francine: trump trouble at home and abroad. the president rattles' chnina's cage and ramp up his fued with the media. the angst between the asian world leaders falls in the crisis. and theresa may drops the brexit bravado. her chancellor vows to get british business back on fund. this is "bloomberg surveillance ." i'm francine lacqua out of

london. we have a little bit of data out of london. we understand by speaking to people familiar with the situation that goldman will review its commodities after the worst start in a decade. they are looking into why they were on the wrong side of a trade when it comes to oil and some of the other commodities. one of the commodities had to make a huge correction and lost three to four months. we will update you as soon as we have any more news. in the meantime, let's go straight to the data. i wanted to bring you the stoxx 600. they are rising in light trading. this was one of the longest winning streak of 2017. the dollar is strengthening after they were start to the year since 2006. the ruling party was defeated in tokyo's elections and it is the 'first day of china's bond

link to the rest of the world. the yuan. 6.7867. let's get straight to the first word news. reporter: philip hammond will today use a speech organized by the confederation of british industry to tell business leaders their concerns over brexit will not be ignored. it is a conciliatory gesture to audiences that have been overlooked and dismissed. a change of tone from the government has become apparent since theresa may's disastrous election when her conservative party lost the majority. nuclear ambitions have dominated phone calls between donald trump and the leaders of japan and china. this comes after xi jinping accused the u.s. of trespassing of guided missile destroyer within 12 miles of the cell tennessee. na sea.the south chian se president trump meanwhile has

ramped up his fielued with the media by tweeting a picture of himself body slamming a person whose head has been replaced by the cnn logo. lawmakers, the democrats, also condemned the message. in the middle east, the saudi block has agreed to a two day extension for qatar to meet its demands. at decision has been made the suggestion of the emirate of kuwait. the blockade has blocked air, se a, and land links to qatar. in hong kong, the first day of china's new bond link to the rest of the world has made a muted debut. stockstem echoes the two

connect programs between the former british colony and the mainland, but initially only allowed one way trading to the world's largest bond market. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. francine: thank you. we also got a little bit of data out of the euorro area in the last couple of minutes. the june manufacturing numbers are stronger than expected. we were expecting 57.3 and it ended up at 57.4. last week we were talking about central banks, whether the ecb was ready to start talking about getting rid of stimulus. we were talking about the hawkishness we heard from janet yellen, and also what we heard from mark carney. there was a feeling in the markets that there was hawkish and a couple of days after that, mark carney started

to doubt that. politics and japan's prime minister has lost in an election for tokyo's assembly. the ldp secured just politics a, and could foreshadow the national elections. politics to our japan editor. good morning, or good afternoon to you. why was this result such a disaster for the ldp, and what doesn't mean for the prime minister going forward? >> the ldp in this election, they got the fewest seats in history for the party. aner before have they gotten election results so bad at the tokyo assembly. this election, in years gone by, has been a bellwether, you know, for portraying future

elections coming up. eight years ago, they lost the national legislator. there is a lot of pressure on shinzo abe now. this might fire up his critics within his party and potentially you know, we could see some challengers to what was two to three months ago, it looks like he was deadset to be prime ministers are 2020 and the tokyo olympics. now it is not so clear. i think his opponents, they will be inspired by this result. itncine: andy, whity is being said the boj should not serve another term? >> that is a very good question. obviously, abe and kuroda are very right together. -- a very tight together. if abe is sticking around,

there is a good chance kuroda will stick around. the problem is, even if abe gets his support back, kuroda put out a very bold 2% inflation, going to get rid of japan's deflationary mindset -- he used strong, bold language. and he acted. he did a lot. he put record amounts of stimulus into the japanese economy. but still, that 2% inflation target is miles away. so, a different approach is needed. what that approach will be, um, that is what we will have to see when the next governor comes in. francine: andy sharp, thank you so much. now, let's bring in janet henry, global chief economist at hsbc, and viraj pate. thank you both for joining me. with, the concern we have

japan is one of structural reform, and the fact it is still seen as a haven. is there any policy -- does another prime minister have a better chance of pushing through the structural reform? >> you are right. it is all about the structural reform. there is a tendency when there is a disappointment on inflation to think, what else is the central bank going to be? but we can look at the world in arious situations, and central banks can keep policy lives for as long as they like, but we get back to the issue of how do we raise potential growth? in the case of japan, that will have to come from structural reform. we have seen previous administrations in japan come up with new kinds of policies, pushing them through. it always tends to fall short. it is hard to feel confident that any change of leadership will be more successful. francine: but inflation has been going up, very slowly. >> that is great.

the yen -- i think the story here is the bank of japan's unconventional monetary policy has been trying to keep the yen soft and tepid. that has given the extra inflation affect. japan wille bank of not be able to step up to normal inflation rates, keeping the yen soft, given the theme of divergence should play out. politics will put a question mark over this and we will be monitoring this. francine: when you look at divergence, janet, it is shown that from leicester we had hawkish -- it is shown from last week that we had hawkish comments. is that in japan's favor, everybody else tightening? >> it might be. it is hard to say what the impact will be on the yen. but yes, i do think anyone is in

any doubt that the bank of japan will be the last to embark on any degree of normalization. they are all facing the same difficulty, meeting their inflation target, however they wish to term it. the broad fact is still about wages. we can talk about the intricacies, but the broad disappointment is wages. in japan's case, we have record low unemployment. the lowest employment rate since 1994, but wage growth is still incredibly subject unti and untl the reforms are delivered, they are not going to meet their inflation objective. absolutely, the bank of japan will be last to proceed to any kind of normalization. francine: is it too soon to make a bet on whether this financial experiment will work out in japan? >> i think it is too early.

and they will likely be some success in japan, if we get the reforms, but also ongoing support from global growth. i think it is important to remember that even though we are celebrating the massive upside we have seen in europe, japan and other countries, the main engines of growth over the last few years have been the u.s. and china. we need those engines to keep growing if a lot of these other, more demographically challenged, structurally challenged economies are going to be able to deliver the stronger growth and be in a position to deliver more in the way of reforms and ultimately, higher growth and inflation. francine: would you play it euro-yen or u.s. dollar-yen? >> we think the euro-yen has the greater potential upside, if we get this positive global growth backed up. -- growth backeddrop. there is a big question mark chinese growth,

but the best case is the euro -yen moves up to 1.14. francine: both stay with us. here's nejra. reporter: john farley will be to appear ex bankers in westminster today, being charged over the ways barclays raised millions of pounds in 2008. two of the four have said they will contest the charges. there has been no comment from varley. the ban on electronic devices has been lifted for the cabins of commercial jetliners. the move comes after the u.s. validated security measures after the facility inside abu dhabi international airport. pushingports are

security to be beefed up now that terrorist groups can begin ball of hiding bombs. google and of that says the antitrust fine will cut profit in the second quarter by $2 billion or $3 billion. they plan to report the fine on a separate expense line in the bank statement. it is accused of pushing its own shopping statements ahead of those of rivals. toshiba is considering initial public offering in switzerland by the end of september. the unit is one of several acids toshiba has put up for sale as a tries to make up for multibillion-dollar losses at its westinghouse nuclear energy unit. that is the bloomberg business flash. nuclear: north korea's ambitions have dominated phone calls between donald trump and leaders of japan and china. this comes after xi jinping accuse the u.s. of trespassing for sending a guided missile destroyer within 12 nautical miles of triton island. the move ahead of the g20

meeting could show the white house is displeased with china's efforts to pressure north korea. president trump has also ramped ed with the media by posting a picture on twitter. cnn said it is a sad day when the president encourages violence against reporters, and lawmakers, was ludovic of, condemned trump's message. we also did speak to a white house spokesperson, saying there was no intention of intimidating the media. still whaith us, janet henry and viraj patel. when you look at this geopolitics, and we will be traveling to the g20, how difficult is it to draw a direct line between geopolitics bubbling over and the impact on

currencies? >> i think politics has been a distraction for the dollar for the last six months. what matters for the dollar over the next couple years going forward is the white house's economic agenda. that has always been the case, but the fact that we have not gotten any clarity over the last six months, the fact we do not have any tentative steps on fiscal policies, that puts a question mark over the direction of the dollar and you see the theme of monetary convergence. the rest of the world is catching up, dragging the dollar down. francine: i will ask a similar question relating to the fed of janet. the more donald trump is perceived -- i don't know what you want to call it come outside the box were unorthodox, does he lose the republican party almost every day? does that mean it is less likely to pass things through congress, or does the republican party just say, let's forget all of this and give the tax reforms to

the american people? >> there is a lot of work being done behind the scenes. theaw it with health care, fact it has gotten pushed back. markets are constantly pushing back there expectations and our fiscal policy seems to be a 2018 story for the dollar. nothing is priced in related to any expectations, but there is a point where the politics could have a negative impact on the dollar. francine: again, the fed and the dots are telling us one thing. does the market reprice if we do get tax reform or something concrete on health care? >> i think on tax reform there would be the ability for a reprice. my feeling is we will still get something from the u.s., but it will be more of a 2018 story. let's not forget there are midterm elections in two years. a lot of those congressmen will want to be reelected, but to get

something on the tax side, they will have to come through some kind of compromise on the spending side as well. i imagine it will be something relatively small, but it will still be a small net stimulus that will support growth for 2018. for the fed, they have had to, since late last year, even though they say they have not explicitly incorporated it because they cannot call the exact timing are the exact magnitude, it is one of the factors that contributed to the way they assessed the balance risks. i think the market has a relatively reasonable expectation of the fed tightening over the next couple years. francine: they are worried about inflation, that there is no wage growth? >> yes, there is a lack of inflation. we tend to get carried away by central bank communication. they have been trying to give us a message to differing degrees, but most of these moves have been to by that communication, rather than the data, particularly in the u.k., and

arguably in the u.s. int he eurozone, the data has supported the rhetoric. francine: are they doing it wrong, or trying to guide the market? >> i think they are trying to guide the market, that they are gently testing the waters, regarding, in the fed's case, a continued normalization and in the other central bank's cases, a gradual mobilization. maybe they feel they have been getting financial stability -- it is becoming at their own risk. the number of bubbles, potential bubbles emerging in various parts of the world and they worry markets are getting a little too complacent and they need to have a higher risk premium perhaps, priced in. francine: thank you, janet henry and viraj patel. up next, is the u.k. dropping his brexit bravado? philip hammond's speech to business leaders. this is bloomberg. ♪ francine: you are watching

"bloomberg surveillance" and i'm francine lacqua in london. philip hammond will tell business leaders that concerns of her brexit will not be dismissed. the conciliatory gesture is another sign that the u.k. government is striking a more realistic town in the talks. -- realistic tone in the talks.

this week, a secret blueprint for trade deals on financial services. still with us, janet henry and viraj patel. janet, is it more difficult now than it was 16 months ago to have a forecast of what u.k. gdp will do? >> well, the experts were clearly wrong in terms of the initial impact on the u.k. economy. for now, we are starting to see evidence that the real wage squeeze is kicking in. in terms of a near-term outlook, we now have a degree of visibility because we have a fair idea of what happens to inflation over the next six months or so. in terms of the longer-term, thee to five years agout, supply side of the economy will be heavily determined by the outcome of the eu deal. and we have gone from not knowing whether it is hard or soft to hard-hard to now,

hard-soft. yes, we are arguably in a more difficult position now. francine: let me bring you to my chart, which is a very single u.k. basic wage growth in blue. you can see the average going down, and the u.k. inflation. does this depend on the pound-sterling? or is inflation, is it import inflation? >> oil could have been a lot worse. the initial impact on u.k. inflation was the fall on sterling, when oil was still relatively elevated. now some of that has been unwound by the fall in oil prices. what you have seen everywhere, in the u.s. eurozone, and u.k., some of that real wages goodies oil.eeze was all the worst of that squeeze is all

over and you should see the stabilization, but in the u.k. you see the effect still of sterling decline, the slowdown in nominal wages, and that will continue to bite into consumer spending. francine: what does that do to your favorite pairing, cable, or euro-pound? >> euro-pound is the most interesting and there are two outside pressures. the ecb is more likely to normalize pressure than the bank of england. and the brexit negotiations will be tricky and there should be uncertainty pricing into the pound. i think you need to start is the hard brexit risk come back onto the table, or the u.k. economy continue on the slowing path, and to see some of these hawkish bank of england bets unwind. francine: so, you see it going

above 0.90 but then struggling to reach 0.95. >> yes, for a currency that is 15% undervalued, you need bad news for the pound to hit extreme levels. francine: thank you, janet henry and viraj patel. next, cutoff on qatar. the latest on the sound off between doha and its neighbors. we see a little bit of volatility, nothing huge in terms of what we see on the market. oil painting -- oil gaining for an eighth day. the saudi-led block extending for two extra days. ♪

♪ francine: you're watching "bloomberg surveillance. here is nejra cehic. north korea's nuclear

ambitions have dominated phone calls between donald trump and the leaders of japan and china. the u.s. is accused of trespassing and so china sea. a move ahead of the g-20 could signal the white house is displeased with china's efforts to pressure north korea to curb its missile and nuclear programs. president trump has ratcheted up his feud with the media by posting a video depicting himself body slamming and choking a person whose head has been replaced by the logo of cnn. cnn said it was a sad day when the president of the u.s. encourages violence against reporters. lawmakers, mostly democrats can jumped -- condemned trump's message. in japan, scandal hit prime abe -- shinzo

the party had its lowest number ever in the capital. tokyo governor's first -- tokyo first party gave her a majority as she teams up with the national coalition partner. a speechmmond will use organized by the confederated business injuries to tell business leaders brexit will not be ignored. a change of tone from the government has become apparent since prime minister theresa may's to disastrous election in which her conservative party lost its majority. in hong kong, the first day of 's bond connect program made a muted debut. it is another which access the debt market. initially it only allowed one

way -- to the market. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic, this is bloomberg. in the last couple of minutes we had some u.k. manufacturing pmi that fell. anything above 50 is still expansion, but we were expecting 56.3 and it came in at 54.3, this is for manufacturing. if i put you over to buy bloomberg terminal, you can use it. these are the latest u.k. pmi readings. you have manufacturing in yellow and construction in blue. janet henry is still here, we --virajraged patel

patel. do we have to look at a new way of the prime minister looking at brexit of this continues to fall? janet: yes. if they get uglier and uglier it will be more confirmation the u.k. economy is slowing down. pmi pretty much everywhere has been pointing too much higher gdp growth than they would normally in the past than actually being delivered. i think we are seeing some confirmation that the economy is being slowed down and not just in the pmi's, we see it in the retail numbers. we know that consumer spending has been not -- has not been growing because of the consistent decline in the savings rate. was onlyonfirmation it at 1.7%. i think it will become increasingly apparent to all people involved in the negotiations and now reflected

in some of the opinion polls being published that there is some sinking on the implications of brexit and i'm sure that will inform the negotiations taking place in terms of the prioritization of the economy perhaps regarding compared with sovereignty. francine: we think a little bit more on that from the chancellor a little bit later on. on to the middle east. the saudi led coalition that has cut links with qatar has agreed to a two day extension. the saudi list of 13 demands including the shutdown of al jazeera and cutting ties. but scheduled tracy alloway in abu dhabi. will this make a difference? it is the big question. it is important to note that the agreement to extend the deadline

was made at the request of kuwait who has been acting as a mediator in the dispute. we are not clear whether qatar has agreed to the extension or if there is any extension -- if this is any indication helpful. the signs are not looking optimistic. we have sky news running interview with the qatar defense minister who is saying they are prepared to defend the country action if needed. their foreign minister said the country was not prepared to give up anything to affect its national sovereignty. we have report from al jazeera that the qatar foreign minister is arriving in kuwait now to deliver his response to saudi of 13 demands. even of a deadline has been

extended, we could get news shortly. francine: i know this is difficult, but can it get better quickly? and if it does not, what is the worst-case scenario? that is the other big question. you are hitting all the right ones. we don't have a good sense of what the consequences could be thistar does not accept list. a lot of people were surprised by the saudi led alliance about a month ago. they seemed to go from zero to 100 very quickly. it is an open question of what more they could do. there is talk of military inventor -- intervention. it seems far-fetched. there are 10,000 u.s. troops in qatar. it is an important strategic base for the u.s. military. that seems unlikely. there is a possibility that lean a littleould

bit more pressure on some external countries and say it is either us or qatar, maybe that is one way it could escalate. oil.ine: let's talk about we have news of the deal over the oil fields that qatar shares with iran. >> that is right. we have been waiting for the wave of oil and gas yields that was going to come after the sanctions on iran were eased last year. we are expecting a significant announcement from iran saying it is forming contact with china national petroleum. there's a geopolitical angle. they are scheduled to make the announcement on the day that was going to be the deadline for qatar to respond to the list of demands and the gas field involved is the one they share with qatar. there are some people who have field asussing the gas

a potential catalyst for the most recent dispute. i spoke to one diplomatic source and he was saying the reason it escalated so quickly was not because of the alleged terrorism visit todonald trump's the gulf stirring up anti-iran sentiment. he thought it was because qatar ended that moratorium on production from its part of the gas field, thereby keeping additional pressure on some other opec members. it gives you an indication that a month into this dispute, we are still scratching our heads as to the reason this is happening and why it has been escalating so quickly. francine: thank you so much. tracy alloway in abu dhabi. let's the two janet henry and viraj patel. this is also an oil story. how difficult is this to predict oil?

janet: it is very difficult. everyone has a different , the breakeven level for shale production in the u.s.. if you take the view they are the marginal producer of oil, that would appear to cap it. we know it is capped at a certain level. in terms of how far it can fall, there are delays with which you have to shut down production and have to make a guess on the extent to which oil producers will stick to their commitment. we know the broad range we are in. from day to day and week to week , we are revising on a regular basis. francine: how does that -- how much do you look at it and how much you have to estimate it to look at your fx strategy? viraj: fx markets are content

with oil trading at this range. a breakout in either direction would cause some significant moves in the currency market. i think right now, especially commodity currencies, especially the canadian dollar are doing right -- very well. right now 45 to 65 is a good range. janet, i'm looking at some of the technical things, it could trend into the 30's. what would that mean for central banks? if you start seeing a median average around 30, do we have to scratch everything we know? janet: it has different applications for different countries. for specifically oil consuming countries like the eurozone, this means much lower headline inflation. the consumer story which slowed

over the last year would probably revive quite nicely, particularly when you have a job rich recovery. to some degree it is a goldilocks of ongoing growth but not much in the way of inflation so the ecb would not have to panic. in the u.s., the only real strong area of investment spending we had was energy related. that would slow down a bit more markedly, but inflation as well. there would be lower inflation and lower delays of fed tightening. you've got these construct -- contrasting figures. that would mean less hawkish sentiment. virajne: janet henry and patel, stay with us. when will italy go to the polls again? we will also look at some of the banks and where europe goes next.

plus tune into bloomberg on the july -- the fourth of july when alix steel and matt miller will cohost the boston fireworks spectacular. this is bloomberg. ♪

♪ you are watching bloomberg surveillance. let's get to your market checks. >> stocks are up for the first day after the work -- worst week since november. fourth weekly drop as well. in theuarterly drop biggest monthly drop since june of last year.

gas, basic resources leading the advance. crude gaining, best run since december. wages onas hedge funds wti crude is the highest since august. more than doubling in the last couple of months according to cftc data. lowerincreasingly much pace in the past two weeks. shale drill is reducing the number of oil rigs for the first time since january. we have the government report showing production in the u.s. may not be growing so fast. the rig is the yellow line. , 120g on, sterling today falling for the first day after the longest winning run it over five years. it just enjoyed its best quarter when it rose against the dollar.

strategists are not raising their forecast. goldman sachs sticking to its prediction that sterling falls to 120. forecast forar-end 127,loomberg survey is for a 2% drop from current levels after the currency rallied that much in the last week following from those positive comments from mark carney. among japan, confidence the large manufacturers improving for a third straight quarter. exports continuing to drive the longest economic expansion in a decade. francine: thank you, mark barton. president said a snap election is unlikely in 2017. he also appealed for a new law to be produced before the country heads to the polls. the natural and legislation

is for 2018. the foreseeable date would be between the months of february and early spring. of course, in any democracy, there may be the conditions for early elections. for the time being we have no such signals. is likely for the legislation to expire naturally. francine: we will get more now from janet henry and viraj patel. we had an exclusive interview with the president of italy talking about the electoral law election timing. what is your main concern regarding europe as a whole? we don't know how the ecb will start communicating about reducing the balance sheet, but southern countries are still in trouble. point,even on the italy it looks like the election will probably be early next year, but the government needs to pass a

budget this year and the question is whether they can get that through and they will need some concessions from the european commission to win the vote there. in terms of the eurozone more broadly, it is fair to say it is the region of the world we've had to revise -- revive the most over the last months. it does not -- it has been a job rich recovery admittedly like most regions. to's do a lot more work. this is where we are with the ecb even with the forecast suggesting by 2019, inflation will only be 1.6%, which arguably isn't close to -- --would likely be closer to closer to 2%. mario draghi has told us some of the risks have passed and some reflationary risks have emerged.

they are saying it is as good as they can deliver. governments will have to do the rest and deliver structural reforms. they will have to raise potential growth and that is where you get higher rates. i think we will get tape rings .etween -- taperings francine: what does that mean for europe? viraj: we are quite comfortable with the euro dollar at 1.1 five. it was a cap on how far interest rates can move. once you have that sort of ,nitial correction or overshoot then you have to factor on the factors that drive the currency. potentially seeing one put in 20 next year, that seems about fair. francine: what could change that? are you waiting for structural

reforms? viraj: it has to be another layer of reflation pressures in the eurozone, potential recovery in the eurozone, potentially tax reform in the u.s. could be a game changer for the eurodollar. sides.een risks on both francine: are you looking for complete structural reform to decide what happens next to inflation? ores of the german elections or anything like that? all of those. core inflation should potentially edge up higher open becoming coming year as headline inflation comes down. we are still in this world that the eurozone needs a rebalancing and germany could obviously do more to help reflate the eurozone and we still need to

see the longer-term integration. before we can get there, we need to see a lot more structural reforms elsewhere in the eurozone. what happens in france under macron, if progress can be made and naturally the next step for closer integration, all of these are important structural factors within the eurozone over the medium-term and a high potential growth rate. francine: thank you so much janet henry and viraj patel for joining us for the hour. we will be back to talk about barclays and banks. this is bloomberg. ♪ will come back to all of this. let's get back now to the bloomberg business flash. >> goldman sachs is reviewing its commodities business after a slump in the first half of the year according to a person with knowledge of the matter. they say while the blank -- bank

flag for the first quarter, the units start to the year has been the worst in more than a decade. they added the commodities division was when the most talked about subjects at a board meeting in london. the u.s. department of homeland security has lifted its ban on electronic devices in the cabins of commercial jetliners flying to america from abu dhabi. the move comes after the u.s. validated security measures at a facility inside abu dhabi international airport. u.s. officials are urging overseas airports to beef up security after intelligence beorts warned terrorists may capable of hiding bombs in electronics. google parent out the bat antitrust fine will cut profits in the second quarter. the company plans to report the fine in a separate operating expense line in its status. google was fined for pushing its services ahead of those of rivals.

toshiba is considering an initial public offering in switzerland. the unit is one of several assets toshiba has put up for sale and is trying to make up energyses in its nuclear unit. that is the bloomberg business flash. four former barclays executives will appear in court over criminal charges. ex-ceo and three other members and the bank itself stand accused of conspiracy to commit fraud and unlawful financial business. joining us is the european legal editor. thank you for joining us today. run through what we will find out the next couple of weeks. >> this dates back to 2008 when there was the emergency rates which was 12 billion pounds. what prosecutors are looking at were signed deals related to that.

million advisory fee to guitar. francine: what happened -- to qatar. francine: what happens today? hearing.is a bail they will have bail set and probably move on to another court. we are hoping to find out if we get a copy of the indictment, we will get more information. all we know is they are charged with fraud with false representation. it does not tell us a lot. francine: we have been very careful in our reporting, but are there any implications for the bank? tony: the bank would like to be done with this. they would like to focus on current problems, the current financial environment. this and other investigations that are going on will keep it from doing that. francine: more recent investigations i believe also

implicate the ceo. tony: there's the whistleblower investigation. right now the financial conduct authority is conducting interviews with other executives at the bank and they are doing a report on that. we will find out about that late in the year or early next year. francine: bloomberg surveillance continues in the next hour. tom keene joins us out of new york. he has some interesting calls on euro-dollar and pound euro. european stocks started on a firm footing. and metal gaining. we are seeing a lift for energy companies, but also miners. the dollar is strengthening against all of its major peers. i want to show you crude, probably one of the most interesting charts. it is the longest winning streak this year. it is extending gains after we had industry data on friday

showing the number of active u.s. rigs falling for the first time in 24 weeks. a little bit of a caveat. trading volumes today, many markets ahead of the -- light ahead of the fourth of july. investors awaiting friday's report on the american job market that will bring a little bit more insight into the fed thinking. later on i will show you the dots the fed published to the market not that long ago. ruling party lost one of the elections in tokyo's assembly. this is bloomberg. ♪

♪ francine: data deluge.

extending the longest winning streak since 2017. the liberal democratic party moves toward the assembly vote. -- brexit backlash. this is "bloomberg surveillance." good morning. i am francine lacqua in london. tom keene in new york. we had a busy week looking at a lot of data. i look at pound and brexit and thin trading on the fourth of july. tom: what i know is the news did not stop over the weekend. we are open in the morning today. we are off tomorrow. i cannot tell you where washington will be wednesday morning. that is how fast the news flow is going. francine: i doubt.

a lot of people will tell you, 32 degrees celsius, 90 degrees fahrenheit. having a calculator on your windows system. let's get to first word news. wordr: getting to first news now. looks like we are having some computer problem. everyust like we do fourth of july. we are having a little bit of challenges this morning. we will get back to taylor. let's go to our data. there we are. the fireworks of a data check. futures are up nine. i am watching the german tenure. we will get back to oil. we are open today. dow about with the

100 points off a record high. offgerman 10-year, that is one basis point. is really front and center, the stunning defeat for abe. that is in tokyo, not across the entire nation of japan. francine: i want to spend some time talking about oil. european stocks starting the week on a firm footing, rising banks to oil and metals. mining companies are on the up. the banks are also rallying. trading volumes in many markets are quite light before your holiday tomorrow. happy fourth of july in advance. investors are waiting that important jobs report on friday.

let me go to the beginning of the second half of the beginning of july. you get the economic data at 10:00 a.m. this morning. this is the pmi back to world war ii. this is right after the american revolution. you can see the cyclicality. here is the average of the last 10 years before the financial crisis. the nudging note is down of the pmi in the recent drop. this is not a gloomy set of data, but it is not giving me trump like gdp of 3% either. francine: we had some disappointing pmi figures in the u.k. we have a chart for that. i want to show you global trade. it is ahead of the g-20 in hamburg on friday and saturday. they say this is probably the

most important g-20 in 20 years because we are expecting angela merkel with the support of france to get this free globalization message going. this is a key message. this is global trade growth. you can see it from 2013, the huge fall. we wonder where we will be in 10 years. tom: we are talking about it here in hamburg. we are getting ready for the g-20 meetings wednesday and thursday as well. reduced trading in the u.s. kevin cirilli will join us from washington in the next hour. francine: the second half kick saw after the s&p 500 and dow jones reported their biggest gains since 2013.

this morning, a private gauge of the chinese manufacturing sector -- estimates while friday, time for another u.s. jobs report, probably the most significant data point of the week. joining me now is steven saywell. always a pleasure to have you on. >> thank you. francine: last week was hawkish this from central banks and markets retracing some of the gains. what are you expecting this week? is the central bank conversation on hawkish has the only game in town? >> i think it has been. first and foremost, there is a little overreaction with the euro. there is a more hawkish stance coming from the ecb. we were expecting that. i don't think it is going to be

anything earth shattering. it is going to be moving back to normalization. i would like to look at this diversions between euro-dollar and dollar-yen. it is how the dollar has been performing. it has been weakening against the euro. markets are ignoring the fact it is still advancing against the yen. while the ecb is looking towards normalization, there is no sense of that coming from japan. when you have policy divergence and we have the u.s. hiking japanese certainly not doing that, it suggests this could continue. have inflationwe of 1.7%, can we really talk about normalization in the european union? gdp is better, but there is no inflation. points.is a great mario draghi has made that clear

that even though on the growth improved,s have inflation still needs handholding. when we look at inflation expectations, they have pulled back rather than rise. at bnp paribas, we think there will be an announcement of further tapering in september, but it will be activated in january. we think qe will have finished in the eurozone by june and then they will take the deposit rate back to zero. this is not huge stuff. it is the ending of qe and the deposit rate to zero. the question of why they are doing it is because ecb is not one single central bank. it is a collection. i think voices there are very nervous that we are beyond the emergency level. tom: i like how you summarize a lot of different themes. we are going to g-20.

you mentioned monetary policy. i guess we have a handle on that. i don't have a handle on g-20 policy. bring up this chart, which is global trade. here are the 1990's, 1989 out here. up we go with trade growth, and it is one big rollover back to the multi-trade of 25 years ago. do you sense it policy convergence in g-20 or is it every nation for itself? >> it is a tricky one when you have what donald trump is saying at the moment from the u.s. side. one thing that struck me on this chart, and particularly the one francine had in london is how cyclical this is. we see, particularly if you look at those orange bars where we have recessions, 2008-2009, you see a big pullback in global

trade. with the recovery, global trade picks up. it is interesting we are seeing that all back again in 2014-2015. the cyclicality is very strong. tom: where does angela merkel want different currency pairs? where does she want euro-dollar, eurosterling, as a general statement? >> that is quite a broad question. tom: cut me some slack. i am wearing flip-flops and shorts. >> lucky you. let's focus on euro-dollar. given where we are at the toent, 1.14 or so, compared valuation, our view is long-term equilibrium is just north of 1.30, we still have but she euro

-- we still have a cheap euro. in the past 12 months angela merkel has said euro-dollar is normal between 1.30 and 1.40. if you take those figures into account, today we still have a cheap euro. clearly that is beneficial for the german export machine. this is the point we need to focus on. as always in your we're dealing with several different countries. i think each country needs the euro at different levels. while germany can easily accommodate euro-dollar at 1.30, it may be more difficult for italy or spain to deal with euro-dollar at 1.30. for them it may be too high. they get back to this age-old problem of very different

economies in the eurozone that need from levels of the currency. francine: thank you so much. ofven saywell, global head fx strategy's at bnp paribas. we will talk a little bit more about yen and some of the euro pound calls. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance" from london and new york. let's get to first word news. taylor: president trump talk about north korea's nuclear weapons program with china and japan. the present and prime minister shinzo abe agreed that china

must get tougher with north korea. reiterated president calls for more balanced agreement. prime minister theresa may is government is making against military -- making a conciliatory gesture today. they say their concerns over the split will not be dismissed. and in the u k, barclays for former executives will appear in court today over from allegations. barclays was raising billions in capital during the 2008 financial crisis. today's hearing will be about bell terms and future court dates. saudi arabia and its allies are giving qatar more breathing room. they will get a three day productiono meet

demands. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. japan's prime democraticleading liberal party has lost. results buted on has since erased gains. how much of a surprise was this, and why did it happen? >> i think it is a really big surprise. kaine to power about a year ago. she is a popular person, perhaps the most popular politician in japan with populist sentiments.

she has cobbled together this party with loads of rookie candidates, trained them up, took been to what she called a lawmakers cram school. andcobbled them together, they knocked out the ldp, the largest japanese party since the war. the ldp had their lowest number from the assembly in history. it is a huge embarrassment to shinzo abe. francine: what does it mean? investors are taking notice. the last time this happened, he gave us a sense of what would happen on the national level. is it the same this time around? >> in politics you never know where it is going to go as you saw in the u k and elsewhere. the signs are not good for abe.

there is no particular strong challenger among the opposition parties nationally. there's a lot of talk that the governor could one day be asked , that olympics in 2020 could certainly take on abe, but struggling right now. well, yes tooing watch out. tom: let's get a start. what is the why of this? how does the woman who was a tv personality invent a party in tokyo and defeat the established party from the time of mcarthur? how does she do it? >> i think if you ask members of was uplic, a lot of it to her personality and her strong stance. a lot of the public are kind of

incumbents.e the ldp have been there a long time. abe's policies have worked for a lot of people but not for a lot of other people. over the last six months or so have been a bunch of scandals. he pushed through some controversial legislation. the people see abe as being heavy-handed at the moment. he is becoming unpopular very quickly. the party itself is not as popular as it once was. francine: we have a lot of news on governor kuroda. the mentor of the prime minister says the minister should be out because he does not have enough fresh ideas. saying the bank of japan may have to talk about qe

by year-end. >> they will have to talk about it some point. his term is up next april. a lot of talk. i would presume, without knowing the workings of shinzo abe's mind, that he would like to keep on governor kuroda. line, thewn the advisor to abe, in the interview we had with him, he said it has not worked. have to try something different. candidateses and bouncing around. it depends on whether we have the prime minister in place. francine: thanks so much. still with us in the london studio, steven saywell, e&p para bus global head of fx strategy.

let's focus on the bank of japan first. the way we would look at this is and, in some ways, kuroda the policies the implement it, he was a bit unlucky. in, i mean is when abe came kuroda was extremely dovish. the key point here is a primary way of achieving this is through yen weakness. or that happened, you have to see some policy divergence and hiking elsewhere. when we saw dollar-yen up towards 125, this was fantastic and working very well. the real problem we have had is the disappointment with the fed, the fallback in u.s. yields, and that has pushed dollar-yen

lower. if we are still on track with the fed and higher u.s. yields, kuroda's policies would be working. there is very little he can do if nobody else is hiking on the other side. tom: very good. we are going to come back with steven saywell. coming up in our next hour, robert feldman will join us from morgan stanley. an important time to talk about the stunning election in tokyo. from london, from new york, with today,kets open washington still on . ♪

francine: this is "bloomberg surveillance" with tom and francine from london and new york. it seems uncertainty is hitting demand and the u.k. still with us is even say well. i know this -- steven saywell. i know this all depends on brexit negotiation. what do these readings tells about the future of the economy? >> two things, first they are at decent levels if you compare us to where we are at that trough last year. the economy looks fine according to that. if you bring exit into the equation, there is a lot of

uncertainty, especially following the u.k. election result. i would not be surprised to see that continuing to head south. francine: in 10 seconds, what is your favorite call, pound euro? >> i think there is going to be more downside in euro-sterling. marketsuro, because the are going to be repricing the ecb. francine: we will get back to that shortly. steven saywell stays with us. coming up later on daybreak, the conversation with nicholas burns. this is bloomberg. ♪

♪ tom: "bloomberg surveillance" in london and new york, thank you for being with us.

business in new york until 12:00 noon. we welcome you all for programming through the day. francine, you will be with us tomorrow. downine: i hold the fort for three hours tomorrow. trading is quite low in terms of volume because of the fourth of july. independence day. tom: tomorrow night, coast-to-coast on bloomberg television and radio. let me bring this up. this is eurosterling, not the usual cable we look at. the blue circle, brexit as well, going on to stronger euro, weaker sterling. how important is this to the future of prime minister may? >> that is a good question. i think it is probably not the

key factor because until now sterling has taken the brunt of brexit concerns when you look at financial markets in the u.k. the markets are used to the pound being fairly weak post- brexit. euro-sterling is a very high levels. from that perspective, we would argue it is probably driven more by the ecb, and that the markets probably responded a bit too much in europe generally in the past few weeks. perspectiveort-term amid all the political news we are seeing. here is taylor riggs. taylor: president trump has ramped up his feud with the media. he posted a video on twitter showing himself body slamming a

person whose head was replaced with the cnn logo. cnn called the video juvenile. angelaany, chancellor merkel is urging the g-20 nations to avoid uber divisions in economic policy. the g-20 is meeting later this week. angela merkel was hoping to reach consensus on trade and the climate. abe, hisor shinzo party had their worst performance ever in tokyo. the upstart party in tokyo won 49 of the 127 seats. ban on. has lifted its laptops in airline cabins from abu dhabi.

the u.s. signed off on security measures at the airport in abu dhabi. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. theresa may's government has changed its tune on brexit, striking a more realistic tone electionir disaster. the city of london delegation is headed to brussels this week with a secret plan. the plan has unofficial support and whitehall. still with us is steven saywell of bnp paribas. thank you for sticking around. first of all, what did we learn about brexit? it is still unclear if this is part-hard, soft-soft, or what we

have learned. >> it is best to look at this as a takeover. is it a friendly takeover, a friendly departure, or hostile departure? the british have become a lot six orrogant in the last eight weeks because it is clear we are no longer the masters of the universe. in the rest of europe, people will start to feel a bit sorry for us. this happened in the 1950's and 1960's as well. we have been here before. it is a reversion to the mean. britain was very much on the back foot then. francine: we have heard the fact that the u.k. has unilaterally pulled out of an agreement on fisheries with the eu. what does that tell us? >> this has to be a few crumbs for brexiteers.

this is a small part. , investment iny the car industry, this means jobs, and this is supposed to be about jobs. that is not going to go very well. there is a huge amount of alarm amongst industry at the moment in the way that the government has let things slip. i think the business community is going to try to pummel mrs. may for as long as she sticks around for all she is worth. weekend weve -- as saw the funerals for helmut kohl as well. with have a relationship germany, the u.s., where america that we had with helmut kohl? >> as you know, whenever germany is doing better, or intends to

to dose -- britain tends worse. it is quite likely now that --re will be a period of between france and germany. it is clearly wonderful that mr. kohl has died at that time after the french parliamentary elections. is in a way that only the french and germans can do to ceremonialize this great man. we have been through this before. it tends to get better after a period of turbulence. tom: you study chemistry at oxford. are we going to see a more anglo-american continent? are we going to see a tendency with macron towards a new

capitalism? >> if he had it completely his own way, no doubt we would. i don't think he can carry the people. we will see some pushing back. what france wants from germany is lots of money and lots of patience. germany does have lots of money, but it does not have lots of patience. macron will have to deliver on his promises fairly soon. if he does, a lot of good things could happen between france and germany. new embryonicng a european finance minister. they have to deliver the goods. this?ne: how do you see >> with have seen the slowdown in investment in the u.k. for the car industry.

for us this is a bad sign. the reason is the u.k. is starting off this relationship with a current account deficit funded through foreign accounts. uncertainty,ued global investors don't know what is going on in the u.k., and it weighs on the pound. the pound will likely continue to take the brunt of uncertainty if you see this lack of confidence from global investors continuing. francine: how much? is it difficult to measure it now? i know this is from the car industry, but maybe this can pick up on signs, do you look at it day in and day out? flows over a these long period. be quite tend to

sticky. these are decisions that take months or even years to think about. if we start to see that slowdown, momentum tends to continue. that is what makes us quite nervous about sterling as well. we talked previously about euro-sterling, or against the dollar, and that is one we are worried about. if the u.s. dollar does rebound in the next half of the year. with davidl continue marsh and steven saywell. tomorrow, in a tradition that relaxed 1885, sort of a offshoot of the very stiff boston symphony orchestra, fireworks. music. matt miller across the nation. that is tomorrow it :00 p.m.

♪

♪ francine: i'm in london. tom keene is in new york. qatar has agreed to a two day extension for the country to meet its demands. that is according to the state run saudi press agency. qatar's benchmark index is gaining a little ground today after all and yesterday. let's get to tracy alloway. welcome back to the program. will this make a difference? question that big

investors and a lot of political commentators are asking themselves. the important thing to remember is this extension was agreed to by saudi arabia in response to a request from kuwait that has designated itself as a regional mediator. we don't know if qatar has agreed to it or will even find it useful. judging from some of the new movements we are seeing , it does not necessarily seem like the next room 48 hours will be useful. the comments we are seeing out of qatar are seeming pretty pessimistic. we saw yesterday a statement saying the company would not do anything to curtail its national sovereignty. tom: help me with the geography of the peninsula of qatar

sticking into the persian gulf. how is stuff getting to qatar? that road tog up doha? >> this is an interesting thing, the logistics are getting complicated in the gulf region. it is interesting to note that there has been a little shift between both members. a lot of shipments meant to go to qatar are being rerouted. they are being shipped on to dohas. you can see there is a little break within the gcc nations. everyone has to be careful. there are huge infrastructure and energy links, not least of which is the huge gas pipeline running between qatar and the

uae. that is controlled by qatar. if this gets too far, people have been discussing that qatar could switch off that gas. it has said it does not want to. francine: thank you so much for the update. tracy alloway in abu dhabi. still with us is david marsh and steven saywell. how does this translate into your world?' i'm sure you're looking at local currencies. >> there are two points to books on, the first of which is whether this escalates further. i think markets are relaxed and that they think it will be resolved. if it escalates, there could be more of a risk off environment. the second point is on the currencies. we know most of these gcc

versus there pegged u.s. dollar. there is some speculation that there could be some depegging going on. nothing has happened. this may increase speculation on a depeg if we did see deregulation going forward. >> a lot does depend on the dollar. there has been speculation. if the dollar is too strong, it is quite clear that having a be quitee peg could serious for some of the states. i think there is -- that is why there has been this speculation. arabld hope that the brothers would be able to sort this one out.

it always seems slightly odd to have the football world cup in a few years in this baking place. maybe this will be the lump of sugar that will bring the world cup home to qatar. that always seems to lift flagging british spirits. tom: what should the united kingdom you to reaffirm diplomacy in the arab world? there is so many back stories of history within the persian gulf and the united kingdom, so what should be the path forward for the may administration? >> if you look at what she has to do not, we have to be good rest with everybody. -- good friends with everybody. there has always been a strong relationship with qatar and all the royal families throughout the gulf. i see this in a broader sense. with asia, with china there has

been something of a pause after theresa may came to power. that has now passed. i have been reliably told that the chinese relationship is that going to the front burner. be a littlehas to less talking about these tylationships -- less haugh about these relationships around the world. when mrs. merkel flies off around the world, she has all these ministers. we have to do better than that. we have to get a bit more serious. we have to leave the european union to become serious and like the germans. tom: yes. "bloomberg surveillance" will continue with david marsh and steven saywell.

here is what you need to know now. it appears likely that the president will meet with chancellor merkel scheduled for thursday. you talk about entourages. you wonder where the entourage will be as merkel and trump meet. i am in new york. please stay with us. this is bloomberg. ♪

>> this is bloomberg surveillance. let's get to the business flash. elon musk says new tesla model three cars have passed all requirements two weeks early. teslasel three will be cheapest vehicle. the base price is expected around $35,000. in china, -- expense to expand -- plans to expand further. offering loans for more than 10 million smaller margins use the e-commerce platform.

the parent of google says the european antitrust fine will cut. they will charge off the full amount against net income. that is your bloomberg business flash. tom: thanks. thank you so much. equities open today, bonds no. we will have much more on that through the morning. how about this, project, -- pro-tip. they look at dollar-yen, euro-yen. years,n is going back 20 cyclical, up and down. exports.apanese

we will be talking about where mr. abe wants yen. stephen, why do you look at euro-yen? >> i think this is a really good way of looking at the comparison between ecb and boj policy. let's take the dollar out of it. year,e have had this past as we have said already, disappointment with the fed. the question here is who is likely to be the most bearish? the boj or ecb? our view at bnp paribas is it is likely to be the boj. of these two, we think the yen is likely to be or remain the week currency. we would not be thi surprised to see euro-yen had higher.

francine: interesting call. i was looking through your nose and this, high, canadian dollar versus new zealand dollar. , where else do -cad.et nzd >> we think this is going to be elevated. that chart is a great want to highlight. we think the bank of canada may actually surprised markets and hike rates this month. if they do that, the canadian dollar should do well and outperform currencies like the new zealand dollar. this is a great way to be positioned for that view if you have confidence like we do that the bank of canada will hike rates. francine: is this your favorite chart? >> it is. we think the market is too

hawkish. there is potential for the bank of canada to surprise. this is not a trait that is interesting for everybody, but it elevates position and pilots opportunity. tom: thank you so much. steven saywell, bnp paribas. paper,this as a litmus proxy or the system. toldwide, all will listen robert feldman of morgan stanley, truly the dean of english speakers within japan, on the stunning abe defeat in tokyo. this is bloomberg. ♪

tom: left second begin. coordinating job opening with

bankers. --this hour, making the the the hopes of mickey levy. manny pacquiao. are we the losers with the health care of tax reform? for primening defeat the tokyobe in election. in this hour, robert feldman. we are live from our world headquarters. i am tom keene. in london is francine lacqua. market. colophon franco -- francine: this is maybe why we are explaining some of the stocks rising in europe. what i'm looking at is that the chancellor is striking a

different tone on exit and then jobs data is on friday. tom: and the g-20 meeting in europe which will be more than important. with is a likely to meet chancellor merkel. -- thest new cruise first world news now taylor riggs. --lor: nuclear programs japan. of china and a agreed that china must get tougher with north korea. in a call, the president repeated his desire for a more balanced treating relationship. in illinois, the statehouse is towardsmajor step ending a two-year budget impasse. a 30 2% increase in income taxes. the state senate has to vote on the measure which the governor has promised to veto. the firstcould become ever to have their credit rating

cut to junk. the u.k. is dropping the bravado over brings it. theresa may makes a consolatory measure today. to an audience that has been overlooked. forip hammond has emerged the business friendly brexit. and for former executives will appear in court today over fraud allegations. barclays was raising billions of dollars in capital during the financial crisis. the former ceo is among those charged. today's hearing will be about bail terms and future court dates. and saudi arabia at the alleys -- saudi arabia and its allies are giving cutter -- giving qatar some leniency. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries.

i am taylor riggs. this is bloomberg. tom: let's get right to it. the few ireland good. oil, here is rated dow is. at two basis points. it should be read lower. francine? starting the week on firm footing. rising for the first time in five days. of july 4,ahead banks are rallying. crude climbing for the eighth day running. a increase.ee

the let's look at what is favors in the month. pmiyman suggested that matters. this is the huge cyclical nature of pmi. if we can assume in as we can hear bloomberg, the average of the pre-financial crisis decade -- we are there now. ,ut there is a nudging tendency which is how you get to sub 3% gdp as well. i think that is a tendency. i'm impressed that a guy like at -- i'm impressed that a guy leans on that. francine: i switched my terminal to show you this because u.k. manufacturing slowed more than

forecast in june. we had that data 1.5 hours ago. what that means is that there is more evidence that the inconclusive general election at the start of the brexit talks are weighing on companies and households. if you're listening on radio, we will push out. it is going down. slowing thats are they are not bad at all. and i agree with that. the idea of the fusion index, we're above 50. above 50 is good. a low 50 is. decades on wall street -- trying to strategize about rate's. strategize about rates? : that is the big challenge.

central banks are driving markets and a way that they haven't been since a few years ago. when mario draghi and the european central bank made comments, that moved the market and in the last week, we see how important the european central bank can be. i think that is likely to continue through the year. the fed is on a said course. -- a set course. tom: we have shown this a million times. i will throw it out on social media for the radio. all of the in louisiana son, the big rollover. is this a dead cat bounce? i mean, come on. in perspective, it is a little bit of a bounce to a steeper yield curve. ira: what we have seen in the last week is a little bit of

steepening. butave done almost nothing flattened. the long end of the curve has stayed steady. on the expectation that the federal reserve will hike. with the ecb stopping the quantitative easing program hasaper the program, that caused steepening. in addition, you need to have -- in order to continue the steepening. not only in the u.s., but also in europe and around the world. francine: is it data and inflation and wage growth? ecb?mmunication from the iraq: a great question. the data will drive with the ecb and the fed continue to do. like you said that this morning, the data is not terrible.

so the question is -- as we talk about the cumulative movement -- even though we don't see data accelerating, the fact that we continue to have ok growth and improvements in crisis in europe -- in prices in europe, the fact bankwe have a hawkish data, it will be driving the markets. the fed may do the opposite and u.s. curve. francine: when you look at mario draghi and what he has been saying, wage growth has to do with the labor market. he said in europe, we are not creating quality jobs. but if the inflation stays at 1.7% over the next few years, it doesn't warrant a major policy shift. ira: probably not. but central banks around the world don't want their balance to be theet so big

incremental price giver in the markets. so they will be thinking about purchasese reduce at of corporate bonds and sovereign bonds? in doing so, they will have an impact on market. even if they wind up having negative interest rates for several years. at: i want you out the door 2:01 p.m., not a minute before. really odd scheduling today. the equity markets are at 1:00 2:00and the bond market at p.m. why are they even open? .ra jersey today we will come back and joining us from tokyo is robert feldman. stay with us. this is bloomberg. ♪

tom: good morning. perhaps in the and i could dates we are distracted by the holiday. grking full tilt towards the 20 meeting later this week and then there is the bombshell from japan. a stunning local election in tokyo where the leader was crushed. we bring in robert feldman from morgan stanley. without question, the english-speaking voice here of japan. robert, thank you for being with us. how does the lbp regroup on this loss? forward,heir strategy towards the next national election? robert: well, they don't have

one yet. facesk prime minister abe two choices. he can embrace the policies that the governor used to win the victory or he could dig in his heels. probably willt he go with the former because there is no future in the latter. i have a gizmo i used to look at the analysis called the quick cycle. crisis, response, improvement and complacency. they have been in complacency for several months now and this might be the crisis they need to move into another reform phase. tom: you have told us before of a bit's strength in the rural area. can the rural japan help him maintain power? or is tokyo and the city so dominant that he needs to adjust? robert: the cities are very dominant in terms of population. tokyo is one third of the

population of the entire country. if you cannot windy city, it is hard to win the country. moreover, the electoral system was reformed a few years ago and is less skewed towards the rural areas then if used to be. they've put in another reform that will move further in that direction so yes, the city is important. francine: give me a sense of -- of whatwill shinzo abe will rethink. typethis impact his sale pack? robert: i don't believe he will shelve the constitutional reform. it is an essential element of his program. international affairs are difficult. it all the more necessary.

so i do not believe he will give up on that. , the governor is in favor of the constitution than in of the left wing revision the left-wing party. so i don't think he will give up on that but he will need to address the economy. working with the vested interests to see if they could come up with some kind of deal. that is the kind of thing that they can't do anymore if they want to win the next general election. francine: when you look at some of the things that came out of timing,- i know this is and certainly we heard pgi saying that the boj they need to talk about tapering by the year end. and we have one of the mentors of shinzo abe that they need someone fresh. how does that impact the need for structural reform? robert: the key thing is that

monetary policy doesn't have too much more to getting the economy moving. have done pretty much everything they can do. prices are not cooperating. so overwhelmingly, the talk of kuroda -- it is a price trend that will determine what they do with monetary policy, going forward. i would hope that the bank of japan does get more aggressive. to push more aggressively towards some of the structural reforms that they need to get the country going. we will not solve the fiscal problems without higher growth. and we cannot get higher growth without structural reform. so that is what i'm looking for. robertis is a chart that feldman knows well. deflation going half a century. stephen roach gave me this chart. stephen roach, looking at the deflation of japan.

tokyo, is sher of a generational change? a hope and a prayer to get out of the long-term deflation? robert: i wouldn't say she is a generational change because she is the same age as shinzo abe but she does represent a different type of politic. japanese politics has traditionally been like american politics. a bunch of interest groups gathered together with not that much in common. where is the governor represent a different type of politic. a discuss and decide politic. get everybody in the room, get issues on the table in a transparent way and come to a publicly acceptable decision. partys why a lot of the doesn't like her. she represents a different model of the way things should be done. typeepresents a different

of politics, rather than a different generation. tom: hugely valuable. robert feldman. thisly appreciated morning. we do continue strong on the holiday monday. joining us now is mickey levy, a student of europe and japan. what a stunning election. never a dull moment in japan. francene asked the important question, what is the linkage of kuroda and the bank of japan into this politics? we forget dominant the japanese economy is. what is the to do list for kuroda? is so surprising about the election is that the japanese economy has been outperforming expectations. of 1.5%rters in a row annualized growth. and despite the decline in the

population, you have seen that there is a pickup in the labor force growth and employment. and the increase in the labor force, a lot of that is to two abe -- about nominal gdp? what about the chart i put up with the pernicious deflation? prices are not cooperating. mickey: i'm looking behind you at the chart. it is stunning. the reason why you have had deflation -- the general price level has been about stable -- but in 20 years you have not had a material increase in nominal gdp growth. tom: it is unbelievable. oj has thrown massive amounts of qqq 80 at the economy has not responded.

tom: we will come back with a look at the banks and what chair yellen has for the second half of this year. think you so much to our team .or getting robert feldman on we continue strong on a holiday monday. how about that? robert feldman and mickey levy. stay with us, worldwide. this is bloomberg. ♪

tom: this is "bloomberg surveillance."

we had steven saywell with us earlier. right now, dr. mickey levy is with us. datall get to that the element in a moment. you are as optimistic as i have ever seen. dr. mickey levy is optimistic. he is walking in the door as optimistic as i have seen him in 20 years. how does that work? we heard from mario draghi last week that the central banks are an easy because we have moderate-healthy growth in the u.s. and the u.k. and in the eurozone and even in japan. and you have moderate inflation amid the synchronized growth, and at the same time, you have central banks whose monetary policies are too easy. and what mario draghi told us is that they cannot just pump money into the economy and keep the

policy rate negative when you have the economy growing ahead of expectations. francine: wendy you see inflation picking up, worldwide? a lot of times we talk about this in isolation, that is there global problem with inflation? mickey: i think the right way to think about it is, whereas two or three years ago, the worry was that inflation was too low and there was deflation in japan -- think about the current scenario, where you have moderate inflation. in europe, it is below the ecb target that it might be in the suite zone. ditto for that u.s. -- it isn't to present in the u.s., it is 1.5% on the core. but isn't that rate of growth was downward pressure on certain goods and prices, isn't that the suite zone in terms of inflation not being too low?

so once again, i think inflation is going to drift higher. but it is certainly not a problem that is too low. tom: let's come back with mickey levy. we want to put some shadow on the future of the central bank and in the united states of america. we will do that and talk about the trump fed that we may see. coming up on "bloomberg markets" changes inabout the the possible legislation and regulation. it is a steamy new york, awaiting fireworks. this is bloomberg. ♪

♪ this is bloomberg surveillance with tom and francine.

are looking at u.k. manufacturing slowdowns. that is raising doubts about the economic out look in this country. 12961.u look at cable there is taylor. angela merkel is urging g-20 nations to avoid deeper decisions -- deeper divisions and economic policy. she says they can get win-win solutions that benefit all. she is hoping to reach consensus on trade rules and climate but those hopes may be fading. in japan it is a setback for shinzo abe. his liberal democratic party won only 23 seats in an election for tokyo assembly. its worst performance ever. the upstart tokyo resident first party -- 127 seats. one -- won 27 seas.

says u.s. signed off on security measures at abu dhabi airport. posted a video on twitter showing himself body slamming a person whose head was replaced with a cnn logo. democratic lawmakers called it an assault on press -- freedom. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: taylor, thank you so much. kevin cirilli, our correspondent in washington, i thought you are delicate and respectful to the uproar which seems ages ago over mr. scarborough and miss brezinski. i will not talk to about the cnn garbage. we are not going there. where i want to go, kevin, is what is it mean for health care reform and critically what does it mean for tax reform -- we can

state flat out that this president is not focused on policy. happy fourth of july. listen, there are 57 remaining days left when congress returns next week. they have a lot to do. and a care, tax reform, host of other things like keeping the government open, should we reach the debt limit. there is a growing frustration among republicans, not just democrats. we're been saying this for weeks, in particular aids, --aides, grappling with all of this. look at senator ted cruz, a republican from texas who will be looking to push expanding health savings account and reach a deal. we will be hearing about opioid addiction funding, rob portman from ohio calling for there to be more funding than the $2 billion that the senate majority leader has put forth. tom: here a great op-ed from al

hunt. writing for bloomberg. this is a book list of what to read as he tries to talk to the old guard. the phone rings and there is an old acquaintance on the line, often a mainstream republican asking what is wrong with the president. a reading list. he gives us a wonderful reading list which includes mr. cohen -- roy cohn of a long time ago. the good news is the -- the president will be distracted abroad. this is a different trip than the last one isn't it? yes last night the president speaking to the leaders of japan and china, discussing the rising threat of a nuclear north korea. that will be one of the topics of discussion when he heads to

hamburg, germany for the g-20 summit. all eyes will be on his interaction with vladimir putin. not passed a russia sanctions bill and it is unclear whether the president will in fact meet with mr. putin in hamburg. the russians playing political games. is also: donald trump meeting with his chinese counterpart. how awkward will that conversation be, given that the trump administration has sent this guided missile destroyer in the south china sea? >> let's not forget that steve mnuchin announcing last week that sanctions on the chinese financial institution, with their ties with north korea. while the administration is trying to suggest that this is not any sanctions on china, it is when you take a broader step back and look at the big picture

. what you alluded to as well as sanctions on the financial institution, nearly a signal from washington that they are growing perhaps more frustrated with the result of mr. xi jinping. francine: we also heard from the german government spokesman telling reporters that the chancellor, angela merkel will most likely meet with the u.s. president what is most likely meet mean? will they or won't they? >> this is interesting because if you think back to the president's first foreign trip you had a situation where the foreign leaders were trying, in europe, to meet with president trump. on the second go around, whether it is angela merkel or vladimir putin, you have a situation where they are being more tepid. the germans are frustrated with the president pulling out of the paris accord. you canhey meet, guarantee that the paris accord and the climate agreement will be topic number one. tom: kevin, thank you so much.

haines whoo terry had staff duties for years in financial services. words,i will not mince the last couple weeks -- do you see an ability for this president to have the requisite with ao do legislation political beast? you work for years up on capitol hill. >> good morning tom and francine. house thatas a white can have enough focus through senior aides through steve mnuchin and others, to make sure that whatever happens on the affordable care act, on tax reform -- the two examples that the market cares most about -- enough focus to make sure that the republicans can get a bill to the president that he will sign.

, it is asemembering important or more important for congressional republicans to show progress and legislative accomplishment. not just for policy reasons but also politically as they move into the 2018 midterms. clearly the onus is on the congress and the senate majority on aca toonnell produce and keep the timeline moving. if they can do that they will have a white house that is focused to make sure that the president can sign. tom: who has mr. mnuchin and mr. 's back?back -- cohn the president seems distracted. they have to have someone -- who was covering it? >> my response, is a good one, the markets have the back -- have their back more than anyone else. this administration has shown

how sensitive it is to the markets and how much it wants to produce to keep markets going up. mnuchin andecretary can continue their work and have a willing partner in congress, the markets have their back. francine: terry, are they enough to counter -- is the president losing political capital? and if he is, are the secretary of state and the treasury secretary enough to counterbalance that? >> that is a fair question, francine. my answer is, i think the president is losing political capital but i think it is also fair to understand that the president doesn't have a great deal of political capital, not certainly as much as people think in a much more conventional presidency. you have a situation where, he is running -- as a republican, but as an independent. i view congressional republicans

as more interested in moving the items they say they will move. remember the aca first then the tax reform -- that is a congressional strategy. again, congressional republicans have invested so much political capital in this that they have a lot of pressure on themselves to succeed. tom: terry, thank you so much. us.ey levy is with he will testify to congress in the third week of july on this odd cocktail known as fiscal and monetary policy. if you take kevin cirilli and terry haines, it doesn't lead to a normal analysis -- what do expect from congress and the third week of july? >> they've a difficult task on hand because congress has to consider the fiscal 2018 budget that president trump put forward. they have to deliberate on that by the end of september. tom: kevin says 57 days.

mickey: but even before that, -- you have the debt ceiling. these two items are also filling up -- are arty filling up the legislative calendar such that, there is not enough -- there is not enough time for the lawmakers to deliberate on fiscal policy. on health care, you have sticky issues. the aca provided a tremendous in federal subsidies to the states for medicaid. part of the republican packet -- >> taken away. mickey: is lagging it in to reduce those federal subsidies to give more money to individuals to make choices. aca, verynk about the

poorly designed legislation, it hasn't worked, but when you give something away, however get -- however bad it is it is hard to take back. meanwhile the fed is on the sidelines. it has not changed the economic forecast. it will continue to neutralize monetary policy. fed, among time, the other things is getting tremendous pressure from the congress on regulatory reform and also they face a new regime. tom: i want to come back and talk to about the new regime. you are an expert on the tendencies toward where the president is going. what will cast shadows on the future of the fed? there will be shadows, tomorrow coast-to-coast, the shadows on the charles river in boston, lit up by fireworks. the boston pops.

tomorrow at 8 p.m. this is bloomberg. ♪

bloomberg surveillance. i'm taylor riggs. let's get the business flash. elon musk says the new tesla car passes two weeks early. the model three will be their cheapest vehicle. the base price is around $35,000. in china, the two-year lender is expected to go further. offer links too alibaba. is an affiliate of

alibaba. -- it-quarter profits cut will charge up the full amount against net income. google is fine for abusing market dominance. that is your bloomberg business flash. tom, francine. francine: taylor, thank you so much. hasesa may's government change their tone on brexit. today the u.k. chancellor prepares to tell business leaders that the government is loosening. headed to brussels this week, a secret land for a trade deal on financial services. , still with us in new york is mickey levy. what do we know about what kind

of brexit we will get. we still don't know. the elections through everything up in the air. it is ultimately the eu that decides what kind of brexit we get. much will depend on the brexit we are seeking and that is a big question. it may point to pre-election -- it ist documents part of the changing tone that is out in force tonight at the confederation of britain dinner. telling businesses, we are listening and want advice. that goes with the theory that since the election the government has been more about business than it has been about cutting down on immigration which was the tone beforehand. inncine: when you took charge of the team, your factors

is growth and certainty and inflation, it is at the lowest level since june of 2016. what are people worried about? of the clever work is by bloomberg intelligence. the sense of uncertainty that is still revolving around the election aftermath both on government'se position. that shows a low reading for the barometer. simon, let me ask a dumb question from across the atlantic. we are distracted by the the independence, -- >> your own brexit. brexit of 19 of -- of 1776. is the government entrenched? thanthink it was more so

the immediate aftermath. whether theresa may would last would face a leadership challenge early on. that seems to have died down a bit. where it is not stable, over the weekend you saw lawmakers, members of her own cabinet speaking out on things like austerity and the pay cap that has been in place for seven years now. the fact that the ministers are willing to speak out and stake out different positions suggests , here is a government that everyone feels they can cast their own views out there publicly. for the brexit negotiators on the other side of the channel, that creates uncertainty. is philipealing with? hammond more important than david? there is very likely to be confusion there. just as much as among us who watch it.

for g-20 and g7 meetings, mr. kennedy works at those meetings, i don't. does england and the u.k. go to , in the same way as they have gone to others? >> i think so. at these meetings, people push their own agenda. in hamburg, it will be a message of brexit but opening up trade relations post-brexit. the u.s. will start on july the 24th she is doing this against , where people are unsure of where the u.s. stands and what donald trump's agenda is. it is all up in the air. simon kennedy, thank you so much. important conversation on the fed of 2018, coming up.

it is your summer cottage where you have your bloomberg terminal, you can watch tv . there it is live tv. you can consider previous stories, mrs., and you can steal my charts -- and use them at your summer picnic. from london and new york, boston pops tomorrow. this is bloomberg. ♪

♪ i know you have a packed show david. what you most looking forward to. abe challenges, north korea, the g-20 summit. we have nick burns from the kennedy school. he will be here to take us all the way through that. tom: really looking forward to that. nicholas burns, well-timed. i need to tell you about mickey levy. decades tocated

thinking about the history, scope, and scale of our federal reserve system. of a shadowk government in the u.k. we talk of a shadow fed. , so far from seen orthodoxy, what kind of chairman would you suggest president trump wants? want someoneu will who is consistent with the trump economic team. by that i mean someone who believes in economic growth, moderate inflation. if i had to think about a spectrum, when we think about new fed members, i am not thinking about dovish to hawkish. tom: bring up this banner. this is crosby, stills, nash. -- we don'tubbard,

have time to go into this -- what is important here is, trump, a rockefeller republican who wants growth, growth, growth or will he be like these three guys where he wants some rules and conservatism. i don't buy it for a minute. mickey: great point, tom. we really don't know what trump wants. each of those three top potential candidates you mentioned, they are stellar thinkers. the perspective i would think is they want a little more rules but not rigid ones. they will look at inflation adjusted funds rate -- let me at a critical point here. fedhere any reason why the should be holding mbs? i would say each one of those potential candidates would look at that and say, why should the fed be skewing itself, being involved in credit markets and

skewing credit to favor housing over other industries? these are the types of broader issues that this new federal reserve system and leaders will be looking at. tom: possibly seeing that earlier into next year. leavy, on-- dr. bloomberg television later. it is really interesting when you look at the swiss national bank and the equities they own as well. happy fourth of july. i know you will be manning the barbecue. i will be manning the desk. tom: the barbecue catered by brooklyn diner here it from new york, this is bloomberg. ♪

♪ forthan: g-20 leaders brace

conversations about economic policy. the u.k. drops a rex of bravado. -- a brexit bravado. -- eurozoneprise manufacturing expanded at the strongest pace in over six years. from new york city, good morning. a break.loomberg -- this is bloomberg daybreak. let's get you up to speed. futures are firmer upper a third of 1%. gain forst quarterly the single quarterly since 2010. treasury yields continue to grind higher. we are up a single basis point. david: it is time now for the morning break. u.s. markets are closing early today at 1 p.m. eastern time for the july 4 holiday.