about 2 billion dollars. at not is trying to rebound from the failed megamerger with humana. says is largest clients are waning for brexit, asking for businesses to be routed through mainland europe. the head of global commercial banking tells bloomberg that multinational companies want to make sure they can trade no matter what deal the u.k. works out with the eu. that is your bloomberg business flash.

david: rex tillerson was in moscow speaking with sergey lavrov. here is what tillerson said about the state of u.s.-russia relations. secretary tillerson: the relationship is at a low point. there is a low level of trust between our countries. the world's 2 foremost nuclear powers cannot have this kind of relationship. president trump also stressing that u.s.-russian of relationship is at "an all-time low." there's another comment from rex tillerson that stood out. he said "the world's 2 foremost nuclear powers could not have this kind of relationship." do the russians agreed this relationship is problematic? optics standpoint, these 2 liters played nice with each other. policy, get into the

there is a clear difference coming from the u.s. and moscow. that is syrian president bashar al-assad. when you have the russians saying they want more evidence and want an investigation into regime or not the assad used chemical weapons against civilians one week after a u.s. missile strike in syria, not going to happen. that is the message from washington. president trump saying assad is a "butcher." that is a clear shift in to thec and a sign european allies that this administration is more in step with them on policy than previously some thought. how do youael darda watch this unfolding?

it seems geopolitical tensions are at the forefront. help us understand how economics plays into the relationship. are watching closely. international affairs is critical. unless what happens disrupts commerce in some way, corporate profitability, the market implications are not huge. david: we are not seeing that yet. michael: worst scenario, a world situation. that will not be inspiring for markets. unless you are looking at things and counterattacks that disrupt commerce, market implications are not that meaningful. francine: what about oil? we will talk about oil later on, but if there is geopolitical tension with russia and the middle east, would it not automatically play out in this

market? michael: you could make that argument, but we are not seeing huge swings on what is happening now. we could invent a scenario where you have a supply side shock, there is a significant adverse impact on the supply side and dealtices spike, we have with that before throughout history. we are not at that juncture yet. learn -- when do we what did we learn from the trump administration over the last 2 weeks. we have more of an idea where he is heading? fascinating. so much happens in one day it is like, where do we begin? likeeeks ago, people senator john mccain, lindsey graham and more moderates in the

republican party questioned where the administration stood on russia. and the policy have turned around. the administration is taking a more aggressive tone against moscow and vladimir putin. ourcine: kevin cirilli chief washington correspondent with michael darda. coming up later, we speak with the oil minister of nigeria. 1:40 p.m. in london. we will talk about opec cuts and stockpiles. this is bloomberg. ♪

david: i am david gura with francine lacqua. fed officials signaled it is time to shrink the balance sheet. the consensus view is this will send long-term rates higher. whore with michael darda says longer growth may dominate over the long-term. a little out of consensus. what is your thinking? tohael: if the fed moves shrink its balance sheet late this year early next year, the immediate effect might be a liquidity of fact that would drive rates up. the longer-term would be slower nominal growth than we would otherwise get if they were not doing that balance sheet shrinking and lower inflation would be the case. they dominate over the long haul and with lower rates.

when the fed was doing qe on and it wasioning to qe off, intended to falter during qe off it we have the conventional view the fed will send the long and into the stratosphere when it sells bonds. look what happened in japan when the boj started to reverse its , or wheneffort in 2006 the ecb balance sheet sunk in 2011-20 13. long rates did not live up much and came down with fears that the business cycle was rolling over. talking in this wall street journal interview there was a question to the president "is janet yellen toast? that.ejected

is there a scenario where janet yellen stays on? michael: this is the biggest wildcard. we do not know the future shape of the fed. we have three open board sheet and yellen's term is up. could decide he wants her to stay in and not rock the vote. that is one scenario. it would be unexpected considering the criticism during the campaign. there is a difference between someone in a campaign and someone that is a leader. his criticism of low rates and janet yellen a not hold. we will see on that one. talking about the balance sheet of the fed, i have a chart that looks at balance sheet as a percentage of gdp. the fed, red, white blue the ecb. who will have a tougher time reining in the balance sheet? take a stepneed to

back and realize the reason the is dollars sheet is so large because they presided over 2 decades of monetary deflation. every time inflation moved up, the boj moved to stop it and succeeded, but in a way they did nowroute out deflation had the balance sheet has to be hired to generate low levels of inflation. the lesson is if you want to unwind the balance sheet, do not move in a premature fashion. david: by date is a market holiday. -- friday is a market holiday. this is bloomberg. ♪

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what we are seeing in the first an increase in inventory despite opec's near perfect implementation of cuts aimed at clearing the surplus. let's get back to michael darda. we talked about the linkage between inflation and oil. what does this tell us? inventories are off, yet opec is not cheating. opec's influence is probably overstated. we can look at oil relative to other industrial commodities. that could tell us what is happening on the supply side for energy markets, if they are deviating a lot. crude oil prices have been underperforming industrial metals. if they are moving together, it would tell you what is happening is a global demand is pushing

prices around. is either outperforming or underperforming the other, it usually speaks to supply side factor. supply side issues could still be affecting the crude side relative to other commodities. that is something for investors to keep in mind. francine: do you think they will ?ontinue to cut output if yes, would it be led by saudi arabia because of the saudi aramco ipo? michael: it is possible. let's monitor the food oil prices feast of the -- these of vis-a-vis industrial metals. -- crude oil prices, vis a vis industrial metals. at thelooking

correlation, we see a strengthening from the beginning of march to where we are. what are you seeing when it comes to credit and how yields? michael: the credit markets look healthy. when thehrough a time dollar was appreciating, crude oil and industrial metals were crashing. it corresponded to a disruption in credit markets. even in the investment grade corporate bond market was under a pressure. that has reversed. it is viewed as a oil-driven phenomenon, but we can put this together with the rate hikes and a slowdown in the u.s. economy. between late 2014 and last year, nominal gdp growth slowed significantly, over 200 basis points.

that also speaks to their broader effect. that is turning around and we can debate about the first quarter looks soft. on a year-to-year basis, we are seeing a modest rig celebration in the business. david: taylor? u.s., president trump is leaning on china to treasure north korea to back off nuclear weapons development. the president says china's leader wants to do the right thing. they discussed north korea and spoke by phone on tuesday. china is north korea's most important trading partner. north korea's nuclear test site seems ready for another trial. during his presidential campaign president trump vowed to label china a currency manipulator. now the president tells "the wall street journal" that china has not been intervening to make the yuan weaker. and he said the dollar was too

strong. president trump declared relations between the u.s. and russia might be at an all-time loud. the president -- all time low. the president said it was probably unlikely that syria could have launched a chemical weapons attack without rusher's knowledge. the u.k. housing market is in its worst slumps since the financial crisis. the price index for the city has dropped to the lowest level since february 2009. buyers are being kept out of the market because of high prices, nervousness about brexit, and the future of the economy. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: let's focus on france. we are 10 days from the first round of the presidential election. we are joined by the eurasia

group head of global research from singapore. michael darda is also still with us. 10 days away. the markets are nervous. they are worried we could have a rcon standoff. could anything happen, or are we jumping at shadows? >> do not forget the number of favorites that were defeated in the primaries. melenchon is coming from nowhere. the base case is macron will defeat le pen. the odds are narrowing. it could be close. francine: what do people vote on? the french voter goes to the polls and thinks of what? the economy, reforms, europe, the euro?

>> the french economy seems to be doing ok at the moment. immigrants, and also the potential spillover to the whole of europe from brexit. number of issues. some positive, some less so for voters. that is the issue of, do you vote for the establishment or more radical options? a lot of uncertainty and .onfusion certainly, the nonestablishment, antiestablishment, candidates seem to be doing better in this election. bigcine: looking at this topic of conversation, are we spending enough time talking about what happens next? the president needs to have the base support on election day come july to make sure they can govern. >> that is true.

having base support is a major issue for macron, given that he left his core party. there is a question mark over his base support is significant enough to govern in the presidency, or for the parliamentary elections. francine: michael darda you can look to the scramble over parliamentary election, look further head to the election in italy. is that a more seismic event? michael: with all of the elections, the markets are focused on the low probability but high risk scenarios. someone elser coming forward with the populist -nationalist message. candidates pledging to exit the euro currency, which could be disruptive. none of that is priced in

because it is low probability, but with any of these elections, that is the concern, low probability or high risk scenarios developed with political gains by some of the nationalist, right-wing figures. david: you noted there is the potential for france and have a referendum, italy to do the same. the economic ramifications of that. how great would this be for italy or france if this were to happen? >> if we had a le pen victory eu orreferendum on the the euro, that would be hugely damaging, not just for french markets, but for other market in europe. it is important to stress that neither is the base case here to win, or that she would be able to get a referendum through parliament on the eu or the

euro. important to stress that. that would be a bombshell to markets. unfriendly a market result, le pen or someone else, has gone up. looking at the euro-dollar risk reversal, the volatility curve, there is hedging activity. the wake ofned in brexit and trump that it might be low prosody really -- low possibility, but you have to hedge against it. francine: breaking news out of jpmorgan. fhe first bank to kickof earnings. the first quarter. it might not compared to the estimate in the earlier here, but it is comprehensive because of j.p. morgan's breath of operations. redth of operations.

investment banking revenue $1.65 billion. to what we were expecting. jamie dimon saying consumers in the u.s. and businesses are over all healthy. tradingooking at fixed versus equity trading. 1.6 one billion. 1.4 5 billion. a bit of a beat there. a beat there. one of the important things that people want to know are faced with higher regulatory and operational costs. i do not know if they will put a number on it. the second quarter net interest

income of 400 million dollars. in line with expectations and in certain cases beating. we need to get to the bottom if there is something analysts are worried about j.p. morgan or not. david: let me ask you about the letter from jamie dimon last week. he talked about there being something wrong with the u.s. economy. i imagine you saw the headlines about it. what is your sense of his cents of the u.s. economy and how it is positioned globally? michael: i would characterize the u.s. economy growing at a moderate pace. we have made progress in restoring lost employment. it has not been satisfying in are belowfigures historical averages. on a go forward basis, it is the result of weak productivity growth and a week working age population growth. to turnt an easy task

that around. there have been proposals on what to do with regulatory and tax reform. policies and those do them right, we are looking at modest effects on trend productivity growth. , or it the new normal something similar, but it is an unsatisfying business cycle expansion from that perspective. that is, unfortunately, probably not going to change. francine: stick around. we will talk to an analyst at cfra. looking at these earnings from j.p. morgan, improving performance in rates the fixed income trading revenue was a beat, what else do you see? >> these are key drivers for growth. say so long as the

capital market remains strong, and j.p. morgan is gaining market share and investment backing, they will have an attractive 2017. the results seem to align with what we have seen late last year on first blush. francine: jpmorgan is considered to be the strongest bank overall . are you concerned about regulatory policy issues? the rolling back of regulation come and what that does to jp? time.s will take there will not be instantaneous change in terms of the regulatory environment. we are moving to a pro-business environment. we are seeing that in the businesses benefiting from pro-business meetings and increased transactions. the ipo market came back.

snap was a large ipo that j.p. morgan participated in. ipo's were down last year significantly. i think that regulation in itself, particularly in the u.s., is directionally moving positive. there is still tremendous requirements to be done related to dodd-frank and european regulation. ,rancine: equities trading analysts thought the bank would post an 8% decline, but equities trading rose. what does that tell us? has trading usually never sharp volatility quarter to quarter as we do in fixed income, but that is confidence in the equity markets. there is definitely participation from the institutional clients. that theytially means

are not risk adverse and are participating in the markets. david: let me ask about consumer nking, hugely important to j.p. morgan. what are you seeing in that space? ken: everything follows the economic indicators. particularly for the u.s. strong. it remains this feeds into low single-digit growth, as you noted for consumer and business banking. consumer banking got high profile with their card business, though that is a separate business segment. david: thank you for joining us as we get earnings from j.p. morgan. we will get earnings from wells and citi. michael darda continues with us and a conversation with the former minneapolis fed bank president. at 8:00look for that

a.m. in new york, 1:00 p.m. in london. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. delta airlines is having second thoughts about an agreement to buy air boss wide-body jets. they are reviewing the order because of signs the long-range travel market is saturated. warren buffett and berkshire its stake incut wells fargo. owning more than 10% of wells fargo stocks with limit its ability to do business with the bank. burke shary says the sale has nothing to do with the stock valuation.

cable programmers discussing sports-free tv. amc networks in talks with just reviewed her's about creating online services without sports channels. it would cost less than $20 a month. channels like espn tend to be the most expensive in pay-tv packages. francine: thank you. it is always a good time to check your markets. what the data is telling us at least a big swing in terms of the dollar after tosident trump said he wants label china a currency manipulator. low-volumes, the day before the easter holiday. this is "bloomberg surveillance." ♪

francine: this is "bloomberg surveillance."

david in new york, francine in london. we had j.p. morgan earnings, first quarter investment inking revenue beat estimates. it is not only fixed income that beat estimates, when you look at the equity trading unit where analysts were expecting that to underperform, it came in much stronger than expected. it seems to be a good set of results. might give a boost to the sector the last couple of days. we will watch out for j.p. morgan when it opens in new york. let's get to taylor riggs. taylor: a weaker dollar to the major asian currencies. we looking at a weaker dollar, stronger yuan after donald trump said he would not to label china a currency manipulator. of theto recover some dollar weakness this morning. david?

david: the single best chart of the day, a groundhog day quality to every data check tom did with the last two months, a complacent vix. the average volatility, the lowest over a decade. wantel darda with us, i you to react in light of the geopolitical tensions we were talking about. an uptick in the vix. give a: i will have to shout out to my colleague who handles the derivative strategy for us. his expectation is we are moving lull. the i am not an expert on derivative strategy, but the extended times of low volatility tend to give way to shocks of some sort. the hope is that it is not an of shock, butind more of a temporary disruption with a pullback, then you move on in terms of our kids and the

business cycle. francine: the problem that i have with volatility, if you look at the vix it is the highest since november 2016. the bottom panel, calculated ble portfolios, the measure hits a five-year high. does this point to liquidity in the markets more than actual fear? michael: from a macroeconomic policy perspective, i would point out that the vix will correlate closely with credit market spreads. i would look for if we see thater disruption, if starts to put material and sustained pressure on market spreads. coupled with that, inflation expectations move lower if volatility and spreads are moving wider.

we are thinking about a mean reversion were volatility moving up, that is what i would focus on. francine: thank you. stays with david and i on radio. coming up, we speak with the oil minister of nigeria. on the back of the report, does he think that opec will continue to cut productions beyond the extension agreement? look at that beautiful new york city. what a view. this is bloomberg. ♪

jon: earnings season begins on wall street.

a beat across the board for jpmorgan takes the stock higher in premarket. a presidential u-turn. why china is not a currency manipulator and nato is not obsolete. treasuries rally. city, goodrk morning. a warm welcome to "bloomberg daybreak." despite that beat at jpmorgan, features this morning looking a little softer. futures down .3% in the united states. yields lower by two basis points. lower by .25%.in alix: 8:00 a.m., we get earnings from city and wells fargo -- citi and wells fargo. at 10:00 a.m.,