one week after walking away. ♪ good morning, everyone and welcome to bloomberg surveillance. i am francine lacqua in london.

we do see little bit of a bed to a lot of your markets as investors seem to think these trade tensions will escalate. the stock 600 gains in europe. pretty much unchanged for the u.s. 10 year yield. 1.2466.-dollar, first of all, we hear exclusively from the chief executive of saudi aramco. then, the chief executive of the british grocery savory. and catherine mann from citigroup talks about the economic outlook for the u.s. of history to the bloomberg first word news. alliesthe u.s. and its are expelling more than 100 russian diplomats in response to the attack on a former spy in the u.k. 60 russian diplomats have been expelled d thesa may has applaude

global response. >> we sent a message we would not tolerate russia's attempt to undermine national law. -- international law. they have bolstered their capabilities to deal with hybrid threats. un has made ag surprise visit to china. the announced visit is the latest in a series of diplomatic power plays in asia as donald trump has battled to lower america's trade deficit. that has become entangled with his effort to force kim to give up his nuclear weapons. in an exclusive interview, the aramco said there

was much to be done, but the plan was moving ahead. >> we should be, as we always say, as a company, working towards the second half of 2018. we are doing a lot of work. at the same time, our committees from the government that over the fully are doing confirming are doing this for the betterment of the company. nejra: a loan totaling hundreds of millions of dollars might have violated laws and federal ethics violations. it included a $184 million loan. executives from apollo and citigroup have denied discussing the loans with kushner during meetings of the white house. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i am nejra cehic and this is

bloomberg. francine: thank you. global equities are higher this morning after u.s. stocks surged. the s&p 500 posted the biggest one-day jump since august of 2015. how long will the optimism last? and is it working? joining us now, lucy macdonald global investors and my spell from jpmorgan asset management. winky for joining us. lucy, how much further can this go before we expect a correction? cy: our expectation is that we have peaked with growth and valuation this year. year.ch return this that has been execution, especially with volatilities. and that will keep us all occupied on a daily basis. but when you are looking where the growth has come from over the last few years, corporate

profit growth must be picking up because of the big boost from u.s. tax reform. it must be lower next year. and volatility is already stirring to creep up. francine: without be a correction? lucy: they will be a number of corrections. volatility in all of that is exactly what we are seeing. francine: mike's, do you see a correction? if you look at the markets and the lack of volatility, it shows to become over the last 18 months, apart from the couple weeks in february. what will come next? mike: i think we will see more volatility. i agree with the points lucy just made. i will say we just had a period of volatility. we have had two pullbacks this year. point today, equities can move higher before we get the next pullbacks. fundamentally, the growth factor still remains healthy and i was positive on u.s. growth and global growth, at least over the next six to nine months. we think that is positive for

equities. earnings, we think this season they were pretty strong. francine: let me come to you. this is a very simple chart, thank you to the queen of charts, hillary clark, for showing this tension. you can see a majority of global equities have fallen below the 200 day moving average for the first time in 15 months. does that tell us anything about the correction to come or not? >> well, it obviously gives an idea of the market at the m oment. thats -- we can feel with the market anyway. francine: how about you, mike? tom: -- mike: i am much more focused on, is the macro data showing the u.s. recession to be pending. are the business surveys at the moment falling sharply, indicating contraction again? if you look at the surveys on intentions and the

manufacturing survey, yes, it has probably peaked but it is indicating healthy growth. we are not concerned about the fundamental growth picture. francine: do you worry about where the u.s. 10 year yield goes in the u.s.? there used to be a correlation, a strong correlation between bonds and equities that was to a large extent broken. are you looking for it to come back? i would not rely on a correlation to help protect portfolios. we are looking for protection more outside of the government wanbond space. but where do bond yields go from here? i think in the medium-term before the end of the cycle they go in little bit higher, but when you look at positioning of the moment and the fact that you have got surveys that could roll over, we could see a period of consolidation with ten-year yields. i think we will see consolidation over the next move higher. by where we go, maybe 3.25

the end of the year. francine: do you see that, lucy? is possible.ree there is still a little bit of a buffer with the risk premium. maybe rates can drop a little bit before it begins to affect the market too much. some is, we think still relative safety in the valuation of equities. know, areforts, as we held up by lower interest rates. is it the u.s. versus europe, versus asian equities, or is it grouped by the sector? lucy: there is still more outside the u.s. than in it. but it is still more expensive in the u.s. anyway you look at it. tgat u -- that i think, means there is more earning

potential outside of the u.s. francine: what is your favorite play at the moment? do you have two or three top picks? lucy: we still think digitalization will be a big theme. whatever happens with interest rates this year or with trade wars, there's still going to be a big thing for digitalization and that will go through all sectors. finding companies which benefit from that is something we are doing. francine: what about you, mike? mike mike: i like financials across the board. we also think the elements of tech where you got the long-term attractive.se are though we have been pretty selective with tech. some companies look to be overvalued, so we are value biased, where you can so that healthy growth. francine: we are here with lucy

macdonald and mike bell. up next, possible changes at the top of deutsche. this suggests looking for a replacement for john cryan. many names are floated, but who wants the job? we discuss that next. this is bloomberg. ♪

francine: economics, finance and politics. this is bloomberg surveillance and i am francine lacqua. deutsche bank is seeking a replacement for the chief executive john cryan. that is from the times in london. the lender has reports for the unicredit chief executive and the standard chartered chief

executive. talk of the overhaul comes amid disagreements between john cryan and the chairman over strategy, times.joininghe us now is bloomberg's finance managing editor and she has been following the two tipping story from its consumption. also here, lucy macdonald and m ike bell. what should we make of the report in the times? "bloomberg markets: asia >> we have not been able -- >> we have not been able to substantiate this ourselves at the moment. the share price tells what has been going on behind the story. shares are back down to 2016 levels and that is on the back of the turnaround from the bank. is yet to yield the results. and we have seen that with the revenue outlook in particular. including remarks last week from the cfo. he pointed to the quarter being weak.

notwithstanding increased volatility, which was supposed to help both of those trading revenues. francine: so, what do investors want? you could say they just want the first of the strategy and they want to hire the share price. -- and they want a higher share price. elisa: that is correct. how do you get there? is it a new manager? we heard five months ago, that they had been thinking about potentially moving on. but it depends on whether or not investors believe that the ceo change will bring about this move in revenue. and they are facing challenges beyond their control, like the interest rates, which are not at a level that is convenient for the top line. francine: how much is out of deutsche bank's control? i know it is impossible to say but when the chief financial officer was talking about the trading, is it a restructuring problem, or just bad bets. lisa: i think it is a

combination of bringing the cost under control, which they have taken it while to address. they have had retention difficulties. they lost a lot of key talent. they had a departure yesterday from there. there are a lot of challenges and some of them are external, such as the interest rates. it would depend on if the investors believe a different strategy would work, or a different approach for the same strategy. francine: what happens next? we have not heard from deutsche bank this morning, have we? elisa: we have not and right now the times reported the main report out there. we will have to see if there is more momentum behind the potential pressure. and we have got to wait to see if deutsche bank comes out and makes a statement one way or the other. overweight onare financials you said across the world, including the european ones. are you expecting more consolidation, or why do you see value there. we do like financials in

europe. in europe it is more in the boring retail banks than in the investment making space. within the investment banking, there are more opportunities in the u.s. bank. we think they are winning there. within europe, there is a simple story that the yield curve steepen's. that is beneficial for european financials on the whole. francine: do you like financials? well, it varies and we have had over exposure to financial they have had issues with rising interest rates and are has been more consolidation in some cases. however, in some areas, there is lower returns, which are going to come back because regulation is so high at various levels. that means that long-term you will not get much growth at of these areas, but at the moment, they are at a good balance for some of the higher momentum areas in the market.

it is a good barbell, i think. investment banking per se will definitely have a lower return structurally. you like if financials, do you also bet on consolidation in europe, or would that be a bonus, but not the best case scenario? mike: i think it is a bonus, but not the base case. in europe, there is the potential for the steepening in the yield curve. there are further falls in nonperforming loans in some parts of the eurozone. i think that could lead to a positive earnings environment. on valuations, they are still reasonably attractive. francine: for deutsche bank over the next 48 hours, we are just tried to find out what the shareholders think and are waiting for a responsible budget. --waiting for a response from deutsche. >> exactly and the chairman has played a role. favorably about john cryan and has said, he is doing the best he can.

we will hear more from him today. francine: great and we will have more from elisa throughout the day. we will be back with lucy macdonald and a jpmorgan. -- lucy macdonald and mike bell from jpmorgan. nasser said the company is still aiming for a listing during the second half of the year. have spokenfficials about where and when it will happen. he spoke to bloomberg in an exclusive interview and jonathan ferro started by asking him about the outlook for crude. nasser: if you look at the numbers on the ground today, there is a healthy demand for oil. if you look at the last three years, the demand is 1.5 million barrels.o 1.75 the global economy is doing very well.

and there is demand for more oil. and for the global energy security we need to make sure that we have enough resources. by them, but by other countries and companies, to make sure that we have enough to meet rising demand. when you look at the future of the internal combustion engine, i do not see any money coming into r&d for the internal combustion engine. but to listen to you speak recently, you seem to be quite optimistic about the future of something that a lot of people are not optimistic about. why? nasser: actually, you have seen that it is much better, carbon , rather than with the combustion engine. then, there has been a lot of reduction in carbon emissions that have happened. a lot of work is going on right

now to improve the efficiency in terms of mileage per gallon. co is doing a lot of work to improve the efficiency of engines at our center in the u.s., at our center in paris, working with auto manufacturers to improve the fuel efficiency. so, there has been a lot of work done. have tried companies to improve the efficiency of the emissions. you understand for a lot of people this is part of a broader concern around the ipo of saudi aramco. there have been reports that the investor appetite is not there in the way the saudi's would like. do you see the investor appetite. nasser: a lot of the questions during the media coverage have been about the ipo and what way

it will happen. there is a lot of i think demand for the listing of saudi aramco. aramco in terms of performance. the data will show ultimately performance and how we andthe most efficient reliable. this is a great company that hopefully will show our performance. jonathan: when i speak to people they are not talking about when this all happened. they are not talking about if this happens, but perhaps the entire ipo goes into a deep freeze and it does not happen at all. mr. nasser: there is a lot of work still ongoing. the company, the government, did all of the work to have it affected by january of 2018.

that is an indication that the ipo is ongoing. the proliferation by saudi aramco never stopped. we are doing a lot of work to prepare the company for the listing, at the same time our committees for the government which overlook what we are doing to make sure the company are listed. jonathan: do you have a set account for u.s. standards already. is that done? nasser: you are talking about what? jonathan: for the company itself. nasser: no, in temrs of auditing, what that looks required, we are obtaining all the necessary documents. jonathan: so, it is not your decision ultimately when this will happen. i am trying to understand when this will happen. mr. nasser: the government will decide on the timing.

don't forget, this is a very complex process with the saudiy the size of aramco. there is a lot of work that is ongoing to evaluate all of that, and decide on the timing. francine: that was the saudi aramco chief executive amin nas ser speaking to jonathan ferro. let's bring back mike bell and lucy macdonald from allianz. when you listen to the chief executive and the proposal of saudi aramco, could you be buying into the equity, though? >> the overall sector, though, there is something to look at it, whether it is the expectation of saudi aramco appearing, or -- they are not sure, but there is a depressed valuation in the sector, which

are not matching up to the stronger oil price at the moment. francine: does that change at some point? lucy: we will find out when this actually comes because this whyd eat one of the reasons the expectations are quite different for the sector. francine: do you like the oil majors, the industry, or are you concerned about investments from certain key companies that we could see the price of oil's .ake up to about we are looking at a multitier view. that is a risk and we are getting a period of underinvestment come all those offshore projects, the deep sea subarctic stuff, that has been canceled now. that does show the potential for a higher oil price many years to malign, but in the near term, the oil price could hold at the levels they have had for the moment. but then there is a strong bounce back with shale drilling. if you look at business in the u.s. so far this year, there has

been a very big bounce. business investment as a whole was up 7% and energy investment was only a 3%. when you take the 12 month view, that is potentially put some downside risk to oil prices. it is not somewhere that we are taking big overweights, but we are not bearish on any of them. francine: are you looking at the future of transport? or is that another time when you are taking five to 10 years? trends you need to look at? mike: we are looking how technological change affects all industries, whether that the electric cars, the impact on self driving cars -- those are trends we're definitely looking at. not always they are buying into the carmaker, but who will make the chips that drive these things. francine: but is it now that you have got to invest in them, or do you wait three or four years.

>> you need to do the research and the judgment is how long it is going to take. francine: at the moment it is three or four years to malign, or it will take longer? >> we are looking at the five year, and that is really where it needs to look. lucy macdonald and mike bell stay with us. still to come on bloomberg surveillance, countries across the world spell more than 100 -- across the world expel more than 100 russian diplomats. and we will be talking geopolitics. this bloomberg. -- this is bloomberg. ♪

francine: economics, finance and politics. this is bloomberg surveillance and i am francine lacqua in london. here's nejra cehic.

nejra: the u.s. and its allies are expelling more than 100 russian diplomats in response to a nerve agent attack. washington is expelling 60 russian diplomats, the most since 1986. theresa may has hailed the coordinated local response. to gather we have sent a message that we will not tolerate the continued attempts to violate international law. actpean nations will also to strengthen the resilience to chemical, biological, radiological and nuclear risks, as well as bolstering their ability to deal with hybrid risks. un has made ag surprise visit to china in what will be his first trip outside the country since coming to power in 2011. according to reports, the train believed to be carrying the delegation was seen leaving beijing today. latest in a a

series of diplomatic power plays in asia. donald trump's ability to lower the deficit has become entangled with kim giving up his nuclear weapons. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm nejra cehic. this is bloomberg. francine: just want to give you some headlines from the bank of england. this is of course the financial stability report and the bank of england is just saying that the u.k.'s withdrawal from the european union poses material risks for the financial services. in. boe has been warn affectede has also personal data. that will be fpc, the financial policy committee. they have said that there is progress being made to address some of the issues, but. more needs to be done i want to keep the conversation on the bank of to focusbut i want

more on what governor carney can do when it comes to rates. still with us, mike bell from jpmorgan asset management and lucy macdonald from alliaz investors. this is a three-month volatility chart. trendn see the downward starting in february of this year. does this mean people are getting used to the idea of brexit and what would it actually take for volatility to go back up on pound? there is aately chance we see more volatility around the sterling over the next six months will we are moving now to hopefully by october -- there is agreement on the heads of terms. but between now and then the discussion on ireland will be tricky. at some point the u.k. is going yield and

except the fact that they have two have some kind of customs arrangement that deals with the irish border. that is clearly problematic and one of the red lines the u.k. government has not been willing to cross, but eventually they will have two full on the and getting their -- they will have to fold on that and getting their could cause more volatility, but by the end of the year, there is a good chance we do get a deal and in that the mostyou could underground market in the world and brexit is the main reason, but not the only reason. the other reason regards the concerns about the social government. so come on brexit we will see more parity, but if we do get a deal towards land of the year, you will definitely get a removal of that risk premium and therefore, you will see the move

in sterling and markets. the situation is dynamic and over the last few days, we could see how this would be affected. there a big concerns. francine: is there an optimum level for cable that would actually suit this level of exports that would give a list for equities. lucy: i will defer to mike. francine: mike, i was also parity.for it to go to do you look at cable? mike: if you look at it trade weighted against the euro, you have not seen that much movement. i think art of the story we have seen in cable has been about the dollar weakness. and instead of what is going on -- still, there is more

potential if we do move to a situation by the end of the year when we get a deal for the u.k. and the heads of terms have agreed favorably. what is the perfect level for pound? at the moment on a trade weighted basis, the u.k. economy on the manufacturing side is benefiting from the fact that we are still part of the single market and are trading with a significantly cheaper. but we have at the expert side in the u.k. the obvious problem we had was, if that did move through to a hit because of the higher import prices, that does not help that much and consumers have found the real wage squeeze, but that should use materially over the next 12 months. if you look at corn goods inflation, it has not started falling yet, but it is about two. francine: does that mean it will make a difference? we are trying to find the chart. .

does this make a difference to what you are investors ask you? do you buy .5 some of the0. -- do you buy some 2.50? 250 has dramatically outperformed. within that, the international 50% has been doing well. but with these levels, we are closer to locking in those gains . when the global economy does eventually turn, you'd expect the small-cap stocks to give up a lot of the up performance they have gained during the recovery. francine: i have not found the chart, and a promise i will show you in three to four minutes. thank you both, lucy macdonald and by fell stay with us. they are sticking around to make chart.fjuind that

the u.s. and its allies have expelled more than 100 russian diplomats. and retail therapy, glaxo smith overhauled the consumer joint venture. coming up next. this is bloomberg. ♪

francine: good morning, everyone. this is francine lacqua in london. the u.s. and its allies are expelling more than 100 russian diplomats in response to a nerve agent attack on a former spy in the u.k. washington is ordering 60 people out of the u.s., the most in more than three decades. the quarter ended effort brings

the trump administration closer to the european allies. is the union big enough to enact more damaging measures if necessary? joining us now is the principal analyst at maple craft, lucy macdonald and mike bell. thank you for sticking around. first of all, is this a smoking gun? are we sure that the russians did this and the response was in line with what it should have been? mike: in terms of finding proof, in terms of the target and the weapon used and everything, it is difficult to imagine any sort of scenario where this is not a state sanctioned attack. francine: why did they go so hard on russia this time. they had names of people that were actually behind the attack. now you have a coordinated global response when expelling

russian diplomat. daragh: water has flowed under the bridge since 2006. -- britain is not as concerned with saving relations with russia at the moment. geared moment, we are former confrontational relationships going forward. they will not be the effort to smooth things over and even if we look at the entire series of expulsions, it is not something some of thening more out there retaliatory options. essentially, the usual expulsion of diplomats. it is amazing that it is coordinated on such a large scale. francine: what would he be stunned by that theresa may is seemingly stronger than she look because the brexit, or that president trump is maybe a little bit less friendly to

russia than he was a couple weeks ago. the u.k. has been able to compartmentalize things such as the somewhat troubled relations with the white house, obviously brexit and to get a coordinated response is impressive. it is important to note this is 15 countries, one of them is ukraine, which already has a conflict with russia. we have heard some news that some of the allies much becoming in. ireland is talking about sending one of the russian diplomats today and most of these were kind of three or fou8r diplomats. there is a environmental catastrophe. last week, which is taking up much more of the political agenda and oxygen in moscow right now. francine: i remember putin's speech was right before him being elected -- at the end you

saw the world map with the missile capabilities of russia and the military force. can this escalate? could he make this coordinated retaliation bad? >> certainly not to the extent that we saw during those videos or anything like that. there will be tit-for-tat expulsions. the problem is when the russian commentator put it this way -- we are now in a cycle of provocations and responses at this point, where people do something, there is a response, this sortare exiled, of thing, and then everybody goes back to the starting positions and waits for the next move. rather than there being a diplomatic process or ongoing negotiations to resolve things. it would seem at this point, whether or not the u.s. has the strategic direction, whether or not the u.k. can forged a strategic direction before brexit being done, how do you

deal with the state you want to be at. none of the players seem to have a sense of that at the moment. francine: because it is the realm of geopolitics, do you read things like this, that they put out -- there is maplecroft trying to understand if there is market sentiment, or should markets ignore this? lucy: it is a bit of a sideshow to the financial markets. but, one just has to keep an eye on geopolitics at the moment because it can flare up quickly and have some effect. normally, there are short-term or,cts on volatility valuations longer-term. isi do not think it relevant, really. we are focusing what is going on with the global economy. what is happening with diplomats being expelled. unless that starts to escalate into some serious conflict, that is going to impact the

economy and a stock market. about not too bothered what is going on. the trade site has been more interesting because that could affect the economy. i think the russian situation is not really relevant at the moment. francine: i did try to ask christine lagarde of the imf whether this impacts financial stability and she definitely did not want to talk about that too much. this is theory, right? but we hear about a north korean train that will see china. chinesein called the president to muster support on the other side? or is russia feeling pre-is olated now? >> china and the north korean diplomacy is pretty much in its own box at the moment. coming back to the point of the economy, shortly after theresa may's initial statement of , itiament after the attack was subscribed very

successfully. certainly, these areas of global trade are not being -- are being ignored. the question is whether russia can absorb these expulsions. it probably can. but all of the countries that are expelling diplomats will be subject to reciprocal expulsions. the bigger issue there is whether this degrades the -- it is not on the table at this point. francine: in the conflict with ukraine at some point, the gas was turned off. could this happen again? mike: we doubt that. yes, europe and the ukraine -- ukraine is dependent upon the gas. dependence on gas has diminished significantly since 2014. the bigger issue is yes, europe but if you shut off

the tap that means you have no revenue coming in. s is cutting off your nose to pite your face. francine: daragh mcdowell for verisk maplecroft. of next, the drugmaker acquires novartis' stake in the joint v enture. we will bring you the brands under one roof outweighing price pressures in the sector. we will discuss that next. this is bloomberg. ♪

francine: economics, finance and politics. this is bloomberg surveillance and i am francine lacqua. here is nejra cehic. nejra: carlyle group has won an auction to acquire the chemical group of glaxo nobel. eal 10 billion euro d will leave the dutch company focused on painting.

has reported the lowest first quarter profit in 16 years after the extreme and rapid weathered swings made it harder for the swedish fashion retailer to sell a buildup of unsold apartments. operating profit fell 62% in the three months through february. arizona has ordered uber to stop offering autonomous cars on the state roads indefinitely after the death of a pedestrian. the fatal incident last week involving an uber self-driving car was called an unquestionable failure to comply with self safety standards. the vehicle hit and killed a woman in tempe, arizona. deutsche bank is considering candidates to potentially replace john cryan. according to the times of london, the bank approached the head of goldman sachs' international operations. deutsche bank also considered unicredit ceo and a standard

chartered's the winters. deutsche bank declined to comment on the report. the newspaper said it goldman sachs also declined to comment. that is the bloomberg business flash. francine: thank you and now let's talk m&a, glaxosmithkline has agreed to sell the joint venture and this gives glaxo full control of the business, which owns brands, including teraflu cold medicine. shares in both companies are trading higher this morning. for more on this, let's get the senior pharmaceutical analyst. donald have lucy mac and miek bell. does this make sense for both companies strategically? -- thiswas an uaction overn auction hanging their heads this year.

the fence they have done it clears it out of the way and it is a good price, we think. 18.4 about 18.3 times to times operating profit. it brings it all in house, and they know the business and this is a much better move and if they had gone for pfizer. it basically leaves them free to start thinking about how to deal with the pipeline of drugs, which we think in the earlier stages is the broadest amongst the farmer companies. which, theysh home need for potentially boosting their pipeline. we have analysis of the pipeline there. we have a growth drivers, but the opportunity for them to call on the acquisitions. francine: what is it mean for the valuation of both companies? sam: obviously, this way, it is a bit diluted to novartis. it is positive in terms of the

bottom line for glaxo. it does not really change drastically. this is a relatively low margin business. apart from the dilution, not much really from that perspective. this is a strategic move more than anything. francine: lucy, do you like the deal? and i agree. it could have more of an impact juste valuation of glaxo, because they are still recovering from a bit of a wobble they had back in october when the ceo suggested less commitment to the dividend. that was -- the shareholders are quite income focused. that cost a little bit of a concern, thinking there might be more m&a. they have been coming back from that. then there was the concern about pfizer having turned that down and gone for this. 2.7 -- igot a debt of

believe, that means there is m&a andpe fo therefore, more cover for the dividend and less risk, it is a smaller, less risky field. francine: does this impact the sector as a whole, sam? sam: at some point, glaxo will want to think about what they will do with the business. the future of consumer health is brent play versus private label play. it is the lower rate versus pharma, if you get the pharma this is right. it is good for the biotech sector, what amount of the $13 million will they use for boosting the dividend and the buyback.

i am pretty sure they will do something in terms of buying an asset that brings in and derisk s some of the news flow they have had this year. francine: thank you for joining us today. to lucy macdonald, chief executive officer for global equities at allianz, and mike bell, global strategist at jpmorgan. bloomberg surveillance continues with the next hour, with tom keene out of new york. we talk brexit and the u.k. consumer. growth.talk about u.s. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. francine: buying opportunities. stocks fight back as trade

tensions ease. retaliation against russia. theresa may hails the global response against moscow over the poisoning of a former spy in britain. deutsche bank looking for a replacement. who wants the job? good morning. this is bloomberg "surveillance." francine lacqua. tom keene in new york. we'll look at gio politics and the crossover with the markets. e have a financial stablingt stability report. om: we get to citigroup, catherine mann joins us as she takes over the reigns at citigroup economics. francine: i'm looking forward to that. first let's get straight to

first word news. taylor: the u.s. and its allies are expelling more than 100 russian diplomats in response to the poisoning of a spy in the u.k.. theresa may has hailed the coordinated global response. >> together we have sent a message that we will not tolerate russia's attempts to undermine our values. ropeans will react kim jong north korea's un made a trip to china, his first trip outside the country since he took power in 2011. the train believed to be carrying the delegation was seen

o be losing beijing today. could trumps efforts get kim to give up his nuclear weapons. the i.p.o. remains on track despite skepticism. the c.e.o. told bloomberg there is so much that needs to be done but the plan is moving ahead. >> we should be as we always say -- as a company in the second half of 2018. so we are doing a lot of work -- the company for listing at the same time our committees from the government look at what we are doing to make sure the company is -- >> global news 24 hours a day powered by 2700 journalists and analysts in more than 120

countries. this is bloomberg. tom: thanks so much. equities, bonds currencies up 1,200. futures up 16. dow futures up 131. that's a major story now. flat tongue the bottom of the recent range in flattening. three big figures as well. the bigs coming in from the 22-24 level down to the 20-year average with the 20 handle. and some oddities here. i really point out euro-yen, strong euro against a weaker yen. it is a nuance. francine: it is a newance that the pros like to look at. i like it. we have a little bit of data out of the euro area for the month of march.

falling to 112.6. a touch below estimates. european stocks rallying. a lot of investors are trying to recalibrate the chances of an all-out global trade war. dollar higher. treasures edging higher and a pound up just a touch, tom. tom: we're going to show you two charts. this chart matters. this is a long-term deutsche bank chart. i'm going to go through today and put littleles of the different coast from mr. ackerman to mr. crineto give you a management angle. that is a challenging chart for the many executives over the years at deutsche bank. francine, what matters to you this morning? francine: this is a chart that matters to me.

a very simple chart but a powerful chart looking at global equities. you look at global equities that have fallen below their 200-day moving average for the first time in 15 months. that could be the sign that a market breadth is weakening. when you look at questions or not, this is a good chart to have in the back pocket. we'll push it out for social media. those of you listening to us on london digital radio. good morning to you. futures pointing to more gains fter monday's stellar rebound. escalation of trade tensions are beginning to ease. we're joined by jeff and marcus. how did i do?

a good summary. first of all, do you worry about trade wars or has the panic gone away? >> we are going to be worrying about trade wars for some time actually. this has been the opening salvo. account take into these are reactions and on the other hand maybe markets have overreacted a bit and the worst case scenario, some ration nalt is coming back. francine: ration at in the markets? i think it is -- that the markets took such fright in the worst bluffer in the world and he has been allowed to get away with it. the reaction was 50 times more in equity devaluation. the markets completely got this wrong and therefore the rally hould be reasserting but it is

at the same time as facebook and netflix, the whole tech market was turning. this is an easy selloff and in that sense i think we bounced back reasonably well. if this is just a bullying tactic, it has worked very, very well, the temptation it might come back again. i think the big story is what he does with europe later in the year. i think the trump administration is focused on china which is -- bly the most egregious of trade. the chinese response has been very proportional and that's a very healthy sign to see. i think there is more to come with europe. tom: a lot on trade through the hours of "surveillance" led by catherine mann in the next hour.

let us look at the new volatility. bring up the chart. we have seen this many times. this morning i zoomed in on the dow jones industrial average, in the peak of january. right to the 200-day moving average. jeff, can you correlate this over to other markets or is the stock market discreet in 2018? >> i don't think the stock market is discreet at all. bear in mind the initial trigger, normalizeation. f we are in a policy normalizeation. liquidity withdrawal. libor. things that the fx market cannot afford to ignore. tom: i think this is painful, marcus. jeff, we have strict orders not to mention libor as we edge back to 2008.

let's rip up the script. marcus, thr there is all sorts of statements that libor doesn't matter now. do you buy it or should i be concerned about the elevation and short-term rates? >> i think you should be concerned about elevation, particularly the two-year treasury. that's something i have my eye on the most. there is a shakeup going on in the re-- there is a whole sort of pressure coming from a fed which is hiking rates at a more consistent manner. i'm not in itself worried about the money markets and i think justibor o.i.s. market, is a sign of steepening of that part of the curve. the rest is flat. it is peaking around this two-year point. that is the longest risk that a lot of money market desks can

take. they keep selling a slight worry. it is still the highest it has been for many, many years. we want to see bond markets calming down. i'll be focusing on the two-year rate not going to 2.35 again. that will pressure the rest of the curve to the 3% level in maybe 10 years. that will be a much more serious situation. francine: what would be a catalyst for a turnaround in the market? >> we have to think which direction the market is going to turn around. you are actually -- in the growth this if you look at the relative expectations or the macro data, still surprising to the upside. markets are overpositioned. they have had a good run. right now we're still biased towards the upside but it has to

be based on fundamentals and growth. tom: we will continue. i want to show you this chart. this is the libor o.i.s. chart. talk about a flash back. the legendary jim grant, really focusing in on the secured loans market and they don't see the sweat right now. what are we doing through "surveillance" today? we will speak on our twin deficits. we are thrilled to bring you together for the first time. bill and catherine of citigroup. look for them across the entire 6:00 hour. stick with us from london and new york. this is bloomberg. ♪

>> this is bloomberg "surveillance." novaratis plans to sell a stake in its u.k. rival g.s.k. it will enable them to focus on the goment and growth of its core businesses. glaxo withdrew from the bidding process last week. the u.s. buyout firm partnered with the wealth fund to bid for the business. he $10 billion deal focused on paint and codeine. it will be distributed to shareholders. and volkswagen c.f.o. said the electric wave won't be as rofitable as combuston models.

they said their demand could accelerate by 2020. >> we are going to spend $34 billion on electification. we're serious about it. we think it is what the company also increasingly look for but also the combuston engine portfolio. because for the foreseeable future it will make up the majority of the market even though a growing number of customers will consider electric cars. tom, francine? francine: deutsche bank is considering replacing the c.e.o. amid tensions between him and he surprisery board president.

thank you so much for joining us. now there have been concerns about deutsche bank. deutsche bank management and also profit warning. the trading arm last thursday. how much do we believe this report? we first of all they didn't name sources. is john close to being replaceded? >> i don't think this should come as a surprise. we have seen murmurrings last year of dissatisfaction over john cryan. the rest of the european banks are flattish over over the last year or so. clearly there is dissatisfaction. i think there are legitimate questions to be asked about strategic u turns shortly after he came in. he decided to separate the corporate markets and the corporate bank and then put them back together at the worst time of the year.

also his communications style, he comes across as being quite dour. there are some questions about whether that is good for morrall. -- morale. francine: if they are too loud, they are too loud. if they are too down beat, they are not boosting morale. is there a person the shareholderings might be ok with? >> it is clear think latter. how do we get there? that is a very fair question. we shouldn't underestimate the size of the restructuring at deutsche bank. it is clear there will be no quick fix. remember when john cryan came in, he was widely welcomed and acknowledged as respected in the industry. it is not clear or certain that a new c.e.o. will automatically x all of deutsche bank's tom: bring up a chart. i had forgotten how john cryan

had only been around long enough for two cups of coffee. mr. cryan shows up in july of 2015. to be clear here, this was a grievously troubled bank when he walked in the door, right? >> absolutely. there were question marks over this legal risk overhanging the bank. they settled that with the department of justice in the u.s. there are also being question marks over the capital position. they have come to be well capitalized. a ratio of 14%, among the highest in the european area. it is really a question of profitability and that's where they are at this point in time. tom: marcus, play off what he said about the timeline. my idea is 18 months. can a german institution work on the new timeline of anglo american business?

>> well, it is going to have to. his point is spot on. who are they going to bring in? tom: can he go faster? >> i think that is part of the problem. i think cryan wants to go faster with the investment banking side. this is interim politics and fighting over the future of investment banks in my mind. in reality, they have to get a grip on a lot of things. the trouble is at the moment, ironically the libor o.i.s. puts the focus on deutsche bank funding, assets and a large investment banking franchise opposed to a safe deposit base. barclays is pushing ahead with their investment bank and keeping faithful to that. i think that is where the heart of it is. where does deutsche bank's future lie? he hasn't got any traction.

he has a very blunt manner and perhaps his faith doesn't quite fit at the moment but you could say that about the chairman. it might be between the two of them. who knows which one goes first? tom: we'll have to see. thank you so much. greatly appreciate it this morning. jeff, you standing silent on the bank of switzerland on these matters as well. n the mex hour, william butler and catherine mann will join us. what is going to come from tax cuts. we look for growthiness. it is beautiful in new york. everybody has a better bracket than i do. ♪

tom: tom keene in new york. futures up 17 two days in a row. dow futures up 144 points right now. on our desk in london, jeff and marcus are with us. christopher joining us now as he lways can on russia. global political research as well. christopher, when we're done throwing diplomats back on planes, when we're done with the spice, what is the step after that? more sanctions? >> i think tom it all depends on

what if anything comes out of the continuing investigation into this outrage in salisbury. seems to me the business of tit for tat expellingses reflects reaction to circumstantial evidence. if the authorities in the united kingdom and their allies around the world were already absolutely convinced that this was a russian state sponsored chemical attack, fully premet tated, this was the activity of a rogue state with complete isolation rather than diplomatic expulsions. for now, we know that the russian authorities have said they will respond in similar fashion. tit for tat expulsions. for risk assessment. the good news is that the process has gone multinational. the u.n. agency, the

organization for the prohibition of chemical weapons in the hage which has arrived in the u.k. has core permission in london to get a new blood sample from the victims and we'll see what comes of that. tom: you're the grilleds pro. who are we expelling? ton to country? is it george smiley? are these actually spice we're expelling or do they have some other task? >> in this ritual business, when it comes to political business, to expel diplomats, the host authorities try to traditionally identify those individuals who have diplomatic status in the diplomatic missions who are suspected of using that status as cover for covert intelligence activities. that has always been the case. far for me to say whether that is the criteria this time around.

francine: is this a smokinggun? if you put this in -- what happened, you actually had a trace of the people that perpetrated, here we really don't have anything. is the kind of coordinated response justified? >> i think it is the response to circumstantial evidence. it depends on whether that evsd is -- you're right. in the previous case, the man who was murdered in london, the individuals who did it were identified and they -- the russians didn't really cooperate in the investigation and actually protected those individuals. if there were in this case similar circumstances and if individuals were identified and protected by russia, i think you're looking at the next escalation. we seem to be a long way from that. there is no sign of anything here. francine: so you could argue that putin would be stung by the

fact that the u.s. has taken the side of europe but it is nothing that would hurt russia's interest. it is like diplomacy gang theory. >> i would agree with that. we're talking about geo political terrorists here. in your previous segment, up to e market drivers, it is tail risks. could this blow up? my answer isle it all come down o real, real evidence. diplomatic expulsions are ritual. not the real thing. and for the time being, the risk of that seems to be contained. ordinary models cannot tell in that secret world what may come out next. e have no basis for thinking this is about to spiral into a

vicious circle. tom: what did you learn in the putin election? i've seen any number of articles about the relationship of mr. pute within the use of russia. is there some form of generational change going on within mr. putin and his domestic supporters? >> not only with his domestic supporters and he -- though he does have a strong connection with the russian public at all ages. i think more important, tom, he is bringing forward a new generation of officials. you may say a long incumbent in his mid 60's is perhaps not the most credible person to oversee and effect such a generational change in russia, but he is doing it to a considerable extent. we saw a host of regional governors in their 40's and we're about to see them

appointed at the federal level in moscow full of younger and new faces which will be market friendly. were it not for these geo politics, russia would be a positive market story now. francine: i know you can't trade on the back of it and it is largely geo politics. i tried to ask about it yesterday and she didn't want to comment on the russian situations. sometimes tensions start with these kinds of things. geo politics changes very quickly and it must have an impact on flows of the economy and money. >> if we look at the markets, where is dollar-ruble trading? are where are gas prices? we often say tail risks, it doesn't mean they are trading against it. you can't do that. it is about keeping your portfolio diversified.

when tail risks surface there will be elements in your portfolio that defend against that. francine: does any of this affect the bond risk? >> they are quite clever of giving away 4 billion bonds before the election just before gazprom managed to do a bond deal as well. this is a genius piece of politics from the british government which is the first time you can say that under a very long while. that is helping sterling. there are some referred things. russia -- the bond yield should be lower. the bond markets have trade nicely. russia managed to cut rates recently again on a slow but continuing trend. the stock market is very cheap but it totally held back markets -- that is holding it back. when it lifts i think we'll see a strong case for russia.

something has to be done on a more serious point. they have been looking for something to pin on russia. they found it. russia's excuses have been nonexistent. we have to be aware of that. tom: we have to leave it there. thank you so much. we greatly appreciate christopher joining us from t.s. lombard this morning. right now we need to continue a briefing. here is taylor riggs. >> north korea's leader kim jong un has made a surprise visit to china in his first trip outside his country since coming to power in 2011. that's according to three people with knowledge of the matter. according to reports, the train believed to be carrying the delegation was seen leaving beijing today. the unasnounsed visit is the first in a series of diplomatic power plays in asia. trutch's battle to lower the trade deficit becomes entangled with trying to get kim to give up his nuclear weapons.

investor skepticism on when and where it will happen. in an exclusive ber view, the c.e.o. said there is so much that needs to be done but the plan is moving ahead. >> we should be as we always say toward the -- as a company, for listing in the second half of 2018. atwe are doing a lot of work the company for listing at the same time there are deprest the government that overlook what we are doing and what we are doing to make sure the companies are -- >> and in the u.s., white house attorneys are examining whether loans totaling hundreds of millions of dollars secured by jared kushner's family business may have violated laws or regulations. the deal revealed by the "new york times" included a $184 million loan and 325 million from citigroup. executives have denied discussing the loans with

kushner during meetings at the white house. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. francine: thank you so much. europe's food retailers are trying to rebuild profitability. so far this year, u.k. grocers have performed resill yeptly and helped the european food index outperform the stoxx 600. mike coupe joins us now. thank you so much for joining us. i know this is a big deal. do you think it will be an important competitive advantage in trying to fend off the likes of amazon? >> this store is a manifestation of things we have been working

on for a number of years and brings together a number of elements of our competition. a big piece of physical real estate but we also have food the akeaway pizzas and acquisition a number of years chg ago, the ability to deliver products to our commerce in four hours if they order online. it is an important part of our strategy. francine: what are you biggest concerns? you have increased your pay to a lot of your staff. does that improve labor productivity. your hourly rate went from eight pounds to nine pounds 20. aid an you do to productivity? >> a couple of shopping habits are changing rapidly. we have to compete with the discounters. on the other hand we have compete with people like amazon.

part of that is to make sure we concentrate on things where we can differentiate. one of the things we can differentiate on is our customer service. we need to make our business more efficient and we will do that but we also need to make our employees feel good about working for us and hence we have increased our rate of pay from eight pounds and our to nine pounds 20 an hour. our colleague also need to be more flexible in the way they work in our business. that is a profound change in the way we operate in the future. tom: let me focus mike on new york and one of the items i see from sainsbury. for 60 pounds, i can walk out with a nies roseechampagne. what is needed as a technology to get that bottle of champagne to me? what is going to be your the difference between that and mr. bezos?

>> we have a big differentiator. we can get any one of 20,000 items to you within four hours which is better than the service amazon currently offers. we also have a strong online grocery presence. you can click and collect and have same day delivery on your ottle of per yay, rosa champagne competing with the likes of amazon we look forward to joining together our offer. we'll do that the way we, work with our commerce. tom: all retail is about real estate. do you have too much real estate and do you have to shrink square footage? >> we have to redeploy our real estate. there is no reason we need to shut down stores or consolidate

our footprint. we think we have a -- we have roughly 2,000 stores in the u.k.. 600 supermarkets. 800 convenience shops. en and 700 scores which are trading. the way the space is used for changed. we're moving our stores into the store and using the space differently. things like takeaway pizzas, something we would not have done a few years ago. we're repurposesing the space. there are some very different ways that we're using our space in the stores. francine: tom will be delighted to see he can have takeaway pizza with his champagne. when you look at the long-term implications of having a greater percentage of your business online, does it change the way you merchandise your stores? >> yeah, our strategy is based

on the idea of being there for our customers whenever and wherever they want. there are predictions that online will increase in terms of penetration with the next grocery or nonfood in general merchandise. we need to be there for our customers. however they choose to shop with us. one of the big traders in the u.k. is around 60% of general merchandise and clothing sales are click and collect where people order online and go to a physical location like a store to pick up their products. we already have click and collect in the00 of our supermarkets and we anticipate next year we'll have the vast majority of our real estate. how do you compete with amazon? that is something amazon can't do at the moment and we think it is a powerful customer offer. francine: where do you see banks heading? is it a fully fledged challenger bank? >> we have a successful bank and

we have many millions of things, customers and it is a a way ofon and we find winning commerce and our customers are loyal to us. through our financial services offer, customers will spend most points in our shop. part of our strategy is to join ogether. tom: we have lots of listeners listening carefully. it is time for a "surveillance" correction. you can pick up a bottle of 25 er nonroseefor a mere pounds. thank you. fighting the amazon battle. i think that is absolutely critical. the idea of our listeners discerning between different

champagnes really shows where our audience's head is this morning. francine: yes, it does. it is important in the u.k.. a lot of these grocery stores have been trying to integrate cafes so that people go to the stores but also have the speeverpbes having your champagne. tom: let us continue. geoffrey of u.b.s. is still with s. boob day break, don't leave home without it. you're in your car. you're stuck. karen moscow will lead the way. this is bloomberg. ♪

francine: good morning, everyone. this is bloomberg "surveillance." tom and francine from london and new york. in an exclusive interview the chief executive told bloomberg's jonathan ferro there is still much that need to be done but the plan is moving ahead. >> i think there is a lot of -- a lot of the questions and the media coverage and what you see is about the i.p.o. and when it will happen. -- e is a lot of demand for in terms of performance and the ta we show when we go -- ultimately that our performance and how we are the highest

producer, the most efficient, the most reliant. this is a great company that the data hopefully will show. >> when i speak to peep, they are not talking about when this will happen. they are not talking about if this will happen but perhaps the whole i.p.o. goes into the deep freeze and doesn't happen at all. >> well, there is a lot of work that is still ongoing. the company, the government did all the work to make it a joint stock company effective in january. that is an indication that the i.p.o. is ongoing. asshould be as we always say a company -- the second half of 2018. so we are doing a lot of work for listing at the same time the committees from the government, looking at what we are doing and what we are doing to make sure the company is --

>> do you have a set of accounts to u.k. and u.s. standards already? for the whole company itself? >> no. the only requirement for listing auditing -- we will be -- >> so it is not your decision ultimately when this will happen? >> no. >> i'm trying to understand when this will happen. >> the timing of the government will decide on that. don't forget. his is a very -- complexities. something that requires time. francine: that was the chief executive speaking with jonathan ferro. still with us, geoffrey of u.b.s. wealth. geoff, does this sound the a an site? everything else pales in

comparison. >> absolutely. we have to take a step back and know where it is heading. it has been a surprising lift, commodity exposed some names this year and the sector unit has -- has one of the more favored ones up ahead looking forward. two things are in play. we can't plan for its. investment into renewables and what is the no-growth model here? there are plans in place to rebalance the economies themselves. let's not allow the sector and to detract from the whole process. oil price is being supported by the economy. francine: is there demand for oil out there ? >> well, people mentioned many times in the past, famous last words. francine: every decade, right? >> absolutely. it is down to growth. if there is going to be growth,

energy demand will stay in place. at this point, not ready to call time on that yet. tom: the chart i have not looked at this a while. bring up the chart here if you would. brent crude with a 200-day moving average. geoffrey, to be honest here, there is a certain lift do i. i'm not saying there is a path to $100 a barrel. if they are going to sell shares, they are selling into an almost bull market. >> at this point, i would think erall with respect to the -- where we are, we are seeing the tail wind in the overall performance. it should benefit us. but it just goes back to growth. bear in mind, the demand for energy comes from emerging markets. where have been the biggest upsides has been happening in emerging markets. the area we like in terms of bond, currency and equities.

all companies thinking about benefiting from this wave of growth, now the timing is as good as any. tom: we do this back and forth. from london to new york. geoffrey, very quickly here, is the dollar still linked to oil or are they separated in all the washington confusion? >> not as much as in the past. put it this way. if oil stays with it is, the reserves of the energy producing countries are going to be plentiful again. when they start to diversify, the dollar will not like that. francine: thank you. geoffrey of u.b.s. is staying with us. appearing into break, amid the facebook scandal. it just started. we'll be listening in. this is bloomberg. ♪

>> this is bloomberg "surveillance." i'm taylor riggs. let's get to bloomberg business

flash. novaratis plans to sell a stake in its venture in a $13 billion deal nabling them to focus on growth of its core businesses. glaxo withdrew from the bidding process. buyout group -- the u.s. firm bid for the business. this 10 billion euro deal will leave the company focused on paint and codeine. it will be distributed to shareholders. deutsche bank is reportedly considering candidates to replace c.e.o. john create aan. the bank proacht the head of goldman sachs but he spurned the overture. they considered unicredit's c.e.o. and standards charter's

bill winters. deutsche bank refused to comments on the report. goldman sachs declined to comment. tom: thanks so much. geoffrey with u.b.s. is here. dollar-yen may be one of the approximaties for a weak dollar is a strong yen. with a -- this is strong yen and i'm sorry, geoff. it is a beyond elegant chart. how does that trend break? >> well, the trend needs to break. we get the old -- story again. it probably is not going to happen any time soon. it is going to be the next level that people are going to go for. one is japan's strength. you can afford to go buy the fund hedged. that is a powerful story that will continue to happen over the medium to long-term.

if you don't like the direction global trade is going, and you're risk averse, dollar-yen is headed lower as well. francine: we want to bring in steven engel, our north asia correspondent for us in tokyo. what have you learned today? >> we have learned a lot. i apologize. i can't hear you too well. the megaphones are going off here. we're just outside the back door of the parliament building where a lot of nonsupporters, opponents of abe have lined up along the entire boulevard here protesting into the evening calling for shinzo abe to resign. a few are saying worst prime minister ever. also game over and many of these here saying shinzo abe resign.

today the l.d.p. put forward in the parliament building, i guess youksd call him the sacrificial lamb oversaw this transaction that is this question. it involves shinzo abe's wife and the former finance minister. tom: steven, thank you so much from soakio. geoffrey of u.b.s. thank you so much in london. coming up, william butler and catherine maun of citigroup. will talk trade and the deficit. stay with us. this is bloomberg. ♪ ♪

tom: markets are still range bound, but at the very edge of the range, the volatility of

march continues, down near 1200 points and now up 700 points. are the fiscal deficits sustainable in this hour? in this hour, catherine mann and willem buiter. --n cryan perhaps is want has worn out his welcome. this is "bloomberg surveillance" live from our world headquarters in new york. i am tom keene. in london back from berlin, francine lacqua. back in london, everybody is looking at the wall and roy to bank. this is in "the times" of london. has there been any further understanding of what the management committee is doing? francine: first of all, this doesn't really come as a surprise because we have also been asking ourselves and contact, the future of john cryan -- i think what is surprising is the times went through names they supposedly

asked and there were a couple of refusals and it is for the most part, unnamed. i heard our -- i know our reporters are hard at work. your morningw with grouping, first word news in new york, here is taylor riggs. taylor: the u.s. and its allies are expelling more than 100 russian it laments and response to the nerve agent attack on the former spy in the u.k.. british prime minister theresa may has hailed the coordinated global response. >> together, we send a message we will not tolerate russia's continued attempts to flout international law and undermine our value. european nations well strengthen resilience to chemical, biological, radiological and nuclear risk and bolstering capability to deal with hybrid threats. leader,north korea's

kim jong-un, made a surprise visit to china in what would be his first trip outside the country since coming to power in 2011. according to reports the train believed to be carrying the delegation was seen leaving beijing today. the visit is the latest in the series of diplomatic power plays battle as donald trump's to lower the trade deficit becomes embattled with his 's to giveget kim up nuclear weapons. -- investor skepticism and verification on when and where it will happen. thereo told the bloomberg is still much that needs to be done, but the plan is moving ahead. >> we should be as we always say, as a company for listing in the second half of 2018, so we -- ating a lot of work the same time our committees from the government overlook -- makeare doing and

sure the company is ready for listing. taylor: global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: equities, bonds, currencies, commodities, let's get right to it. a up 19 and the euro, 124 handle. vix, 22.24. 20 .14.down to the dow above 21,000 on the monday close. francine: european stocks are rallying. you can see they are tracking gains across asia and investors calibrating the chances of an all-out global trade war. looking at the dollar strengthening and the pound and euro retreated. tom: this chart matters. we've got to go to john cryan and the battles of deutsche bank. i will go back today and put the .anagement 10 years in here

certainly with this new leg down, it's a challenging chart to say the least. francine: this is also another chart that matters. this is a majority of global equities and by looking at this chart, they have fallen below the 200 day moving averages for the first time in 15 months. does that mean market breadth is weakening? with that is a question -- that is a question we are asking ourselves. tom: she has been somewhat definitive in academics on trade. is the trade deficit sustainable? -- it was a huge success 20 years ago, catherine mann joins us this morning as the new citi global chief economist. she has allowed willem bauder to attend -- willem buiter to attend as well. we are thrilled with what is going on in trade. we will talk about that later as well. in the transfer of the writing

that you people do for michael center to me, the tendency is 3.4% global gdp. let me begin with a guy who wrote the last note, is that a global recession? willem: by no means. this is pretty robust global growth. the center projection is definitely not for recession, it's the risk around it, slightly more on the downside then they were a few months ago. tom: what is your geographic tendency to focus on? you are going to generate a new global outlook, is there a certain geography dr. mann is looking at? catherine: i am looking at deploying a more micro data analysis approach. tom: you are bringing paris to new york? catherine: i did bring some croissants and it is difficult to make that move.

approachesata understand -- in order to get a picture of what is happening at the macro level and citi has a great wealth of macro data and i think we will be able to get a picture between how the relationships in the economies matter. francine: when you look at the relationship between the various economies of the world, what surprises you the most? are we right in being confident about the world outlook? catherine: i think there are some issues on the world outlook. we have equity markets that are really out of line with the overall economic underpinning and there are some weak spots, the weak dollar, how it seems to be unrelated to interest rate differentials, it's keeping the emerging markets afloat right now. we know that if that turns, there could be a big change in what is happening in the emerging markets.

that is a risk area. there are also concerns on sentiment that come out of -- came out of europe today whether or not investors will take concerns about that into the markets -- we will have to be looking at that -- we will have to be looking at that. francine: where would you look to see if there are pressure points on the economy or things we are misreading? points are pressure the apparent weakening of activity and confidence in europe these last few months. continue and of course, the risk of trade wars, the market slipped from one extreme to the other. where the underlying risks is we -- our central view have trade war rhetoric -- just localized trade skirmishes. europeanability of a

perspective --francine's interview yesterday with madame lagarde still shows a europe that is collegially a mess. they are trying to theoretically find stability. you are in the crucible of this paris. when do we get to a normal monetary fiscal structure for europe? catherine: the notion that there will be a common fiscal policy even though it is a goal, i think we cannot look at that as being something that will happen in the next two years. monetary normalization -- a lot of pressure for that to move forward much more rapidly than draghi thinks is appropriate. he has communicated that clearly. we would not want to be in a situation where europe would tighten too soon. they did that before and it caused a double-dip. tom: is the fed at risk of being

the japan of 15 years ago where they tighten too soon? ,he certitude of 4 rate rises is that a tangible risk now? willem: this year, they are only anticipating three. it is next year they see four. they may have to backtrack on the four for next year should the economy begin to weaken toward the end of next year. i don't think there is anything radical or dramatic about increases. it leaves us at extraordinary low levels of rates by historical standards. francine: what would be the cause of the economy weakening? is it currency related or something more structural? willem: i think it is at first, unnecessary this procyclical fiscal stimulus. international risk obviously is trade war's.

tom: this is good to have catherine mann as we talk about trade wars and co-dependencies worldwide. we will continue with dr. mann and dr. buiter from citigroup. we continue a wonderful conversation. glenn hubbard will join us and we will go in search of the certitude of growth coming up. glenn hubbard of columbia university in the 9:00 hour. stay with us. this is bloomberg. ♪

♪ this is "bloomberg surveillance." i am taylor raikes. novartis -- i am taylor riggs.

novartis will sell to gf k in a $13 billion deal. the sale will enable them to focus the development and growth of the core businesses. -- withdrew from the bidding process last week. stopna has ordered uber to operating autonomous cars on the state roads indefinitely after the death of a restaurant a week ago. in a letter to the ceo, the governor called last week's fatal incident involving an over self driving car "an unquestionable failure to comply with public safety standards." the company had already voluntarily halted testing after the vehicle hit and killed a women -- woman in tempe, arizona. facebook's ceo says he will not appear before a u.k. .arliamentary committee the head of the committee that is investigating the attack of

social media in recent elections invited mark zuckerberg to answer for a "catastrophic failure of process." berg's deputies will make themselves available to answer questions in person. tom: let's go to washington, kevin cirilli with us for our morning briefing. i am going to do something different and give you an open question because i do not know where to go from here. the president has to write the ship and gett the back on track. what are you looking for this week to show a president getting back to being presidential? kevin: i think it is what does the president do in terms of policy. i think this is a president that wanted to have a second legislative win before the midterms. speak paul ryan is saying he would prefer a piecemeal

approach. when you look at what is coming out of folks at the treasury department, they view the spring -- we are in the spring now, as a time to get a second whack at tax reform. i just don't see that being able to come to fruition or at least we have not seen a plan yet. catherine go to writing in the washington post on this idea of what mr. mnuchin will do. maybe he can provide leadership to the administration. what if a decade ago we had the political and economic leadership kevin cirilli has in place today. more than one year into the administration, secretary mnuchin still doesn't understand how the federal budget process works and good mr. kudlow has likewise offered his him -- his absurd forecast on growth. advising theup president. what will be the difference between mr. cohn and mr. kudlow or the new mr. mnuchin? how does this shift?

kevin: i spoke with folks inside the beltway and mr. mnuchin has been one of the stabilizing forces and the treasury department has done the same. they were instrumental getting tax reform across the finish line. we have got to talk about the russians and the role the treasury department played in that. when you have 60 russian it laments or spies being expelled -- diplomats or spies being expelled yesterday -- proximity to a u.s. naval base and a boeing plant, that is the most aggressive stance the administration has taken in regards to russia since the president has been in office. the continuation of former president obama shutting down a consulate in new york. in broader context, all around the world, european allies were taking similar actions

yesterday. this sends a signal to vladimir putin that this behavior is unacceptable. francine: did the president do it reluctantly? kevin: he did it in consultation with nato allies. we have to remember that president trump spoke via telephone last week with vladimir putin, but they did not talk about this, the president congratulating mr. putin on his reelection and that drew christmas -- criticism. ultimately, this decision was made according to a white house administration official with the consultation with nato allies. francine: all right, bloomberg's kevin cirilli joining us from washington. thank you. willem buiter and catherine mann of citigroup stay with us. we have more on bloomberg markets. chief executive at 7:00 p.m. -- this is bloomberg. ♪

♪ ."m: "bloomberg surveillance very quickly here, i guess it is now official, south china morning post with all of their voicing of the chinese government with the leadership of north korea leaving beijing after a surprise visit, that headline coming out right now. we are enthused to have with us willem buiter and catherine mann of citigroup. dr. mann will take over the reins as chief global economist for citigroup.

mr. buiter will be a senior adviser. how did this happen? were you two on speaking terms before this? catherine: go back years. absolutely. the what was it like with two of you and the team piecing this altogether for mr. cor bat? catherine: it is a handoff, but we are complementary in terms of the work we do. it's a double-barreled benefit. the you both get to attend imf special meeting. let's talk about trade right now. bring up the chart, catherine mann basically invented this chart, maybe with a good morning to stephen roach. the twin deficits, you wrote a book 20 years ago and i remember talking to larry kudlow. you have a chapter in there on the twin deficits. should we fear our new twin

deficits? catherine: yes, we should. your chart with the red dot, that was the first article i wrote about the twin deficits actually and i continued writing about it because it is good every 10 years and it will be good again. tom: what is our codependency now? you formed this china-u.s. codependency. how does this folding to the president's naivete on deficit dynamics? catherine: we continue to have codependency, a very important trade relationship, very important for supply chains and u.s. consumers and business. you cannot disentangle it just by fiat. you cannot say cut it and half and everything will be ok. that is the naivete. aboutne: are you worried the u.s. economy overheating or are we actually worried about something going wrong in the u.s. economy? catherine: the first episode of the twin deficit was -- that was particularly dramatic was volcker and reagan and we know

how that happened and we know how that ended. i would not like to see a repeat of that because it is a different time. i don't think the fed would be as tight, but the fiscal policy is even stronger than it was back then. it sets up tension between physical and monetary. we could see it coming in other countries as well and that represents the situation for the global economy and real investment that is not satisfactory, not going to get us to where we need to be with regard to improvement and potential outlook -- outlook going forward. tom: the ambiguity of dollar dynamics, deficits yield higher, dollar stronger, and you will tell me know. explain -- tell me no. explain how you go on weak dollar strong dollar on these new deficits? willem: i cannot make sense of it except by assuming that the safe haven demand for the dollar has not vanished either because

the dollar is no longer viewed as a safe haven currency or because there simply is no safe haven motive in the global economy at the moment. all of their -- all other dollarntals all say stronger and stronger. it is very hard to make sense of for some market psychology argument. francine: what would the market psychology be? is it that they are worried about trade wars and, therefore, dollar gets sold on the back of it? -- dollar weakness started long before people were really concerned about trade wars. , in the last two weeks, it has contributed to that. the stock market tanked and the dollar weakened in response to bad news about global trade

prospects, especially the extended conflict with china. i don't think that is the main reason. tom: let us come back. catherine mann with us and willem buiter of citigroup. i want to look at the american economy and maybe get out passed the excitement of stimulus. we will do that with professor as well.d dr. mann on basketball, not the brackets, adam silva in the 12:00 hour on the national basketball association. markets lift this morning after the big day yesterday. futures up 15. this is bloomberg and that is new york. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. francine: good morning, everyone. this is "bloomberg surveillance ." we're -- we what were looking at. we are following the ex employee

of cambridge analytica testifying at the moment in westminster.in one of the things they were doing was using profiling with psychologists at cambridge and using them to see how people vote. for anyone who is a bloomberg customer and we sincerely hope you are, just type live go and you can follow that testimony live and in full. that's get straight to bloomberg first word news. here is taylor riggs. taylor: the u.s. and its allies are expelling more than 100 russian diplomats in response to a nerve agent attack on a spy in the u.k. british prime minister theresa may has hailed the coordinated global response. >> together we have sent a message that we will not tolerate russia's continued internationalout

law and undermine our values. european nations will strengthen their resilience to chemical, biological, radiological, and nuclear risk and bolstering the case to deal with hybrid threat. taylor: kim jong-un made a surprise visit to china in what would be his first trip outside the country since coming to power in 2011 according to three people with knowledge of the matter. the train believed to be carrying the delegate -- delegation was seen leaving beijing today. trump ---- battle saudi aramco says the ipo remains on track despite growing investor skepticism and government -- on when and where it will happen. thereo told bloomberg still much that needs to be done, but the plan is moving ahead. we should be, as we always

said, ready as a company for listing in the second half of 2018, so we are doing a lot of work to get the company ready for listing at the same time our committees from the government that overlook what we are doing and what we are doing to make sure the company is ready for listing. taylor: global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. thank you so much. deutsche bank is considering candidates to replace john cryan amid heightened tensions between him and the supervisory board chairman according to the london times. joining us from london is bloomberg's em ea finance manager. thank you so much for coming in. we haven't heard from deutsche bank on this. have they denied the story or are they not saying anything? noright now it is straight

comment. we have heard there is concern among investments, but the turnaround isn't delivering what it was supposed to do, particularly on the top line -- the client spoke about seeing a modest return to last year, still hasn't come through. the remarks last year from the cfo and even the first quarter people were expecting -- the company perhaps had given a sense it would be better from a trading standpoint may not be that strong for specific headwinds they are facing now. that tension is very much at the forefront. francine: last week the chief financial officer was saying -- was it a profit warning on basically trading and to shareholders -- do shareholders want john cryan gone or do they want a better share price? elisa: they are looking for a better share price. it has gone back to the 2016 levels and if you think that after the bank has tackled a lot of restructuring already come it

raised capital, the asset management business -- yet that valuation hasn't come through. thatare facing challenges they can't really do much about which first and foremost, very low interest rates and that affects the consumer banking business and the investment bank. tom: is mr. cryan lame-duck? and within that, is the idea of affecting tactics and strategy after the times of london article, how can he do his job? have been reporting some of the pressure from shareholders for months. back in october we ran a story ourselves saying investors felt the clock ticking on him and yet he is still there and understanding at the moment we do not have any strong visibility there is anything a foot. priceithin that is the action. bring up the chart if you would. this is the 10 day intraday

chart on deutsche bank. i am going to throw this on twitter for radio london. what are the ramifications that values if that stock below 11 euros per share? elisa: i do not think there is a level that creates specific problems. we need to be looking at the spread to get a sense for how competitive they could be. in 2016, it was difficult for them to be competitive in certain parts of the banking space because of the spreads widening. i don't think the share price at a certain level has done anything, but it shows investors think they are doing what they are supposed to be doing. francine: overall, do we know who would accept the job if they are looking for someone? is the problem that they need to find the right person that fits the bill of what they want in the criteria or is it that

deutsche bank has seen -- is seen as such a difficult bank to restructure that people will be reluctant to take the job? elisa: it seems that the pot -- company of the two. there is not a particularly large pool and it is difficult for someone to take that position on given that there is that -- one of the biggest drags on the business is the consumer bank in germany, which is extremely uber. -- extremely over banked. that is all outside of deutsche bank's control. tom: thank you so much. we are going to come back and talk to willem buiter and catherine mann of citigroup on all this fiscal stimulus. on the mystery of investment and the mystery of the new wage

growth and productivity of the american economy. your morning briefing, bloomberg daybreak on bloomberg radio, bob moon and karen moskow, look for that. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. 36.5%is plans to sell stake in the consumer health jfk.joint ventured to it will allow them to focus on the growth of core businesses.

ceo has said he will not appear before the u.k. parliamentary committee to give evidence in the wake of allegations that millions of users's information was misused. the committee is impacting -- investigating the impact of social media on elections. the social networks that one of zuckerberg's deputies will make themselves available to give evidence in person. uber to stoprdered operating autonomous cars on the state's roads and definitely after the death of a pedestrian a week ago. in a letter to the ceo, the governor called last week's fatal incident involving an over self driving -- uber self driving car unquestionable failure to comply with safety standards." -- hitpany had already and killed a woman in tempe,

arizona. tom: thank you so much. we are thrilled to bring you today in a first public appearance with citigroup, willem buiter. providing leadership to citigroup economics for years. and catherine mann of the oecd with a wonderful celebration of her announcing she will join them as chief global economist. we were talking to you about trade and now we need to talk about the fiscal deficit. if you bring up the chart, it is there is no question about that, the green circle back to reagan, deficit 40% gdp , we areprofessor buiter nowhere near that. how can the president, secretary mnuchin, get away with tax cuts and on top of that, a guns and butter deficit to gdp? by shearither

ignorance or believe that there will be a massive supply down, tricklele up that will cause it to pay for itself. tom: glenn hubbard will join us andadio later today certainly he has been optimistic about american growth and yet, even he is hesitant about sustained 3% gdp. they cannot even get dean hubbard on board, can they? willem: it is clearly hard to get any kind of meaningful capital expenditure response to a tax cut that applies to less than half the corporate in the second, occurs in a situation where it is total the deductibility. tom: what is your reading of history on this? it is almost anti-european.

anti-austerityst in europe. am i right on that? catherine: it's a little bit of anti-austerity everywhere. cyclicalssive pro fiscal stimulus not just in the united states, but on balance everywhere else as well. it makes the adults in the world be the central bankers again, that is the problem. they are going to have to tighten more than they are used to do to offset fiscal stimulus and that puts them in a difficult situation. francine: is that a real danger or will central banks do it in a way that will not be felt by the markets? catherine: at least for the united states, i think one of is things that central bank trying to do is raise interest rates at a moderate pace to take fluff out of the markets. notto do that while damaging the economy is an artful maneuver. it is the case that private

investment is more robust right now. this is a very good thing. the question is how long it will last and how long private investment will continue to support economic activity and if the interest rate have to go a little bit too high to offset fiscal deficits, that will be an unfortunate check on what the private investment strategy might be undertaken in 2020, for example. see ane: do you situation, what is the likelihood of a recession in the u.s. and do you foresee a situation where the fed is hiking, hiking, hiking, but the end of 2019 they have to cut interest rates? catherine: i think the threat of recession is very low based on economic fundamentals. geopolitical is something very hard to judge. from an economic standpoint, i do not see recession on the horizon at all worried from the standpoint of improving overall economic activity for a broad range of the population, we need to have more support of

supply-side growth in the economy and this combination of fiscal spending now and potentially higher interest rates is not the recipe to get there. francine: willem, given that, how can you pinpoint at what point in the cycle we are? it feels like an end cycle, but are we there? willem: late cycle in the u.s.. i agree with catherine that there is very little chance of a serious -- en as by the time we get to 2020, i think there's a pretty good chance a combination of the fed's response to the fiscal stimulus and the market's response to galloping deficit could bring in end to the expansion phase. francine: where do you see interest rates at that point? is it too difficult to say? are they at 3%, 4%, higher?

willem: where do i see interest rates in 2020, is that the question? francine: yeah. willem: even if you take the fed's own rather temperate forecast, 50 basis points between now and then, that does not get us quite to 4% yet although we are closer to it. it is certainly possible that we will be in the high 3% by the end of 2019. tom: let's go back to first principles. what was it like walking in the classroom and there was robert solow ready to quiz you. how intimidating was that? catherine: these are great people and great teachers and if you go into a classroom and are in awe, they will not be a good teacher for you. right back toet robert solow, why am i not surprised?

we are talking about capital dynamics, labor dynamics and the total factor productivity and the original work in 1957. everybody believes catherine mann, those models are dead because of this new technology overlay that we have. what is citigroup economics -- does citigroup economics do with the technology overlay across all of our lives today? catherine: the model is not wrong, but it has to be reassessed in the light of new data and the new way technology in iraq's with labor, capital, and innovation. we stay with the same framework, but put new information. is the new information you've gleaned that causes the primal scream of viewers and listeners that there is no wage growth. that is what i hear in all the mail. is technology my enemy? catherine: no. there are some firms embodying technology very effectively, the amazons and googles, but also the leading health care system, leading hotel groups and tourism

groups and business groups. that is the top line. 95% of firms in each sector do not embody a lot of technology. they are not making profit and they cannot pay you wages. what is the kudlow message to get this guy on a sound economic track? catherine: you've got to allow the technology through globalization to take place, but, you have to compare that with much more effective domestic policy and that has been the missing piece of the puzzle for 20, 30 years at this point -- tom: that is a bit of a long time, even for mann and buiter. you are at citigroup and you are watching this and you have got mann -- you can watch tv go and watch me blather on.

right yet, go over to the column and click on the block and you can steal my twin deficit chart to absolutely at-batcatherine mann 11:00 a.m. meeting. tv , do not leave home without it. ♪

♪ good morning. "bloomberg surveillance." willem buiter with us of citigroup and their chief global economist, catherine mann. it's now time for a victory lap. there are points in each and every year where the show stops and somebody says something where you go, oh, really. catherine mann said that i will say a year and a half maybe two years ago where she said forget about all of this merger hoopla, this is not good for us. on transactions and combinations, bring up the chart of our great century long bull market. i use the dow instead of s&p 500, up, up we go. there is the chart of the youncial system and yet say, wait a minute, we are merging too much. discuss. catherine: yes, that chart looks

pretty good and from the standpoint of those who own those equities, that is a good thing. to ask the mergers -- if the mergers that are taking place is undermining the incentive to invest and innovate. it is also the case that we worry about firms when they merge as creating less to bidnities for earners on higher wages. , we do not bring up the mmr do not have time. paul kruger's essay is on this strange thing as i put on a rubber plantation owner in singapore who controls the wage of the poor people of malaysia as they make rubber. he is saying we have men have tendencies because of these mergers. do you agree? catherine: the reduction in

competition has been associated with wage compression, that's another way of saying non-wage growth. it used to be the case that in the united states, if you wanted a higher wage, you would go to another company. if there is no other company to go to in the same sector, you have got a problem. catherine, that will not change, so you need to change models to take that into account. catherine: we are changing our models to take that into account. one of the things we can see in other countries where there is social bit of union or partner power, for example, germany, sweden, and japan, the situation is a little bit different. workers are scarred by potentially losing their jobs and have not asked for as much of a weight increase. there -- wage increase. there are a number of different channels where changing repetitive pressure can be

affected and be reflected in lower wage growth. it's not changing models, but it is changing relationships between the players in the models and that is exactly what we do when we reevaluate the data and how it goes through this framework of understanding the relationships between firms and workers. that is what we are doing all the time in our research process. francine: i wanted to also ask about european banks because we spoke about 18 months ago about consolidation. do you see progress or further need for banks to merge? catherine: i think in general it is well understood in europe that there is over banking -- the banking union and the process toward that was in an effort to take a measured approach -- i think they are still looking for and figuring out who will be the national champion in each country and those will merge. the process is unfortunately

moving more slowly when it should be moving more quickly. tom: i have another hour of questions, can you call mr. corbat and said, i am sorry, we are tied up at bloomberg. oh, they are on radio. thank you for letting me know that. we go on to even more interesting american growth dynamics in a conversation with glenn hubbard, dean of the columbia university business school. we will continue this wonderful dialogue on "surveillance" this morning. we thank willem buiter and catherine mann for their attendance. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ david: all will be happy.

president trump tweets that the trade talks are going fine. markets reverse on the news. the two big pharma companies set very different courses for the future. the london times reports that the deutsche bank ceo days may be numbered. the bank is still struggling to deliver on a turnaround. welcome to "bloomberg daybreak." i am david westin care with julia chatterley. alix steel is off today. welcome. moment todon't have a lose. we have a jampacked show. what trade war? the stoxx 600 with its first gain in six sessions.