almost as soon as leaders touchdown in sicily, president trump targets the german trade surplus. the u.k. election is no longer a one-way bet, the polls continue to narrow. nasdaq fall.nd the good morning. you're watching bloomberg daybreak. i am on alongside david westin. let's get you to the markets very quickly. futures are little bit softer after a six-day winning streak. 112.uro is firmer at 22. that's the story of the markets. let's get you up to speed on headlines. gunmann egypt, a lone opened fire on a bus heading to a monastery. at least 22 people were killed. it's not known who is responsible.

is adent trump son-in-law focus into the russian meddling in the election. investigators are looking into meetings jared kushner had with the russian ambassador and a banker for moscow. he is a senior white house adviser. alloy or set it coast or will share what he knows about the meeting. the president met with the japanese prime minister before the start of the g7. they disagree on areas such as trade and climate change. it's believed the others won't gang up on him. to focus onng terrorism and issues where there is common ground. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. david: the president is completing his overseas trip. there are a host of issues for agreement or disagreement. he went to the heart of one of them when he talked about german car exports. he said the germans are bad,

very bad. look at the cars they sell in the united states. we are going to stop that. matt miller is covering the challenging meetings. this is the intersection of two things you love. does this put things of the top of the agenda? matt: what president the top of the agenda is the translation by spiegel, a low respected they'de that said translated his comments say the germans were evil or naughty more than it means bad. every other paper or publication germany picked it up. it will be met with a little outrage from german citizens. tried tommissioner

clarify this morning to everyone here. a what trump really said was he met bad and he was talking about german trade, not german people. it's going to be an issue here. the german chancellor is going to have to address it in some sense. ins a tempest in a teacup or -- teacup. david: there were issues we thought there would be agreement on. those are things the president wanted to focus on. there are other issues like trade and climate that could be divisive. how will they decide what to address so there can be a cohesive answer? bet: it's very interesting -- interesting. a climaterything from

migration, you've got the trade issue which i think they were going to give him a pass on this time. they were not going to focus on it. this has brought it to the four front -- four front. trade in the european sense and not as individual member states or winning and losing. a lot of german carmakers like the m w produce a ton of cars in the united states. $10 billion worth of goods from the u.s. every year. there are issues at the president doesn't seem to be clear on. issuesre multinational that are very complicated to begin with. that's going to take some of the focus and terrorism is a focus after the manchester bombing. david: they employ people in the

united states. jonathan: it's been criticized in europe as well by the member states did you have to do with the trade issue at the eu level. of the auto sector, if they were going to pick it in thing, not the auto sector with it happening in the united states. david: so many components are made outside. it is so much more complicated. jonathan: matt winkler came to me and said what is the biggest bmw factory? he said south carolina. that's where there used factory is. david: spartanburg. jonathan: thank you very much for joining us. we will catch up with you a little bit later. we want to bring in patrick and michael mckee. make themthat might happy, is this the and of it g7

communique? mike: i think there will be one. it'll will be interesting to see how they deal with the trade issue. they kick the can down the road and talked about the importance of free and fair trade but left out protectionism. they are probably going to have to do something like this if they want to make external harmony. jonathan: the first half was really good. it went to the middle east and talked about terrorism. i think most people would say it was successful. then he arrived in europe and as soon as the conversation moves away from foreign policy and gets to trade, the divisions come back up again. patrick: even on foreign policy there is the russian issue. there were some comments asterday that they don't have view on whether -- the u.s. doesn't have a view on whether

the g7 should maintain its sanctions against russia. there were some european officials yesterday who said there were not common views. that's a serious gaffe. it's a very awkward issue for donald trump. g-7d: we give seen a lot of meetings and not paid a lot of attention to them. this one has a lot of focus for a broader reason. is there some chance or risk or danger that longer-term relations with europe that affect trade and investment could affect the global economy if we start diverging our paths? patrick: there is. markets of learn to not overreact to whatever donald trump says or tweets on a given day. it used to be that the market would have an immediate response. now they waited and see what actually happens. these are serious issues. i have written a lot about how germans'surpluses are a problem.

there are ways you can raise these issues among friends that nudge friends in a certain direction and there are other ways you can raise it the damage the french it. jonathan: what market participants have learned, words are meaningful but they need to be followed by policy. it doesn't really matter. the words meant something and are youmarket thinks going to followed up with any policy? i think it falls on deaf ears now. become -- aally country like germany. it's a question of how they run their government and the way they run their economy. thember, we went through 1980's the twin deficits.

we used to send our presidents to g-7 meetings and they would talk about the twin deficits. from morgan a guy stanley and the twin deficits are back in we have the trade issue in the deficit issue and we might see that return. david: isn't there more than a little irony that we see reflation around the world and some global growth after eight or nine years, now we are about to snatch defeat from the jaws of victory and have divergence in disagreement that could interfere. patrick: that's entirely possible. , what weof a policy have are statements. sometimes they are contradictory statements within a few days from the trump administration on policy whether it's trade or other things. these summit meetings with

europe or china are all about follow-up. one of the obstacles to follow up is the trump administration is not staffed up. there is not a real trade team that goes below the top level the will follow up these issues and execute them. jonathan: that raises a big question. who is running trade policy and his administration? gary cohen mopping up the german mess this morning. he meant he german trade situation was bad in this is why. who is in charge? mike: it isn't clear. it's very much in flux. the negotiations with canada and inico over nafta will be august. we will see how that goes. will they take a more pragmatic line?

somewhere we will figure out who is in charge of trade policy. it doesn't look like navarro is offended. david: it's part of a larger issue. they have people who are going to put this together. justnited states is crowdsourcing. we want to thank michael mckee and patrick. they will be staying with us. jonathan: common up, more on donald trump's relationship with world leaders. plus, an exclusive interview with the ceo on the expansion plans in china. you are watching bloomberg tv. ♪

jonathan: it's the longest skid and a month. yesterday, opec and non-opec producers agreed to prolong supply cuts for nine months. >> we considered various 12narios from six to nine to for even considered options a higher cut. all indications are solid that the nine-month extension is the optimum. itthese can be aimed reducing the amount of cost or it depends on the market situation and what is needed. to do everything to stabilize

the market. of the for the benefit financiers. jonathan: joining us is manus cranny. you've been terrific job reporting. talk to me about what you've learned from them about their ability to really stabilize the oil market given once happening here in the united states with shale. questioningbody is this courtship. they have an dating, russia and opec. it sounds as if they have made it formal. they are going to try to formalize this relationship. it's that wonderful phrase. relationship,ic which is mutually beneficial.

they are going to formalize the relationship. i know we play this game of quotes. churchill to the us trillion prime minister in 1940, success to man's greater effort and that is what this must deliver, greater effort in greater compliance. they are 102% compliant. they are saying they are going to have the political will to do it. that is a big ask. another one.t's the opec situation, a fantastic ease some not sure if you been able to read. i want to bring up one of the quotes. it's about the weakest link in opec and the focus on saudi arabia. costsan choose on cutting or they can continue playing roulette with the russians, technology, and stragglers.

this is the final the 80's waltz. it's coming. they don't have the power within opec anymore. is that why they need to formalize this relationship with russia in a significant way to give opec more weight? to challengeoing that. i struggle to see that saudi lacks the swagger within opec. of theng that came out very long day. watch the data. you've got a joint monitoring committee. they are going to meet twice a month. his exports from saudi into the united states, he would say that's going to taper off. that is going to change the structure of the debate to export drops. that's what will move the market. rooftop, he on the

said that is the kicker for this. i don't think the saudi's power in swagger is broken. opechan: anyone working on over several days usually looks pretty tired by the end of it. they have to move from hotel to hotel. you go from meeting to meeting. we want to bring in patrick. it's great to have you with us. on the oil market and the it,i's ability to stabilize going forward from here can they stabilize the market? patrick: what has been striking since the production cuts were announced is the lack of market power that opec has. around the time that the cuts were announced, there was at least talk that the goal was to push the price of oil above $60. that has not happened.

that has not happened for a couple of reasons. u.s. shale production cost is gone down and efficiency and it is so scalable. producer, not in the same way that the saudi's are where they can make a wine airy decision. saudi'sr thing is the may be able to keep their powder dry and wait that out and there are a lot of other opec countries that can't. they are not in the position to borrow in order to make up the difference in order of their standard of living. david: shale puts an upper limit. if they hadn't reached this agreement, where would the price of oil be? patrick: within the $40 to $60 band. i don't think it's had that much effect. it has bounced the market when the announcements are made.

the reality is we have seen shale either scale up or scale down depending on what the prices. does the price of shale extraction? patrick: for now. that has been moving the supply curve. the trick in the oil market has been what does the oil supply curve look like? it has changed dramatically over the past decade. david: patrick will be staying with us. coming up, a big announcement in china. exclusiveins us in an interview about how it will lead up with a chinese express delivery firm. we are live from new york. this is bloomberg. ♪

emma: the retail slump in the

u.s. has not hit cosco. and storeestimates sales beat out target. cosco generated three quarters of annual profit from membership fees. they will go up next month. general motors denies accusations it put volkswagen like devices in its truck to be the missions test. there is a class-action lawsuit. the suit claims the environmental damage caused by the truck could surpass that of volkswagen vehicles. the pound is falling against its 16 peers. the conservative party lead over the labour party has shrunk to 5%. theresa may's conservatives had a 20% lead. the joke -- election is june 8. the pulse of an

tightening for a while. we are looking through the potential of a war been win. they laughed at me. they said forget about that. i think there is a change to a certain extent. the conversation is not about a prime minister corbin, but the risk two weeks ago. if you get a hung parliament and you don't the majority, what does that mean for negotiations the two-yeardavid: clocking has been taking. there's not much time left. jonathan: this was the bond market, we would be looking at a spread. i'm trying to understand what happening there. what's going to happen over the next two weeks. patrick: all politics is local. we may be focused on brexit.

see mayight want to have a mandate did the politics of national health service, that's rearing its head. jonathan: sterling seems to be the answer to all this. if you don't get the majority she was looking for, this is one of the biggest miscalculations in u.k. history politically speaking. what do the next two years look like? are ink of the leverage the hands of the europeans. patrick: it's all about leverage. both sides are staking out their positions. if this it been a week ago, my impression in the u.k. was because the economy was strong and may was running on the strength of the economy and there had been no negative consequences to speak of, a lot of britons were confident about

going into a hard brexit scenario. the europeans, especially faced with a trump administration they have a hard time getting along , were much more and in keeping a friendly relationship. all bets are off if she does not get that clear mandate. david: thank you very much for being here today. former president of the consulate of foreign relations. we are live from new york and from the g7 in italy. it looks pretty nice. this is bloomberg. ♪

jonathan: you are watching "bloomberg daybreak." speed on the up to markets after a six-day winning andak on the s&p 500

all-time high on the benchmark, down about .2%. bid.uries are the cable rate really putting back at 128.54. we discussed that earlier. we inject a little bit of uncertainty into the sterling trade. struggling for stability. -- $48.79.e cents minister ofime italy is focusing the event on something all leaders need -- agree on, the need to fight terrorism. most of the other leaders agree with -- disagree with president trump's positions on a trade and climate change.

the justice department vowed to challenge an appeals court ruling that slammed the ban on travel from six muslim majority nations. religioush intolerance, animus, and discrimination." in montana, the republican charged with assaulting a reporter has won the special election. about 51% ofe took the vote. global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. david: our chief washington correspondent has been traveling with the president on his eight-day tour of middle east and asia and today he is in sicily with the president. as we go into these, on the eve of them, president trump made remarks about the germans and their exporting of cars in the united states calling them bad.

how much has this complicated or made more difficult these meetings? kevin: it has been quite the because quite frankly, there was a german reports adjusting president trump said the germans were evil people and that report was walked back to bad people and then president trump's chief economic advisor actually addressing the reporter and saying that what he actually said in this meeting was that the germans were bad on trade. this, of course, very much trying to get out on front of all of this as the president has been having several meetings with g7 leaders. early this morning he met with japan prime minister shinzo abe and they discussed some -- north korea security as well as a host of other economic issues. this, candidly, is a much different response in europe that the president. when he was

in both saudi arabia and israel when he was greeted more warmly. he has been greeted with skepticism and a sense of he will demand and perhaps that is why you are seeing things like -- the gripped handshake with french president emmanuel macron because this is quite frankly a president who is inexperienced on the geopolitical pageantry of these forums. david: i know they are going into a working lunch now. give us a sense of what the strategy from president trump's 's side here because there are some issues they could find agreement on. things like fighting terrorism. there are things like trade and climate control where there will probably be disagreements. is there a goal to stay to topics that will have agreement or does the president want to go face on into conflict? kevin: i think the goal from the

administration's mr. straszheim: standpoint is -- administration's standpoint is --information shadow sharing, the shadow of the manchester attack clouding over this summit and the bbc report the u.k. police officers stopped information sharing with the u.s. has emboldened the president's cry for there to be an investigation. is at faulthoever for those intelligence leaks." the second point i would make is on the paris climate accord. gary cohn that reporter that there is not going to be any type of major announcement on where this administration stands on this. they are going to be listening and as gary cohn put it, learning about where exactly european allies are on this. it is worth noting that the pope gave the president a book on

climate change during his recent trip to the vatican city. david: we will check back in on you for that reporting from sicily. richard haass served as a senior , as u.s. special envoy for northern ireland. he is now president of the council of foreign relations and the author of 12 books. most recently "the world in this array." welcome back to the program. i want to talk about g7. before we do that, let's talk about the trip overall. what is your assessment of how this has been? richard: i have said the front -- i would say the front half of the trip was not too bad. i would disagree the president gave the arab government too much of a past on the flaws in their societies which are for isis. groups

all things being equal, not bad. netanyahustly, both and in saudi arabia, they were so happy he was not obama and they were ready to cheer no matter what. david: that is the first half of the trip. richard: the second half, not so much. it would be hard to script a worse beginning. he was not walking into a difficult situation. suspiciousody was given what he said during the campaign, but it was kind of low hanging fruit. he had simply gone there and simply said i know we have had some differences in the last four months we -- i have come to respect you. article 5 is something i understand and internalized, that is all he had to say and today's coverage would have been 180 degrees different and that would have been the right thing to say and not just the

politically popular thing to say. he did not do it. he persisted in this idea of lecturing them. these have been historically for the last three quarters of a century, our principal partners. it reaffirmed all their doubts about donald trump america -- donald trump's america. jonathan: last week's experience finds it -- leads to believe that he is finding it easier to get on with middle eastern leaders and harder to get on with european leaders. richard: there is a pattern here. i think the democratic elected leaders are much more difficult for him to deal with. they've got politics in ways the others do not. they've got real restraints and public opinion in those

countries is very anti-american, anti-trump. they don't like a lot of what donald is doing here domestically. they see him and they scratch their heads and go this is not the united states i thought i knew then contrary to the middle east, they love barack obama. look at the difference in the body language of angela merkel sitting with barack obama and her sitting with donald trump it really is night and day. jonathan: do you think it suits president obama -- the president to sit down with middle eastern leaders because they are used to those kind of conversations. when he needs european leaders and they say yes, they have to go to their elected, parliament, and talk to them. is that the key difference? ishard: i would say it different. europeans care about things like climate change and human rights which this administration has been essentially written off. i think there are differences in style and the political culture,

but there is also real policy differences between this president and this leadership. let's take us to g7. have you ever seen a g7 that hasn't -- that has been this undefined, this late in the process? richard: is that a leading question? david: usually by now we know what they are going to say and i, for one, do not know. things: they will say may be terrorism, but there is no consensus on trade or climate. the g7 was created decades ago and the whole idea was to forge relationships and collective action. the big innovation was bringing the japanese in. guess what? there isn't one. you have very low denominator type of agreement. you don't have anybody there who spent a lot of time at g7's i

would expect. they do not have a staffed up defense department or state department. i don't think the secretary of state is in italy. i think he is in london today. jared kushner is probably the leading figure in foreign policy and he has come back home. it is tough enough to make foreign policy when it is choreographed. this is anything but. now we are watching video on the first ever formal theing of this the -- of g0. in my view, that is what we see on the stage. the giant -- chinese are actually building infrastructure. trump in a sense catalyzes that. jonathan: do you share that view? richard: i think the bottom line and he is onto something. the alternative to an american-led world is nobody else's to -- going to do it. it will be a nobody-led world.

--orld in which nobody leads centrifugal forces will take hold and it will affect us. the idea that we can build a moat around the united states and somehow be immune from the consequences of a world that unravels without our leadership, that is dangerously naive. david: this is your book "a world in disarray." audience, financial market leadership. what does that world due to trade and commercial relations? what does it do to the ability to make money? richard: the business community ought to get out -- off their chairs and get out there. they should be out there trying to resurrect to the trans-pacific partnership. trade does not just happen and it is good for american exports and regional stability. it ropes countries like china into relationships they do not want to unsettle. the business leadership has got

to speak to its own workers and make the case why their jobs and their livelihoods are better off if we have a united states open to goods and people and they better start pivoting. they better start a serious conversation and you see it with companies like at&t. they better get serious about the effect of art -- artificial intelligence and robotics. autonomous vehicles, that is going to displace jobs wholesale. we can close our borders to people and goods into the -- until the cows come home. americans will be out of work in increasing numbers. , youhan: richard haass will be staying with us. coming up, david abney will be joining us or an exclusive conversation on the company's expansion plans in china. you are watching bloomberg tv. ♪ ♪

emma: this is "bloomberg daybreak." in the next hour, an exclusive david abney, ups ceo. this is bloomberg. ♪ jonathan: it was the worst kept secret in the old market. -- oil market. opec extended cuts or nine months. of theuss the politics countries that make up opec plus russia, we want to bring in richard haass, the council on foreign relations president. we had a headline on one story a couple days ago that the saudi -- with trump in riyadh, but went with russia to stabilize oil. it makes sense for these relationships and opec. a proxy war between iran and

saudi arabia, different views around syria and they get around a table in vienna and do something with oil and money, how? pointd: one, only up to a . they obviously have a common stake under the price of oil because the countries you mentioned are essentially cash crop mark -- authorities. we have the -- the reason people join cartels, to restrict supply and keep price up. opec has a history of noncompliance, i think that is the elegant word we use, they would never say cheating and the energy market is fundamentally changing. a lot of it is what is happening in the western part of the united states and you are having a parting of the ways between economic growth and energy use its -- usage. a lot of the strategic backdrop to opec is not good for the future of that cartel.

david: are the economics of oil entirely separated? do they bleed over at all? richard: i think the way geopolitics intersect would have to be massive instability in a place like saudi arabia. the kind of thing we see in venezuela is local stability that would have consequences for output. the most part, there is a common goal. the real question is what happens when there is cheating? one of the principal regions i rock invaded code -- iraq invaded kuwait, because they were cheating. tostions of supply can lead conflict. there is a real collective interest in keeping supply constrained. jonathan: there is much celebration about -- a 110 million dollar amount of beals -- amount of deals. someone come around to me and said was that be the final big d

execute?al the saudi's they cannot really afford it, can they? -- this richard: if it is not in 20 years, i would say that is pretty good. when isis gets hammered in places like mosul and as they scatter, saudi arabia is one of the places they scattered to. saudi arabia is vulnerable given to unemployment, large number of saudi men given to corruption. if we get 10 or 20 years before saudi arabia is rattled, i would pocket that as a success. david: you referred to the western united states and shale. our positionected in the world question mark richard: i call it energy sufficient rather than independent. yet again an american -- an

american administration is spending a lot of calories in the middle east. i think what it tells you is the middle east matters for reasons of terrorism, for reasons of israel and so forth. even without the energy overhang, i think the middle east matters and it will stay that way. when so many ceilings, off the nuclearuclear -- iran deal, the middle east will be center stage like it is now. saudi's hate the iranians. they thought barack obama was soft on iran. they were hoping the nuclear deal would lead to a different iran. this is an area we can deal with. what is saudi arabia doing in terms of producing a society where young men do not grow up in our basically attracted to create the career choice -- make the career choice to be a

terrorist? haass, it ishard great to have you with us. we will be looking at the all-time highs shaking up the d.c. drama in a big way. we will speak with julian emanuel. is goldilocks back? there is a question for you. from new york, this is bloomberg. ♪ ♪

jonathan: u.s. economic data comes at 8:30 eastern including gdp and personal consumption. still with us around the table is richard haass. i want to begin with you michael and look at the gdp figures we are expecting. we are expecting an upward revision. what is going to drive it? michael: we are looking for a provision, we think it will be coming in investment categories. business spending was solid in

the first quarter. we think it is a lag response in the upturn to the industrial side of the economy last year. uptick, but very soft private consumption should be the underlying thing. thishan: let's get into soft private consumption and the strength of the consumer going forward from here in fold that into your view of what will happen with inflation dynamics, please. michael: i think most people are of the view and we are as well that the slowdown was transitory . there were factors related to warm weather around the beginning of the year in utility spending and some issues with the auto sector, not necessarily esire for auto. we think things will bounce back and there are already indications that is the case. april auto sales data was very solid. you have seen earnings report from retailers which looked just fine. employment has held up in april and we think it will again next week. the data is consistent with the

rebound in consumer spending. we think it will uptick to about 2.5% on the quarter. a rebound in inventory should make it all growth closer to 3% and the second quarter is roughly with 2.5% growth in the first half of the year. david: we've got the most recent data that the trade deficit had grown because of the diminishment in export. should that be a source of concern? michael: possibly. i think there is a lot of volatility in the month-to-month data. i think what you are speaking to his we have enough turn in the growth around last year that it is persisting into next -- this year. up 5.5%.re i am not ready to turn in the tile yet. the weakness in exports is something we will keep an eye on. deficit was driven by strength in exports of consumer and capital goods. there's have to go somewhere. they will either end up in inventories or be consumed by

households or spent by business. i think the data next week will show you that households are spending more and beget durable goods orders reports later today. seeink you will show it -- it show up in business spending. the last book you read was focusing on the importance of the u.s. economy. are we better off today when you book -- wrote that book? michael: good question -- richard: good question, i am trying to think on my feet. i think the future suggests higher levels and we enjoy a relatively low interest rate environment. i think the problem will be less economic -- two things, the lack of trade in agenda, those questions about whether we will get infrastructure modernization and i worry anything they could circle back to what we were this increasing cohort of american citizens who are not participating. you have this disconnect where the economy is doing just fine, but the economy in the sense of

a significant number of our fellow citizens is not. the question is, how do we deal with that? jonathan: we want to thank michael gave in -- michael gapen for joining us. and richard haass, the author of 12 books, most recently "the world in disarray." coming up, an exclusive interview with david abney, the ups ceo as we count you down to the opening bell. futures are just a little bit soft. .he dow downs 2/10 on the s&p from new york, you are watching bloomberg tv. ♪ ♪

jonathan: president trump

targets of the german trade surplus. things just got a whole lot interesting first early trade. the polls continue to narrow. shape ofetary markets the messy global politics. the s&p 500 and the nasdaq -- from new york city, good morning . a warm welcome to bloomberg daybreak. i am jonathan ferro alongside david westin. we continue to count you down to the opening bell. softer following a six-day winning streaks. down around .2%. crude rolling over once again. that is the story in the market. let's get you up to speed on what is making headlines outside the business world. the group of seven gathered in sicily for a two-day summit. primest, italy's

minister, is focusing the event on something all leaders agree on, the need to fight terrorism. most of the other leaders disagree with president trump's position on trade and climate change. son-in-law isp's now focused on the investigation into russian meddling in the election. investigators are looking into meetings jared kushner had with the russian ambassador and a banker from moscow. he is now a senior white house adviser. one of his lawyers said he will share what he knows about the meeting. the next stop for the trump administration's travel ban will likely be the supreme court. the justice department promised to challenge a ruling that band "drips with religious intolerance, animus, and discrimination." global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. david: we want to go back over

to sicily where president trump is meeting with -- kevin cirilli has been traveling with the president. let me talk with you. trumpt heard president may want to keep this on issues like terrorism to have agreement. will other g-7 leaders be happy to leave aside things like trade and climate control which are a little more contentious? >> it seems like they will happy to leave aside trade or minimalize it. at the other g7 summits i have been to this year and g-20 summit, the finance ministers have left trade out as well. you could see the same kind of six on trade. on climate change we spoke with the canadian foreign minister who spoke and said we could get a statement on the communique between climate change that

leaves the u.s. out. it has been said by gary cohn that the president is listening and clearly wants to hear what they want to say on climate change. issues, thee other one i find most interesting is migrants. italy is the host, the president of the g7 right now and picked sicily because we are here in the mediterranean ocean right where -- only a few days ago, italian naval officials pulled body out off the coast oblivious -- off the coast of libya. it is important to italy and germany, but doesn't seem like something they are going to be able to come to an agreement on with the u.s. president. look: what would a win

like out of this meetings and what -- how big a problem would it be if there was a g six statement on climate that specifically pinpointed the united states as not complying? kevin: that would be a bombshell. i completely agree to matt miller's point. within the last hour and a half, talking to a print pull reporter saying they do not anticipate the united states will be making .ny kind of -- commitment the president is still very much in a listening mode. to ae that the pope tried lot of back and forward here -- treatmentent has not -- treated with as much fanfare. the president is a bit unexperienced on the geopolitical front with the pageantry of these summits.

jonathan: is this what the g7 needed question mark a bit of a wake-up call to the consensus and the status quo and for a disruptor to come along and say german trade is a problem, most of you understand why it is a problem. can debateh, we whether it is effective or not, but ultimately the talk -- do they need something extra to get them to think twice about the past they have been going down? to get people to pay attention. the past g7, nobody has really covered them that closely. the last g7 last year, four of those leaders are gone. four leaders are new from different parties even. there has been a real disruption, but nothing like donald trump who is simply not willing to play with the status quo. i think other foreign officials and leaders here at the g7 just like other finance ministers a

few weeks ago, are still trying to get a read on him. they are still trying to understand what makes him tick, that they can believe what he says and his strategy. trump't see donald spending time with leaders earlier. put his hand on donald trump's back and even theresa may was laughing. it is not all awkward moments and understandings. they are trying to get to know each other at least from a european perspective. jonathan: they are having a good time, our day? david: there was a lot of body language -- of those two? jonathan: i want to know who is giving of the assignments here and clearly it is kevin cirilli and matt miller. david: they don't like us very much. jonathan: despite visible geopolitical tensions, markets continue to mount high. s&p 500 and nasdaq both at

records. a piece this morning acknowledging it is how you label it, the trump reflation trade or liquidity trade that determines your investment strategy. he says "with political implementation having gotten more complicated, the current rally is essentially a liquidity -- it would need to be anchored by stronger global reflation and better prospects for progrowth qualities -- policies in the u.s." joining us to discuss is keith parker. what would you say back to that? keith: my view remains the rally inequities has predominantly been driven first and foremost by the global recovery, synchronized manner, turn up in inflation. we just hadq1 earnings strong

growing 13% year-over-year as mohamed el-erian pointed out, a liquidity environment where more and more money is coming into markets and equities earning a much higher yield than bonds. jonathan: how important is the liquidity story and the resilient bit, the resilient story, the magnitude of corrections shorter? the time arising for these corrections, shorter. that story just got more aggressive. keith: the longer the data remains positive, we would get another read on gdp. in this mindset of growth is fine until proven otherwise and in that environment, corrections are small and fall but -- far between. david: if mohammed is right, it is principally a liquidity play. what does that tell us about whatthe fed is doing and

the ecb is expected to do and the risk that poses? keith: the communication i hear is they fed and ecb want to go gradually. they do not want to disrupt the market and the economy and sensitive -- sentiment as we saw in q1. this environment of low rates and earnings recovery, your best are tentative -- your best alternative is directives. do it if they beautifully, it will mean less liquidity than we have today in 24 months from now. what replaces that? keith: when central banks globally are buying up on that bond issuance, you are starting from pick of zero and to get a point to where it is removing liquidity where coupons and dividends are being reinvested, there is a long runway. jonathan: back in summer of 2016, bond markets moved in tandem and then they crashed to all-time lows with equity

markets at all-time highs. there has been a divergence recently. going forward, if you get a correction in the pond market, are you positive the s&p market will not move the same way? keith: i think it depends what is happening with the data. in 2015 what we saw when the fed was trying to rate -- hiked rates -- if we are in the midst of my colleagues saying a growth recovery and rates giving up and you get a selloff in bonds beating financials and the value trade higher, i think that is very positive for markets. the thing i cannot quite make out is if you are going to have growth, ultimately you are talking about gdp. it has to be driven either by demographics or increased productivity and i do not see where either of those is going -- ome seen: the weakness we have

is a reflection of fewer consumer spending. corporate is also not spending because they did not have profit growth to spend. in the u.s. when you have 18% of , that alsoemand weighs on productivity. will beeith parker staying with us. the chinese market for express delivery is expected to grow by 2020. ups wants to make sure it has its fair share. david abney will be here for an exclusive interview explaining the joint venture with a leading chinese counterpart. live from new york, this is bloomberg. ♪ ♪

david: this is bloomberg.

oil is extending losses to a third day and there is mounting concern about the organization of opec's long-term plans. here is what ministers had to say about the deal they reached yesterday. >> we have considered options for a high end cut and all indications solid that a nine-month extension is optimum. >> opec says that it is necessary we extend the level of production based on the number of decisions for nine months. it seems that can control the us to theand to reach target price that we have in our mind. thatl prediction indicate the market will be stabilized after the nine months. >> certainly i support nine

months because i think it gives a longer just station. -- gestation period. obligations very seriously and responsibly. withlieve our corporation opec and non-opec countries. manusan: joining us is cranny who has been covering opec through the week. talk to me about the strategy. i understand the policy of the nine-month extension, but what is the objective? whole the strategy is firm at the moment when we rebalance the market. there's a great piece written by have year as they leave -- javier be in a -- as they leave they leave javier as

vienna. -- that saudi arabia is going to do less, the boys and girls at the bloomberg team drilled into the numbers. -- its see their own oil is a bit hot in saudi arabia doing -- during july and august so exports dip to just under a million. this will take you to the middle of the month, the middle of july before it kicks in. they have gone with steady as it goes. you heard on that piece with alexander novak, the russian minister. i just wonder, have they got the wherewithal in russia -- he's by 3000ol -- to cut

barrels and more a month -- maybe we should get him a tesla? jonathan: then the saudi's would be in trouble. talk to me about important -- how important it is for opec to try to formalize this relationship to russia to give them a little more clout on the oil market. this morning and yesterday, this is not having the desired effect. manus: it is not. it was a fairly poultry reaction to the market this morning. there seems to be a lack of conviction in the market. 2004 is the last time there was this attempt -- attempt to have a long-term, robust relationship between the two sides, opec and non-opec. it fell apart because of a lack of compliance from the russians. it's a bit like dating. it seems like we have moved past the dating stage and they are going to introduce one another

.o their parents there were -- they were vocal of the prospect of formalizing this relationship between opec and non-opec. are work --se barkindo is in there at the moment. they all seem secure they will try to rebalance market and reassure the market you will not million barrels -- barrels of oil onto the market in april of next year. they said the joint committee -- they are going to meet twice a month than if they need to adjust, they will. that was the new wants of the of the pressce call yesterday evening. david: we want to bring in keith parker of barclays to get his perspective. let's assume they haven't been this deal, how much of a difference does this agreement make to the price of oil? keith: i think the fact they did

do it and oil price sold off means it meant a lot. i think there is positioning going in that has been cleaned out over the last couple of months that has weighed on oil and there is an expectation that opec -- from what i heard from various ministers, they are providing a put to the market and if that goes away, the impact would be considerable. jonathan: who is that for? what if they had waited to see what happened to the producers in the united states a little bit longer? mohamed el-erian brought that up with us today around this table. if they had weight -- waited longer, they could've done some real damage to the industry. keith: it is a bit counterfactual. you had various lifelines thrown to the marginal producer in the u.s. and shale, whether that be through banks extending credit agreements or opec putting this production cut into place and i

think it could have potentially delayed the day of reckoning. shale -- we use this broad term, shale is 30% cheaper to produce and double the productivity, but if you go by what people are saying to me, we are reaching the seventh-inning and i said this yesterday on "surveillance" sorry for the duplication on your show, but that shale you have so far is cheap and it is cost-effective, but we are moving to a new period in shale which is the seventh-inning and it is going to cost more. that is what the societies are banking on. -- saudis are banking on. david: if you are right about that, you are assuming technology does not keep apace. manus: to be fair, they dropped by 30% and doubled can -- reduction. does moore's law -- and i am

reaching deep here, but does law apply in terms of shale and extraction technology over the last -- next 18 months to mark i don't have the answer, but i doubt it. it is a very fair point. see you later. are going to let you go. someone is screaming in my ear. i know how tough it was. manus cranny, great to have you on the program. keith parker of barclays will be staying with us. you need to pay attention to two parts of the market. us.of ups david abney joins you are watching bloomberg tv. ♪ ♪

jonathan: the u.k. election just got a whole lot more interesting. the conservative lead has slipped to just five points. when the election was called, it was 20. it is weighing on the pound. i want to discuss this with keith parker of barclays. had you think about the brexit negotiations if prime minister may does not get the majority she wanted? we may even drift toward -- a hung parliament. what does that mean for brexit negotiations?> keith: i think it throws a wrench into the strategy they were going for. and aorceful negotiations higher odds of a hard brexit. you are seeing that being taken out in the pound. david: what does that do to trade, to markets if we put to the test what theresa may said

at one point that no deal was better than a bad deal -- we may be looking at and no deal if you come out with a hung parliament dragging things out west and mark what does that do with -- dragging things out. keith: i think you would see it first and foremost, the playbook gets priced into currencies first. we have been cautious on u.k. equities for this point where this is an uncertainty period and i think from a broader market perspective like we discussed at the front, it is what is happening to the growth factor up in u.k., europe, and globally. jonathan: if i asked this question him on the go it what have sounded ridiculous and some people would still say it sounds ridiculous, but maybe less so. what does socialism in the united kingdom mean for the ftse 100? keith: that's a pretty tough question. i think a shift any time you change the rules where you are of party tone sense

another, i think it is tough for corporate to digest and one thing -- we have been cautious on u.k. equities going into this and it goes forward. jonathan: -- what you could see after the knee-jerk reaction is because theylds have to fund a bigger deficit and the bank of england may be tighter and therefore a domestic policy away from brexit, you get a stronger pound. that's the theory. david: keith parker will stay with us. coming up, an exclusive interview with david abney, the ups ceo to talk about his new venture in china. this is bloomberg. ♪ these days families want to be connected 24/7.

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it all adds up to our most reliable network ever. one that keeps you connected to what matters most. ♪ julie: from new york city, this is "bloomberg daybreak: we are second away from a data dump. futures are softer after a six-day winning streak of the

s&p 500. board switch up the quickly, yields are lower today by two basis points. the story in the united states, let's begin with gdp. a sizable surprise an upward revision to 1.2% for the first quarter. the median estimate was 0.9%. personal consumption doing some lifting. gdp coming in with an upside surprise. durable goods coming in a little better than expected as well. the previous month with a big upward revision as well. durable goods ok compared to the estimate. capital goods flat.

quite athe headline is sizable upward revision for the first quarter growth. david: that is my reaction. let's bring back keith parker from barclays. we are joined by the rate strategist in princeton. i agree with jonathan. my initial reaction is the big story is the jump in first quarter gdp because everybody thought it would go up some but not to 1.2%. what does that tell us? >> a large part seems to be from the consumer continuing to spend during the first quarter. not only that, but you dig deeper and look at inflation numbers. inflation numbers were higher than expected. all of these things put the fed squarely on the table to hike in june. obviously, there will be a lot of talk about will they continue to talk about reducing the size of their portfolio after

quantitative easing. did jim bullock and brainerd get shot down by this data? spouted -- it a less powerful to some members -- less palatable to some members of the board. >> this data confirms the consumption slowdown in the u.s. the first quarter was not as bad as feared. some of the data for april and beyond scene 2.2 recovery. number two, the investment backdrop remains solid week productivity means that should continue. the other thing i was looking at was new orders. something to watch if the recovery in investment continues. zero as opposed to

a production of .5%. that is not good news. >> reading through the data, that jumped out at me for what i am watching for recovery and industrial spending. david: keith correctly says nothing is a sure thing. do these numbers seem to indicate the fed was right saying they were looking through the initial print of the gdp with modest growth? lee kun-hee obviously -- >> obviously. we have had a string of weak first-quarter numbers over the last few years i do not know if it is a seasonable adjustment issue, but there seems to be a pattern of a stronger second and third quarter numbers. i think the federal reserve was aware of that. that is one of the reasons they think the first quarter was transitory and we would see some data pick up. i agree with keith. i think the durable numbers are squarely -- squirrelly. we get numbers next week on personal income and spending. i think those along with the

jobs numbers will be the numbers the fed will look at because those are the real numbers and show the real health of the oppose -- opposed to rebounding the next month. jonathan: what supported growth in the first quarter was business investment. this is the first quarter gdp figure. capital goods for april, this is about follow-through into q2. i was seeing signs that pick up in business investment might be transitory as well? >> it is possible. there is a disconnect between soft and hard data because the soft data is pointing out there is confidence in the boardroom. people think the economy will continue to be good. but on the other side, you don't see as strong data in things like the durable goods numbers. remember what has been missing

from a lot of this economy is a real uptick in the service sector. durable goods and manufacturing really picked up and were doing well. that might have stabilized but we need services coming back. you are starting to see signs of that in the recent data. david: we have been talking about the difference between hard and soft data. do the c.e.o.'s believe the soft data? if they believed them, wouldn't they be investing more? >> the question around investment is, do you have the money to invest? when profits or flat, they don't. now profits are up. stock prices are up. i think that sentiment, you can check the box. the other question is, is there demand coming through for that? is there a need for new office space, etc.? i think you're seeing some signs of that. we are on a multi lane highway were different aspects of the economy are running at different

speeds. jonathan: looking at the bond market, the treasury market is saying the weakness is not just transitory. it is staying. .223-224. what is the bond market's read on growth in the united states? >> i think 10-year yields in particular are also looking at what the federal reserve is going to do. if we see an uptick in inflation, will be federal reserve start to unwind their balance sheet? as they do that, you take away the expectation of future inflation and future growth. that is one thing going on in the 10 year sector of the market. end you be the front a have to look at because that is of the fedtations are going to show up. i think the 10 year will be stable and boring for the next few months. david: do you see data

indicating inflation is picking up to the degree the fed with speed things up? louis president last night saying he was disappointed in inflation. >> inflation is not high. asluding food and energy well as the headline numbers, they are all around 2% rate that is the feds target. it shows why the red wants to go gradually. they don't think we will have runaway inflation. it is hard to see where any kind of runaway inflation comes from. a few hikes this year and next probably does not derail the economy much because you still have low interest rates and tight credit spreads. financial conditions are still favorable for growth. the federal reserve to get out of some of the superlow inflation trying to get back to something neutral. rate 3% or 4%

anymore? probably not. it is probably lower. jonathan: a marginal balance off the lows are futures and two-year yields. it means a marginally stronger u.s. dollar off the back of the story. euro/dollar rolling over to a session low. that is the market story after an upside surprise on a second read of u.s. gdp. let's get headlines outside the business world. >> president trump is attending his first group of seven summit. the president's position on climate change is at conflict with others leaders. leanin toward a betterg understanding of the european position. in montana, the man charged with

assaulting a reporter has taken 51% of the vote. that is a setback for democrats who hoped to capitalize on president trump's low approval ratings. in the u.k., the labor party leader says the war on terror is not working. he laid some of the blame for domestic terrorism on british foreign policy. the general election campaign resumes today, four days after the suicide bombing attack in manchester. a new poll shows labor within five points of conservatives. global news 24 hours a day. i am him a chandra. this is bloomberg. david: next, an exclusive interview with david abney, the u.p.s. c.e.o. live from new york, this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak: i am emma chandra. coming up, he will unveil his playbook for training the market s.cord high the market at record highs. david: this is bloomberg. u.p.s. is the world's largest package delivery company. china is on the way to becoming the largest market for package deliveries. yesterday, u.p.s. announced plans on a new joint venture. there joined exclusively by c.e.o. to take us through the new deal. take us through this deal. it is a joint deal. express.bout sfx

chinais the leading express delivery company. have done an amazing thing over the last few years. they have built an incredible network. they are the type of company we like to network with. david: you have been in china since 1988. why did you feel the need to joint venture with a chinese company to expand your presence there? >> we are always looking for what is best for our customers. we have significant presence in china. we are proud of our operations. if you take the regional es, itths of the compani increases the value in the eyes of our customers. ashas an incredible presence far as 13,000 access channels too small and midsized chinese

companies. you combine that with our incredible express network where we deliver 19 million packages a day in 320 countries it and territories. one plus one equals a lot more than two in this case. sfx expressd that delivered 31 billion packages. that is pretty big. what initially will you be putting into the joint venture and what will they be putting into the joint venture? >> this will be an equal joint venture. we both put around $5 million into the joint venture. that is phase one. we will see where we go from there. the china market is so important to us. it is the world's largest e-commerce market. it is an incredible opportunity to provide customers even more benefit. david: initially, according to the report, this will be

focusing on transportation of packages from china to the united states. what is phase two and three? how big could this become? >> we look at this is just the beginning. this could be very big to us. more importantly, to our customers. first is from china to the u.s. equally as impressed and looking forward to u.s. to china, and then of course china to the rest of the world and back. there is all kinds of potential here. this is a very big first step. we are excited about it, but there is more to come for sure. david: as you conceptualize this joint venture, will be focused on business to business transportation, business to consumer, or a mix? >> it is going to be a mix of the two. where we really believe we add additional benefit is to our small and midsized customers in

china that have not had access to our network in the way they will now. it is both. david: reading about sf express, it strikes me they have been intertwined with alibaba. a lot of the remarkable growth pattern has been because alibaba which focuses on small and medium organizations. to what extent is this a way to start doing more business with alibaba for u.p.s.? doingtime you look at business in china, alibaba is a force to be reckoned with. they have significant presence. we already have a good relationship with them, and we will continue. next month, alibaba is having their first u.s. conference with small and midsized customers. i will be one of the presenters at that conference, so we feel

very good about that relationship. david: i noticed that. jack ma will be there himself. i wonder if that indicated there might be further integration with alibaba, not just with sf express. >> we obviously don't talk about future deals or speculate. but we consider alibaba a very special company and a good customer of ours. we expect to continue to build that relationship as well as with all of our other customers. david: it strikes me when we start talking about shipping things from china to the united states, we have a president who has expressed skepticism about the extent things come from china to the united states. withis your view on trade china and what would your advice be to the administration about how best to structure that trade? china iseve trade with very important. i think the two economies are very intertwined.

i think the recent discussions between the two leaders show they believe that, too. the president's focus has been on bilateral trade agreements versus multilateral. at u.p.s., would support either one of those agreements. what is important is we continue to take trade barriers out so our u.s. companies can have andss to chinese markets chinese consumers and vice versa. re-think relations will continue to get better between the countries. david: david abney, thank you so much for being with us. re small: coming up, a caps making a big comeback? look out for the conversation. 42 minutes away from the open. futures off the low end at a

record high yesterday. from new york, you are watching bloomberg. ♪

they found themselves at the receiving end of renewed attacks by president trump for selling too many vehicles in the united states. he said we are going to stop that. joining us is matt miller and .rom frankfurt, tom i have seen comments from gary cohen, a german spokesperson, all on this story in the german press. how is it playing out? >> first of all, i should say the german press has played this story big today.

gone to the most widely read paper in germany. the german press is putting the story out there. however, all of this is based on a quote from speigel. sourcese an identified from people who hang out with people who may have been in the meeting. you know how the game of telephone works. maybe the direct quote is not really a direct quote which is why they have all said he did not mean the german people, he meant german imports. we know donald trump has a problem with german car imports in the u.s. he said as much in an interview in january. he is angry everybody on fifth avenue has mercedes-benz and nobody in germany is driving chevy. don't worry about the fact you has not been selling chevy in germany for a couple of years now. he wants to do something about this. ahead of way it looks

the g-7 meeting. angela merkel will come out in a couple of hours and give a speech. to german press will want hear her response. are you allowed to park on fifth avenue? [laughter] tomthan: i want to bring in and ask you about what is happening in germany. carmakers worried about policy initiatives following up this kind of rhetoric? >> carmakers are not talking at this point. i think they tend to try to stay out of political things unless there is an actual move they could cite is putting them at risk. investors seem not to be worried about it. they were not happy because stocks were down between 1.5 percent and 2%. that is not seen as tragic.

when you consider the german collective sales amounted to 1.1 million vehicles out of a market of 17 million. that is the perspective you have to look at. it is important to note b.m.w. theirrcedes both have biggest s.u.v. plants in the world in the united states. when they are talking about b.m.w. and mercedes on the streets, a lot of them, especially s.u.v.'s, come from the states. >> matt miller, there is a lot manufactured in the united states. it is no secret worldwide the german economy has been driven particularlyo of manufactured goods and automobiles. has the president put his finger on a legitimate issue? >> is export driven economies

have said how happy they are about the free-trade agreements that currently exist. this is clearly one of the president's issues. japan is happy about the free trade agreement that currently exists. he has said he wants to have a more fair trade agreement rather than free trade agreements. this has been a push and pull we have seen a lot at these g-7 and g-20 meetings. the question is how much the trade balance really means to an economy these days. jonathan: i think the president touched on something some member states in europe share a concern about, the trade imbalance. the french would like to see the germans by more from france. can those things happen? is it just down to market forces, the way it should be? france and germany are part of the e.u. so they

few trade -- there are very trade barriers within europe now because of the e.u. agreements, as opposed to shipping from the e.u. to the united states or vice versa. carmakers get their parts from all over the world now. eggplant collects things from -- a plant collects things from outside the country and exports them again. jonathan: tom lavell, great to have you on the program, and matt miller. coming up, the opening bell from new york. this is bloomberg. ♪

♪ jonathan: the u.s. economy's first quarter was not so

miserable after all. divisions emerge at the g-7 after president trump targets the german trade surplus. world leaders look to avoid r confrontation. you are york city, watching "bloomberg daybreak: i am jonathan ferro. alix steel is off today. 30 minutes away from the opening bell, teachers often lows. basis point -- a higher rather. euro/dollar a little weaker. that is the story across assets. here is abigail doolittle. >> happy friday. higher in the free market, cosco 1.5%. are up by more than a very solid quarter.

they beat top and bottom line estimates. same-store sales came in at 5%. a bloomberg intelligence analyst says this has everything to do with the company delighting customers with the products, driving traffic and ticket prices. cosco is bucking the bearish trend hitting retail this year. another retailer doing well, big on pace for its best day in a year since they put up and earnings beat. shares at current levels are also set to open above the moving averages, something that moving inuyers are and they continue to have bullish action. not participating in the bullish retail activity, gamestop shares down but beat first-quarter estimates. investors wanted

them to raise the view for the year. there is a 21% bearish short interest. some investors are not surprised guidance stays the same. westinghousere his on the -- where is your house on the nintendo switch? [laughter] that tells the story. the market continues to climb higher despite the currency of political tension. says theanuel goldilocks market is back making predictions a mix. he joins us now. a supportive federal reserve removing accommodation at the pace of a snail and the market seems to be ok with everything. is that the story? >> that is the story. you see it not only in the equity market indexes but in the vix. the volatility.

when we think about risk and reward, it is the times where everyone thinks the market is bulletproof that there is nothing to worry about when we do get concerned because if you look at the last eight or nine years, the market has been constantly fed higher by climbing the wall of worry which has tended to come with corrections. jonathan: you tended to do well at climbing the wall of worry for a long time. why is now different? >> valuations are at peaks we have only seen during the tech bubble. what we are starting to see is a little bit of lacking small-cap stocks, crowding into technology. we are not saying that is a bubble. it is something we continue to like, but we note the leadership is becoming narrower. these are concerns that seem to be below the surface, but are worth noting.

david: how important is it that we are living in an environment we have never seen in terms of central bank monetary stimulus? a lot of dollars and euros are being thrown into the marketplace by central banks. >> we have climbed the wall of worry to a great extent over the last eight years. now we are in a situation where the world central banks are starting to remove that. the tide is coming out. all of a sudden, to us it is more than coincidence that the last four spikes in volatility over the last year have all been because of political events. david: exactly my point. if in fact people are wrong in overcrowding this bull market, will improve -- will it proved to be because central banks have pulled back? >> that can be part of it. central banks can pull back any markets go higher. we think that will happen. everything else really does need to go in this environment at

these multiples at this level of the vix everything needs to go right. jonathan: muhammad el-erian writing this morning about the trade. he says this. jonathan: the market seems to be holding up even though that is the base case of a lot of people. why? >> we have reverted back to an environment with 10-year yields being suppressed has fed into the growth stock story where

everyone was positioned for the value stocks coming into the beginning of the year. we agree with that statement. what we would like to see is the market get a little deeper and rotate and perhaps get yields moving higher as an acknowledgment we are going to grow north of 2% this year. jonathan: at a meeting earlier this week, for the first time in a long time i heard the name tina -- there is no alternative. i had not heard that for about 12 months. how significant is that? there is no alternative, i have to buy this, how significant is that? >> in the 1970's, it was called the no decision, stocks that you bought and never sold. risk by it was value at

which the lower the volatility goes, the more risk you have to take mathematically. but when the turn comes, you have taken far too much risk. david: how big of a structural facture are aging demographics? people are putting more money to work as they get closer to retirement seeking out bonds which will keep the yield rate down. >> demographics are a large part. for us, the challenge over the next 10 years is the transition between the baby boom and millennials. in 2025, the oldest millennial will be 45, just ready to hit the prime of their investing. the oldest baby boomer will turn 80. the death rate will take its toll. the handoff of that money from one generation to the next is where the very long-term outlook for investing is good. but you have to transition between the now and then. millennials are just not set to embrace investing at. jonathan: they are not saving.

cannot afford to. >> it is difficult in a world where arguably all assets because of liquidity have been pushed to levels we have rarely seen. it does make saving difficult. jonathan: how do you express all n investment proposition? >> you have to be selective. we are eight years into the bull market. high valuations. it is more selectivity. we continue to like financials. we think it feels start picking up, that trade will come back into favor. we continue to like technology, although we expect more volatility this summer. health care has been a beaten-down area we think has more upside. finally, europe continues to be a value proposition for us. the key word is selectivity.

as derivatives people, we also like using options at certain times. it makes sense here. david: it is interesting. he did not mention emerging markets in that list. we sort ofsay psychologically group emerging markets into europe. david: no offense, jonathan. >> the reason europe is going to work well in our view is because europe is the exporter to emerging markets. it is almost sort of a derivative trade. there is no question about the fact coming into this year, the sentiment on emerging markets was pretty dire. we have seen a large turn. but again, all of these things take time to unfold. we do think emerging markets will work. jonathan: i don't know what you

think of a socialist prime minister in the u.k. and if that would develop your thoughts on the emerging market. would you like to talk about that? >> we will staley from that. jonathan: coming up, last year's top performer continues its slide from first to worst. we will discuss the outlook for energy. from new york city, counting you down to the open. you are watching bloomberg. ♪

♪ david: this is bloomberg. i am david westin. oil has extended this biggest lost in three weeks as opec got a deal but markets were hoping for more. here is what ministers had to say about the deal. >> we considered options for a higher cut.

thatndications are solid the nine-month extension is optimal. opec says it is necessary we extend the level of production based on the november decision for nine months. it seems that can control the and reach us to the target price we have in our minds. >> all studies in predictions indicate the market will be stabilized after nine months. >> i support the nine-month because i think it gives a seeer gestation period to how the reserves are holding up. >> russia and russian companies have voluntary taken the position to adjust production levels. they take these obligations very

seriously. we value our cooperation with opec countries. we plan to be in full conformity over the next nine months. david: still with us is julian emanuel. do they need to change their name? they seem to have expanded their membership. a number of those people did not used to be in opec. >> it does seem to be all encompassing. i think opec is taking the attack that had used to use, data dependency. you hear that. what they are saying is we think this is going to work, we are confident it is going to work, however we will be monitoring the situation closely. to us, expect stability in and around $50 a barrel. when you look at the stoxx haveelves -- energy stocks underperformed drastically this year, in part because of the psychology of the reflation trade that appears to have

waned. extent oil does stabilize and opec can show it is data dependent and responsive , we think there is an opportunity in the short-term. david: i want you to ask a name a price. is opec trying to put a floor under it? make sure itng to does not go below a certain number? >> risk management is their watchword. i would suggest the answer is yes. recall last year early in the first quarter, we dipped below $30 a barrel. i do not believe that type of coronary condition is something anyone wants to see anytime soon. moreover when you think about the fact the global economy appears to be firming in concert, you can argue there is a floor -- that demand is supporting the floor as well. jonathan: energy companies in

europe taking a hit today, the biggest declining industry group over there. some of these are well-run businesses. they have been forced to make significant cuts. they now have opec, a group of oil producers providing them with a hook for what they produce. is there some value? >> absolutely. if you go back to last year, energy companies were bought on the basis of yields. if you look at the u.s. and european majors, they came out and said the one thing we are not going to do is cut the dividend. it is really multiple put options. david: were is the greater opportunity when it comes to one of these integrated oil companies? is it the big guys with a smaller guys? it seems some of the smaller shale guys are the ones succeeding. >> what you see in a particular cycle when names have been

battered as they have is sort of the first line of risk-taking is for the larger, more liquid, assumed to be safer companies. itself, itis proves goes into places we think the large cap services companies, the land drillers, and so forth. jonathan: looking at the major players, i don't want you to name names, but is it a focus on the european energy players or the u.s.? >> europe has value in just about all areas relative to the u.s. right now. u.b.s. does prefer the european names to the u.s. at this point. jonathan: julian emanuel will be staying with us. small caps have recorded six straight days of gains. despite the russell, the russell is poised for the biggest month of decline since october. could the trump reflation trade

be coming to an end? we will get analysis. how many times does that come up in your meetings? too many? >> seriously. the whole issue of surrounding the fact that people came in position for the reflation trade at the beginning of the year, and that was abandoned, it shows it is not call that anymore. it has essentially gone to a broader market type theme. jonathan: you are staying with us. this is bloomberg. ♪

♪ jonathan: u.s. small and mid-cap stocks could see a prolonged correction as it pulls back from a 14% run-up since the election according to jeffrey's. joining us is steven desanctis,

the small and mid-cap equity strategist. julian emanuel is still with us. on how your argument will evolve over the coming months. >> we are seeing underperformance now with small caps by 600 basis points relative to large cap. you have had many guests talk about the market being expensive and where valuations stand. we are at 19 times earnings. i think the big issue will be earnings growth. quite frankly, they have been relatively weak versus the large caps. the large caps have been about .5% growth in the first quarter. estimates have gone from 8% or 9% to about 1.5%. the interesting thing is the fourth quarter numbers still stand at about 20%, which is pretty unlikely. i think you will see downward revisions. earnings growth in

the large caps and more expensive valuation. i think you are touching on this earlier, the inflation trade being over. people talking about this on a regular basis. morenk the markets evolved than is the reflation trade over or not. i think it is where small cap is leaning towards more of the secular companies because earnings growth is going to be weak so you want to own the company's able to grow earnings regarding -- regardless of the economic backdrop. jonathan: if you want a proxy for domestic growth, usually play the small caps. there was much enthusiasm about domestic growth in the united states six months ago. it does not seem to be there anymore. it is the 2% story. is that what is weighing on small caps now? >> absolutely. we cannot escape politics. there is an aspect of that as

well. small-cap stocks on average pay a higher effective tax rate. they really discounted the potential for tax reform perhaps to a greater degree than large caps. and now as we see, the political thing.se is a difficult that is why, to us, a good part of the sideways action, which frankly when we look at the market as a whole, we would like to see smoke tra -- small caps trade better. david: we talk about small caps like emerging markets, one thing. which ones have done better or worse? on earnings, which identified earlier as a key issue? >> first of all, i would not relate emerging markets to small caps. that is more of a risk on. if you want risk on, small caps and emerging markets will do better.

i think small is going to be geared towards u.s. economic growth. if we are in the 2% environment and have small caps trading at 19 times earnings, you're not getting the earnings growth. when you look at the earnings growth and break down the 13% for the large caps, it is the international portion driving the much better earnings growth for large versus small. the economies are accelerating outside the u.s., whether emerging markets or better trends in europe. that is driving the big difference in the growth rates. i think for the fourth quarter, it was going to be a domestic story. 17, we have part of seen it be more of a global story as opposed to more of a domestic story. david: steve, my question was meant to be, which sectors within small caps, which

categories might be doing better or worse? i assume they are not doing exactly the same. >> you are right. if you look at the spreads on performance, energy is by far the worst. health care surprisingly has done really quite well with a better backdrop, mostly m&a. that was a group that underperformed. tech has been a stellar performer in large cap and small-cap, especially more recently. i think tech is one of the areas that has some legs due to the fact it fits the secular growth theme. they don't need the economy to do that well. for earnings growth to come back and be better than what we are seeing, overall we are seeing good revision trends. we had a good earnings season. you have m&a in that area. they lagged last year, so it is a bit of a catch up trade. i like financials on the bank. that is a longer-term story.

i like consumer discretionary. it has been a tough space. i think you can do better with stockpicking inside of discretionary. i think would have been underweight the bad proxies. we see two more fed hikes this year. that will weigh on those groups. the reflation trade will be ending and i think that continues. jonathan: that was great. thank you very much. julian emanuel sticking with us. the opening bell coming up next on "bloomberg daybreak." futures soft on margin. we are off the lows. gdp looking firmer than before. you are watching bloomberg. ♪

jonathan: from new york city on this record high morning, let's go to the market action. .utures are off the lows

an upside surprise, down 11 on 0.06%., down here is the scene elsewhere. yields are a little bit lower by a basis point. the dollar firmer by a quarter. 97.47 on the dxy. we reclaim a 49 handle on wti. let's get to the cash open. here is abigail doolittle. taking ainvestors breather from the dow and s&p 500 after those record highs. take a look at the nasdaq, trading higher. actually, i don't think it has -- it has it is flat not opened. the day is young, these averages have been up six days in a row. no records on the open but the day is very young, so that see

where we go. no surprise that we are looking at solid weekly gains. behind some of those records, here are some of the big stocks behind the strength, amazon, alphabet, intuitive surgical. lots of strength here, look at these huge gains. on pace to hit $1000 a share perhaps in the future. alphabet on strong ad sales growth. intuitive surgical has beaten eight out of the last eight quarters. let's see where stocks finish today. not surprisingly, volatility is dropping. white we have the vix. in orange we have the five-year average. vix below 10. these record lows we have been seeing recently matching levels in the 1990's, puzzling loss of

investors. one point to be made, it appears we are heading up on a patch of lows, which has happened before, perhaps suggesting we could see a move up. analysts say this lack of volatility is the biggest danger to investors, which they are not fully pricing inappropriately. jonathan: thank you. still with us is julian emanuel of ubs. .oining is also is sarah hunt sarah, how do you view the vix and volatility, a reflection of what is happening elsewhere, or an indicator of what is to come? sarah: there are a lot of competing theories, ideas about macro volatility. it is kind of hard to figure out whether or not that is telling you something. the problem is, the quiet belies

underneath where there could be more issues going forward as we look at central banks pulling back. with the fed raising rates, the ecb talking about winding down their books, all of that will be more mean full for equities than what the vix is doing right now, so i'm not sure that is the best way to look at real volatility. the federal reserve is raising interest rates, as sarah points out. the ecb is getting ready to move on the margins. we will get that message may be near the end of the year. what is happening in the bond market is more interesting. also it's very resilient as well. why? julien: again, this psychology, after an extended run, the confidence that the economy is still going to accelerate, and at the same time, the confidence

interest rate will remain in check because the fed and other central banks at the long end, it really brings the cocktail together for this incredible low volatility. i would point out when you look at past cycles, it is very typical for when the fed continues to hike that you actually see higher volatility. it is more cyclical. it is concurrent with an economic pickup. it does not necessarily mean that equities go into a bear market. it actually is a sign of greater , buttaking in aggregate again, is a very strange environment, as you mentioned, is puzzling and a cause for concern. there are various people, you may be one of them, who goes back to periods of low volatility and see the stock market going up. perhaps weindication

should be more bullish about the stock market right now because of low volatility? sarah: when we raised rates last 15 and 16g back to was enormously volatile, and then it slowed down, and then you have this run postelection. i'm not sure if that is the beginning of that phase and you have seen those gains. you need to see some real earnings pickup to justify the current multiples and where people think the market can go going forward. right now, that is the biggest tension. david: we have had a fair amount of earnings pickup. you are concerned we cannot sustain that level of increase, what do you expect going forward? sarah: we now have europe in much better shape than it was. china in reasonable shape depending on who you ask. can the u.s. pick up enough, and then globally you can see some real traction. the question is if there will be traction. jonathan: growth has been so slow and stable here in the

states -- united states. getting back toward the two handle for the rest of the year will be the story. not much volatility in economic data as well. payroll, growth, inflation pressures. julian: we think it needs to pick up. if nothing more, the fed will continue to raise interest rates. if you look at it going back to the election, estimates for 2017 really have been largely unchanged in the aggregate for the s&p 500. if you think about the rally we have had since the election, it is very much multiple driven. david: if it does pick up, what would make it pickup, sarah? what would contribute to that? it cannot just be animal spirits, it would appear. policy.t goes back to a lot of the expectation on further pickup were on policy changes that would be beneficial

on the corporation front, tax people. now the question will be can some of those reforms actually happened? if they don't, do we have a drop in the confidence and those animal spirits? if that happens, do things slow down? growth has not been great. a lot of companies profit margins have been on the back of cost cutting and not revenue growth, the kinds of things that you would like to think of as a better economy. s&p 500 or the u.s. 10 year you you can hold one of them for the rest of 2017, which one? sarah: that is a question of whether you think the market will be up or down by the end of the year. otherwise, the 10-year i think will go nowhere. i don't think rates are going to go up that much. if they don't come equities can continue to work. move, is the short end of the car going to move because of the fed?

i'm not sure we know the answer to that question. jonathan: i was unfair to you because julian has time to think about it. julian: if the bull market is going to progress in the way ,hat typically does happen rates on the long and are going to rise, and that is going to be a sign that the economy is going to achieve that well over 2% escape velocity. this is one of those times, looking out to year-end, in our view, is short-term. we would rather think into 2018, stocks will be higher. david: in theory, sara, the long end of the curve should go of one stock go up. the factors that make the long and go up would also make corporations make more money and stock valuations go up. in theory they should move together. sarah: and they are not. right now it is because you have

-- the fed is not doing what it was doing before. the ecb and boj and china has been doing a lot of credit creation. can the markets continue to act without that credit creation? i can answer the s&p question if i know that we have credit creation. david: we are not all that different from china after all. we are sustaining growth through credit creation. sarah: you look at the fed's balance sheet, correlation of the s&p 500. julian: it is very close. that is one of the conundrums and why it's so important the economy has to prove itself over the next couple of years. jonathan: the answer to a debt crisis is more debt? sarah: negative interest rates. it will all be fine. julian emanuel, thank you for being with us. the day with

all-time highs on the s&p 500 and the nasdaq. this morning, a little bit softer by .1%. from new york city, you are watching bloomberg tv. ♪

emma: coming up on bloomberg groups, the ceo of cls at 10:30 a.m. eastern. this is bloomberg, i'm david westin. the white house released details of its federal budget proposal this week in one area that will

see an increase is defense. president trump proposing a $9 billion gain for dhs and the pentagon. to take us through what these increases may mean for the sector is sarah hunt. we talk about the budget but beyond that the president also made a visit to saudi arabia and made a $110 billion sale that included raytheon. been theat has always big story for the u.s. defense companies. yes, we have a big budget but the rest the world will need stuff. when they do, we will supply it to them. this is the beginning of more of issue onrt-driven defense. unfortunately, the world is not getting any safer. there is a push for people to keep up. the saudi makes purchases and then others want to keep up with them. that is a benefit to defense companies. david: you are positive on defense stocks overall? onah: we are positive

defense stocks, we hold raytheon. some companies have already moved. some companies came in just with pretty good numbers, but we also thing you will be doing some more outsourcing. a lot of those government contractors that do information work are going to benefit from that as well. you distinguish between a raytheon and a lockheed martin, who was also in the saudi deal? sarah: what we like about raytheon, they have a lot of different programs. lockheed, you have the f-35 program, which can be a positive or negative on the timing. when there were concerns about the cost, they took a little bit of pain for that. in the end, not much. recall, coming from the incoming president of the united states. --ah: when you have a lot of a broader portfolio, other areas, we like raytheon. david: what are other areas that

you like, stocks that you like these days? sarah: we spend a lot of time talking about oil. the energy sector is one of those sectors that is under a lot of pressure. we are underweight energy but there are places that we like. bp because of their dividend yield. we also think there is some opportunity in the shale plays in the u.s. then you get into areas that are tricky like the auto sector, some places that we think are good. david: they are having a bumpy patch right now. sarah: on the u.s. side, you will have volume issues after having growth from 2009, but we think there are is a lot of technology going into auto right now, some good opportunities. delphi splitting itself into a business where it is doing technology on the one side, more traditional auto on the other. as we move into autonomous

driving, those providers will have content on those cars. at is where you will see growth. david: do they have intellectual property on the autonomous driving side that would give them an advantage? sarah: you have a bunch of people working on different things. a lot of people have partnered. mobile eye has partnered with delphi. you are getting a lot of data coming in, all of these sensors, you will have to process this. the question is if we can get people to pay for this because that will be lucrative content. david: what makes delphi attractive to you? sarah: the partnership themselves. a lot of folks are doing that in a partnered way, but they will wrap that all up into. you are getting all of this information and that it needs to be controlled by things on the car, so that it can output to the driver and the car. that is just going higher and higher, so you need processing equipment. eye butought mobile

they said we could bring a lot of things to the table there. you will see this on the higher and automobiles and that it will begin to drip down. soon will this transmission happened of autonomous driving happen? sarah: that is an interesting question because there is a chicken and egg story. you have insurance, regulatory things wondering about whether we can go autonomous or not. driver enhancement, not completely hands-off. i think the move to completely hands-off is further out. there are some in the industry who think it can happen further than -- faster than that. there is an adoption curve that will have to happen with the oems and the insurance companies and regulatory agencies. where do you want to be in the cycle, where do you want

to be in terms of the top end, creating the software, hardware, creating the car, where do you want to be in that chain? sarah: in the providers of that information technology. oe's are partnering with some folks to do it themselves. they are looking at folks like continental in europe to do it with them. nobody has a full solution themselves. they are looking at how they can partner with somebody to do that. all of those cameras will do well, sensors. you look at semiconductors and you realize the driver is no longer just the personal computer industry. ton of industries that have sensors on them, including the automobile. david: everyone is becoming a tech company. many thanks to sarah hunt. we go back to, the g-7 summit in italy to talk about president trump's first international tour. what did he accomplish?

live from new york and a beautiful sicily. this is bloomberg. ♪

jonathan: from new york city, you are watching bloomberg. i'm jonathan ferro. 21 minutes into the session. futures were a little softer. we are lower by about 10 points on the doubt. came into the day at record highs. we trimmed some of that on the margin. are lower. the cable rate slipping to a session low, 128.13.

the story is sterling weakness. -- neverack of never were -- narrow polls. trump isesident meeting today and tomorrow in sicily with other g-7 leaders with a full agenda about things that they hope to agree on and other things that are harder to sort out. ian bremmer joined us earlier today and weighed in on what the president is doing over there. firste are watching the ever meeting of the g-0. that is what we are seeing on the stage. the chinese are building architecture. that is a different dynamic of a global order. trump, in a sense, catalyzes that. david: a short time ago, we spoke to richard haass about how eu leaders view president trump. facing him come they

literally scratching their heads and go, this is not the united dates i thought i knew, and contrary to the middle east, they loved barack obama. look at the difference in the body language between angela merkel and barack obama and donald trump. it is night and day. david: joining us now from sicily is kevin cirilli. you have heard various views about what is happening over there. what should we expect to come out of these meetings by late tomorrow? some word from the white house press office on there will be no more public events, pool events for today, but we also got a readout of the presidents meeting with the japanese prime minister shinzo abe. they talked about north korea. i sat in on a briefing earlier today with the eu president who said president trump, in a meeting with him, agreed brexit was an isolated insulin and not part of an broader trend.

he also went on to praise president trump, saying he valued his toughness, and that europe should be tough, even brutal. publicly, there has been some appeasement, but you are right, david, when you observe it, it is night and day tween the reception president trump got in the middle east versus the skepticism he is being greeted with here. it is hard to put into words because it is in the body language, conversations, and it also speaks that there are no public events scheduled for today. david: what is a win for the president at this point? to get out of this without a major rupture? kevin: yes. this president has been incredibly scripted this entire trip, even with the unpredicted events of the manchester events, prime minister may returning to england to deal with manchester.

regarding the statements coming out of the white house, it has been very scripted, not much access to any other principles. today, we are receiving a background briefing with white house officials, but when he returns home to u.s. soil, he has his work cut out for him. he has a bevy of controversies facing him. david: he appears to have enjoyed himself in riyadh and but maybe not so much in brussels. what is on his agenda when he gets back to washington? is in recess but the investigation into his campaign is very much ongoing. i am hearing that the investigation is collecting data and communication data. there has not been as much of a presence here with u.s. business leaders. i spoke with several services back in washington earlier this

morning. not many have a presence here, as they did in riyadh, saudi arabia. david: so no big announcements of any investments are acquisitions of goods or services. kevin: correct. there is no word that there will be any type of major deal, like we saw in saudi arabia. david: thank you, kevin. jonathan: 26 minutes into the session. stocks are flat. you are watching bloomberg tv. ♪

>> it is 10:00 in new york, 3:00 in london, and 10:00 in hong kong. >> welcome to bloomberg markets.

vonnie: we will cover the g-7 new code of conduct for fx traders and much more over the next two hours. first, some breaking u.s. economic data. julie hyman has the details. we have the university of michigan sentiment reading for may. 97.1, a little lower than estimated. the current conditions index continues to be elevated while the expectations index continues to be a bit lower. confident still relatively strong. earlier we got the gdp data for the first quarter, revised data that came in higher than initially estimated. then the consumer sentiment data coming on the heels of that.